The data published by Automatic Data Processing (ADP) showed on Wednesday that private sector employment in the US rose by 239,000 in October. This reading came in better than the market expectation of 193,000. September print of 208,000 got revised down to 192,000.
Developing story...
The US Dollar Index showed no immediate reaction to this data and was last seen losing 0.22% on the day at 111.30.
Bank Negara Malaysia (BNM) could make an impasse in its tightening cycle at the November 3 event, suggests Lee Sue Ann, an Economist at UOB Group.
“Given that inflation expectations are anchored to official targets and risks to the domestic growth outlook are tilting to the downside, we believe BNM will tread more cautiously”.
“We expect BNM to take an intermittent pause to assess the effect of its cumulative 75bps rate hikes to date, domestic policy outcomes, as well as higher external risks and weaker global outlook. As such, we expect the OPR to be left unchanged at 2.50% at the coming Nov meeting”.
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.
“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.”
DXY bounces off multi-session lows in the 111.80/75 band on Tuesday.
So far, the index looks poised to keep navigating within a 112.00-114.00 range at least until the next FOMC event.
The prospects for extra gains in the dollar should remain unchanged as long as the index trades above the 8-month support line near 108.00.
In the longer run, DXY is expected to maintain its constructive stance while above the 200-day SMA at 103.43.
EUR/USD gyrates around the 0.9800 region ahead of the release of US Nonfarm Payrolls on Friday.
The resumption of the buying interest is expected to meet a solid hurdle at recent peaks around the parity zone. Ideally, EUR/USD should leave behind this key resistance zone in the near term to allow for the continuation of the rebound.
In the longer run, the pair’s bearish view should remain unaltered while below the 200-day SMA at 1.0616.
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.
“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.”
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.
“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.”
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
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.
Liz Truss won the Conservative Party leadership race to become the next British Prime Minister.
"I will deal with long-term issues on energy supply," Liz Truss said in her acceptance speech and noted that she will deal with the crisis in households' energy bills.
"I will govern as a conservative."
"I intend to deliver what we promised voters in 2019."
"I will deliver a bold plan to cut taxes and grow our economy."
"We will deliver a great victory for the conservative party in 2024."
The UK's FTSE 100 Index showed no immediate reaction to these comments and was last seen losing 0.6% on a daily basis. Meanwhile, the GBP/USD pair continues to fluctuate at around 1.1500 during the European trading hours.
The USD/CHF stages a comeback after hitting weekly lows around 0.9577 earlier in the day and is about to erase Thursday’s losses as the USD/CHF aims towards the 100-DMA, following hawkish remarks by the US Federal Reserve Chief, Jerome Powell. The USD/CHF is trading at 0.9659, up by almost 0.20%.
Consolidation in the daily chart will keep the USD/CHF trading within the 0.9600-0.9690 range, as shown by this week’s price action. Worth noting that the support/resistance levels are the 100 and 50-day EMAs, each at 0.9657 and 0.9614, respectively. Therefore, unless the exchange rate decisively breaks above/below the range, the USD/CHF might remain subdued.
LONDON (Reuters) - The dollar lurked below recent highs on Tuesday as traders awaited this week's key U.S. inflation print for any signs that price pressures are finally abating and that the need for further aggressive U.S. interest rate hikes is easing.
Unexpectedly strong U.S. jobs data on Friday had boosted the greenback, which posted its biggest daily percentage gain since mid-June against the yen that day as investors ramped up bets on a 75 basis point (bps) rate rise in September.
But the currency has pulled back since then as focus shifted to Wednesday's July consumer price index (CPI).
The dollar index, which measures the currency's value against a basket of other peers, was marginally lower at 106.23. It held below a more than one-week peak hit on Friday at 106.93.
Sterling was little changed at around $1.2055 and the euro was 0.2% firmer at $1.0213. The dollar was also flat around 134.90 yen.
"I'm a bit concerned about inflation tomorrow. The market has been wrong-footed all year and if we get a strong core inflation print that will nail expectations for a 75 bps rate hike in September," said Kenneth Broux, a currency strategist at Societe Generale (OTC:SCGLY) in London.
"It's too soon to say it's time to short the dollar as the Fed may have to do more."
The U.S. Federal Reserve hiked rates by a hefty 75 bps in June and July. Money-market futures show traders see about a two-thirds chance of a 75 bps hike next month and have started pushing expectations for rate cuts deeper into 2023.
Economists polled by Reuters see year-on-year headline inflation at 8.7% - incredibly high, but below last month's 9.1% figure. The Fed targets inflation at 2%.
Last week's strong labour data stoked expectations of aggressive near-term hikes, pushing short-dated Treasury yields further above long-term peers.
The gap between two and 10-year Treasury yields, a reliable recession indicator, has grown to its largest in two decades. [US/]
On Monday, a New York Fed survey showed consumers' inflation expectations fell sharply in July, perhaps offering a sliver of hope that the CPI release brings relief.
"The market understandably is waiting for the numbers to then reprice, rather than moving in anticipation of them," said Ray Attrill, head of foreign exchange strategy at National Australia Bank (OTC:NABZY) in Sydney.
The dollar's haven status, though, makes the greenback's reaction a little harder to predict, especially as growth and geopolitical worries swirl.
Consumer confidence slid in Australia for a ninth straight month and the Australian and New Zealand dollars edged lower as London trade got under way.
China extended military drills near Taiwan, and the self-ruled island's foreign minister said China was using the drills launched in protest against U.S. House Speaker Nancy Pelosi's visit as an excuse to prepare for an invasion.
DXY leaves behind Tuesday’s strong advance and sparked a corrective downside soon after hitting new 3-day peaks in the mid-106.00s on Tuesday.
Tuesday’s bounce did not clear any up barrier of note and thus leaves the index vulnerable to further weakness in the very near term at least. On this, the dollar faces the tangible chance to slip back to the multi-week lows in the 105.00 region (August 2) in the short term. This initial area of contention remains propped up by the proximity of the 55-day SMA, today at 104.84.
Furthermore, the broader bullish view in the dollar remains in place while above the 200-day SMA at 99.62.
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.
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.
UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest inflation figures in the Malaysian economy.
“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%.
The GBP/USD pair attracted some dip-buying near the 1.1960 area on Monday and shot to a nearly three-week peak during the mid-European session. The pair was last seen trading around the 1.2065-1.2070 region, up over 0.50% for the day.
Friday's better-than-expected flash UK PMI prints reaffirmed market bets for a 50 bps rate hike by the Bank of England in August and continued acting as a tailwind for the British pound. On the other hand, a positive turnaround in the global risk sentiment - as depicted by a strong intraday rally in the equity markets - weighed on the safe-haven US dollar. In fact, the USD Index languished near its lowest level since July 5 touched on Friday, which, in turn, was seen as another factor that provided a goodish lift to the GBP/USD pair.
The greenback, in terms of the US Dollar Index (DXY), leaves behind Thursday’s pullback and regains the area beyond 107.00 the figure at the end of the week.
The index extends the erratic performance so far this week and advances north of the 107.00 yardstick, as market participants seen to have already digested the start of the hiking cycle by the ECB on Thursday.
Contrasting with the upbeat tone in the buck, yields in the US cash markets continue their march south and already navigate in multi-session lows across the curve ahead of the key FOMC event due on July 27.
In the NA session, the advanced Manufacturing and Services PMIs for the month of July will be the only releases of note later in the NA session.
The index looks side-lined in the 107.00 neighbourhood amidst a broad-based range bound theme so far this week.
In the meantime, the dollar remains underpinned by the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.
Key events in the US this week: Flash PMIs (Friday).
Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.
Now, the index is up 0.49% at 107.12 and faces next contention at 106.38 (weekly low July 20) followed by 103.67 (weekly low June 27) and finally 103.41 (weekly low June 16). On the other hand, a break above 109.29 (2022 high July 15) would expose 109.77 (monthly high September 2002) and then 110.00 (round level).
EUR/USD is hovering around 1.0700 and is expected to establish above the same amid a broadly subdued US dollar index (DXY). EUR bulls are swiftly scaling higher after the less hawkish Fed minutes downed the US dollar. Focus on US GDP and PCE inflation.
EUR/USD pares intraday gains around 1.0700 while stepping back from an immediate resistance line. In doing so, the major currency pair reverses the previous day’s pullback from the monthly high during Thursday’s Asian session.
Although a downward sloping trend line from Tuesday restricts the nearby EUR/USD upside around 1.0710, the quote’s ability to stay firmer past the 100-HMA and the 200-HMA keeps the buyers hopeful of overcoming the nearby hurdle.
Also favoring the upside bias is a one-week-old ascending trend line and the bullish MACD signals, not to forget firmer RSI (14).
Bolstered rate hike expectations by the European Central Bank (ECB) have underpinned the euro against the greenback. Inflation is affecting the real income of the households in the eurozone and the ECB has yet not paddled up its interest rates unlike the other Western leaders, which are featuring 50 basis points (bps) rate hikes. The eurozone inflation has reached 7.5% and the ECB needs to tighten its sleeves and announce quantitative restrictions.
Meanwhile, Dutch Central Bank head and ECB Governing Council member Klass Knot stated on Wednesday that inflation expectations will remain well-anchored at its upper limit and a rate hike by 50 bps is not off the table.
On the dollar front, the DXY is underperforming broadly despite the release of the extremely hawkish Federal Open Market Committee (FOMC) minutes. As per the minutes, all Fed policymakers were in favor of a jumbo rate hike announcement. Also, they believe that the benchmark rates should be sent close to the neutral rates quickly. Inflation will remain anchored at elevated levels and the labor market is extremely tight.
Going forward, investors will respond to the US Gross Domestic Product (GDP) and Personal Consumption Expenditure (PCE) numbers. The US GDP is seen unchanged at -1.4% on annual basis. Also, the US PCE is expected to remain stable at 7%.
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:
- 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.
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.
