USD/IDR to grind higher toward next resistance at 15,832 – TDS

 Bank Indonesia (BI) hiked rates by 50 bps as expected. Nonetheless, economists at TD Securities expect the USD/IDR to advance nicely toward the 15,832 resistance.

Another 50 bps hike cannot be discounted if IDR weakens aggressively

“BI hiked by another 50 bps, bringing the 7-day reverse repo rate to 4.75%. BI Governor Warjiyo noted that the hike was a ‘front-loaded, pre-emptive and forward-looking step to lower inflation expectations that are too high or overshooting’. However, we think the policy path ahead leans more on the pace of IDR depreciation given BI's historical focus on FX. Further, Warjiyo commented that the Bank wants to control the IDR to prevent imported inflation.”

“We see a gradual move for USD/IDR higher towards its next technical resistance level at 15,832 (76.4% Fib level over 5 yr-window).” 

“BI likely won't tolerate any sharp one-sided moves in IDR and another 50 bps hike cannot be discounted if IDR weakens aggressively against the USD and compared to its regional peers.”

Gold Price Forecast: XAU/USD to come under pressure if real rates remain elevated – SocGen

 Gold has resisted higher real rates, strong dollar and fund outflows, but remains vulnerable, in the view of strategists at Société Générale.

Gold has outperformed treasuries and TIPS so far this year

“In the past, we have observed that gold seems to correlate well with three factors – US real rates, the dollar and ETF flows (regression r-squared of almost 95%). However, the price of gold has remained quite elevated compared to the theoretical value yielded by our models.”

“If real rates remain elevated for the foreseeable future, one of the assets that could come under pressure is gold.”

“Gold has outperformed treasuries and TIPS so far this year, but may not be able to resist the high yield for much longer if there is no pivot in the near-term from the Fed.”

EUR/USD Price Analysis: Upside remains capped by 1.0100

 

• EUR/USD fades the initial bull run to 0.9985/90.
• The resumption of the selling pressure could retest the YTD low.

EUR/USD climbed to the proximity of 0.9990 earlier in the session, just to deflate afterwards and return to the 0.9930 region.

Against that, the inability of the pair to regain serious upside traction should keep the door to further retracement open in the near term. Extra losses face the immediate target at the 2022 low at 0.9877 (September 5) seconded by 0.9859 (December 2002 low) and then 0.9685 (October 2002 low).

The continuation of the downtrend remains in the pipeline, as the daily RSI around 36 still allows for some weakness prior to reach the oversold territory.

In the longer run, the pair’s bearish view is expected to prevail as long as it trades below the 200-day SMA at 1.0780.

Malaysia: Inflation surprised to the upside in June – UOB

 UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures in the Malaysian economy.

Key Takeaways

“Headline inflation breached the 3% level for the first time this year at 3.4% y/y in Jun (from 2.8% in May). It came in higher than ours and Bloomberg consensus of 3.2%. Price pressures broadened with more consumer price index (CPI) components recording larger price increases last month compared to the preceding month, led by food and transport components.”

“We expect CPI growth to jump above 4.0% in 2H22 after averaging 2.5% in 1H22. Our 2H22 inflation outlook largely rests on high commodity prices, year-ago low base effects, persistent currency weakness, changes in some staple food prices (i.e. chicken, eggs and cooking oil), and recovering domestic demand. The new targeted fuel subsidy mechanism, which is currently under pilot testing, will pose upside risks to our inflation outlook should it be implemented over the next few months.   As such, our current full-year inflation forecast of 3.0% is subject to upward revision next month when the Jul CPI reading is released (vs. 2.5% in 2021, BNM est: 2.2%-3.2%).”

“The combination of factors including broadening second-round effects on inflation, firmer domestic economic recovery, and diminishing real interest rate gap with US continue to suggest a need for further policy normalisation. We expect Bank Negara Malaysia to deliver another 25bps rate hike at the next MPC meeting on 7-8 Sep, taking the Overnight Policy Rate (OPR) to 2.50%.

Germany's Habeck: We want to prevent a domino effect in gas market

  

German Economy Minister Robert Habeck said on Tuesday that they will stick to their plan of prioritizing private households in case of a gas emergency, as reported by Reuters.

"The gas market situation is tense, cannot say whether more protection measures will be needed," Habeck added. "We want to prevent a domino effect in the gas market."

Market reaction

Safe-haven flows continue to dominate the financial markets following these remarks. As of writing, Germany's DAX 30 Index was down 1.5% on the day at 12,580.50 points.

EUR/USD eyes 2020 lows at 1.0637 as USD regains poise

 

 The latest candle on the four-hour chart closed below 1.0700. The Relative Strength Index (RSI) indicator on the same chart stays near 40 and the descending line coming from April 21 stays intact, highlighting EUR/USD's bearish bias in the near term. 

It's worth noting that EUR/USD will touch its weakest level since April 2017 with a drop below 1.0635. Sellers might see such a move as a profit-taking opportunity and trigger a correction in the pair. In that case, 1.0700 (psychological level) aligns as the next recovery target before 1.0730 (static level) and 1.0760 (static level).

On the downside, a daily close below 1.0640 is likely to open the door for additional losses toward 1.0600 (psychological level) and 1.0570 (static level from March 2017).

AUD/USD to advance back toward 0.75 by year-end – ANZ

 After a tough start to the year, the AUD has rebounded convincingly to become one of the leaders in the G10. Economists at ANZ Bank expect the AUD/USD to move sideways in the near-term before staging a leg higher to the 0.75 level by year-end.

Challenging risk environment will keep rallies capped 

“The terms of trade improvement and a strong domestic economy are likely to keep the AUD well supported, though a challenging risk environment will keep rallies capped.”

“We believe the aussie will be mostly rangebound through the middle part of 2022 before a global growth recovery helps propel a move back to 0.75 by year-end.”

Euro sinks to multi-year lows versus dollar, Swiss franc and sterling

The euro fell to a seven-year low versus the Swiss franc and hit its lowest point in almost two years versus the dollar on Friday as the war in Ukraine lowered expectations of European economic growth.

The European single currency fell 2.1% this week, and was set for its worst week since April 2020.

It was down 0.5% to $1.1010 at 0850 GMT, near its weakest level since May 2020, following news Russian forces seized the largest nuclear power plant in Europe after a building at the complex was set ablaze during fighting with Ukrainian defenders, Ukrainian authorities said on Friday.

Authorities later said the fire in a building identified as a training centre had been extinguished. U.S. Energy Secretary Jennifer Granholm said there were no indication of elevated radiation levels at the plant.

Versus sterling, the euro also hit its weakest level of 82.61 pence since July 2016. It touched its lowest level since January 2015 of 1.0114 against the safe-haven Swiss Franc.

Analyst said the effects of surging energy and gas prices will likely undermine European consumption and economic growth prospects.

"The ECB is going to have no alternative but to look through this surge in inflation but the Fed is not going to delay so we will see more monetary divergence again," said Mike Kelly, head of global multi-asset at PineBridge Investments.

"The dollar should be getting a new spring in its step structurally if things do get worse," Kelly added.

The U.S. dollar index rose 0.36% to 98.073, after touching its highest level since June 2020 against a basket of peers.

While money markets do not expect interest rate hikes at the ECB's next meeting, the U.S. Federal Reserve is all but certain to raise interest rates at its March 15-16 meeting for the first time since the coronavirus pandemic.

Fed Chair Jerome Powell repeated his comments that he would back an initial quarter percentage point increase in the benchmark rate.

In Ukraine, Russian forces were pressing on with surrounding and attacking cities.

Elsewhere, the Australian dollar continued its advance, helped by the commodities boom, and rose 0.6% to a four-month high of $0.7370 versus the U.S. dollar.

High energy prices in turn have prevented the Japanese yen from benefiting as much from the safe haven flows, as Japan is a net importer of energy.

The yen briefly climbed on the dollar when news of the fire emerged, but later gave up those gains and was little changed at 115.37 per dollar.

Dollar Rises as Treasury Yields Hit 2-Year High

The dollar rose in early dealings in Europe on Tuesday, pulled higher as concerns over inflation pushed 10-year U.S. government bond yields to their highest in over two years. 

The yield on the 10-year U.S. benchmark rose as high as 1.86% in the overnight session, a level it last saw when practically no-one outside China had heard of Covid-19.  The two-year benchmark yield, which is more sensitive to expectations for short-term interest rates, also broke above 1% for the first time in two years.

By 3 AM ET (0800 GMT), the dollar index, which tracks the greenback against a basket of advanced economy currencies, was up 0.1% at 95.287. 

The dollar returned briefly above the 115 yen level after Bank of Japan Governor Haruhiko Kuroda said the bank hadn't discussed the possibility of raising interest rates, as had been reported by newswires last week. That was despite the fact that the bank raised its outlook for inflation slightly to 1.1% for the next two years. That is still well below the bank's 2% target.

"For the foreseeable future, we see little chance of the BoJ adjusting policy rates," said Oxford Economics analyst Shreena Patel. "We believe the yen will remain weak this year but that room for further depreciation is limited."

USD/JPY traded at 114.79, up 0.2% on the day. 

The dollar had hit a five-year high against the yen earlier this month, amid expectations that the Federal Reserve will tighten monetary policy much more this year than the BoJ. The Fed's first policy meeting of the year takes place next week, and policymakers have now entered their usual blackout period ahead of it. 

In Europe, the pound was flat against the dollar at $1.3639 but edged up against the euro despite numbers showing that unemployment fell by less than expected in the three months through November. Analysts zeroed in on a sharp downward revision to the claimant count in November and to a bigger-than-expected drop again in December, suggesting that the U.K. economy rode out the first part of the winter wave of Covid-19 comfortably enough.

The euro was also little changed against the dollar at $1.1402, ahead of the release of the German ZEW economic sentiment index for January.

In emerging markets, the ruble weakened again amid growing fears that President Vladimir Putin will send his tanks across the Ukrainian border again. USD/RUB rose 0.4% to 76.40, although the movement was largely in line with other emerging market currencies as the dollar strengthened again. 

The ruble typically reacts badly to geopolitical shocks emanating from Russia, but the country's foreign exchange reserves stand at a record high, while its public debt is low and foreign currency borrowing by its corporates has fallen by nearly half since the last time it invaded Ukraine in 2014. With prices for oil and other commodity prices still high, the ruble has various pillars supporting it. 

We Provide Live Forex Trading Tips with Fundamental and Technical Analysis.

The main news last weekend

  1️⃣ The main news last weekend

 - US unemployment rate recorded 5.4% in July

 - US Treasury Secretary Yellen Will Fight Reform Plans To Weaken Cryptocurrencies

 - Biden government considers stopping funding and other measures to stimulate vaccination

 - US$1 trillion infrastructure plan passed by Senate

 - Saudi Aramco: Committed to increase crude oil production to 13 million barrels per day

 2️⃣ Notable events and data today

 - China's July CPI annual rate, the expected value is 0.8%, and the previous value is 1.1%.

 - China's annual M2 money supply ratio in July, expected value is 8.7% and previous value is 8.6%.

 - Bostic, Chairman of the FOMC and Atlanta Fed voting committees, delivered a speech in 2021.

 - 2021 The FOMC Voting Committee and Fed Chairman Richmond Barr delivered speeches.

 - Closed Market Reminder: The Japan-Tokyo Stock Exchange will be closed for one day due to a mountain holiday.

For Live Forex Signals Register Now