Sample Category Title
Tightening Back On The Agenda
Global coordinated monetary policy tightening is back in play after a hawkish shift and the BOE and a bump in US fortunes. The pound soared after the MPC while the New Zealand dollar lagged. The Asia-Pacific calendar is light later but there are rumors of a North Korean launch. Our Premium long in GBPUSD hit its final target for 230 pip gain.
The MPC said some withdrawal of stimulus is likely in the coming months in a move that came as somewhat of a surprise. The pound climbed 150 pips on the headlines and added another 50 when Carney revealed he too thinks the possibility of a hike has “definitely increased.” Cable ran to 1.3400 in a fresh cycle high and finished at the best levels of the day.
The US dollar caught a bid early in the day after CPI rose 1.8% compared to 1.7% expected. Not long after the data, the questions started to mount. Wage numbers were soft and it appeared inflation was boosted by an unusual jump in shelter prices.
Chatter about a weak retail sales report on Friday also did the rounds, in part due to skews from Hurricane Harvey. Finally, Mnuchin sounded a worried note no growth late in the day that contributed to USD/JPY selling down to 110.25 from a high of 111.04.
Finally, Bitcoin fell 13% after China announced it will shut all local exchanges by the end of the month. It last traded at $3348.
Gold Shrugs as CPI Beats Estimate, Unemployment Claims Dip
Gold has ticked higher in the Thursday session. In North American trade, the spot price for an ounce of gold is $1325.07, up 0.13%. On the release front, CPI and Core CPI both improved in August. CPI gained 0.4%, edging above the forecast of 0.3%. Core CPI gained 0.2%, matching the forecast. There was more good news from the labor market, as unemployment claims fell to 284 thousand, well below the forecast of 303 thousand.
Gold prices are linked to interest rate moves, so gold investors are keenly following the Federal Reserve and looking for hints regarding a rate policy. What can we expect from the Federal Reserve in the fourth quarter? Earlier in 2017, the Federal Reserve was full of optimism that a strong US economy would warrant three rate hikes during in 2017. Fast forward to September – the economy has generally performed well, but the US continues to grapple with weak inflation levels. A strong labor market has not helped push inflation higher, as wage growth remains soft. Fed policymakers have retreated from their earlier optimistic forecasts, and have been counseling caution and patience regarding rate increases. As for a December hike, the odds have been below 50% for months. Currently, the odds are pegged at 46%, which is an improvement from last week. However, the positive August CPI data could be a sign that at long last, inflation is moving in the right direction. If the markets feel this is the case, the odds of a December hike should increase.
Gold has posted two straight winning weeks, but that streak could be over, as the metal is down about 1 percent this week. Much of the loss can be attributed to the easing of tensions in the Korean peninsula. As a safe-haven asset, gold had moved higher in recent weeks, as tensions increased over North Korea's nuclear program. North Korea fired missiles over Japan and tested a nuclear device, drawing sharp reactions from the US, Japan and South Korea. However, a lull in the crisis has seen investors return to risk assets, triggering lower gold prices. Still, North Korea remains a geopolitical hot spot, and investors could flock back to gold if the war of words between US President Trump and North Korean President Kim Jong-un escalates and Kim decides to shake things up in the region with a missile launch or nuclear test.
Pound Jumps Above 1.34 as BoE Hints at Rate Hike
The British pound has surged in the Thursday session. In North American trade, GBP/USD is trading at 1.3393, up 1.40% on the day. On the release front, the Bank of England held the benchmark rate at 0.25%, but hinted at a rate hike before the end of the year. In the U.S., CPI and Core CPI both improved in August. CPI gained 0.4%, edging above the forecast of 0.3%. Core CPI gained 0.2%, matching the forecast. There was more good news from the labor market, as unemployment claims fell to 284 thousand, well below the forecast of 303 thousand.
As expected, Mark Carney & Co. opted to hold interest rates at 0.25%, where they have been pegged since August 2016. There have been calls for the BoE to raise rates in order to fend off high inflation levels, but most policymakers are of the opinion that current economic conditions do not warrant a rate hike. However, what surprised the markets was the minutes of the September rate decision, in which the BoE said that if current economic conditions continue, then "withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target". The strong guidance from the BoE was unusual, and set the stage for a likely rate hike in November, when the BoE holds its next policy meeting. Investors reacted positively to the hawkish message from the bank, sending the pound sharply higher. At the same time, Monetary Policy Committee (MPC) members have remained consistent in their views on interest rate hikes – seven members voted to hold rates, with two members favoring a rate hike. This outcome was identical to the market forecast of the MPC interest rate vote.
Earlier in the year, the Federal Reserve was full of optimism that a strong US economy would warrant three rate hikes during in 2017. Fast forward to September – the economy has generally performed well, but the US continues to grapple with weak inflation levels. A strong labor market has not helped push inflation higher, as wage growth remains soft. Fed policymakers have retreated from their earlier optimistic forecasts, and have been counseling caution and patience regarding rate increases. As for a December hike, the odds have been below 50% for months. Currently, the odds are pegged at 46%, which is an improvement from last week. However, the positive August CPI data could be a sign that at long last, inflation is moving in the right direction. If the markets feel this is the case, the odds of a December hike should increase.
Pound Hits 1-Year High vs Dollar as BOE Signals Higher Rates
On Thursday, the Bank of England decided to keep interest rates and its two asset purchase programs unchanged. However, the pound rallied to a one-year high against the dollar and near to a two-month high versus the euro after the monetary statement revealed that the central bank might raise interest rates sooner than markets anticipate.
During European trading hours, the majority of the Monetary Policy Committee concluded that interest rates should remain steady at 0.25%, while the central bank should maintain government bond purchases at 435bn pounds and corporate bond purchases at 10bn pounds.The decision was taken as policymakers aimed for accommodative policy to support growth and the labor market even as inflation, currently at 2.9%, is running above the BOE's target of 2%.
However, the minutes of the meeting hinted that if the British economy develops as expected, then the MPC members see scope for stimulus reduction in the coming months "to a somewhat greater extent" than markets have forecasted. According to the statement, MPC members judged that interest rates should be raised gradually and to a "limited extent" over the coming months as they anticipate inflation to break above 3% in October and to continue fluctuating above the target for a couple of years, while unemployment has declined to a 42-year low. Markets are currently pricing a probability of 50% for rates to go up in November and an 80% chance in February 2018.
Besides that, the statement mentioned that risks to the economic outlook remain on track given the uncertainty around the Brexit talks and its impact on consumer and business behavior after the country leaves the European union. For that reason, the minutes noted that the committee will closely monitor any adjustments to the above that might affect the economic outlook and act accordingly in order to achieve its inflation goals.
Turning to the vote results, those were in line with forecasts. Seven out of nine members agreed to keep rates unchanged despite rumors that the BOE's chief economist, Andy Haldane, would follow the hawks, Ian McCafferty and Michael Sanders, who voted for a rate hike.
Looking at the reaction in forex markets, the pound touched a one-week low of $1.3149 in the wake of the decision but while markets were going through the statement, the currency surged by 1.70% to a one-year high of $1.3371, before retreating to $1.3357. Euro/pound tumbled by 1.24% near to a two-month low of 0.8874.
Inflation Growth in US Supports Greenback
The US dollar rally continued today and we saw a sharp rise in volatility following the release of important macro data on inflation in America. The consumer price index for August increased by 0.4% versus the 0.3% expected and 0.1% in the previous period. Alongside the core consumer price index also grew by 0.2% which was in line with expectations and twice better than in July. Acceleration of inflation may force FOMC members to vote in favour of another interest rate hike in December and that will add further strength to the greenback. USD was under pressure over the past month due to internal political reasons with the current administration, the geopolitical confrontation with North Korea and the dovish mood of traders regarding a third rate increase by the Fed for 2017.
The pound ignored the positive trend of the USD due to hawkish rhetoric from the Bank of England. Despite leaving the key rate at 0.25%, officials of the central bank pointed to possible monetary tightening in the UK over the next months. At the same time, it was noted that in case of confident economic expansion the monetary policy may be tightened by more than what the market is expecting. These statements were met favourably by sterling bulls but their optimism may be hurt by negative news over Brexit talks or further US dollar strengthening.
The aussie kept losing ground despite the growth of employment by 54,200 in August compared to the 17,500 expected. The descending impulse is mostly explained by weak statistics from China, according to which industrial production slowed to 6.0 % growth in July which was 0.6% worse than expected. The Australian economy is particularly sensitive to changes in Chinese industrial data as the nation is the main importer of Australian commodities.
EUR/USD
The EUR/USD quotes demonstrated high volatility levels after the price was able to fix below 1.1925. This may be a reason for continued declines to 1.1750 and 1.1620. The MACD signal line on the 15-minute chart just crossed the zero line which points to a possible negative trend continuation. In case of growth resuming, the closet resistance lines will be located at 1.1925 and 1.2000.
GBP/USD
The bullish impulse on the GBP/USD chart resulted in the renewal of this year's highs. The closest target within the positive trend is at 1.3400 and its overcoming may stimulate investors to push the price up to the 1.3500-1.3600 range. In case of profit taking we may see a rollback with the closet goals at 1.3250 and 1.3150.
AUD/USD
The AUD/USD demonstrates a confident descending impulse after some consolidation near the 0.8000 level. The RSI on the 15-minute chart approached the oversold zone, that together with the price coming close to the angled support line, may result in an upward rebound soon with potential growth to 0.8000. The next target within the local descending trend will be at 0.7870.
Trade Idea Wrap-up: USD/CHF – Hold short entered at 0.9680
USD/CHF - 0.9665
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 0.9662
Kijun-Sen level : 0.9658
Ichimoku cloud top : 0.9598
Ichimoku cloud bottom : 0.9552
Original strategy :
Sold at 0.9680, Target: 0.9580, Stop: 0.9705
Position : - Short at 0.9680
Target : - 0.9580
Stop : - 0.9705
New strategy :
Hold short entered at 0.9680, Target: 0.9580, Stop: 0.9705
Position : - Short at 0.9680
Target : - 0.9580
Stop : - 0.9705
Although the greenback has jumped again in NY morning and rose briefly above 0.9700 level, loss of upward momentum should prevent sharp move beyond there and consolidation with mild downside bias remains for test of support at 0.9618 but break there is needed to signal an intra-day top is formed, bring weakness to 0.8584 support, break there would provide confirmation, bring subsequent fall towards the lower Kumo (now at 0.9552).
In view of this, we are inclined to turn short on further subsequent rise. Above said resistance at 0.9705 would extend gain to 0.9725-30 but still reckon upside would be limited and 0.9761-66 (50% Fibonacci retracement of 1.0100-0.9421 and previous resistance) should hold, risk remains for another retreat to take place soon.
Trade Idea Wrap-up: GBP/USD – Stand aside
GBP/USD - 1.3388
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 1.3274
Kijun-Sen level : 1.3274
Ichimoku cloud top : 1.3283
Ichimoku cloud bottom : 1.3245
New strategy :
Stand aside
Position : -
Target : -
Stop : -
Despite intra-day brief drop to 1.3153, lack of follow through selling on break of support at 1.3161 and the subsequent rally signal recent upmove is still in progress and further gain towards 1.3410-15 (61.8% projection of 1.2909-1.3329 measuring from 1.3153) cannot be ruled out, however, loss of upward momentum should prevent sharp move beyond 1.3440-50 and reckon 1.3470-80 would hold from here, risk from there has increased for a retreat later.
In view of this, would not chase this rise here and would be prudent to stand aside in the meantime. Below 1.3340-45 would bring pullback to 1.3300-05 but only break of the Kijun-Sen (now at 1.3274) would signal an intra-day top is formed, bring weakness to 1.3250, however, downside should be limited to 1.3195-00.
Trade Idea Wrap-up: EUR/USD – Hold long entered at 1.1855
EUR/USD - 1.1878
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 1.1874
Kijun-Sen level : 1.1890
Ichimoku cloud top : 1.1974
Ichimoku cloud bottom : 1.1964
Original strategy :
Bought at 1.1855, Target:1.1955, Stop: 1.1835
Position : - Long at 1.1855
Target : - 1.1955
Stop : - 1.1835
New strategy :
Hold long entered at 1.1855, Target:1.1955, Stop: 1.1835
Position : - Long at 1.1855
Target : - 1.1955
Stop : - 1.1835
As the single currency slipped again in NY morning and dropped to as low as 1.1838, as euro found support there and has rebounded, retaining our near term bullishness and as long as said support holds, mild upside bias remains for another bounce to previous support at 1.1926, however, break above there is needed to signal an intraday low is formed, brig further gain to 1.1950-55 and then 1.1975-80 but price should falter below yesterday’s high at 1.1995.
In view of this, we are holding on to our long position entered at 1.1855. Below said support at 1.1838 would signal recent decline from 1.2093 top is still in progress and may extend weakness to 1.1823 support, however, still reckon downside would be limited to 1.1800 and bring rebound later.
Trade Idea Wrap-up: USD/JPY – Buy at 109.65
USD/JPY - 110.65
Most recent candlesticks pattern : N/A
Trend : Up
Tenkan-Sen level : 110.68
Kijun-Sen level : 110.67
Ichimoku cloud top : 110.07
Ichimoku cloud bottom : 109.41
Original strategy :
Buy at 109.65, Target: 110.65, Stop: 109.30
Position : -
Target : -
Stop : -
New strategy :
Buy at 109.65, Target: 110.65, Stop: 109.30
Position : -
Target : -
Stop : -
As the greenback has maintained a firm undertone after this week’s rally, suggesting bullishness remains for the rise from 107.32 low to extend further gain towards 111.10-15, however, break there is needed to retain upside bias and encourage for headway to 111.40, having said that, near term overbought condition should prevent sharp move beyond another previous resistance at 111.71, bring retreat later.
In view of this, would not chase this rise here and would be prudent to buy dollar on subsequent pullback as 109.50-60 should limit upside. Below previous resistance at 109.40 would risk correction to 109.20 but only break there would abort and signal top is formed instead, bring weakness to 109.00 first.
Trade Idea: EUR/GBP – Sell at 0.8980
EUR/GBP - 0.8898
Original strategy :
Sell at 0.9095, Target: 0.8955, Stop: 0.9135
Position : -
Target : -
Stop : -
New strategy :
Sell at 0.8980, Target: 0.8850, Stop: 0.9020
Position : -
Target : -
Stop : -
The single currency only recovered to 0.9048 and has dropped again, bearishness remains for there selloff from 0.9307 top to extend weakness to 0.8845 (50% Fibonacci retracement of 0.8384-0.9307), however, near term oversold condition should limit downside to 0.8800-10 and reckon 0.8780-85 would hold from here, risk from there has increased for another rebound later.
In view of this, would not chase this fall here and we are looking to sell euro on recovery as previous support at 0.8982 (now resistance) should limit upside and bring another decline later. Above 0.9000-10 would defer and risk rebound to said resistance at 0.9048 but only break there would signal low is formed instead, bring a stronger recovery to 0.9090-00.
Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.
