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Action Insight: Special Reports

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BOJ Failed To Take Loan Rates To Negative, Downgrading Growth And Inflation Forecasts Print E-mail
Special Reports | Written by | Apr 29 16 02:44 GMT
Contrary to market expectations of taking interest rates on loans to the negative territory, BOJ left its monetary policy unchanged. It would continue to increase the monetary base by around 80 trillion yen per year. Meanwhile, by a 7-2 majority vote, the central bank would continue to apply a negative interest rate of -0.1% to the Policy-Rate Balances in current accounts held by financial institutions at the central bank. On macroeconomic outlook, BOJ extended its ETA for reaching the 2% CPI price stability target, for a 6th time, to 'during FY17' from 'around H1 FY17'. It also lowered its real GDP and core CPI forecasts. USDJPY’s gains accumulated ahead of the meeting were rapidly erased while shares also retreated as the central bank failed to add more stimulus this month.
RBNZ Keeps Its Powder Dry In April, Less Dovish Though Easing Bias Remains Print E-mail
Special Reports | Written by | Apr 28 16 03:55 GMT
Following a rate cut in March, the RBNZ left the policy rate unchanged at 2.25% this month. The accompanying appears less dovish than the previous meeting as policymakers again noted the housing price pressure in Auckland and they decided to drop the phrase that headline inflation will 'take longer to reach the target range'. However, the easing bias remains with the central bank noting that 'further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data'. The possible timing for another rate cut might be in June or August, given both are full MPS meetings
Fed Removes Language On Risks, June Hike Remains Possible But Uncertainty Increases Print E-mail
Special Reports | Written by | Apr 28 16 03:41 GMT
The Fed again left the monetary policy unchanged in April with Kansas City Fed president Esther George the only members favoring a rate hike), Policymakers downgraded the assessment of economic activities but added the moderation in pace should be transitory. While acknowledging improvement in the labor market, the central bank saw little evidence that inflation and inflation expectations were firming. The 'risk' language was removed, while discussions are that 'balance of risk' was not found, in the April statement. It was, however, replaced by the pledge that the Fed would continue to 'closely monitor inflation indicators and global economic and financial developments'. We see the Fed is not in a hurry to increase interest rate further. While there remains chance for a hike in June, policymakers refrain from indicating a high chance of it. US dollar jumped immediately after the release of the statement. Gains were, however, pared quickly.
Draghi Affirms Positive Impacts of Stimuli, Defends Independence of ECB as He Faces Criticism Print E-mail
Special Reports | Written by | Apr 21 16 14:18 GMT
As expected, ECB left the main refi rate unchanged at 0%, the deposit at -0.4% and the asset purchase program at 80B euro/month. The central bank noted that it would begin buying corporate bonds in June. President Mario Draghi at the press conference suggested that interest rates would stay at present or lower levels for an extended period of time, even after QE has ended. He continued to warn that global economic outlook remains uncertainty and inflation might turn negative in coming months "before picking up in the second half of 2016". He pledged that the central bank would monitor the developments closely and act accordingly "if warranted". The central bank signals that the door has remained open for further easing.
RBA Reiterated Concerns Over Aussie Strength At April Minutes Print E-mail
Special Reports | Written by | Apr 19 16 03:26 GMT
The RBA minutes for the April meeting contain little new information. Instead, policymakers reiterated their growing concerns over the strength in Australian dollar which had been trading at the highest level since May 2015 in early April. The central bank attributed the appreciation to the rise in commodity prices and Fed’s more dovish monetary stance. The RBA kept the cash rate at 2% for a 10th consecutive meeting in April. Yet, it pledged to ease further if needed, in particular if inflation stays persistently at low levels.
China FX Reserve Rose For The First Time Since Last October Print E-mail
Special Reports | Written by | Apr 08 16 08:02 GMT
China's FX reserves increased +US$10.3B to US$3.21 trillion in March. The first rise in 5 months was mainly driven by positive valuation effects, less government intervention on renminbi and non FDI capital controls. So as to limit valuation changes caused by currency volatility, the government also announced the figure denominated in IMF's Special Drawing Rights (SDR). The abovementioned reserve amount of US$3.21 trillion is equivalent to 2.28 trillion SDR.
FOMC Minutes Indicates April Hike Highly Unlikely. Members Not As Dovish As Market Perceives Print E-mail
Special Reports | Written by | Apr 07 16 06:03 GMT
The FOMC minutes indicated that the March meeting was not as dovish as it was seen in the statement. The minutes unveiled the divergence in views of Fed's tightening schedule. While it appears that the majority of members does not see a rate hike anytime soon, some of them were inclined to tighten again in as soon as April. These less dovish members appeared to be less concerned about the impact of downside risks from the global growth on the US than Fed Chair Janet Yellen. Policymakers remained confident over US growth outlook. Policymakers, not in unanimity, saw increasing downside risks to global economic and financial developments. As suggested in the updated dot plot released in accompaniment with the March policy statement, the Fed currently expects 2 rate hikes in 2016, halved from previous its estimate.
RBA Keeps Cash Rate at 2%, Warns over Strong Exchange Rate Print E-mail
Special Reports | Written by | Apr 05 16 11:30 GMT
RBA left the cash rate unchanged at 2% in April. The decision had been widely anticipated. Yet, our focus is on policymakers' stance on recent strength in Australian dollar which has risen more than +11% against US dollar since January this year. The key reasons are USD weakness amidst a more dovish Fed, a move to negative rates in some economies and a jump in iron ore prices. RBA noted indicated in previous meetings that a 10% appreciation in Aussie would reduce GDP growth by 0.5-1% percentage point over 2 years, and trim the year-end inflation rate by 0.25-0.5% over each of the following 2 years. At the meeting, the central bank warned that persistent strength in its currency "could complicate the adjustment under way in the economy".
BOE Voted Unanimously To Keep Rates Unchanged, Concerned Over Brexit Referendum Print E-mail
Special Reports | Written by | Mar 18 16 08:24 GMT
BOE again voted unanimously to leave to Bank rate unchanged at 0.5% and the asset purchase program at 375B pound. While acknowledging 'solid' domestic demand growth, policymakers were concerned about the uncertainty brought forward by Brexit referendum in June. Members remained diverged regarding the 'balance of risks to inflation relative to the central projection presented in the February Inflation Report'. As such, it is concluded that 'the MPC’s best collective judgment is that it is more likely than not that Bank Rate will need to increase over the forecast period to ensure inflation returns to the target in a sustainable fashion'.
SNB Kept Powder Dry, Trimmed Growth And Inflation Forecasts Print E-mail
Special Reports | Written by | Mar 17 16 11:12 GMT
To our surprise, SNB stood on the sideline in March despite ECB’s aggressive stimulus measures. The central bank kept the sight deposit rate at record low of -0.75% and the 3-Month LIBOR target range unchanged at -1.25% to -0.25%. Policymakers kept the powder probably as ECB’s announcement last week did not trigger significant euro depreciation. Meanwhile, SNB acknowledged that negative interest rates have made Swiss franc less attractive but continued to war over the 'significantly overvalued' Swiss franc. The staff also revised lower the GDP growth and inflation forecasts.
Dovish Fed Signals Only Two Rate Hikes This Year, Down From Four Print E-mail
Special Reports | Written by | Mar 17 16 04:00 GMT
The FOMC meeting turned out to be more dovish than expected. While acknowledging that the economic activity has been expanding at a 'moderate' pace, policymakers were concerned about recent easing measures adopted by some central banks, including ECB, BOJ and PBOC. The latest dot plot points to only two rate hikes, down from four, this year. As such the long term interest rate forecast is revised -25 bps lower to 3.25%. The staff economic projections have also been revised lower. On the monetary policy outlook, Fed Chair Janet Yellen reiterated that the April meeting remains live for another rate hike. Yet, the market has priced in almost no chance of such move next month. Market reaction to the announcement was rally in risky assets including equities and commodities, and decline in US dollar and Treasury yields.
RBA Minutes Paid Special Attention To China Print E-mail
Special Reports | Written by | Mar 15 16 06:41 GMT
The RBA minutes for the March meeting showed that policymakers remained comfortable with Australia’s GDP growth outlook and the developments in the employment market. Yet, they remained cautious over recent market volatility and the slowdown in China. While judging it’s appropriate to leave the cash rate unchanged at 2%, policymakers stressed that 'continued low inflation would provide scope to ease monetary policy further, should that be appropriate to lend support to demand'. Discussion on exchange rate was minimal. We believe policymakers are taking time to gauge the impact of the recent strength in Australian dollar which has risen more than +5% against USD so far in March
Aggressive ECB Moves Failed to Sustain Risk Appetite, Market Underwhelmed by Draghi's Comments Print E-mail
Special Reports | Written by | Mar 11 16 06:56 GMT
ECB announced broader than expected stimulus measures to boost growth and inflation in March. However, it was President Mario Draghi's comments that triggered the roller coaster movement in the financial markets. EURUSD initially dropped to a 6-week low of 1.082, before rallying to 1.1176, up +1.63%, at close. The central bank trimmed all policy rates, lowering the main refi rate by -5 bps to 0%, the deposit rate by -10 bps to -0.4% and the marginal lending facility rate by -5 bps to 0.25%. Moreover, it expanded the size of monthly asset purchases to 80B euro from 60B euro with high quality (investment grade) corporate bonds becoming eligible for regular purchases. ECB also introduced 4 TLTROs (TLTRO II), each with a maturity of 4 years, starting in June 2016. The interest rate on the new TLTROs would be no higher than the refi rate and probably 'as low as' the deposit rate.
BOC Left Rates Unchanged, Upbeat Statement Sent CAD Higher Print E-mail
Special Reports | Written by | Mar 10 16 06:13 GMT
BOC left its overnight rate unchanged at 0.5% in March. While this had been widely anticipated, the upbeat tone sent from the central bank lifted Canadian dollar with USDCAD dropping -1.18% on Wednesday. Policymakers acknowledged that both global and domestic economic developments evolved largely as expected in its January report. Despite downside risks to growth, BOC retained the view that global growth should strengthen through 2017 as partly driven by sustained US growth. Domestically, BOC remained cautious over growth and inflation, suggesting that low oil prices would weigh on growth although 'prices of oil and other commodities have rebounded in recent weeks'. We expect BOC to leave its policy rate unchanged for the rest of the year.
RBNZ Trimmed OCR By -25 Bps, Further Easing To Follow Print E-mail
Special Reports | Written by | Mar 10 16 03:25 GMT
To the surprise of the market, RBNZ cut the OCR by -25 bps to 2.25% in March. Despite improvement in domestic economic developments, policymakers were concerned about the increasing downside risks to the global growth outlook. They were also weary over the persistently low inflation and the stubborn strength in New Zealand dollar. The central bank cut its inflation forecast for this year as well as the 2-year-ahead inflation expectations. It, however, maintained the GDP growth estimate unchanged. The RBNZ signaled further easing in coming months with the central bank projections indicating another -25 bps reduction later this year.
China Watch: Government Lowers 2016 Growth Target; Sharp Exports Decline Signals Weak Global Demand Print E-mail
Special Reports | Written by | Mar 09 16 06:12 GMT
Over the weekend, the Chinese government released its latest economic target for 2016 at the National People's congress (NPC) meeting. Real GDP growth is targeted 6.5%-7.0% while CPI at around 3%. Broad money supply M2 is target to grow +13% this year. The government aims at a fiscal deficit of 3% of GDP this year, up from 2.4% in 2015, and suggested that monetary policy would be prudent but 'with flexibility'. Premier Li Keqiang admitted that 'China will face more and tougher problems and challenges in its development this year'. He noted that China would 'focus on current realities and take targeted steps to withstand downward pressure on the economy'. Meanwhile, it would 'keep some policy tools as options for later use, strategize moves and gather strength'.
ECB Stimulus In March Might Trigger SNB To Intervene Print E-mail
Special Reports | Written by | Mar 03 16 08:44 GMT
Hopes of further easing from ECB intensified as ECB President Mario Draghi affirmed that more stimulus measures would be announced at next week's meeting. This has weighed on the euro under pressure but increased the upward pressure on Swiss franc, exemplified in weakening of EURCHF. Currently consolidating above 1.0810, the lowest levels in 2 months, the pair is set for further decline. Aggressive easing from ECB might trigger SNB to act for curbing excessive appreciation of Swiss franc. Last week, SNB Chairman Thomas Jordan noted that the central bank might reduce the exemption from negative deposit rates in order to make its currency less attractive. In our opinion, SNB might accelerate direct intervention in the market and announce further reduction in deposit rate, before adjusting the exemption threshold.
China Watch: PBOC Moves RRR Lower, Further Step To Inject Liquidity And Add Monetary Easing Print E-mail
Special Reports | Written by | Mar 01 16 11:02 GMT
PBOC cut the reserve requirement ratio of all financial institutions by -50 bps, taking the average ratio to 16.5%, effective March 1. The move, expected to inject liquidity of RMB 600-700B to the market, marks China's further step to ease the monetary policy. Besides liquidity injection, the move attempts to restore market confidence. PBOC announced the move on Monday, after the A-share market dropped -2.9% and -6.4% last Thursday. We believe it attempts to calm the market ahead of the annual National People's Congress which begins on March 5.
RBA Keeps Cash Rate At 2% in March Print E-mail
Special Reports | Written by | Mar 01 16 06:37 GMT
As widely anticipated, the RBA left the cash rate unchanged at 2% in March. Policymakers acknowledged that the global economy has continued to grow, although the pace is slower, whilst domestic economy has improved over 2015. The central bank believed currency economic setting warrants keeping interest rates at existing low levels. It also noted that global monetary policy has remained 'remarkably accommodative'.
Capital Outflow Remains The Biggest Problem In China Print E-mail
Special Reports | Written by | Feb 25 16 07:50 GMT
PBOC has weakened its renminbi fixing rate for the third consecutive day. At 6.5318, USDCNY is set at the highest level in almost 3 weeks. Onshore and offshore renminbi rates have been sent to lowest levels since February 12. Meanwhile, the central bank has injected RMB 340B via 7 day reverse report. The moves came after an official report indicating another month of FX settlement deficit in January. According to the State Administration of Foreign Exchange, Chinese banks sold US$193B worth of foreign currencies, and bought US$138.6B of them, resulting in a net sale of US$54.4B last month.
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