2024-06-17 08:09

Euro Analysis: (EUR/USD, EUR/GBP, EUR/CHF) EUR/USD encapsulates the forces of a stronger USD and weaker euro Bank of England to tee up rate cut this summer? Will the SNB cut rates again despite Chairman Jordan’s currency comments The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library UK data returns to prominence this week with headline and core inflation expected to build on progress made in April but the Bank of England (BoE) remain laser focused on services inflation. Not long after UK CPI we have the BoE statement and press conference. Market consensus dictates that we’ll see another hold from the Bank but recent easing in the jobs market coupled with a stagnant economy in April could see the Monetary Policy Committee (MPC) tee up a rate cut for the summer. Alongside the BoE decision on Thursday, we’ll also get the Swiss National Bank rate decision. Markets expect another cut following the surprise cut in March, but Chairman Thomas Jordan has complicated this view after he mentioned the biggest threat to the inflation outlook is a weaker franc. Lower interest rates generally precede a period of depreciation in the local currency. Learn how to prepare for high impact economic data or events with this easy to implement approach: EUR/USD Encapsulates the Forces of a Stronger USD and Weaker Euro Euro dollar experienced a volatile week initially rising after encouraging US CPI data but then upward revisions to both the Fed funds and inflation outlooks spurred on the US dollar into the weekend. The pain encapsulates 2 forces at work with the first being a stronger U.S. dollar upon recent Fed forecast revisions, and the second being a vulnerable euro in the wake of political uncertainty in France. We've seen a flight to safety in the European bond market led by German Bunds - inflating the risk premium across Europe which historically has led to a weaker currency. This week we look to the 1.0700 for a potential pause in recent selling. Neither of the two currencies have major data releases planned for the week, offering up the potential for a reprieve for EUR/USD although, the RSI has not yet reached oversold conditions – something bears will be aware of. The pair will likely take its cue from political developments and the bond market this week. EUR/USD Daily Chart Source: TradingView, prepared by Richard Snow Bank of England to Tee up a Rate Cut this Summer? It is largely expected that the Bank of England will vote to keep rates on hold this week despite recent encouraging inflation numbers and unimpressive growth data for April. Adding to the list is the recent spike in claimant data (initial jobless claims) to levels not seen since early 2021. Unlike the US, the UK labour market has been easing in a fairly consistent manner which is something that will factor into the Bank's thinking this week. However, services inflation is still too high for comfort and BOE officials have communicated their determination in maintaining restrictive monetary policy until such time as it subsides sufficiently. Looking at the implied interest rate cuts for the rest of the year the market may be under appreciating the probability of a rate cut before November or even September. At present, a rate cut at the November meeting is fully priced in with the September meeting eyed as a strong possibility. Implied Interest Rate Probability (UK Bank Rate) Source: Refinitiv, prepared by Richard Snow EUR/GBP has depreciated quite markedly in the last few weeks as the pound has quietly gone about its business and enjoyed its superior interest rate differential. The pair broke below 0.8472 last week – a notable pivot point. The pair is likely to be watched closely in the runup to the French elections continues alongside top tier UK data/events. 0.8340 is the next level of support which may require a pullback before another leg to the downside. A retest and rejection of 0.8472 may keep bears interested. However, should the BoE alter its messaging to accommodate a more dovish view on rates, market pricing will have to adjust – leaving sterling vulnerable. EUR/GBP levels to the upside include 0.8515 followed by 0.8560. The RSI on the daily chart has recovered from oversold territory – potentially extending the counter-trend move at the start of the week. EUR/GBP Weekly Chart Source: TradingView, prepared by Richard Snow Will the SNB Cut Again Despite Chairman Jordan’s Currency Comments? EUR/CHF will be in focus this week as the Swiss National Bank (SNB) is due to meet this week. Markets factor in a 70% chance of another rate cut but the Chairman Thomas Jordan mentioned recently that the biggest threat to the inflation outlook is a weaker franc, which resulted in massive appreciation of the currency and runs the risk of the Bank ultimately deciding to hold rates at 1.5% to prop up the value of the franc. The pair rests at 0.9516 with little in the way between current ricing and the late December swing low at 0.9255. The pair appears to be recovering from oversold territory, meaning the counter-trend move may extend slightly until the SNB announcement. EUR/CHF Daily Chart Source: TradingView, prepared by Richard Snow https://www.dailyfx.com/news/central-bank-watch-upcoming-decisions-from-boe-and-snb-set-to-impact-eur-pairs-20240617.html

2024-06-15 09:00

Major Central Bank Analysis Bank of England likely to pave the way towards a rate cut this summer as inflation and the labour market show signs of continued easing Markets anticipate another cut from the Swiss National Bank RBA to stand pat, await further progress in inflation as economic growth slumps The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library With US CPI and the FOMC economic projections in the rear view mirror, markets will be looking ahead to more central bank activity when the Australian, Swiss and UK central banks meet this week to decide monetary policy. In addition, UK and Japanese inflation prints will be scrutinized for differing reasons. Japanese officials are hoping for evidence of greater ‘demand pull’ inflation while Britain is hoping to see price pressures improve (decline) after the April figures disappointed. Learn how to prepare for high impact economic data or events with this easy to implement approach: Bank of England Likely to Pave the Way Towards a Rate Cut in the Summer The Bank of England (BoE) is likely to keep rates unchanged when they meet next week but their messaging will be eagerly anticipated as conditions for a rate cut appear on the horizon. In April, inflation dropped encouragingly but was unable to match lofty expectations. The most recent jobs report also highlighted some nervousness in the labour market with more a flurry of claimants (for unemployment benefits) being registered in May (50k+). UK growth remains anaemic, with the economy stagnating in April with a print of 0% growth for the month. One sticking point for the BoE is inflation and more importantly services inflation which remains an issue. Average earnings has also proven to be sticky, failing to drop in the three month period ending in April when compared to the prior three months but this is less of a concern according to the BoE and their analysis. A move lower in services inflation would be a step in the right direction. Cable had a volatile week, driven almost entirely by top tier US data (US CPI, FOMC forecasts). The welcomed inflation data on Wednesday and subsequent rise in the pair was pulled back a few hours later with more hawkish revisions to the inflation outlook. Since then FX markets have prioritized the hawkish projections over the encouraging inflation data – the reverse of what has been seen in the US stock market as major indices achieved new all time highs. Continued progress in inflation and a more dovish BoE could extend the current move lower, towards 1.2585 and possibly even the 200 SMA. GBP/USD Daily Chart Source: TradingView, prepared by Richard Snow Markets Anticipate another 25 Basis Point Cut from the SNB After surprising markets in March with 25 basis point cut, the Swiss National Bank (SNB) will meet again in the coming week and potentially lower the policy rate once again. Switzerland has managed to bring headline inflation down to just 1% in March, since then it’s been 1.4% but remains very low compared to other developed nations. Markets factor in a 72% chance of a rate cut in the coming week. Market-Implied Rate Probabilities Source: Refinitiv, prepared by Richard Snow A major risk to the market view appeared when the SNB Chairman mentioned that the greatest risk to the inflation outlook is a weak Swiss Franc. His comments immediately saw the currency strengthen. GBP/CHF approaches 1.1245 with the potential to test the 200 SMA. The blue 50 SMA appears as dynamic resistance. GBP/CHF Daily Chart Source: TradingView, prepared by Richard Snow The RBA to Hold but the Economy is Feeling the Pressure of Restrictive Policy The RBA has had its struggles with resurgent inflation, forcing it to hike after seemingly having paused in 2023. Therefore, officials want to be sure that inflation is on the right track before loosening monetary conditions. As such, there is a 96% chance that rates remain on hold according to rates markets with the potential for just one rate hike later this year in December but even that is not nailed on. Source: Refinitiv, prepared by Richard Snow The Aussie dollar lost ground in the week gone by. AUD/USD has mainly oscillated between 0.6680 and 0.6580 with prices testing the lower bound this week before lifting off it. Australian GDP is due next week as well, with estimates for Q1 suggesting a stagnant start to the year with 0% quarter-on-quarter growth. AUD/USD could continue to drift lower next week due to recent upward momentum in the US dollar and a complicated growth outlook for Australia. AUD/USD Daily Chart Source: TradingView, prepared by Richard Snow https://www.dailyfx.com/news/markets-week-ahead-boe-snb-rba-deliberate-on-rates-20240615.html

2024-06-14 16:00

British Pound (GBP) – Bank of England and Inflation Data on Deck Next Week GBP/USD Analysis and Charts UK inflation is set to fall further. Will the Bank of England give the markets some guidance? UK inflation is set to fall further, data out next week is expected to show, with core CPI y/y seen tumbling from 3.9% to 3.5%, while headline CPI y/y is seen dropping from 2.3% to 2.0%. UK inflation has been moving steadily lower over the last year and is seen hitting the BoE’s target rate (2%) in the coming months. Core UK CPI y/y Chart via Trading Economics The inflation data, released one day before the latest Bank of England monetary policy decision, could lead the UK central bank to take a slightly more dovish stance if market forecasts are met. The Bank of England is seen cutting rates at the September meeting, with one more 25bp cut expected at the end of the year. While this is unlikely to change, the central bank may be able to give a more dovish forecast if the inflation is in line or better. On Friday, the latest S&P Global UK PMIs are released for June, and while these are important, the inflation data and the BoE meeting will be the driver of Sterling going forward. UK Gilt yields have been lower since the end of May with the rate-sensitive UK 2-year now offered at 4.18%, around 40 basis points lower than May 30th. A dovish BoE could see these yields fall further. UK 2-Year Gilt Yield Cable is currently testing support as the dollar continues to push higher. The dollar is being helped by a fresh bout of Euro weakness, while the Japanese Yen is also slipping lower after last night’s Bank of Japan meeting. GBP/USD is testing 1.2667 and a confirmed break below here would bring the 38.2% Fibonacci retracement level at 1.2626 into focus. Below here, 1.2550 comes into play. GBP/USD Daily Price Chart Charts using TradingView Retail trader data shows 48.81% of traders are net-long with the ratio of traders short to long at 1.05 to 1.The number of traders net-long is 23.96% higher than yesterday and 20.47% higher from last week, while the number of traders net-short is 23.69% lower than yesterday and 30.43% lower from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse lower despite the fact traders remain net-short. What is your view on the British Pound – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/british-pound-gbp-bank-of-england-and-inflation-data-on-deck-next-week-20240614.html

2024-06-14 10:11

Euro (EUR/USD, EUR/GBP) Analysis Threat of political fragmentation in France remains a source of concern Political uncertainties outweigh US CPI reprieve in a busy week for the euro EUR/GBP on track for its largest weekly decline since November Get a hold of our FX trading starter pack where you will uncover the fundamentals of the forex market, learn how to trade around high impact news events/data and how to incorporate an index trading strategy to the forex market: Threat of Political Fragmentation in France Remains a Source of Concern European bond markets paint a worrying picture as a move to safety has widened the French-German spread recently, a sign of unease within the bond market. A sharp drop in 10-year bund yields outweighed the recovering French equivalent to raise the spread between the two nations, depicting nervousness on the continent. The euro tends to weaken when bond risk premiums rise across Europe. Another notable bond spread to keep an eye on is the BTP-Bund spread (Italian-German). German bonds are viewed as safer and prices of such bonds rise when investors pile seek safe harbour from riskier alternatives within the EU – particularly those of Portugal, Italy, Greece and Spain but also France given the recent political developments. On Friday French parties on the left of the political spectrum are set to reveal the manifesto of their renewed alliance which promises to lower the retirement age, link salaries to inflation and usher in a wealth tax for the rich. The alliance seeks to complicate the political landscape in France after President Macron called for snap elections in reaction to a poor showing during European elections, losing out to Marine le Pen’s right-wing party (National Rally, RN). The first round of elections gets underway on June the 30th with the Euro and CAC 40 expected to weaken in the lead up. European Bond Markets Reveal Concern Source: TradingView, prepared by Richard Snow Political Uncertainties Outweigh US CPI Reprieve in a Busy Week for the Euro EUR/USD has a very busy week. The single currency soared after US CPI appeared to return to the disinflationary path to 2% as May inflation data missed estimates (to the downside) but this was cut short by a more hawkish assessment of inflation by the Fed – now seeing only one rate cut this year instead of three anticipated in March this year. EUR/USD Weekly Chart Source: TradingView, prepared by Richard Snow EUR/GBP on Track for its Largest Decline Since November EUR/GBP continued its decline, dropping comfortably below the 0.8472 level of support which previously halted the major descent in April 2021 and has emerged since then as a level of support, until now. The Friday close will provide a better picture of the longevity of the move but the euro is likely to remain weak as more information and polling information is revealed in the next two weeks. 0.8340 emerges as the next potential level of support with 0.8472 turning from support into resistance. UK inflation and the Bank of England rate setting meeting are due next week to provide a lot of interest in the pair. Inflation in the UK made encouraging progress in April but was unable to beat lofty estimates. A slight uptick in the economy is unlikely at this point to deter the committee from eying a rate cut later this year as the job market appears to be taking more strain after the latest claimant data rose above 50k, the most since February 2021. EUR/GBP Weekly Chart Source: TradingView, prepared by Richard Snow https://www.dailyfx.com/news/french-german-bond-spread-widens-signaling-euro-weakness-ahead-of-elections-20240614.html

2024-06-14 07:40

US Dollar Index Prints a One-Month High, USD/JPY Weakens Post-BoJ Meeting US dollar index rally continues. Japanese Yen weakens further on disappointing bond news. The US dollar index continues its recent move higher, aided by a weaker Euro and Japanese Yen. The Euro is still feeling the effects of last weekend’s European Parliamentary Elections and expectations of further rate cuts this year, while the Japanese Yen moved lower after the Bank of Japan said that it would pare back its bond-buying program but the market would have to wait until the July 31st meeting for any details. The Euro (58%) and the Japanese Yen (13.6%) are the two largest constituents of the six-currency index. US Dollar Index Daily Chart The Japanese Yen is weakening further against a range of currencies after the Bank of Japan policy meeting. Financial markets had expected the Japanese central bank to give more details about paring back their bond-buying program – monetary policy tightening – and the lack of any formal schedule left the Yen untethered. With the next policy meeting not until the end of July, and with USD/JPY at levels that official intervention has been seen before, the Bank of Japan will have a tricky few weeks trying to keep the Yen from depreciating further. USD/JPY Daily Chart IG retail client sentiment shows 22.82% of traders are net-long with the ratio of traders short to long at 3.38 to 1.The number of traders net-long is 6.99% lower than yesterday and 22.81% lower from last week, while the number of traders net-short is 8.89% higher than yesterday and 5.62% higher from last week. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bullish contrarian trading bias. What are your views on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1. https://www.dailyfx.com/news/us-dollar-index-prints-a-one-month-high-usd-jpy-weakens-post-boj-meeting-20240614.html

2024-06-13 13:39

Bank of Japan (Japanese Yen) Analysis BoJ expected to remain on hold but aggressive bond purchases are to be tapered Inflation outlook has improved thanks to recent developments, retail sales recover Wage growth picks up in April The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library BoJ Expected to Remain on Hold but Aggressive Bond Purchases to be Tapered The Bank of Japan (BoJ) is due to set policy in the early hours of Friday morning (UK time) and is expected to hold rates steady. There is however, an expectation that officials may reduce their appetite for government bond purchases, allowing yields to move more freely above 1% in the next phase of its plans to normalise policy. Japanese Media company Nikkei has been a reliable source for BoJ news and yesterday reported that the Bank will consider gradually reducing its Japanese government bond holdings. For now, it remains a possibility that monthly purchases could decline from 6 trillion yen to 5 trillion yen but the details of any such decision will be made clearer on Friday. Learn how to prepare for high impact economic data or events with this easy to implement approach: Inflation Outlook has Improved Thanks to Recent Developments A virtuous relationship between wages and prices is one of the prerequisites for further rate hikes but officials will most likely want to see more progress on this front. All three measures of Japanese CPI have turned lower on a year-on-year basis but recent developments from the monthly data reveals an encouraging uptick. CPI however, remains above the 2% marker identified by the BoJ and while that remains the case, conversations around commensurate wage growth is likely to continue. Policy setters will also be encouraged by the recovery in retail sales, although this data point can be very volatile and other indications of an uptick in local demand will likely be relied on for a better picture of consumer strength. Japanese Inflation Profile Source: Refinitiv, prepared by Richard Snow Japanese Wages Recovered in April after Disappointing in March Japanese wages rose in April to 2.1% beating estimates of 1.7% and smashing the prior reading of 1%. The Bank is trying to guide inflation and wages higher to meet the threshold for further rate hikes. Progress has been slow and hence officials are likely to insist on waiting for future data before making any alterations to interest rates. Both wages and inflation appear to have formed cycle peaks and the Bank of Japan will be looking to reignite both readings sooner than later. Source: Refinitiv, prepared by Richard Snow USD/JPY Fails to Capitalise on Weaker US CPI as Levels Remain Elevated USD/JPY initially dropped after US inflation data suggested the disinflationary process was back underway. Most of the yen’s gains were erased hours later after the Fed removed two of their three anticipated rate cuts for 2024 at its June meeting. Weekly USD/JPY Chart Source: TradingView, prepared by Richard Snow The pair continues to trade near the recent swing high, well above the 50-day simple moving average (SMA), which has acted as dynamic support. USD/JPY could drift higher give the Fed envisions the rate differential between the two nations is likely to remain at the current wide levels for some time to come still. Support rests at the 50 SMA and the 155.00 marker with resistance appearing at the May swing high at 157.70. USD/JPY Daily Chart Source: TradingView, prepared by Richard Snow Learn the ins and outs of trading USD/JPY - a pair crucial to international trade and a well-known facilitator of the carry trade https://www.dailyfx.com/news/boj-preview-inflation-and-wages-leave-more-to-be-desired-20240613.html