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Action Insight: Special Reports

Action Insight is the most popular section of the site, read by traders around the world. Our team of analysts work around the clock, analyzing the markets from technical and fundamental perspectives in providing the reports in this section to you.

Greek Election – Anti-Bailout Coalition Government Raises Financial Instability Print E-mail
Special Reports | Written by | Jan 27 15 05:08 GMT
The far-left Syriza party won Greece's general election by a larger-than-expected margin. Securing 149 of 300 seats, Syriza defeated the incumbent New Democracy Party but still fell short of an absolute majority. The latest news suggested that Syriza would form a coalition government with Independent Greek, a small right wing party which also strongly opposes many of the strict conditions imposed in the bailout program. Initial market reaction appeared limited as the election outcome had been largely anticipated. However, in the medium- to long-term, the economic implications to the Eurozone can be far-reached.
ECB Decided to Buy Asset Worth of 60B euro a Month, March through September 2016 Print E-mail
Special Reports | Written by | Jan 22 15 14:34 GMT
Exceeding the consensus forecast of 50B euro or 50B euro in total, ECB's expanded asset purchase program would spend 60B euro per month, from March 2015 through September 2016, in both public and private debts. The program aims at combating deflation and would continue until "a sustained adjustment in the path of inflation" is seen. Meanwhile, the central bank decided to change the pricing of the 6 targeted longer-term refinancing operations (TLTROs) remaining in the market and left the policy rates unchanged. EUR plunged to as low as 1.499 against USD at one point after the announcement.
BOC Cut Rates, Insuring Against Headwind Posed By Oil Price Decline Print E-mail
Special Reports | Written by | Jan 22 15 04:03 GMT
Surprisingly, the BOC announced to cut its overnight rate to 0.75% from 1% in January so as to insure against the risks of further decline in oil prices on inflation and financial stability. Policymakers saw downward pressure on headline inflation from lower energy prices while upward pressure could come from depreciation of Canadian dollar. On net, they were more concerned about the downside risks and focused on the 'material slack' remaining in the economy. The BOC also revised lower its growth and inflation outlook, suggesting further easing cannot be ruled out in coming months.
Unanimous Vote To Keep Rate Unchanged Damped Speculations Of BOE Tightening Print E-mail
Special Reports | Written by | Jan 21 15 11:07 GMT
BOE policymakers dropped rate hike calls as inflation disappointed in recent months. The January minutes indicated that the MPC voted unanimously to keep the Bank rate unchanged at 0.5%, compared with 2 members favoring higher rates over the past several meetings. The members also decided in unity to keep asset purchases at 375B pound. The British pound declined against major currencies after the news as rate hike speculations dampened.
When, What and How of ECB's New QE Program Print E-mail
Special Reports | Written by | Jan 20 15 13:39 GMT
The market is now widely anticipating that the ECB would announce further QE, i.e. including sovereign debts in its asset purchase program, in the meeting on Thursday. The focus now is when, what and how the program would be implemented. It is also the details of the program, rather than the announcement per se, that would move the market. The euro rebounded against both Swiss franc and the US dollar ahead of the meeting. While bargain hunting might be a reason for the rebound, following the excessive selling after SNB's decision of removing the EURCHF peg, another major reason is that the market might be expecting disappointment on Thursday.
SNB Abruptly Removed EURCHF Floor, Harm to Credibility and Economic Prospect Print E-mail
Special Reports | Written by | Jan 16 15 04:25 GMT
In less than a month after the SNB pledged to maintain the EURCHF floor at 1.2 with utmost determination, it, on Thursday, surprised the market by announcing to abandon this commitment. The move was accompanied by reduction of interest rates on sight deposits by -0.5 percentage point to -0.75%. The central bank indicated that Swiss franc has depreciated and helped the economic recovery during the period when the floor was imposed. It also appeared positive that the divergence between the Fed and the SNB over monetary policy outlook should lead to decline of franc against the US dollar. Yet, we view this abrupt move as an evidence that the SNB has realized that, give the small size of Swiss economy, it would be impossible for fight against euro's depreciation as the ECB would likely extend its QE measures. EURCHF slumped after the announcement and plummeted to a record low of 0.85. USDCHF also tumbled to as low as 0.7424 before recovery.
Oil Producers Suffered, Fed Beige Book Shows Print E-mail
Special Reports | Written by | Jan 15 15 04:16 GMT
The latest Fed Beige Book, prepared at the San Francisco Fed and based on information collected on or before January 5, indicated that growth in most Districts was 'modest' or 'moderate'. While the Kansas City District reported 'only slight' growth in December, the reports suggested that most of their contacts expected growth to pick up in coming months. The report also shows that Districts that had benefited from energy production in recent years were worried about slowdown due to the sharp decline in oil prices since June 2014. On balance, the Fed should view that the drop in oil prices would provide a boost for consumers and the economy. Chair Janet Yellen noted in December that 'it is putting more money in their pockets, having to spend less on gas and energy, and so in that sense it’s like a tax cut that boosts their spending power'.
Weak Energy Prices Sent UK Inflation Below +1% Print E-mail
Special Reports | Written by | Jan 14 15 09:26 GMT
Headline CPI in the UK missed expectations in December, moderating to +0.5% y/y from +1% in November. This was the first time since May 2000 that inflation fell below +1% and prompted BOE governor Mark Carney to write a letter to the Chancellor of the Exchequer to explain why inflation has deviated from the 2% target by more than one percentage point. The MPC remit suggests that, since March 2013, the letter would be released together with the MPC minutes for the month following the publication of the inflation report. That means it would not be released until February 18, a week after the February Inflation Report. From a month ago, CPI was flat, after contracting -0.3% in November. Core CPI improved to +1.3% y/y in December from +1.2% a month. The market had anticipated at bigger pickup to +1.4%.
China Watch – Export Growth In 2014 Missed Target, PPI Deflation Suggested Further Easing Needed Print E-mail
Special Reports | Written by | Jan 13 15 07:00 GMT
China's trade surplus narrowed to US$49.6B in December from US$54.5B a month ago. The reading beat expectations of US$48B. Exports expanded +9.7% y/y to US$227.5B in December, compared with a +4.7% increase in November. Imports fell -2.3% y/y to US$177.9B, following a sharp -6.7% decline in November. The country's exports grew +6.1% in 2014, missing the government's target of +7.5%. Imports rose a modest +0.4%. China has missed its trade target for the 3rd consecutive year and revised lower its 2015 target to 6%, reflecting softer external and domestic demand.
Fed Unlikely To Hike Rate Before April, December Minutes Signaled Print E-mail
Special Reports | Written by | Jan 08 15 03:30 GMT
The FOMC minutes for the December meeting delivered little news. Policymakers remained confident about the growth and employment outlook, as expected inflation to return to the +2% target gradually. Whilst noting concerns over a further moderation in global growth, the central bank did not sound too worried about contagion. Policymakers viewed lower energy prices as a net positive for US growth and employment, while the impact on headline inflation should be transitory. On the monetary outlook, the majority of members appear to agree with Chair Janet Yellen's comments that the central bank was on track to raise rates around mid-year, conditional on the outlook.
2015 FX Outlook – NZD To Weaken From 'Unjustified' And 'Unsustainable' Levels Print E-mail
Special Reports | Written by | Jan 08 15 02:45 GMT
Implementing cumulative rate hike of 100 bps, the RBNZ was the first major central bank that began tightening last year. Pleasant surprise from 3Q14 growth was upstaged by Statistics New Zealand's downward revisions of previous annual growth estimates, leaving a rather mixed picture in the country's economic prospect. Benign economic growth, still-high unemployment rate and subdued inflation outlook should leave the central bank more room this year to maintain the status quo. We expect the OCR to stay unchanged at 3.5% throughout the year
2015 FX Outlook – Aussie To Remain Weak But Decline Less Severe Print E-mail
Special Reports | Written by | Jan 06 15 07:08 GMT
Australian dollar fell to a 4 year low against the US dollar in December 2014 and recorded a -8.5% loss throughout the year. The major reasons for the depreciation were weaknesses in commodity price (falling iron ore prices), concerns over China's growth outlook, as well as deceleration in domestic growth. The commodity currencies, AUD, NZD and CAD, would face the headwind from the decline in the terms of trade, as a result of the weakness in commodity price, in 2015. For Aussie, we remain bearish for this year but expect the decline to moderate. On monetary policy, we expect the RBA to stand on the sideline and leave the cash rate unchanged at 2.5% throughout the year
2015 FX Outlook - SNB's Strategy To Defend Low CHF Continues Print E-mail
Special Reports | Written by | Jan 05 15 11:21 GMT
Swiss franc is anticipated to depreciate against major currencies as the SNB pledged to maintain the EURCHF floor at 1.2. The central bank in the December meeting announced to cut interest rate, on sight deposit balances that exceed a given exemption threshold, to -0.25%. Negative interest should be levied from January 22, the same day that the ECB might announce to to begin buying sovereign bonds. While SNB President Thomas Jordan noted that the Russian turmoil was a 'major contributory factor' for the decision, we view this also as a preemptive measure to further ECB easing. The SNB at the meeting also announced to lower its target range for the 3-month LIBOR so as to push the rate below 0%. The SNB pledged to 'take further measures, if required' to maintain the EURCHF floor
2015 FX Outlook - General Election a Key Event Risk for GBP Print E-mail
Special Reports | Written by | Jan 01 15 10:53 GMT
Economic developments in the UK have been encouraging in 2014. GDP growth averaged +3% q/q in first 3 quarters of the year, the unemployment rate has consistently been on a downtrend while real wage has been picking up of late. On the flip side, the country's budget deficit has remained high at more than +5% of GDP while the current account deficit has widened to over +5% of GDP. For the coming year, we expect UK's economic growth to stay firm. However, the magnitude of expansion should likely be more modest. Indeed, softer fundamentals and looming disinflationary pressure have already pushed backward the market's bet over the timing of BOE's rate hike, a key reason for the almost -10% decline in GBPUSD since July.
2015 FX Outlook - Diverging Central Bank Activities Continue to Support USDJPY Print E-mail
Special Reports | Written by | Dec 31 14 08:17 GMT
Monetary policy divergence would be a key theme directing the movement of USDJPY in 2015. The pair has indeed rallied sharply since the BOJ surprisingly announced QE expansion on October 31. While improving economic outlook in the US has prompted the Fed to normalize the monetary policy, the BOJ might need to add further easing measures to rescue subdued inflation and economic recession. Such divergence in central bank activities was supportive of USD strength and it should continue to be the dynamics in 2015. In Japan, inflation is the most concerned issue for policymakers. Its outlook would determine BOJ's monetary policy and hence the outlook of Japanese yen.
2015 FX Outlook - EUR Depreciation Continues as ECB Prone to Expand QE Print E-mail
Special Reports | Written by | Dec 30 14 07:53 GMT
Similar to the US dollar, the ECB has been playing an important role in determining the euro's direction over the past months. We believe this would remain the case for next year. Disappointment in December inflation and the generally soft growth environment would call for further ECB measures, i.e. extending asset purchases to include sovereign debts. Indeed, the ECB's tone has turned more dovish recently, following continued decline in inflation expectations and a relatively lackluster take up of the December TLTRO. A more urgent need to add measures to rescue the extremely low inflation suggests further downside in the single currency. Yet, the timing and the likelihood of ECB's public QE buying remain highly uncertain, despite heightening speculations that this would happen in 1Q15, due to the big division among policymakers.
2015 FX Outlook - USD to Outperform Other Major Currencies Print E-mail
Special Reports | Written by | Dec 29 14 13:16 GMT
Hinging on rate hike expectations, the US dollar is expected to strengthen against major currencies in 2015. Upbeat growth momentum towards the end of 2014 should be carried on in the new year. Supported by the encouraging fundamentals such as rising income and low energy prices, growth in consumer spending should accelerate. Such environment should pave the way for Fed funds rate hike in 2015, although some market participants have lately pushed back their forecasts from June to September. After all, a move towards tightening should lend support to the greenback against other major currencies such as the euro and Japanese yen, as both the ECB and the BOJ are planning further easing. Despite a possible inflation drag, the decline in oil prices would be generally positive for the US economy and the US dollar.
SNB Surprisingly Introduces Negative Rates To Defend EURCHF Floor Print E-mail
Special Reports | Written by | Dec 19 14 04:01 GMT
The SNB surprisingly announced to cut interest rate to -0.25% on sight deposit account balances that exceed a given exemption threshold. Negative interest is expected to be levied from 22 January 2015. The move attempts to limit unwanted CHF appreciation and alleviate pressures on the EURCHF floor. The central bank in the accompanying statement reiterated its pledge to the EURCHF floor if 1.2 and would 'take further measures, if required'.
Fed Replaced 'Considerable Time' Language With Patience In Normalization Print E-mail
Special Reports | Written by | Dec 18 14 04:04 GMT
Fed members removed the 'considerable time' language in the December FOMC statement, suggesting that, based on its current assessment, 'it can be patient in beginning to normalize the stance of monetary policy'. The overall tone of the statement remained dovish. Fed Chair Yellen talked about the recent decline in oil prices in the press conference, indicating that it should have a transitory effect on inflation and would stimulate growth. She also noted that Russia's economic crisis would only have limited impacts on the US.
BOE: Sharp Fall In Oil Prices Supportive Of Economy. Benign Inflation Signaled Rate Hike Not The Time Yet Print E-mail
Special Reports | Written by | Dec 17 14 11:08 GMT
The BOE minutes for the December meeting showed that the members had detailed discussions over the recent decline in oil prices. They indicated that the selloff in oil prices turned out to be more sharply than they expected in November. Policymakers had different views over the economic outlook and the monetary stance. Yet, the spread appeared less diverse than the prior month as the reference suggesting members were holding 'material spread of views disappeared. The central bank voted 7-2 to keep the policy rate unchanged at a record low of 0.5% and decided unanimously to keep the asset purchase program at 375B pound.
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