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UK CPI unchanged at 2.4%, core at 1.9%, Pound unmoved

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    ActionForex.com
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    UK Headline CPI was unchanged at 2.4% yoy in October, below expectation of 2.5% yoy. Core CPI was also unchanged at 1.9% yoy, below expectation of 2.0% yoy. RPI, too, was unchanged at 3.3% yoy, below expectation of 3.4% yoy.

    ONS noted that the “large downward contributions to the change in the 12-month rate from food and non-alcoholic beverages, clothing and footwear, and some transport elements”. They were offset by “contributions from rising petrol, diesel and domestic gas prices.”

    PPI input slowed to 10.0% yoy, down from 10.5% yoy, below expectation of 9.6% yoy. PPI output rose to 3.3% yoy, up from 3.1% yoy and beat expectation of 3.1% yoy. PPI output core was unchanged at 2.4% yoy, matched expectation.

    Also from UK, house price index rose 3.5% yoy in September, accelerated from 3.1% yoy and beat expectation of 3.3% yoy.

    Overall, Sterling shows little reaction to the release and eyes are on PM May’s Cabinet meeting on Brexit agreement.

    10-year yield setting stage for up trend resumption?

      By
      ActionForex.com
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      US 10-year yield jumped notably and closed up 0.062 at 1.543. With a strong break above 55 day EMA, it’s starting to suggest that consolidation pattern from 1.765 has completed with three waves to 1.343 already. TNX has also drew solid support from 55 week EMA again, keeping medium term bullishness well in place.

      The focus could quickly be on 1.693 resistance when we come back from new year holiday. Firm break there should push TNX through 1.765 resistance to resume the up trend from 0.398. If this happens, we could easily see 10-year yield back at 2% level and above.

      Eurozone PMI manufacturing down to 43.6, services down to 52.4

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        ActionForex.com
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        Eurozone PMI Manufacturing fell from 44.8 to 43.6 in June, a 37-month low. PMI Services dropped from 52.4 to 55.1, a 5-month low. PMI Composite tumbled from 52.8 to 50.3, a 5-month low.

        HCBO Bank noted in the release that there are diverging trends in the manufacturing and service sectors. Despite falling prices in manufacturing that would typically herald rate cuts, persistent price hikes in the larger service sector continue to slow down core inflation’s decline.

        Adding to the complexity are regional differences: France’s service sector contracted in June while Germany’s continues to expand. With Eurozone GDP potentially falling for a third consecutive quarter, the Composite PMI predicts a challenging second half of the year for businesses.

        In France, PMI Manufacturing ticked down from 45.7 to 45.5 in June, a 37-month low. PMI Services dropped sharply from 52.5 to 48.0, a 28-month low. PMI Composite fell from 51.2 to 47.3, a 28-month low.

        In Germany, PMI Manufacturing fell from 43.2 to 41.0, a 27-month low. PMI Services dropped from 57.2 to 54.1, a 3-month low. PMI Composite declined from 53.9 to 50.8, a 4-month low.

        Full Eurozone PMI release here.

        GBP/JPY dips as UK announced toughest nationwide coronavirus lockdown

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          ActionForex.com
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          UK announced the toughest nationwide coronavirus lockdown since March, as Prime Minister Boris Johnson warned that weeks ahead will be “the hardest yet”. The lockdown will last for at least seven weeks into mid-February. All non-essential shops and schools are closed while people are told to stay at home. The UK was entering “the last phase of the struggle”, Johnson said, adding: “With every jab that goes into our arms, we are tilting the odds against Covid and in favour of the British people.”

          Sterling is clearly one of the weakest for this week so far, but downside is limited at this point. A focus would be on GBP/JPY. The choppy rebound from 133.03 is more corrective looking than not, considering both the structure and MACD momentum. Yet, break of 139.44 support is needed to indicate short term topping first. Further break of 136.96 support would suggest that the pattern from 142.71 is extending with a third leg through 133.03 support. But before that, another rise would be mildly in favor for a take on 142.71 resistance.

          US factory dropped -10.3% to $445.8B in March

            By
            ActionForex.com
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            US factory orders dropped -10.3% mom to USD 445.8 billion in March, worse than expectation of -9.5% mom.

            • Shipments, down three consecutive months, decreased USD 26.2 billion or 5.2% to USD 473.6 billion.
            • Unfilled orders, down following three consecutive monthly increases, decreased USD 23.6 billion or 2.0% to USD 1,134.9 billion. The unfilled orders-to-shipments ratio was 6.57, down from 6.62.
            • Inventories, down three consecutive months, decreased USD 5.8 billion or 0.8% to USD 693.5 billion. The inventories-to-shipments ratio was 1.46, up from 1.40.

            Full release here.

            Australia consumer sentiment rose 6.3%, back around pre-COVID levels

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              ActionForex.com
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              Australia Westpac-Melbourne Institute consumer sentiment rose 6.3% to 93.7 in June, up from May’s 88.1. Confidence is now “back around pre-COVID levels”, and has recovered “all of the extreme 20% drop” seen after the pandemic exploded. It’s been buoyed by the country’s “continued success” in bringing the coronavirus control and further easing of restrictions. The index is now just 2% below the average between September and February.

              Westpac said that the survey would “boost confidence” around the RBA board table as they meet again on July 7. RBA Governor Philip Lowe has been clear that he’s having a wait-and-see approach on monetary policy. Negative rate is “extraordinarily unlikely”. “An earlier than expected recovery in the economy will ease pressure on that current entrenched policy stance”

              Full release here.

              Fresh selling in Euro as France Q1 GDP missed, rose 0.3% qoq only

                By
                ActionForex.com
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                Fresh selling seen in Euro after French data miss. French GDP growth slowed to 0.3% qoq in Q1, down from prior quarter’s 0.7% qoq and missed expectation of 0.4% qoq. Annual rate decelerated to 2.1% yoy, down from 2.6% yoy, and missed expectation of 2.3% yoy.

                The title of this report ECB: Wondering Rather than Worrying summed up yesterday’s ECB press conference rather well. And with French GDP miss, dovish expectation on next week’s Eurozone GDP release could pile up. We’ll see if the coming data clear up the picture for ECB so that policymakers don’t need to wonder any more, but start to worry.

                For now, EUR/USD is on course for 1.2 handle. Selling in EUR/USD also spill over to other pairs and lifted the USD. USD/CHF takes out 0.99 and would now be heading back to 1.000. GBP/USD breaks yesterday’s low at 1.3894, just ahead of UK GDP data, an hour away.

                Trump: We’re missing once in a lifetime opportunity before of Fed’s boneheads

                  By
                  ActionForex.com
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                  In a pair of tweets, US President Donald Trump urged Fed to cut interest rates down to zero or less. And the US government could then start to refinance its debt. He complained again that it’s only “naivete” of Fed chair Jerome Powell” for not allowing the US to pay lowest interest rate.

                  He said The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet. The USA should always be paying the the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”

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                  SNB Jordan: No need to change monetary policy even though EUR/CHF is back at 1.2

                    By
                    ActionForex.com
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                    EUR/CHF continues to press the historical level at 1.2, the SNB imposed floor which was suddenly given up in 2015 and caused panic selling. Now the cross is back at this level.

                    SNB Chairman Thomas said in an interview that the depreciation of the Swiss Franc is in the “right direction”. Nonetheless, the currency as a safe haven is prone to change and the situation is “fragile”. So the SNB will “remain very prudent”.

                    Jordan added that “there’s no need to do anything regarding monetary policy at this moment”, as “we are convinced that the current monetary policy is still necessary.”

                    EU Juncker: Crystal clear, no Brexit renegotiation

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                      ActionForex.com
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                      European Commission President Jean-Claude Juncker reiterated EU’s stance that Brexit agreement is not open for renegotiation. He said before a meeting of EU leaders in Brussels, “I will have a short meeting with Theresa May, but I was crystal clear. There will be no renegotiation.”

                      That’s in complete opposite of what some UK ministers believe in. Foreign ministers Jeremy Hunt wrote in Tuesday’s Daily telegraph. He noted “trying to deliver no deal through a general election is not a solution; it is political suicide… “A different deal is, therefore, the only solution – and what I will pursue if I am leader.”

                      Trade Minister Liam Fox also said “If the EU doesn’t want to negotiate any changes – which I think would be unfortunate and I think would be quite surprising – then I think that of course does increase the chance of a no-deal exit.”

                      Position trading: EUR/JPY short met target, and some reflections

                        By
                        ActionForex.com
                        -

                        Here is a quick update to our EUR/JPY short trade (sold at 127.80, stop at 127.10, target at 120.00) as last updated here. The target of 120.00 was met as EUR/JPY spiked to 118.62 during the “Currency Flash Crash” in Asian session. We’ve exited with 780 pips profit.

                        Admittedly, there’s luck, quite a lot of, as the downward move today is rather exaggerated. But technically, the ideal case did happen as there was downside acceleration through 124.08 key support level. The bearish case played out well and it’s just a matter of time when the mentioned 61.8% retracement of 109.03 to 137.49 at 119.90 is met. For now, we’ll hold our hands off first as there will be heavy weight non-farm payrolls to be released tomorrow. We’ll post new strategy, if there would be any good one(s), in the upcoming weekly report.

                        Meanwhile, there are some reflections on the trade and related ideas we’ve posted in 2018:

                        • The strategy was first posted back on November 24 here. Back then, AUD/JPY was a better candidate for selling. But due to the uncertainty of Trump-Xi summit, we chose EUR/JPY over AUD/JPY. Looking back, AUD/JPY is still a much better choice, if not for that uncertainty.
                        • It took more than five weeks for the trade to play out and it’s rather boring in between. But patience usually pays.
                        • We’re using the relatively “longer” time frame as a way to demonstrate the strategy and analysis in “slow motion”. Thus, we’ve got time to explain our thinking process throughout. Yet the trade was live. And we hope our readers could get something out of the updates.
                        • With 780 pips profit pocked at the start of 2019, we now have some bullets to probe other opportunities.
                        • But finally, we’d emphasize that the strategies won’t suit everybody. Traders are advised to choose strategies that suit their temperament.

                        GBP/AUD heading back to 1.7423 low as recovery completed

                          By
                          ActionForex.com
                          -

                          GBP/AUD’s breach of 1.7587 minor support today suggests that recovery from 1.7423 has completed at 1.7923. The cross is staying well below falling 55 day EMA, keeping outlook bearish. Deeper fall could now be seen to retest 1.7423 low first. Break will resume whole down trend from 2.0854 for 38.2% projection of 2.0854 to 1.7493 from 1.8526 at 1.7242.

                          If that happens, underlying strength in the Aussie would be further affirmed in AUD/USD breaks through 0.7741 temporary top.

                          Japan PMI manufacturing finalized at 48.9, manufacturing and exports drag on Q3 GDP

                            By
                            ActionForex.com
                            -

                            Japan PMI Manufacturing was finalized at 48.9 in September, down from 49.3 in August. That’s also the lowest level since February. Output reduced as deterioration in demand extends into September. Firms link export weakness to lower sales to China, US and Europe. Business expectations remain historically subdued.

                            Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

                            “PMI data suggest that the Japanese manufacturing sector ended the third quarter on a negative footing, with the headline index at its lowest mark since February. Crucially, the stronger deterioration comes ahead of the consumption tax hike, and suggests that manufacturing and exports are both likely to have been drags on third quarter GDP.

                            “Japan continues to suffer from the trade-led global growth slowdown. While new product launches, particularly in the tech and capital goods space, provide some mild reason for optimism, concern of trade frictions being drawn out further are underpinning a cautious approach.

                            “Strength in the trade-weighted yen so far this year has also meant that the currency has not been able to mitigate the impact of the global trade slowdown. To that end, the service sector’s ability to weather the sales tax hike in the fourth quarter will be crucial to keeping the economy afloat into the year-end.”

                            Full release here.

                            China considering Yuan devaluation as trade weapon against US?

                              By
                              ActionForex.com
                              -

                              Bloomberg reported that Chinese officials are studying the impact of yuan depreciation on two fronts. Firstly, analysis was taken to look at using currency depreciation as a weapon in the trade war with the US. Secondly, it’s also studied how yuan depreciation could help offset any trade deal with US that curb exports.

                              However, one important point to note is that the source for the information is obviously unnamed. And further than that, Bloomberg just said it’s from “people familiar with the matter”. So it looks unlikely that the information is from any Chinese officials.

                              At the same time, it’s firstly seen by many that yuan devaluation could destabilize the China’s own markets, and that could do more harm to itself than to the US. And more important, China has been trying to portrait itself as rule follower that complies with the WTO book. It keeps blaming the US for unilateralism and protectionism and tries to to use that to draw international support. Devaluation of the Yuan will put China up against other countries too.

                              President Xi Jinping probably won’t mind US President Donald Trump reiterating the label that China is a currency manipulator. But he most certainly doesn’t prefer other countries to jump on that bandwagon.

                              So, while the news is currently in Bloomberg’s headline, its accuracy is suspectable.

                              Australia CBA PMI services rose to record 58.5, PMI manufacturing up to 53.4

                                By
                                ActionForex.com
                                -

                                Australia CBA PMI Composite rose to 57.9, up from 52.7, highest since April 2017. PMI Services rose to 58.5, up from 53.1, highest on record since the survey began in May 2016. PMI Manufacturing rose to 53.4 in July, up from 51.2.

                                CBA Head of Australian Economics, Gareth Aird said: “The improvement in growth momentum in July is welcome, but concerns around COVID-19 and the potential policy responses to a lift in the number of new cases continue to weigh on activity. The fall in employment looks a little surprising given some other measures of labour demand have firmed more recently. But encouragingly the acceleration of growth in new orders suggests labour demand should improve. The lack of any inflationary pulse was once again evident. That supports our view that we will be in a low inflation environment for an extended period of time”.

                                Full release here.

                                Gold struggling in tight range, downside risk persists

                                  By
                                  ActionForex.com
                                  -

                                  Gold is struggling in tight range above 1810.38 temporary low for a few days already. There has been no strength for a rebound despite Dollar’s selloff elsewhere. It’s also kept below 4 hour 55 EMA, as well as 55 day EMA, keeping risks on the downside.

                                  We’re sticking to the case that rebound from 1784.67 has completed at 1855.17 already. Deeper decline is in favor and break of 1784.67 will resume whole fall from 1959.16. Such fall is seen as the third leg of the corrective pattern from 2075.18. Thus, break of 1764.31 should be seen before the correction completes.

                                  Nevertheless, break of 1833.88 minor resistance will at least delay the bearish case and turn focus back to 1855.17 resistance first.

                                  WTI crude oil defending 38.45 support for now, but looks vulnerable

                                    By
                                    ActionForex.com
                                    -

                                    WTI crude oil drops sharply to as low as 38.58 overnight, but recovery ahead of 38.45 support. Though there is no following buying for further recovery above 40 handle. 38.45 support now looks rather vulnerable. Sustained break of 38.45 should confirm rejection by 42.05 key resistance. Deeper fall should then be seen back towards structure support level at 31.23, to correct the rebound from April’s spike low.

                                    New Zealand Q1 CPI in Focus, NZD/USD in decline with weak momentum

                                      By
                                      ActionForex.com
                                      -

                                      Attention will turn to New Zealand’s Q1 in the upcoming session. Consensus expectations suggest that CPI will slow from Q4’s 7.2% yoy, with the majority of forecasts range from 6.9% to 7.1% yoy. Realizing such figures would present a downside surprise for RBNZ, which had projected a Q1 inflation rate of 7.3% yoy. With further slowing expected in subsequent quarters, the case for the RBNZ to pause at a terminate rate of 5.50% rate after another 25bps hike in May would strengthen if inflation indeed begins to cool.

                                      From a technical perspective, NZD/USD’s decline from its February high of 0.6537 is viewed as a correction to the uptrend originating from the 2022 low of 0.5511. The corrective structure of the bounce from 0.6083 to 0.6381 suggests the decline isn’t over yet. As long as the 0.6313 resistance holds, a deeper fall remains favored.

                                      However, it’s worth noting that downside momentum has been relatively weak thus far. Consequently, even if the rate dips below 0.6083, strong support could emerge around 50% retracement of 0.5511 to 0.6537 at 0.6024, potentially completing the correction and forming a base.

                                      China denied offer to cut USD 200B in surplus with US

                                        By
                                        ActionForex.com
                                        -

                                        China denied the news that it’s offering to cut trade surplus with US by USD 200B. Chinese foreign ministry spokesman Lu Kang said in a regular news briefing “this rumor is not true. This I can confirm to you”.

                                        He added, “as I understand, the relevant consultations are ongoing and they are constructive,” regarding the trade talks between the US and Chinese delegates led by Vice Premier Liu He.

                                        Separately, the Chinese Ministry of Commerce announced to end the “anti-dumping and anti-subsidy investigations of imported sorghum originating in the United States”.

                                        The MOFCOM noted in the statement that “the imposition of anti-dumping and anti-subsidy measures on imports of sorghum originating from the United States would have a widespread impact on consumer living costs, and does not accord with the public interest.”

                                        US warned more more sanction against Iran after air strikes

                                          By
                                          ActionForex.com
                                          -

                                          On Sunday, US military carried out air strikes in Iraq and Syria, against the Kataib Hezbollah militia group which is Iran-backed. That was in response to killing of a US civilian contractor in a rocket attack on an Iraqi military base.

                                          US Secretary of State Mike Pompeo told reports that “we will not stand for the Islamic Republic of Iran to take actions that put American men and women in jeopardy.” Defense Secretary Mark Esper said the strikes were “successful” warned of “additional actions as necessary to ensure that we act in our own self-defense and we deter further bad behavior from militia groups or from Iran.”

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