BoE: Looking for a 75 bps rate hike next week – Rabobank

 Next week, the Bank of England will have its monetary policy committee meeting. Analysts at Rabobank look for a 75 basis points rate hike to 3.00% from 2.25%. They explain that it would still be the largest rate hike of this cycle. They expect to see rates peaking at 4.75%.

Key Quotes: 

“After the mini-Budget disaster of late-September, we shifted our call for the November MPC from +50 to +100 bps. We have dialled back our forecast to +75 bps, as most of the political and financial market upheaval has subsided. This is also the consensus among economists.”

“The central bank needs to show markets that it is cognizant that confidence in the UK’s institutional framework has been damaged, but there is no need for crisis management anymore. Still, a 75 bps hike would still be Britain’s largest of this cycle. We think it will also be a one-off, allowing the central bank to move back to a more gradual pace of 50 bps and then 25 bps rate increases this winter.”

“While inflation should remain around 10% in upcoming months, the outlook for growth has weakened markedly. Even as the August Monetary Policy Report was already sombre, forecasting a fifteen-month recession, we expect more of this gloominess rather than less.”

UK PM Truss Spokesman: Working in preparation for a medium-term fiscal plan on October 31

 UK PM Liz Truss's spokesman said in a statement on Friday, “we are working in preparation for a medium-term fiscal plan on October 31.”

 He added that “the new PM will decide whether it will be delivered then.”

Market reaction

GBP/USD found some support on the above headlines, as it moved away from weekly lows at 1.1100, currently trading at 1.1130, still down 0.91% so far.

AUD/USD to fall towards 0.60 after RBA’s dovish decision – MUFG

 The Reserve Bank of Australia’s (RBA) surprise decision to slow the pace of tightening by delivering a smaller 25 bps hike weighed on the aussie. Economists at MUFG Bank expect the AUD/USD pair to challenge the 0.6000 level.

RBA policy update reinforces downside risks

“We continue to believe that risks remain tilted to the downside for commodity currencies in the near-term.”

“The RBA’s policy shift has increased the likelihood that AUD/USD will fall towards the 0.6000 level.”

Stocks still look expensive and valuations look high – Morgan Stanley

 Will the fourth quarter bring an end to the bear market? Morgan Stanley’s Global Investment Committee believes this bear market is far from over and recommends investors consider three key dynamics to inform their equity investments going forward.

Stock investors should demand a greater premium for taking on risk

“The paths for interest rates, inflation and corporate profitability all remain uncertain. That’s why stock investors should be demanding a greater premium for taking on risk. In other words, stocks still look expensive, and valuations look high, especially given that inflation-adjusted yields have moved up.”

“Investors could be in for more surprises as they continue to overlook the impact of tightening financial conditions. They should be cautious about investing in long-duration or growth-oriented equities, which currently may not offer fair compensation for the risks of rising rates, weakening operating leverage and the strong US dollar.” 

“Any bear-market rally that may occur in the seasonally strong fourth quarter should be used for rebalancing portfolios and tax-loss harvesting.”

USD/CNH: Next on the upside comes 7.0500 – UOB

 Quek Ser Leang at UOB Group’s Global Economics & Markets Research suggests USD/CNH could retest 7.1000 once 7.0500 is cleared.

Key Quotes

“In our last Chart of the Day update from 29 Aug 2022, when USD/CNH was trading at a much lower level of 6.9200, we titled our update ‘USD/CNH could continue to advance, likely at a rapid pace as there are hardly any resistance levels of note until 7.0000’. While our view of a ‘rapid pace of advance’ was not wrong, USD/CNH did not break 7.0000 as it soared to 6.9967 about a week later before pulling back to a low of 6.9100.”

“USD/CNH rebounded sharply from 6.9100 and yesterday (15 Sep 2022), it cracked 7.0000. The break of the ‘psychological level’ resulted in a swift and sharp surge and USD/CNH continues to accelerate higher today. The price actions are not surprising as the next resistance level of note is at 7.0500. Looking ahead, if 7.0500 is broken, the focus will shift to 7.1000. Within these couple of months, the 2019 and 2020 highs, both near 7.1960, are unlikely to come into view.”

On the downside, the rising trend-line support, currently at 6.9400, is a strong support level but only a breach of the 21-day exponential moving average (at the time of writing, the level is at 6.9260) would indicate the current strong upward pressure has eased.”

BOE’s Pill: All inflation forecasts are dependent on very volatile gas prices

 

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Bank of England (BOE) Chief Economist Huw Pill is testifying on the bank’s Monetary Policy Report (MPR) before Parliament's Treasury Committee on Wednesday.

Also read: Bailey speech: Confident BOE will respond to price shock

Key comments

Goldman Sachs UK inflation forecasts are mechanical implication of wholesale gas markets.

Goldman Sachs forecasts illustrate how much market prices have changed since BOE prepared Aug inflation forecast.

Some of rise in gas prices has reversed since Goldman inflation forecast.

All inflation forecasts are dependent on very volatile gas prices.

Inflation forecast also depends on machinery by which wholesale gas prices translate into retail prices.

Politicians are considering transmission of wholesale gas prices to consumer.

Seems clear to me we will see changes in this area.

Inflation impact of future fiscal stimulus depends on details.

Supporting household incomes will boost demand, leading to slightly stronger inflation.

I would expect headline inflation to decline in short term.

Implication for inflation at monetary policy relevant horizon is unclear, given lack of detail.

Very short-term impact on government measures on inflation may not be most important thing for BOE.

Must emphasise importance of BOE inflation target as anchor, not consider new regime.

We are here to ensure fiscal policy does not generate inflation.

We think output measures of GDP are better measures of activity, as less distorted by problems with trade figures.

Hopefully quality of trade data will improve over time.

GBP/USD needs to clear strong resistance at 1.1870 to gather bullish momentum

GBP/USD has managed to recover above 1.1800 on Friday ahead of FOMC Chairman Jerome Powell’s remarks at the Jackson Hole Symposium. The pair will reveal a buildup of bullish momentum on a break past 1.1870, FXStreet’s Eren Sengezer reports.

Pound struggles to turn bullish ahead of Powell

“In case the chairman's comments suggest that the bank could opt for another 75 basis points in September, GBP/USD could turn south amid a stronger dollar. On the other hand, an optimistic tone inflation outlook should hurt the greenback and help GBP/USD gain traction.”

 On the upside, cable faces key resistance at 1.1870, where the Fibonacci 23.6% retracement level of the latest downtrend is located. Above that level, the 50-period SMA forms interim resistance at 1.1900 ahead of 1.1940 (Fibonacci 38.2% retracement).”

“1.1800 (psychological level, 20-period SMA) aligns as initial support before 1.1750 (static level, end-point of the downtrend) and 1.1720 (Aug. 23 low).”

Bailey speech: Will not comment on Conservative leadership candidates' plans

 

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Bank of England (BoE) Governor Andrew Bailey is delivering his remarks on the policy outlook and responding to questions from the press following the bank's decision to hike the policy rate by 50 basis points to 1.75%.

Key takeaways

"BOE will not comment on Conservative leadership candidates' plans."

"BOE has a very clear mandate of price stability."

"Consequences of Russia's actions in Ukraine have a serious economic impact."

"Political pressures have been very well managed since BOE independence."

"I have not abandoned the narrow path analogy for UK policy outlook."

"A number of central banks have a similar narrow path to tread."

About Andrew Bailey (via bankofengland.co.uk)

"Andrew Bailey previously held the role of Deputy Governor, Prudential Regulation and CEO of the PRA from 1 April 2013. While retaining his role as Executive Director of the Bank, Andrew joined the Financial Services Authority in April 2011 as Deputy Head of the Prudential Business Unit and Director of UK Banks and Building Societies. In July 2012, Andrew became Managing Director of the Prudential Business Unit, with responsibility for the prudential supervision of banks, investment banks and insurance companies. Andrew was appointed as a voting member of the interim Financial Policy Committee at its June 2012 meeting."

Indonesia: Inflation accelerated in July – UOB

 Enrico Tanuwidjaja, Economist at UOB Group, comments on the latest inflation figures in Indonesia.

Key Takeaways

“July’s headline inflation jumped to 4.9% y/y, breaching Bank Indonesia (BI)’s 4% target upper bound for the second month in a row and currently at 7-year high, while core inflation rose to 2.9% y/y, a 28-month high, from June’s 2.6%.”

“Inflation in July continued to be driven by upward pressures from food services and restaurants and transport, in addition to housing, water, electricity and household fuel.”

“We revised our 2022 inflation forecast now to average 4% viz. 3.3% previously and for BI to hike rates now in Sep instead of in Jul.”

US Dollar Index Price Analysis: Further losses not ruled out

 

• DXY accelerates the corrective decline to the 105.30 zone.
• Immediate to the downside appears the 55-day SMA at 104.75.

DXY navigates the fourth consecutive session with losses and revisits the 105.30 region at the beginning of the week.

The index broke below the multi-session pre-FOMC consolidative theme and in doing so it has paved the way for extra decline in the short-term horizon. That said, the immediate support now turns up at the interim 55-day SMA at 104.75 ahead of the 5-month support line around 103.85.

The near-term outlook for DXY remains constructive while above this 5-month support line near 104.00.

In addition, the broader bullish view remains in place while above the 200-day SMA at 99.49.

 GBP/USD struggles near two-day low, just above mid-1.3100s post

• A broad-based USD strength dragged GBP/USD lower for the second straight day on Thursday.
• The mixed UK PMI prints failed to impress bullish traders or provide any impetus to the major.
• The market focus remains glued to fresh developments surrounding the Russia-Ukraine saga.

The GBP/USD pair maintained its offered tone through the first half of the European session and had a rather muted reaction to mixed UK PMI prints. The pair was last seen trading just above mid-1.3100s, down nearly 0.35% for the day.

The pair extended the previous day's sharp retracement slide from the vicinity of the 1.3300 mark, or over two-week high and witnessed some follow-through selling for the second straight day on Thursday. The downtick was exclusively sponsored by a stronger US dollar, which continued drawing support from the Fed's hawkish outlook.

In fact, comments by influential FOMC members, including Fed Chair Jerome Powell, have been fueling speculation that the Fed would adopt a more aggressive policy response to combat high inflation. The markets were quick to react and started pricing in the possibility of a 50 bps rate hike at the upcoming meeting in May.

This was reinforced by elevated US Treasury bond yields, which were further underpinned by concerns that surging crude oil prices could put further upward pressure on already high consumer prices. Apart from this, the lack of progress in Russia-Ukraine peace negotiations further benefitted the safe-haven greenback.

On the other hand, the British pound was pressured by a dovish assessment of the Bank of England policy decision last week and its view around the need for future rate hikes. Bulls failed to gain any respite from an unexpected rise in the UK Services PMI, which was offset by a larger drop in the gauge for the manufacturing sector.

Market participants now look forward to the US economic docket, featuring the release of the fllash PMI prints, Durable Goods Orders and the usual Weekly Initial Jobless Claims. The focus, however, will remain on geopolitics amid expectations that US President Joe Biden will announce new sanctions targeting Russian politicians.

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Australian currency rises strong again

 Australian retail sales surge

The Aussie has bounced back on Monday, boosted by an excellent retail sales report for Q4. Retail sales surged 8.2%, above the consensus of 7.8% and ahead of the Q3 read of -4.4%. The end of the Covid-related lockdowns and the holiday season brought out consumers who were in a spending mood. The upswing in consumer spending has raised expectations that the RBA will hit the rate trigger in the second half of the year, perhaps as early as August.

At last week’s RBA meeting, Governor Lowe said that a hike could be a year away or even longer, but the markets aren’t buying it. Lowe is clearly in no rush to raise rates and may not have abandoned the view that inflation is transient and will ease in the near term. The markets, in contrast, are more hawkish and feel that high inflation will prompt the RBA to raise rates in the second half of 2022.

The US nonfarm payrolls was an absolute shocker, with a gain of 467 thousand jobs in January. Many analysts had projected a negative print, and the consensus of 125 thousand showed that expectations were quite low. With inflation at 40-year highs, wage pressures are rising. Average hourly earnings climbed 5.7% in January y/y, as workers seek higher wages due to the rise in the cost of living. The NFP report will raise expectations that the Fed will have to do more in order to stamp out high inflation.

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AUD/USD Technical

• AUD/USD faces resistance at 0.7168 and 0.7258
• There is support at 0.6987 and 0.6896

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AUD GOES UP TO 200%

 There has been a cause for pause against that moving average level over the last few hours. However a break above should open the door for further upside probing with the 50% midpoint of the move down from the January 13 high at 0.71403 as the next target to get to and through.

What next?

With traders pausing near the 200 hour moving average, there is the risk of sellers to take back more control and move the price back below the 0.70995 level ( 38.2% retracement) and toward the swing area between 0.7080 and 0.7090. Move below that level, and the 100 hour moving average will be targeted once again.

As mentioned above, a move back above the 200 hour moving average would open up the door for a test of the 50% of 0.71403

Fundamentally today, the Reserve Bank of Australia said they would stop the quantitative easing (that was expected). They also said that they expect inflation to move higher albeit temporarily, but above there 2% target (you can read the details on FOREX ADVICE CLUB). That projection helped to reverse the trend and pushed the price back above its 100 hour moving average.

 The AUDUSD is trading to a new session low. Risk off sentiment is kicking in as the Nasdaq is now down -93 points and the S&P has also now turned negative on the day. The Dow is holding onto a 60 point gain.

Looking at the daily chart, the pair has entered into a swing area between 0.6992 and 0.70627. That area goes back to the end of 2019. In early November 2020, the pair bottomed one last time in that area before moving higher (peaking in February of 2021) at 0.75544.

Since that cycle high, the pair has steadily moved back down, ultimately retesting the 2019/2020 swing area in December 2021. The subsequent bounce higher saw the 100 hour MA stall the rise in early January 2022. On January 13, a try above the 100 day MA failed. The price retested the level last week, but again found sellers. Buyers turned to sellers again. The 100 day MA currently come in at 07264.

Drilling to the 4-hour chart below, the pair has most recently moved away from a lower swing area between 0.7080 to 0.7090 (see green numbered circles on the chart below). That area is now close risk. Stay below keeps the sellers more in control with the low target from the daily at 0.6992 (the low in December reached 0.69935 before bouncing), the next key target. Move below it, and the door opens more to the downside.

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TODAYS US NATURAL GAS FORECAST

 US natural gas prices are slightly higher through Asia-Pacific trading after prices dropped over 5% overnight. Currently, the US benchmark is on track to record a monthly loss of around 15%, which would make December the third month of consecutive losses. A warmer-than-expected start to the winter across North America has been the main headwind for prices in recent months.

However, a bout of expected cold temps across the Northern Plains may underpin prices. The National Weather Service’s 8-14 day temperature outlook (NOAA) shows mercury readings will likely dip below the historical averages. Alaska and Southern California are also showing an increased chance for cold weather in early January. Natural gas is heavily relied upon as a heating fuel, making prices highly susceptible to weather trends.

Tonight will see an inventory report cross the wires for the United States for the week ending December 24. The Energy Information Administration (EIA) is expected to report a draw of 128 billion cubic feet (bcf), according to a Bloomberg survey of economists. A larger-than-expected draw may help support prices, especially if the expected cold snap plays out. EIA data shows natural gas stocks are 34 bcf below the five-year average. The unseasonably warm weather so far this winter has helped inventory levels normalize over the past few weeks.

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Overview on XAUUSD by Money Life Research

  The gold market price underwent a horizontal movement after the rise that took place last week, since this horizontal movement has been lingering since the market opened earlier this week.  Today look at the trends and reactions of the market.  Chances are it will drag on until the market shows the next reaction.

 On the chart, yesterday’s price is only testing at the next highest price where the resistance has been successfully broken at the price of 1800.00

 The continuation, at the current price now at 1815.00, this is the highest price yesterday.  What potential is seen can happen.  There are 2 probabilities that can occur at the current price.

 On my observation on the chart, the first thing that can happen is a rejection in the m15 timeframe because at the price of 1815.00 is the nearest resistance accompanied by a trendline confluence that was retested a few minutes ago.  So through this probability, a potential downtrend can occur.

 The second is a breakout at the price of 1815.00 and the fixed price continues to rise at least on hitting the price of 1825.00.  This is because in the past trend the downtrend still dominated the market price only after the increase took place, now the price makes a horizontal movement.  So a horizontal movement like this is no problem to buy and sell at the lowest and highest prices.

 If I do an entry sell, the risk and reward that I will take is between 1: 1.5-1: 3

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📕 Comment on Gold on August 6, 2021:

Ending yesterday's session, precious metal Gold had 1 day of decline from 1814 to 1797, closing the day session with a bearish candle around 1804. Although yesterday precious metal Gold was  there are deeper declines every day but the drop is not too strong and the support zone 1793-1797 has not been broken so in my opinion to trigger a deep drop, the precious metal will have to overcome this price zone.  

 - My personal view on precious metal Gold today is to wait for this precious metal to have another drop to the 1793-1797 price range, then wait for a recovery signal to buy up.  If the precious metal Gold breaks through 1793-1797, then 1781 will be the next support area of ​​the precious metal Gold today.

 XAUUSD H1

 The price drop occurred after the current price made the double top and failed to pass 1815.00 yesterday

 Today's market price movement managed to pass yesterday's lowest price and a possible decline can occur, if bullish engulfing is seen to occur on the m30 timeframe, and from this observation, a possible retracement can occur

 Among the prices that can be tracked is 1803.00 because it is the support price that was successfully broken early this morning.  However, the current price situation is more likely to look downtrend on current prices

 If the next candlestick manages to pass below this bullish engulfing, then this makes the engulfing invalid, if not passed then a potential short-term buy can occur with a stop loss on the lowest needle yesterday.

 Buying or selling at this point is allowed only on the basis of movement now the downtrend trend is stronger and now there is no clear setup except at the price of 1795.00 which was the support price a few days ago.

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📕 Comment on Gold on August 5, 2021

 In yesterday's trading session, we saw the following 2-way sweep of precious metal Gold, after rising to 1831 Gold fell back to 1806, closing the day with a bullish candle with a decent beard.  long term and if looking closely, the price is still in the sideways zone and hasn't changed much so my view on precious metal Gold today is still the same as yesterday.

We will continue to trade in its sideways range.  Establish a buy position when Gold reaches around the 1805-1808 support and consider selling when the price approaches the 1818-1820 resistance.
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Key points in the Reserve Bank of Australia's interest rate decision.

 ① Interest rate level: keeping the cash rate unchanged at 0.1% and maintaining the 3-year bond yield target of 0.1%;  The actual inflation rate will not increase until the real inflation rate remains within the target range of 2-3%.

 ② Monetary Policy: Committed to maintaining highly accommodative monetary conditions, continuing to buy government bonds at A$5 billion a week until early September, and then $4 billion  Australia a week, at least until mid-November

 ③ Interest rate hike expectations: Interest rate hike conditions will not be met before 2024

 ④ GDP Expectations: GDP will contract in Q9, with a slightly more than 4% growth in 2022 and around 2.5% growth in 2023.

 ⑤ Inflation expectations: inflation rate in 2022 will be 1.75%, in 2023 it will be 2.25%

 ⑥ Expected unemployment rate: Will fall to around 4.25% by the end of 2022 and around 4% by the end of 2023

Market Analysis: With the release of the latest New Zealand jobs report -The data is very positive.  The market for bets on a Federal Reserve rate hike has increased.  The Reserve Bank of New Zealand is expected to raise interest rates to 1% before the end of the year.

After the data was released the NZD was supported to increase.

After New Zealand's July jobs data performed better than expected, analysts from various investment banking institutions in Australia and New Zealand have now agreed that the Reserve Bank of New Zealand will raise interest rates.  25 basis points at its next policy meeting on August 18. It is certain, and the respective analyst also believes that it does not mean that the Reserve Bank of New Zealand will raise interest rates once and for all.  again in November and December, so the benchmark interest rate will increase to 1% at the end of the year.

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Check out the news that happened in the last 24 hours

  1️⃣ Yesterday's main news

 - Fed Governor Waller: The Fed may announce a reduction in debt purchases before September.

 - The text of the bipartisan infrastructure agreement completed this week is expected to vote on the bill.

 - US Treasury Department's cash balance drops to $459 billion.

 - US ISM manufacturing unexpectedly fell back in July, Markit manufacturing PMI hit a new high.

 - International Monetary Fund: USD valuation could be overvalued by 8.2%.

 - The size of euro governments and investment-grade corporate bonds hit record highs.

 - China Caixin manufacturing PMI fell to 50.3 in July, the lowest level since May 2020.

 2️⃣ Financial facts and data today

 - Reserve Bank of Australia announced the solution on interest rates

 - the monthly rate of PPI in the euro area for June will be announced

 - the monthly US factory order rate for June will be published.

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