With the Germany backing Greece third bailout market attention shifted from Grexit tensions to the diverging monetary policies signals from Federal Reserve and BoE to the rest of the globe, fueling the US Dollar Index to three month high and the GBP towards the strongest levels 2007 against its European counterpart. During her testimony, the Fed Chair, Janet Yellen, said that the policy makers do consider an interest rate hike during the current year and upcoming data points are likely to support the decision while the BoE Governor reiterated that the UK central banks, Bank of England, is closer to an interest rate hike. Commodity currencies extended their declines as surprise rate cuts by Bank of Canada, coupled with weaker commodity prices and pessimistic outlook of China, kept troubling the antipodeans, namely AUD, CAD and NZD. Gold prices plunged to the lowest levels since March 2010 as receding tensions of Greece exit, coupled with stronger USD and weaker than expected reserve requirement details from China, eroded the yellow metal demand.
With the Monday starting the weak of lesser economic details supporting the well-established USD, also supporting the GBP, market players are likely to continue putting their bets of stronger greenback and GBP. However, minutes of the recent BoE, RBNZ and the US housing market details are some of the numbers that could provide decisive moves to the respective currencies.
As the RBNZ is expected to follow BoC, announcing a surprise rate cut, it would be good to continue selling the commodity currencies while a buy for USD and the GBP are also advisable to do. Though, weaker than expected data points from US and UK can provide chances of a pullback into the current rally.
Even without any important economic details, the US Dollar advanced in its upward trajectory during Monday as comments by St. Louis Fed President, James Bullard, signaling readiness on the part of the Fed to hike interest rates near September as inflation is set to climb toward its target and unemployment is poised to dip below 5%. At Euro-zone the regional currency kept dwindling against majority of its counterparts while the GBP remained firm. Moreover, the commodity currencies maintained their decline as plunge in the commodity prices extended with Crude oil breaking the $50 on downside, trading near 5 year low, while the gold prices held its sell-off. The Japanese Yen also weakened against majority of its counterparts as fading safe haven demand coupled with absence of major details kept hurting the JPY.
During the early part of the day, minutes of recent RBA meeting revealed that the policy makers aren’t satisfied with the economic growth that has probably slowed last quarter and the currency is offering less assistance than would be expected given weaker commodity prices. Moreover, the Swiss Trade Balance rallied to the highest levels in the year 2015.
For the rest of the day there aren’t any important details to be publish and the market may continue favoring the greenback bulls; however, comments from the central bankers from either EU or US, though not scheduled, could provide noticeable moves to the forex market.
Weaker earnings’ from the top-notch companies of US, coupled with a pullback of its upward trajectory, caused the US Dollar Index (I.USDX) to take the most losses during the month of July. The Euro region currency soothed a bit as Standard & Poor’s on Tuesday upgraded Greece’s sovereign credit rating by two notches and revised its outlook to stable from negative while the Greece is about to vote in parliament on the second package of measures demanded by international creditors to open talks on a new bailout deal. After getting the vote results the Greek government will again start the talks with its international creditors to get total aid package and could wrap up the aid talks by August 20.
Bank of Japan’s new measure of Inflation, which has still not accepted, excluding the food and energy prices, seems to reveal the banker’s ability to stay near the target and has helped the JPY during Tuesday. Moreover, Reserve Bank of Australia Governor Glenn Stevens, at the Anika Foundation Luncheon, in Sydney, kept supporting the loose monetary policy by saying another interest rate cut is still on the table and can’t be avoided even if the weaker AUD started supporting economy. The Inflation gauge of the Australia, published on early Wednesday, marked 0.7% number, falling behind 0.8% expectations; however, the trimmed measure of which matched the forecast of 0.6%, signaling the ability of the export oriented nation to sustain another interest rate cut.
For the rest of the day, minutes of the recent BoE meeting could help determine GBP moves, which are more likely to be strong considering the BoE Governor’s comments, while US Existing Home Sales and the RBNZ are other factors that could fuel volatility into the forex market.
Even after the yesterday’s bounce off, the USD keep maintaining its upward trajectory and the currency is likely to regain its strength during the later part of the day.
Trend for EUR remains lower
Greece uncertainty remains Stretch explains that the euro’s climb isn’t a break away from its downside trend, and ECB’s QE will keep the common currency on its downward trajectory. Greece related uncertainty remains in the markets, with the Greek parliament set to vote today. The key risk ahead for the Eurozone creditors is whether the Greeks will implement the reforms. Capital controls on the Greek banks are set to continue this year. All of this only creates a broader uncertainty into the Eurozone.
Sell EUR strength, but cautious on the dollar angle
Stretch remains a seller for any EUR/USD strength. The EUR leg of the weakness ahead remains, but some caution should be adopted for the dollar side. The focus has shifted back to the Fed rate hike scenario, but the rate rise will be gradual. Thus, dollar strength will remain into the first rate hike, but markets will have to shift to a more cautious approach later.
Will there be resurgence in the verbal intervention in FX by policy makers?
Some periodic references might be seen ahead by the Fed, but corporate might continue to voice their uneasiness as the dollar strengthens, according to Stretch. He believes that a greater uncertainty with the same might not be seen. The US growth story has not been impacted to a greater extend by the dollar story when compared to other currencies. Only a marginal impact has been seen in earnings and growth trajectory.
Is there a real need for US and UK to hike rates?
Neither the US nor the UK economy requires an emergency monetary policy action at this juncture. The strength in the Dollar has already led to some tightening in the monetary conditions in the US. Some normality is required to be seen by these central banks ahead, but rates will move up in a much lower trajectory than anticipated.
UK – End of year rate rise?
The UK policy makers have recently come out of the closet when it comes to UK rates. The rate increase scenario in the UK largely depends on wages and the labour market tightening. There is room for a cautious tightening in policy, but currency implications remain. The case remains for a moderate degree of tightening in the UK.
See more at: UK rates: Case remains for a moderate hike by the Bank of England - Tip TV
With the US Existing Home Sales testing five year highs, speculations concerning Fed’s September liftoff to the Fed Rate strengthened reached 50%, as per the survey from Bloomberg. At the European from the Greece managed to get the second tranche of bailout measures approved via parliamentary voted on Wednesday; however, the news could provide any major moves to the Euro as market attention have been shifted to the divergence of monetary policies of FOMC, BOE and the rest of the world. Moreover, the RBNZ, during its later-day meeting, cut the benchmark interest rate by 0.25%, lesser than the 0.5% forecast, fueling the NZD a bit while minutes of the recent BoE meeting, revealed that many of the policy makers favor an interest rate change; though none voted for the near-term change in interest rate.
On Thursday, the Japanese exports rallied the most in five months; however, the trade balance remained more in negatives and could provide weakness to the JPY while RBNZ actions proved to be ineffective to the commodity currencies as they all kept their declines running. The commodities basket, majorly Gold and Crude, maintained their downturn with strong dollar and weaker China.
For the rest of the day, Retail Sales figures from UK and Canada, coupled with US Jobless Claims and New Zealand Trade Balance, are likely to provide considerable Forex moves; however, overall trend still favors the USD and it would be worthwhile to take the intraday buy favoring greenback.
Even if the US jobless claims plunged to the lowest level in four decades and the leading indicators’ index climbed more than forecast, the US Dollar failed to maintain its momentum on Thursday as weaker earnings’ reports pulled the US Dollar Index (I.USDX) register second daily decline in the current week. The Euro region currency strengthened as the Greece inched closer to its much awaited third bailout after parliamentary approval while the GBP witnessed a bad day due to unexpected plunge in Retail Sales. Moreover, the commodity basked remained weaker with declining commodity prices while JPY was a bit more volatile as uncertainty into the market supported the safe haven demand of the currency.
Last day of the week, Friday, is full of PMI releases from Japan, China, Germany, Euro-zone and the US, some of which have already being released. Chinese Markit Flash Manufacturing PMI fell to the lowest in 15 months registering fifth straight month below 50, the level which separates contraction from expansion while the Japanese Manufacturing PMI rallied to the highest level in four months. The commodities basked keep witnessing the pessimism from China, pulling down the AUD, CAD and NZD as well.
With the PMI releases from US and EU are still on the way, Friday is likely to become another volatile day for the market. Moreover, US New Home Sales are likely to provide a push to the USD and can help trim its recent losses. Hence, it is better to support greenback buying.
With the Chinese stocks registering the steepest decline in eight years, global financial markets were more than gloomy that even with the considerably good US Durable Goods Orders, the USD failed to register a gaining day while the commodity currencies and prices of Crude and Gold extended their plunge. However, the JPY was the strongest player due to heavy safe haven demand.
Even after witnessing the failure of the US Durable Goods Orders to pump the greenback, which also bared the cost of disappointed earnings, market players are still in the mood to support the USD due to change in the Fed’s method to foresee growth outlook, coupled with increased hype of September liftoff. Moreover, the preliminary reading of UK GDP and the US CB Consumer Confidence, scheduled during the day, seems to provide considerable market moves.
Given the current uncertainty of the Chinese growth, JPY is likely to continue its up-move while the GBP and the USD may restart their upward trajectory after the data release. Hence, it would be in the best interest of the market players to keep supporting the USD, GBP and the JPY while EUR may settle back to its weaker days.
Yellin delaying rate hike Buik began by noting the lack of confidence in Yellen’s proposal of the September rate hike, and adds that when looking around everyone can see that the world is in turmoil. He believes this is the same as Carney and the UK rates, despite the UK being in a better position than the US to raise rates, he maintains that the UK will not act ahead of the US. False market in China Buik commented on the insane allowance of the 150% Chinese stock market rally, and expresses that he isn’t sure whether the storm is over. He believes that spivs and vagabonds have been pumping up prices because they’ve been relying on China as a result of the link between commodity prices and Chinese demand. Buik note that the market will not fall out of bed, and that a 30-35% natural correction is reasonable.
With the US CB Consumer Confidence testing the lowest level since November 2014, market played kept rolling back their bets for near-term interest rate hike ahead of today’s FOMC announcements, resulting the greenback to register another negative day while the EUR gained against majority of its counterparts as improvements in equity results supported the regional currencies. The GBP also witnessed a positive day against majority of its counterparts as the preliminary reading of Q2 2015 U.K. GDP grew by 0.7% ahead of previous 0.4% mark and the NZD gained considerably as the RBN Governor said that even if the further rate cuts are necessary with weaker currency, only recessionary moves could force the central bank to take drastic steps. The JPY revealed mixed results due to pullback into safe haven demand while the commodities front kept trading at the lower levels with dearth of strong economics amidst supply glut.
During the early part of the day, Japanese Retail Sales rose an annual 0.9% in June, beating expectations for a 0.5% rise but still slowing sharply from a 3% spike in May. Even if the GfK German Consumer Climate matched expectations for 10.1 mark, all eyes will be turned on the FOMC announcements while the US Pending Home Sales and UK CBI Realized Sales may provide intermediate moves to the market.
Recently, the US economy witnessed mixed economic results that could limit the FOMC from uttering some hawkish words and the Fed could continue stating that the decision for interest rate hike would be based on the meeting on meeting basis dependant on economic releases. However, in dearth of press conference, generally follows the rate statement, market players are likely to closely examine the meeting details and if the hawks surpass the doves in the FOMC, the USD could gain considerably. Hence, it would be better not to place any bids on USD ahead of the actual announcement as the outcome is uncertain. If the trader is having USD longs and making profit, should exit ahead of the outcome near the pending home sales details.
GBP/USD
The British pound appreciation continued for 3rd consecutive day as the Sterling ended the day with appreciation of +0.35% to close at 1.5611 on back of stronger GDP. The U.K. economy rose by 0.7% in the second quarter, up from 0.4% in first quarter. Although, the Year on Year growth lowered from 2.9% to 2.6%, the market sentiment remained stronger. As there is no major data to be released from U.K. side, GBP fluctuation will depend on how dollar trades surrounded by Chinese market(credit bubble) and Federal Reserve’s Federal Open Market Committee (FOMC) statement. The initial resistance is placed at 1.5685, and then at 1.5770 whereas the support level to watch is of 1.5558 and below that is 1.5489.
With the Federal Reserve policy makers signaling considerable gains made in job market, speculations concerning Fed rate lift of during the September have heightened, resulting the US Dollar to complete first positive day of the week. The FOMC members said that It needs to see “some further improvement in the labor market,” adding the modifier “some,” and it must be “reasonably confident” inflation will move back to its 2 percent goal over the medium term. Moreover, with the revised formulation to calculate GDP, today’s Advance numbers of Q2 2015 GDP is likely to signal considerable up-move and may extend the recent advance of the greenback. However, should the number fail to rally to 2.5% forecast, even with revised method, optimism generated by the recent FOMC could be faded, pulling back the USD ahead of the full fledge results season, starting from next week, that is expected to prove further weakness to the world’s reserve currency. On the European side, even after the GfK German Consumer Climate Index matched forecast of 10.1, the EUR failed to rally with USD ruling the market. The Japanese currency witnessed a negative day as a pullback in commodity prices coupled with passive comments from IMF relating to Japanese economic growth trimmed some of the recent JPY gains. The Crude prices gained on Wednesday as US crude oil inventories depleted more than expected; however, OPEC production is still higher in supply side, signaling extended declines.
After the FOMC shackled the market, a mild dovish speech by the RBA Governor, coupled with the largest plunge in AU Building Approvals, pulled the Australian Dollar down while EU German Prelim CPI and the Unemployment Change are likely to provide intermediate moves to the market prior to US GDP release.
Given the recent hawkish tone of the FED, the GDP numbers are likely to be closely examined and with the revised formulations, the print is likely to be a bit of improved that may help the greenback extend its recent gains; however, a print near or below the revised numbers for Q1 2015 could damage the greenback gains.
Bill Blain, Strategist at Mint Partners Ltd., joined Tip Tv today to offer his observations on the stocks and bonds, US GDP and rates, and the rate hike scenario in the UK. Key points from the video: US GDP: Buy bonds or stocks? December Fed rate hike will be a mistake Uncertainty on US stocks Is the UK rate hike necessary? US growth and the Fed Blain notes that as the Fed said, the US economy will be in a clear position after today’s Q2 GDP data release, which will further lead to a shift in rate hike expectations. He suggests buying stocks on a strong US growth number, whereas a lower number should be used to buy bonds. With market expectations for a September rate hike remaining high, Blain explains that Setpember should be the likely timing than December when the liquidity will dry. Concerns rising on US stock markets In the USA, the stock market is a major topic of concern, according to Blain. Bloated values of tech stocks while traditional companies are trading on modest PE’s is creating further uncertainty. UK: Why do rates have to go up? Blain says this is the question which markets should be asking. Energy costs are low and no inflationary pressure in seen in the economy. He further explains that the rate hike agenda is a more fundamental issue. Five years of zero percent interest rates has not created growth. Corporates have resorted to tactics like borrowing at lower rates only to buy back stocks. Investment was not seen from the companies. Blain signs off with the message that, this rate rise indication by the Bank of England might encourage corporate to behave like proper capitalists. - See more at: US GDP will clear the uncertainty on the economy, Is a UK rate hike necessary? - Tip TV
IMHO, a break of pair’s short-term ascending trend-line support, near 1.5600 mark seems helping the GBPUSD decline; though, all eyes will be on the US details to determine near-term GBPUSD moves.
On Thursday, market players got another green signals, after the hawkish FOMC, to expect a sooner lift off to the Fed’s interest rate, fueling the US Dollar Index for one more day towards highest level in more than a week. The GDP, with its revised methodology, printed Q1 2015 GDP growth as 0.6% against previously noted contraction of 0.2% while the advanced estimates for Q2 2015 printed 2.3% growth, falling short of 2.6% market consensus. German CPI matched 0.2% forecast while the unemployment change rallied to 10 month’s high, dragging down the regional currency, Euro while the GBP remained in a mixed bags with no major releases to publish. Moreover, the Crude prices extended its decline as head of OPEC indicated there would be no cut-back in production.
During the early part of the day, Japanese details pullback the JPY with a drop in household spending, a fall in Tokyo-area consumer prices and a rise in the June jobless rate while New Zealand ANZ Business Confidence plunged to the lowest level since March 2009. The Australian PPI also dipped below the forecast of 0.5% by printing 0.4% mark.
For the rest of the day, the German Retail Sales, EU Flash CPI y/y, EU Unemployment Rate and Canadian GDP are likely details that could provide intermediate market moves before the US Employment Cost Index (ECI) and Chicago PMI fuel the market. Given the quarterly release of ECI, it would be important to concentrate on actual figures to determine the near-term USD moves as the Fed recently said that it would continuously look for some improvement into the labor market details. Should this number falls below its 0.6% expectations, the USD can liquidate a major chunk of its recent gains while a print beyond 0.7% can provide additional strength to the greenback.
Even with the record low numbers marked by the quarterly reading of Employment Cost Index (ECI) on Friday, the greenback managed to close the week at almost unchanged level as hawkish words of the FOMC during late Wednesday, coupled with improved Chicago PMI, that rallied to the highest levels since the numbers released in January, fueled the greenback against majority of its counterparts. On the other hand, the Euro region currency remained weaker against majority of its counterparts even if the Flash CPI met its expectations as market players prepare for today’s opening of Greece stock market after 5 weeks of halt in trading. The GBP gained considerable strength against majority of its counterparts as improvement in GDP numbers keep supporting the expectations of hawkish words during quarterly Inflation report release this week while the JPY remained a bit weaker against majority of its counterparts as the BoJ Governor, in his talks with Yomiuri newspaper on Saturday, said that there’s no immediate need for additional monetary easing and the economy is steadily improving towards targeted goals which many of the market players didn’t believe. Commodity currencies, namely, AUD, CAD and NZD kept trailing the loss due to Chinese pessimism spurring selling pressure into the larger commodity basket.
During the early part of the day, Chinese factory index for July by Caixin and Markit Economics plunged to the lowest in 2 years to 47.8 while the official manufacturing PMI, published during Saturday, lagged behind the prior level 50.2 but manage to print 50 mark, signaling more room for the commodity basket to decline.
Being the first week of the month, market players are likely to witness lots of important releases including majority of PMIs from UK, US, China and Europe, coupled with US NFP, RBA and BOE Inflation report while on Monday, the US ISM Manufacturing PMI and the UK Manufacturing PMI are likely pulling the trigger for increased volatility. Hence, it would be better not to take the longer trades and keep favoring the USD on the intraday basis; however, trading against GBP isn’t advisable as the BoE may continue signaling near-term interest rate hikes and can fuel the considerable strength in UK currency.
On the first day of the crucial week, the USD ended up closing in the positive territory even as factory activity, signaled by the monthly reading of ISM Manufacturing Index, slipped and the consumer spending advanced at the slowest pace in four months. Moreover, the plunge in equities, headed by Apple Inc., couldn’t provide damages to the greenback. At the European front, the final readings of Manufacturing PMI from major EU economies performed better but couldn’t provide considerable strength to the regional currency as market players await strong US labor market details on Friday to witness near-term interest rate hike while the UK Manufacturing PMI fared better than its forecasts. The JPY strengthened against majority of its counterparts as speculations concerning the BoJ Governor, Haruhiko Kuroda, will deliver hawkish speech in its monthly monetary policy meeting, on Friday. Commodities extended their declines as pessimism over China, coupled with oversupplied crude, kept pulling back the commodity prices.
During the early part of Tuesday, AUD was the show stealer as after witnessing the four month high Retail Sales and better than expected Trade Balance, the RBA statement signaled that “the Australian dollar is adjusting to the significant declines in key commodity prices”. As against the previous statement of: “Further depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices.” However, it is more likely that the AUD will reverse its recent spike as the RBA statement isn’t backed by any change in current monetary policy and weaker commodity prices, coupled with pessimism at its largest consumer, China, is more likely to drag the Aussie.
Having witnessed considerable AUD moves during the early part of the day, UK Construction PMI, US Factory Orders and the New-Zealand labor market details are likely to continue fueling the Forex market volatility. With the USD keep gaining ahead of the Friday’s job numbers, strong intermediate data points could provide intraday moves to the greenback while the GBP is more likely to witness improvement with recent hawkish comments from BoE Governor favoring bets for the bullish statements in quarterly inflation report, scheduled for release on Thursday.
Even with the initial losses during early trading hours, the greenback managed to mark another daily positive close, fueling the US Dollar Index (I.USDX) towards highest levels since late-April, as US factory orders rallied by the forecasted 1.8% gain, beating the revised contraction of -1.1% registered in the prior month. Moreover, comments from the Federal Reserve Bank of Atlanta President, Dennis Lockhart, who is also a voting member of the Federal Open Market Committee, that the Fed is almost ready to raise interest rates, provided additional strength to the USD upward trajectory. The European markets also witnessed a bit of optimism as Greece and its international creditors are progressing towards getting another tranche of loan package, to be getting on August 20. The AUD rallied considerably after the RBA talked down its call for a weaker currency; however, some of the gains were liquidated during early Wednesday while the NZD kept trailing the losses as the weaker daily prices, coupled with thin Employment Change and higher Unemployment rate, kept fueling Kiwi bears. The Crude prices witnessed a bit of pullback ahead of the US inventory release while the Gold prices also refrained from breaking multiyear lows marked during late July.
On Wednesday, the Chinese Caixin/Markit Services PMI registered 12th consecutive month of expansion, testing the highest levels since 11 month, soothing of the pains that the Manufacturing giving to world’s largest industrial producer. Market players are likely to concentrate more on the UK Services PMI, US ADP numbers, Trade Balance, ISM Non-Manufacturing PMI, Canadian Trade Balance and Swiss CPI.
With the USD gaining ahead of the Friday’s labor market details while the rest of the globe registering weaker numbers, chances are higher that the labor market numbers may disappoint the market. Hence, it would be better not to place big buying bets on the greenback ahead of the Friday. However, it doesn’t restrict the USD intraday up-move based on the data flows that should be capitalized efficiently with proper Stop-loss points.
GBP/USD
The British pound depreciation continuous for 4th consecutive day. The pair dropped on back of Fed’s Lockhart who announced that rate lift-off is likely to happen in September. Also with U.K. construction PMI dropping we could be looking at slower economic growth. Sterling ended the day with fall of -0.16% to close at 1.5563. Sterling is expected to fetch huge gains this week as on coming “Super” Thursday we have the Bank of England delivering its monetary policy, followed by the minutes from the meeting and then the Quarterly Inflation Report on same day. After that, Forty five minutes later, Bank of England Governor Carney will hold a press conference. Also today, the U.K. Service Purchasing Managers Index (PMI) is all set to release. The initial resistance is placed at 1.5624, and then at 1.5752 whereas the support level to watch is of 1.5489 and below that is 1.5361.
