2023-09-22 06:32

Market sentiments continue to reel in from the post-Fed meeting jitters (DJIA -1.08%; S&P 500 -1.64%; Nasdaq -1.82%), as the US 10-year Treasury yields rose to another fresh 17-year high near the 4.50% handle amid a high-for-longer rate outlook. Some resilience in the US labour market, reflected from lower-than-expected read out of US jobless claims overnight, just provided more room for the Fed to retain its hawkish stance further. For now, while Fed funds rate futures continue to reflect some doubts that the Fed may not follow through with its final rate hike this year, the timeline for rate cuts are now pushed back to a later timeline of 2H 2024. The US dollar saw some slight profit-taking (-0.1%) overnight, while gold prices remain weighed (-1.3%). On the other hand, crude oil prices have managed to eke out slight gains after a short blip from oversold technical conditions. Major US indices are finding themselves at a critical juncture, with the S&P 500 back to retest a key support at the 4,330 level. Similarly, the Nasdaq 100 faces a key test for dip-buyers at the 14,680 level. Rate-sensitive growth sectors have been bearing a greater brunt of the sell-off lately, with the SPDR S&P Semiconductor ETF seemingly breaking below its neckline of a head-and-shoulder formation on the daily chart. There is still the potential for a bullish divergence to be formed on the daily relative strength index (RSI), provided that the index turned higher over coming days, but the neckline resistance will have to be reclaimed. Failure to do so may leave the May 2023 low on watch for a retest at the 174.00 level. Source: IG charts Asia Open Asian stocks look set for a downbeat open, with Nikkei -1.16%, ASX -1.13% and KOSPI -0.90% at the time of writing, largely following through with the negative handover from Wall Street. The key focus today will be on the Bank of Japan (BoJ) meeting. With the BoJ Governor Kazuo Ueda floating the idea that the central bank could have enough data by year-end to determine whether to end negative rates, markets seem to perceive it as an imminent rate hike into early-2024. Therefore, all eyes will be on the Governor’s communications at the press conference for any slightest signs of hawkishness to validate such timeline. The USD/JPY has touched a new year-to-date high this week, with the pair still trading above the 145.00-145.80 range, where the BoJ had intervened with US$19.7 billion of yen-buying back in September 2022. With that, focus at the upcoming BoJ meeting will also be on how policymakers may address the weak yen and their willingness to tolerate a pull-ahead in the Japanese 10-year bond yields to levels last seen in 2013. A bearish divergence on the daily RSI points to some near-term exhaustion for now, but staying above its Ichimoku cloud pattern and various moving averages (MA) on the daily chart still leaves an upward trend intact for the pair. Rising yield differentials between the US and Japan government bond yields have touched a new 10-month high, which may still provide some upward bias for the pair. Source: IG charts On the watchlist: Silver prices attempt to stay supported with some dip-buying Silver prices have been resilient lately, with a post-Fed sell-off on Thursday met with some dip-buying overnight, as seen by the formation of a bullish pin bar on the daily chart. Thus far, prices have been edging higher upon a retest of an upward trendline support in place since August 2022, with higher lows on Moving Average Convergence/Divergence (MACD) pointing to some upward momentum. Further upside may leave the US$24.50 level on watch for a retest, where the upper edge of its months-long consolidation pattern resides. Whereas on the downside, the upward trendline support will be an immediate support to defend by the bulls. https://www.dailyfx.com/news/asia-day-ahead-risk-off-sentiments-in-place-boj-meeting-on-the-radar-ahead-20230922.html

2023-09-22 06:30

USING PPI TO TRADE FOREX: TALKING POINTS PPI stands for the Producer Price Index, which is an important piece of economic data PPI data is released during the second week of each month. Forex traders can use PPI as a leading indicator to forecast consumer inflation measured by the Consumer Price Index (CPI). PPI is an important piece of economic data due to its signaling effect on future expected inflation. Traders monitor PPI in forex trading because of the positive relationship between inflation and interest rates, but ultimately, traders are concerned with how the resultant interest rate changes are likely to affect currency pairs. Continue reading to learn more about the PPI index and how it affects the foreign exchange market. WHAT IS PPI AND WHAT DOES IT MEASURE? PPI stands for Producer Price Index and measures the change in the price of finished goods and services sold by producers. PPI data represents the monthly change in the average price of a basket of goods purchased by manufacturers. How is PPI calculated? PPI examines three production areas; commodity-based, industrial-based, and stage-of-processing-based companies. Released by the Bureau of Labor Statistics, PPI is created using data collected from a mailed survey of retailers selected via a process of systematic sampling of all firms listed with the Unemployment Insurance System. Traders can see changes in PPI expressed as a percentage change from the previous year, or on a month-to-month basis. PPI and inflation A positive change in the PPI index implies that costs are rising and, in the end, price increases get passed down to consumers. If this effect is large enough, there will be an increase in future CPI figures to reflect that the general level of prices has increased. Inflation and the effect on the economy An increase in the general price level is good for an economy but only when this is contained. When demand for goods and services increases, businesses must increase capital expenditure and hire more workers in order to increase their output to meet higher demand. The problem arises when prices increase drastically, resulting in a decrease in the purchasing power of a country’s currency. $1 can buy less than it could one year ago, for example. In the 1950s, gasoline was $0.27, while apartment rent was $42/month and a movie ticket was $0.48. These figures are nowhere near to where they are today, and this reflects how inflation erodes the value of local currency. In an attempt to combat the erosion of purchasing power, central banks effectively reduce inflation by raising the benchmark interest rate. HOW DOES PPI IMPACT CURRENCIES? When it comes to money there is always a trade-off: individuals can save money and earn interest, or they can spend money immediately and forgo any interest payments. If PPI is on the rise it may cause the interest rates to rise. When interest rates go up, electing to save money looks more attractive as the reward (interest) is greater than before. Spending money becomes costlier because consumers would effectively be losing out on the higher interest rate when they choose to spend money instead of saving. As a result, increased PPI may filter down into increased rates and a stronger currency. Using the Euro as an example, forex traders know that higher interest rates results in increased financial flows by foreign investors wanting to buy the higher yielding Euro. This effect tends to drive the value of the Euro up as the demand for the Euro has increased. A popular strategy chasing higher interest rates is the “carry trade” strategy; whereby traders borrow funds in a currency that has a low interest rate and buy a currency with a higher interest rate. Money follows yield and traders will look to take advantage of this. HOW PPI AFFECTS THE US DOLLAR The Producer Price Index tends to have little effect on the US dollar initially. This is because in the real economy there is a time lag between the increase in prices from producers, and the end result of higher inflation resulting from consumers having to fork out more at the tills. However, don’t be misled by the “low priority” impact assessment of this data release. Astute traders are able to forecast the knock-on effects PPI is likely to have on CPI and interest rates and trade accordingly. Thus, the most valuable component of the PPI data is the signaling effect it provides to the market. https://www.dailyfx.com/education/forex-fundamental-analysis/how-to-use-ppi-in-forex-trading.html

2023-09-22 06:28

US DOLLAR, JAPANESE YEN, USD/JPY, BANK OF JAPAN – TALKING POINTS: BOJ kept negative rates on hold. JGB 10-year yield target and band maintained. What is the outlook for USD/JPY and what are the signposts to watch? The Japanese yen tumbled against the US dollar after the Bank of Japan (BOJ) kept its ultra-loose policy settings and maintained the target around 0% and the cap of 1.0% for the 10-year bond yield. The Japanese central bank was widely expected to keep its policy settings unchanged at the two-day meeting as policymakers wait for more evidence of sustained price pressures. Markets are now focusing on Governor Kazuo Ueda’s briefing for any cues on the timing of the policy shift. In a recent interview, Ueda said the central bank would have enough information and data by the year-end on prices to assess whether to end negative rates, raising speculation of an early exit from current policy settings. USD/JPY 5-Minute Chart Chart Created Using TradingView With inflation continuing to stay well above the central bank’s target, it could be a matter of time before BOJ removes its foot off the ultra-loose monetary pedal. Data released earlier Friday showed Japan’s core inflation rose to 3.1% on-year in August, higher than the 3.0% expected, staying above BOJ’s 2% target. Many in the market believe the BOJ will end its negative interest rates policy next year. Japan Core Inflation and JGB 10-Year Yield Source data: Bloomberg; chart created in Microsoft Excel The central bank’s move in July allowing greater flexibility for long-term rates to move was seen as a step closer toward an exit from the current policy settings. See “Japanese Yen Drops as BOJ Keeps Policy Unchanged: What’s Next for USD/JPY?” published July 28. Since then, the Japan 10-year government bond yield has risen to a fresh-decade high, catching up with rising yields globally as central banks maintain hawkishness amid stubbornly high price pressures. USD/JPY Weekly Chart Chart Created Using TradingView The divergence in monetary policy between Japan and its peers has pushed USD/JPY toward the three-decade high of 152.00 hit in 2022, within the territory that invited intervention in the currency market last year, prompting verbal intervention by Japanese authorities recently. While any intervention could put brakes on JPY’s weakness, for a more sustainable strength in JPY an exit from ultra-loose policy settings by Japan and/or a step back from hawkishness by its peers would be required. USD/JPY 240-Minute Chart Chart Created Using TradingView On technical charts, while the uptrend has slowed in recent weeks, it is by no means over. Even on intraday charts, USD/JPY continues to hold above vital support levels. For instance, on the 240-minute charts, USD/JPY has been trending above the 200-period moving average since July. A break below the moving average, which coincides with the mid-September low of 146.00 would be a warning sign that the two-month-long uptrend was changing. A fall below the early-September low of 144.50 would put the bullish bias at risk. On the upside, USD/JPY is approaching a stiff ceiling at the 2022 high of 152.00. Above 152.00, the next level to watch would be the 1990 high of 160.35. https://www.dailyfx.com/news/japanese-yen-tumbles-as-boj-maintains-status-quo-usd-jpy-eyes-150-20230922.html

2023-09-21 04:17

JAPANESE YEN PRICE, CHARTS AND ANALYSIS: Yen Receives Temporary Support from Comments by FX Diplomat Masato Kanda. IG Client Sentiment Still has a Majority of Retail Traders Short on Both EUR/JPY and USD/JPY. Can the FOMC and BoJ Meetings Serve as a Catalyst for JPY Pairs? To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section. YEN FUNDAMENTAL BACKDROP The Japanese Yen continues to hover near its YTD lows against counterparts such as the US Dollar, Euro and the GBP. Very little has changed from a Yen perspective with weakness in the Japanese Currency usually met by some form of comments of late from either Government or Bank of Japan (BoJ) officials which seem to keep Yen bears in check. As we have discussed of late, BoJ Governor Ueda and Government officials appear to be using commentary as a softer approach to actual FX intervention. In sticking with the recent trend, as USDJPY broke above the stubborn resistance around the 148.00 mark in the Asian session we heard comments from FX Diplomat Masato Kanda who stated that they are watching FX moves with a “sense of urgency”. Just a couple of weeks ago we heard from former BoJ officials about the 150.00 mark being seen as key for USDJPY which goes against the official rhetoric of the BoJ which has been targeting volatility rather than FX levels. The official stance by the BoJ may have something to do with the relationship between Japan and the US. Treasury Secretary Yellen stated that Yen intervention depends on the details of the situation with Kanda confirming that Japan is indeed in contact with US authorities over FX. Secretary Yellen said the US understands the need to smooth out following undue volatility, but not to attempt to influence the level of exchange rates. Markets continue to keep a watchful eye for now but when remains anyone’s guess for now. RISK EVENTS AHEAD Later today we have the US FOMC meeting which with a bullish message could accelerate a potential run towards 150.00 for USDJPY. This could prove intriguing and worth keeping an eye on given the size of the selloff following last year's intervention. Tomorrow, we have the BoE rate decision and in light of a slowdown in UK inflation we could be in for a pause. We will end the week with Japanese inflation and the BoJ interest rate meeting. There isn’t any expectation of a further tweak in policy on Friday but as the Japanese Central Bank have shown of late, don’t expect a warning. For all market-moving economic releases and events, see the DailyFX Calendar PRICE ACTION AND POTENTIAL SETUPS EURJPY EURJPY has kept up with the trend in Yen pairs of late, with selling pressure proving to be short-lived thus far. As is evident on the Daily chart below where I had a potential head and shoulders pattern in play, the break of the neckline proved short-lived with n follow through. EURJPY has since found support with the 50-day MA and rallying higher today, up around 100 pips (0.27%) on the day. The 160.00 psychological level has thus far held firm. The recent weakness experienced by the Euro no doubt also hampering the ability of a breakout. For now, rangebound opportunities may remain in play with the BoJ likely to focus on USDJPY when determining its FX intervention strategy. The only cautious word I have is for would be longs in keeping their risk management in check in case of a USDJPY rally around tonight’s FOMC meeting which could trigger the BoJ into action. EURJPY Daily Chart Source: TradingView, prepared by Zain Vawda Key Levels to Keep an Eye On: Support levels: 157.40 (50-day MA) 155.90 154.73 (100-day MA) Resistance levels: 159.00 160.00 (psychological level) USDJPY USD/JPY Daily Chart Source: TradingView, prepared by Zain Vawda From a technical perspective, USD/JPY has been confined to a tight range on the daily timeframe. As you can see on the chart below (pink block) price has been confined between the 146.50 and 147.90 handles since September 4. We did have a brief pop lower on September 11 but failed to close below the support level of 146.50. Today’s daily candle is on curse for a shooting star close but could change dramatically following the FOMC meeting. I would say that it may be wise to await a daily candle close today before getting any FOMO about missing opportunities. Any break above 148.00 and acceleration closer to the 150.00 handle has to deal with the impending threat of intervention. Which begs the question is the smarter play being long or short at this stage? Key Levels to Keep an Eye On: Support levels: 146.50 145.00 143.60 (50-Day MA) Resistance levels: 147.90 150.00 (Psychological level) Taking a quick look at the IG Client Sentiment Data which shows retail traders are 77% net-short on USDJPY. https://www.dailyfx.com/news/japanese-yen-price-action-setups-usd-jpy-eur-jpy-key-levels-identified-20230920.html

2023-09-21 04:14

FOMC INTEREST RATE DECISION KEY POINTS The Fed hit the pause button at its September meeting, holding interest rates at a 22-year high of 5.25% to 5.50%. Policymakers upgraded their GDP outlook and reduced the core PCE projection for the year. Meanwhile, the dot-plot continued to signal another hike in 2023. Gold and the U.S. dollar headed in different directions after the FOMC statement was released. The Federal Reverse today concluded its highly anticipated September meeting, unanimously voting to keep its benchmark interest rate at a 22-year high within the range of 5.25% to 5.50%, in line with Wall Street expectations and market prices. The move to uphold the present position reflects a commitment to a data-driven approach, with a focus on assessing the impact of past actions on the broader economy. In alignment with this perspective, Chair Powell has unequivocally stated recently that the central bank’s policy stance “will depend on the economic outlook as informed by the totality of the incoming data”. To provide some context, the Fed has raised borrowing costs 11 times since 2022, delivering 525 basis points of cumulative tightening to contain elevated price pressures. This strategy seems to be yielding results, albeit at a gradual pace. At its peak last year, annual inflation exceeded 9.0%, but has since slowed 3.7%, a welcome improvement, but still too high relative to the 2.0% target to declare victory. AUGUST HEADLINE AND CORE US INFLATION CHART Source: BLS FOMC POLICY STATEMENT In its communiqué, the Fed struck a positive tone on growth, noting that economic activity has been expanding at a solid pace, a subtle upgrade from the previous "moderate" characterization. The optimism was bolstered by comments on the labor market, which underscored that job gains have slowed but remained strong. Regarding consumer prices, the statement noted that inflation remains elevated and that policymakers will be “highly attentive” towards the associated risks, mirroring comments from two months ago. Shifting the spotlight to forward guidance, the language remained the same, with the Fed noting that it would consider various factors “in determining the extent of additional policy firming that may be appropriate to return inflation to 2 percent over time”. Keeping this guidance unchanged might be a strategic move to preserve maximum flexibility should additional actions become necessary in the future. SUMMARY OF ECONOMIC PROJECTIONS GDP, UNEMPLOYMENT RATE AND CORE PCE The September Summary of Economic Projections revealed significant revisions compared to the estimates provided in the previous quarter. First off, gross domestic product for 2023 was upgraded to 2.1% from 1.0% previously to reflect the economy's enduring resilience and continued robustness. Looking ahead to 2024, the GDP outlook revised upwards, from 1.5% to 1.1%, thereby alleviating any concerns about an imminent recession. Directing our focus to the labor market, policymakers foresee an unemployment rate of 3.8% in 2023, down from 4.1% in June. With regard to inflation, the core PCE forecast for 2023 was marked down modestly, dropping to 3.7% from the previous 3.9%. Meanwhile, the projection for 2024 held steady at 2.6% FED DOT PLOT The dot plot, which illustrates the anticipated trajectory of borrowing costs across multiple years as envisioned by Fed officials, remained somewhat consistent with the version presented in June. That said, the median interest rate projection for 2023 stayed unchanged at 5.6%, implying 25 basis points of additional tightening this year. For 2024, the U.S. central bank sees interest rates inching down to 5.1%, marking a shift from the 4.6% projection in the previous dot plot. This signals a reduced level of easing in the forecast, suggesting that interest rates are expected to persist at elevated levels for a longer period. The following table provides a summary of the Federal Reserve's updated macroeconomic projections. Source: Federal Reserve In the immediate kneejerk reaction, gold prices erased some of its session gains, as U.S. Treasury yields and the U.S. dollar drifted upwards. Overall, the Fed's hawkish monetary policy outlook should be positive for the greenback and rates in the near term, creating a challenging backdrop for precious metals. In any case, Powell’s press conference may offer more insight into the central bank’s future steps. US DOLLAR, YIELDS AND GOLD PRICES CHART Source: TradingView https://www.dailyfx.com/news/forex-fed-pauses-but-says-another-hike-is-possible-gold-and-us-dollar-go-separate-ways-20230920.html

2023-09-21 04:11

S&P 500, SPX, NASDAQ 100, NDX - OUTLOOK: US equity indices pulled back sharply after the Fed stuck with its hawkish rhetoric. The S&P 500 index and the Nasdaq 100 look set to test vital support levels. What are the outlook and the key levels to watch in the three US indices? US indices fell after the US Federal Reserve stuck with the hawkish script, projecting one more rate hike before the end of the year and fewer rate cuts than previously indicated. The S&P 500 and the Nasdaq 100 index look set to test support that could define the trend for the coming weeks. The Fed kept the fed funds rate unchanged at 5.25%-5.5%, in line with expectations while lifting the economic assessment to ‘solid’ from ‘moderate’ and leaving the door open for one more rate hike as ‘inflation remains elevated’. The Summary of Economic Projections showed 50 basis points fewer rate cuts in 2024 than the projections released in June. The Committee now sees just two rate cuts in 2024 which would put the funds rate around 5.1%. For equities, positive real yields and above-average valuations are likely to pose constraints on a meaningful upside from here. Also, according to some estimates, Fed policy is now in restrictive territory for the first time since the Great Financial Crisis – negative interest rates and accommodative Fed policy have been major tailwinds for equities over the past decade. S&P 500 240-Minute Chart Chart Created by Manish Jaradi Using TradingView. S&P 500: From Over the top to under the top? The sharp fall overnight leaves the S&P 500 index vulnerable to a test of vital support converged support on the 200-period moving average on the 240-minute charts, coinciding with the June low of 4325. Furthermore, the changing structure of the uptrend since early 2023 raises the odds of an eventual break below the support. That is, from remaining above the Ichimoku cloud on the 240-minute charts, the index appears to be shifting to under the cloud. Granted, the price action is still unfolding, and in this regard, a cross below support at 4325 would be key for the broader direction. Such a break could open the door toward the 200-day moving average (at about 4200). Nasdaq 100 Daily Chart Chart Created by Manish Jaradi Using TradingView Nasdaq 100: Retreats from a crucial ceiling The failure of the Nasdaq 100 index to cross above a crucial ceiling on the median line of a rising pitchfork channel since the end of 2022 has opened the gates for a test of converged support, including the 89-day moving average and the August low of 14560. Any break below the support would create a lower high in the index for the first time since the rally began in early 2023. If the index is unable to break below 14560, then the path of least resistance would remain sideways to up given the Moving Average Convergence Divergence indicator is in positive territory on the weekly charts. However, any break below 14560 could open the way toward the 200-day moving average (now at about 13450). Zooming out, and looking at the bigger picture, as highlighted in a recent update, the momentum on the monthly charts has been feeble compared with the huge rally since late 2022, raising the risk of a gradual weakening, similar to the gradual drift lower in gold since May. For more discussion, see “Is Nasdaq Following Gold’s Footsteps? NDX, XAU/USD Price Setups,” published August 14. https://www.dailyfx.com/news/us-indices-risk-support-break-after-hawkish-fed-s-p-500-nasdaq-price-action-20230921.html