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.

German government expects economy to contract by 0.4% in 2023 – Reuters

 The German government still expects the economy to tip into recession next year despite the gas price brake that was presented on Monday, Reuters reported on Tuesday, citing government sources.

The economy is now expected to contract by 0.4% in 2023 and inflation is seen at 8% and 7% in 2022 and 2023, respectively.

Market reaction

This headline doesn't seem to be having a noticeable impact on risk mood. As of writing, Germany's DAX 30 Index was down 0.83% on a daily basis at 12,171.81 points.

AUD/NZD to slide towards the 1.12 level – OCBC

 AUD/NZD continued to trade with a heavy downside bias amid growing policy divergence between the Reserve Bank of Australia and the Reserve Bank of New Zealand. Economists at OCBC Bank maintain a short bias targeting 1.12.

Risks remained skewed to the downside

“RBNZ’s accompanying MPS was slightly more hawkish than expected as it noted that the MPC considered 50, 75 bps at this meeting; core CPI is ‘too high’ and lower NZD if sustained poses further upside risk to CPI.”

“We maintain our tactical short play on AUD/NZD, targeting 1.12, 1.1050 objectives.”

“Daily momentum is bearish while RSI fell. Risks remained skewed to the downside.”

“Support at 1.1240, 1.1210 levels.”

“Resistance at 1.1305 (21 DMA), 1.1380 levels.

EUR/GBP to extend its advance once key resistance at 0.8720 is reclaimed – SocGen

 EUR/GBP picks up bids to reverse Friday’s losses. Economists at Société Générale expect the pair to extend its race higher on a break past 0.8720.

Short-term support aligns at 0.8560

“EUR/GBP recently gave a break above the descending trend line drawn since 2020 denoting potential upside. This is also highlighted by weekly MACD which is now firmly anchored within positive territory and above its trigger.” 

“The pair is close to key graphical resistance of 0.8720. Once this is reclaimed, the up move is likely to extend towards projections of 0.8860 and perhaps even towards 0.8980/0.9010.” 

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).”

US Dollar Index Price Analysis: The surpass of the YTD high exposes 109.77

 

• DXY remains bid and flirts with the 2022 top near 109.30.
• Further north of comes the September 2002 high around 109.80.

DXY keeps the rally well and sound and trades at shouting distance from the YTD highs near 109.30 on Tuesday.

The continuation of the upside momentum looks increasingly likely in the very near term. That said, beyond the 2022 high at 109.29 (July 14) the index could challenge the September 2002 peak at 109.77 prior to the round level at 110.00.

In the meantime, while above the 6-month support line near 105.10, the index is expected to keep the short-term positive stance.

Looking at the long-term scenario, the bullish view in the dollar remains in place while above the 200-day SMA at 100.49.

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.”

EUR/USD Price Analysis: Range bound within 1.0100-1.0260 since July 22

 

• The EUR/USD is set to finish the week almost flat, gaining 0.05%.
• The shared currency daily chart is neutral-to-downwards, but the hourly is neutral-to-upwards.
• EUR/USD Price Analysis: A daily close above 1.0200 could pave the way towards 1.0300; otherwise, it might drop towards 1.0096.

The EUR/USD is trading at 1.0220, after hitting a daily high at 1.0254, but later tumbled towards the daily low at 1.0145 on elevated US inflation data. In June, the Personal Consumption Expenditures (PCE) rose by 6.8% YoY, fueling expectations of additional Federal Reserve rate hikes, despite the market's pricing in only 80 bps of tightening.

EUR/USD Price Analysis: Technical outlook

From a daily chart perspective, the EUR/USD remains neutral-to-downward biased, helped by the 20-day EMA lying below the exchange rate at 1.0167. Nevertheless, the EUR/USD, unable to capitalize on an upbeat market mood, and broad US dollar weakness, keeps the shared currency exposed to further selling pressure. If EUR/USD buyers want to shift the bias to neutral, they must reclaim the May 13 low-turned-resistance at 1.0348. Once cleared, a challenge of the 50-day EMA at 1.0423 is on the cards. On the other hand, if EUR/USD sellers achieve a daily close below 1.0200, that would pave the road towards 1.0096.

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%.

US Dollar Index Price Analysis: Room for a test of YTD highs

 

• DXY resumes the upside beyond the 103.00 yardstick.
• Next on the upside comes the cycle tops near 104.00.

The index leaves behind the pullback seen at the end of last week and advances above the 103.00 area on Monday.

Price action in DXY remains supportive of the resumption of the uptrend with the initial target at the 2022 highs just below the 104.00 yardstick (April 28). Above this level comes 105.63 (December 11 2002 high).

The current bullish stance in the index remains supported by the 8-month line near 96.80, while the longer-term outlook for the dollar is seen constructive while above the 200-day SMA at 95.56

📕 Comment on Gold on April 29, 2022:

 📕 Comment on Gold on April 29, 2022:

 - In yesterday's trading session, after precious metal fell to 1871, Gold rallied strongly to 1896 ($25), closed the day session with a bull pusher and in the early morning of this day Gold continued to rise.  up to around 1905. With the current showing of good upward momentum, my view will be to prioritize the bullish option for this precious metal.

 - On the H4 time frame, bullish force also prevails and the nearest support area for this precious metal is around 1895-1898, Here we can establish a buy position with a safe target around the threshold.  1910-1915.

US: Weekly Initial Jobless Claims fall to 180K vs. 180K expected

 

• Weekly initial claims and continued claims were broadly in line with expectations according to the latest report. 
• The US dollar weakened as a result of weak US GDP data and ignored the latest jobless claims figures. 

There were 180,000 initial claims in the US economy in the week ending on 23 April, in line with consensus estimates and a slight decline from last week's 185,000 reading which was revised up from 184,000, according to data released by the US Department of Labour on Thursday. That meant that the four-week average of initial claims rose to 179,750 from 177,500 a week prior. 

Continued claims in the week ending on 16 April saw a slight fall to 1.408M from 1.409M a week prior, a little above the expected drop to 1.403M. The insured unemployment rate thus came in at 1.0% in the week ending on 16 April, unchanged from a week earlier. 

Market Reaction

FX markets did not react to the latest broadly as expected jobless claims report but rather reacted to weak US growth numbers, with the US dollar weakening slightly. 

USD/CHF pares intraday gains to fresh YTD peak, downside seems limited amid stronger USD

 

• USD/CHF jumped to a fresh YTD peak on Wednesday amid the prevalent USD buying interest.
• Bets for aggressive Fed rate hikes, a bleak global economic outlook continued boosting the USD.
• The risk-on impulse could undermine the safe-haven CHF and supports prospects for further gains.

The USD/CHF pair retreated a few pips from its highest level since May 2020 touched during the first half of the European session and was last seen trading just below the mid-0.9600s.

The pair prolonged its recent strong bullish run witnessed since the beginning of this month and gained follow-through traction for the fifth successive day on Wednesday. The momentum was sponsored by sustained buying around the US dollar, which climbed to a more than two-year peak amid the prospects for a more aggressive policy tightening by the Fed.

Investors now expect the Fed to raise interest rates by 50 bps at each of its next four meetings in May, June, July and September. The bets were reaffirmed by the recent hawkish comments by influential FOMC members, including Fed Chair Jerome Powell. This, along with the deteriorating global economic outlook, boosted the greenback's reserve currency status.

Expectations for rapid interest rate hikes in the US, prolonged Russia-Ukraine conflict and the latest COVID-19 outbreak in China have raised fears of stalling global growth. Investors now seem worried that Russia could follow through on its threat to halt gas flows to countries that refuse to pay for fuel in roubles and cut off supplies to Europe.

That said, extremely overbought conditions held back traders from placing fresh bullish bets and kept a lid on any further gains for the USD/CHF pair, at least for now. The intraday bias, however, remains tilted in favour of bulls amid the prevalent strong bullish sentiment surrounding the USD and the risk-on impulse, which tends to undermine the safe-haven Swiss franc.

Market participants now look forward to second-tier US economic releases for some impetus later during the early North American session. The data, along with Fed rate hike expectations, would influence the USD price dynamics. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/CHF pair.

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).

📕 Comment on Gold on April 25, 2022:

 📕 Comment on Gold on April 25, 2022:

 - Ending the last trading week, precious metal Gold closed with a bearish candle with quite strong force around 1931 and in the early morning of today Gold continued to decline to around 1921, the price turned around.  exactly the same as the starting point of the rally 2 weeks ago.

 - Gold is currently in the support zone 1917-1920.  It is likely that Gold will recover slightly here after a fairly strong drop last week and in my opinion it is likely that Gold will recover to around the 1940 level here we need to wait and see a sell signal.  .  If Gold cannot recover and break through the 1917-1920 threshold, the possibility of this precious metal will slide down to 1900-1890.

US dollar hits three-month high on safe-haven buying

 

 The US dollar rallied to a three-month high in safe-haven buying on Tuesday, and investors remained right.  The rapidly spreading variant virus is causing concern because it could stifle global economic growth.

 Commodity currencies that are associated with risk appetite, such as the Australian dollar and New Zealand dollar, have experienced tough trends.  As worries about the highly contagious variant of the Delta virus flare up again, investors will choose to hedge or stay out.  Delta virus is currently the main novel coronavirus in the world.

 The number of infections in the United States has risen sharply, especially in areas where vaccinations are lagging.  The US dollar rose and US Treasury yields fell.  The 10-year US Treasury yield fell to a five-month low below 1.20% on Monday, as markets once again cast doubt on the economy's strong recovery from the outbreak.

 “The shift in relative growth expectations is weakening capital outflows from the United States and increasing the attractiveness of investments,” said Karl Schamotta, chief market strategist at Cambridge Global Payments.  in dollars.."

 “I think the dollar’s ​​safe-haven strength is justified, because global economic growth is weak and not as strong as it was in the quarter,” said Juan Perez, forex strategist and trader at Tempus Inc.  first, so all valuations and economic growth are now called into question in terms of high expectations, that's true"

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The Federal Reserve eased stimulus concerns: Market News

 The market's pulse

Let's take a closer look at how these and other important events affect currency prices: 

Currencies

MARKET VIEW

Weekly changes: EURUSD -0.46%, GBPUSD -0.88%, USDJPY -0.19%, NZDUSD -0.14%

The EURUSD pair closed the week at 1.18036. Earlier that week, the price declined and tested 1.1770. The ECB will declare its monetary policy strategy this Thursday.

GBPUSD fell to 1.37613, near its multi-month low of 1.37300. Yesterday U.K. reported the most significant one-day COVID cases spread since the start of the year. Meanwhile, the BoE officials talked about reducing their asset purchase programme, but it looks like words will remain only words for now.

USDJPY finished Friday at 110.053, almost unchanged for the week. The Bank of Japan surprised no one with its inaction. Governor Haruhiko Kuroda said nothing we didn’t already know, i.e. that the Japanese economy remains in a bad state, but activity will be picking up amid vaccine progress.

The hefty inflation lifted the New Zealand dollar. The market now considers the RBNZ to be the first major central bank to raise the rate next month. Although the greenback was that firm, it erased the local currency from the current range, so the NZDUSD pair closed Friday below 0.70000 with minor weekly changes.

BULLISH TRIGGERS

The ECB will hold a meeting, and it probably will move the markets because of its hawkish tone of voice.

The BoE released relatively hawkish comments from its official last week about reducing the asset purchase programme sooner than anticipated. This Monday, the country will end all legal COVID restrictions. The BoE concluded its meeting but hasn't changed any policy settings.

BEARISH TRIGGERS

If the ECB meeting results are as non-eventful as were previous ones, the EURUSD will be under pressure. The regulator may delay announcing its hawkish steps till publishing the new summer data.

In the U.K., the focus remains on recent COVID developments in the absence of meaningful events. The Japanese currency was damaged by the BoJ decision of downgrading economic forecasts.
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Check out the news that happened in the last 24 hours

  1️⃣ Yesterday's main news

 - The re-emergence of the epidemic caused panic, European and American stock markets plunged, crude oil plummeted.

 Biden: If the trend of high inflation continues, the US economy could face serious complications.

 - US Treasury Secretary Yellen convenes US regulators to discuss stablecoin rules.

 - Iran's Foreign Ministry: The next round of talks in Vienna will be held after the formation of a new Iranian government.

 - The size of ESG investment fund exceeds 160 billion, maximum profit of 290% in three years.

 - Members of the two Banks of England believe that austerity policies should not be premature.

 2️⃣ Today's Financial Facts and Data

 - The listed interest rate of the one-year loan market from China to July 20 will be announced.

 - The Reserve Bank of Australia will release the minutes of its July monetary policy meeting.

 - The Eurozone current account will be published after the May seasonal adjustment.

 - The price of NYMEX New York crude oil for August futures is affected by the position change.  The last transaction on the exchange will be completed at on July 21, and the last transaction on the exchange will be completed. Also, the expiration times of some US oil contracts on some exchanges are usually a day earlier than the official NYMEX, so pay extra attention.

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