Articles

The bank expects the AUD to appreciate in the coming weeks due to favourable rate differentials and USD depreciation. However, significant gains are likely to be constrained by the weak economic outlook for China as well as existing bullish positioning in the AUD.

Bullish drivers:

• Narrowing rate differentials between AUD and the USD are expected to see gradual upside in AUDUSD over the next few quarters, with a year-end 2024 forecast of 0.69 and a year-end 2025 forecast of 0.72. With the RBA maintaining a hawkish stance, particularly after its August meeting, means delayed rate cuts.
• The bank anticipates a weaker USD in the second half of 2024, which is expected to support the AUDUSD regardless of concerns about China.

Headwinds:

• The upside for the AUD is capped by the weak outlook for Australia’s exports to China, particularly iron ore. A 0.70 handle in AUDUSD is unlikely without significant improvement in China’s economic outlook. Current indicators, such as China’s new home sales and credit growth, remain weak, dampening demand for Australian exports.
• AUD positioning is currently the longest in G10. There are some risks around AUDNZD longs, with positioning driven by both Hedge Funds and Real Money. The options market shows long positioning in AUD, but futures positioning is short, adding complexity to the overall outlook.

This article was written by Arno V Venter at www.forexlive.com.

UBS Global Wealth Management raises odds of a U.S. recession to 25% from 20% previously.

– Recession watchers will be having a ball with this one.

This article was written by Arno V Venter at www.forexlive.com.

Quick look below at today’s biggest FX option expiries via Newsquawk.

This article was written by Arno V Venter at www.forexlive.com.

The big recent upside momentum in EURUSD has caught me by surprise. The pair is currently sandwiched between major resistance at 1.1278 (the July 2023 high) and support at 1.1140 (the December 2023 high).

Now if we look at 2-year and 10-year yield differentials, we can see that the pair has basically just been following them higher as any objective analyst would expect them to. However, it’s what these differentials are based on that surprises me.

Money markets are currently pricing in more than 60 basis points of cuts for the Fed compared to the ECB by this time next year. But comparing these two economies with each other that seems odd. I’m of the opinion that markets are too pessimistic on the Fed and too optimistic on the ECB in terms of rate pricing.

But when momentum is this strong you usually need a catalyst to take the other side. And with money markets so focused on labour data it means we’ll probably have to wait for that before we get more clarity on where differentials head next.

This article was written by Arno V Venter at www.forexlive.com.

Equity futures are trading in the green across the board (apart from the ASX200 down around -0.20%)

Today looks like bit of a role-reversal day with the Nikkei (weakest in yesterday’s session) trading as the second strongest today, while the ASX200 which saw decent performance yesterday is today’s underperformer.

Catalysts have been very thin so far this week, and with a very quiet and mostly uninspiring economic calendar, we might be in store for more choppy price action this week. Not to mention the potential for month-end flows to create some possible dislocations as well.

With everyone so focused on US jobs data, there is a risk that equity markets trade in a bit of a holding pattern until we get to next week Friday, as markets might not want to add a ton of new risk until they get clarity on whether the Fed cuts rates at their normal pace or whether some more aggressive is required.

That sucks for risk event traders like myself, and means more patience might be required in the short-term.

This article was written by Arno V Venter at www.forexlive.com.

German detailed QQ GDP for Q2 (seasonally adjusted): 0.1% vs -0.1% expected

German detailed YY GDP for Q2 (non-seasonally adjusted): 0.3% vs 0.3% expected

German detailed YY GDP for Q2 (seasonally adjusted): 0.0% vs -0.1% expected

This article was written by Arno V Venter at www.forexlive.com.

German Consumer Sentiment for September:-22 vs -18.2 expected

This article was written by Arno V Venter at www.forexlive.com.

Global Markets:

•  Asian Stock Markets : Nikkei up 0.72%, Shanghai Composite down 0.3%, Hang Seng down 0.27% ASX down 0.19%
• Commodities : Gold at $2550.35 (-0.29%), Silver at $30.53 (0.271%), Brent Oil at $80.6 (-0.09%), WTI Oil at $77.32 (-0.18%)
• Rates : US 10-year yield at 3.829, UK 10-year yield at 3.914, Germany 10-year yield at 2.254

News & Data:

• (USD) Core Durable Goods Orders m/m  -0.2% vs 0.0% expected
• (USD) Durable Goods Orders m/m  9.9%  vs 4.0% expected

Markets Update:

Asia-Pacific markets mostly declined on Tuesday, mirroring losses in the S&P 500 and Nasdaq from the previous night as investors analyzed China’s industrial profit data. 

China reported a 3.6% year-on-year increase in industrial profits from January to July, slightly up from the 3.5% growth recorded between January and June. Following this data release, Hong Kong’s Hang Seng index dropped 0.27%, while mainland China’s CSI 300 fell by 0.61%.In contrast, Japan’s Nikkei 225 rose by 0.71%, and the Topix index gained 0.40%, making them the only major indexes in positive territory.

South Korea’s Kospi declined by 0.37%, and the Kosdaq, focused on small-cap stocks, lost 0.67%. In Australia, the S&P/ASX 200 index reversed earlier gains to close 0.19% lower, having been close to breaching its all-time high of 8,114.7, set on August 1.

Meanwhile, on Wall Street, the Dow Jones Industrial Average reached new highs, closing up by 65.44 points, or 0.16%, at 41,240.52. In contrast, the S&P 500 and Nasdaq Composite fell by 0.32% and 0.85%, respectively.

Upcoming Events: 

• 02:00 PM GMT – USD CB Consumer Confidence
• 02:00 PM GMT – USD Richmond Manufacturing Index

The post Tuesday 27th August 2024: Asia-Pacific Markets Decline Amid Global Uncertainty first appeared on IC Markets | Official Blog.

IC Markets Europe Fundamental Forecast | 27 August 2024

What happened in the Asia session?

The Bank of Japan (BoJ) core CPI eased from 2.1% down to 1.8% in July, surprising market expectations with a slower pace of price increases. Despite the ultra-loose monetary policy throughout the last couple of years, inflationary pressures have not picked up in a significant way. This latest inflation print eases the pressure on the BoJ for aggressive rate hikes and could weaken the yen in the near-term. USD/JPY rose from 144.60 to rise towards 145 following this news release and should continue to climb higher as the day progresses.

What does it mean for the Europe & US sessions?

Increased tensions and supply concerns in the Middle East drove crude oil prices higher overnight as WTI oil surged more than 2% to climb above the $78-mark. This benchmark pulled back at the onset of the Asian trading hours to dip under $78 per barrel. Moving over to U.S. crude oil inventories, the API stockpiles have been mixed over the past four weeks, alternating between inventory drawdowns and builds. Should the API stockpiles register a higher-than-anticipated drawdown, it is likely to function as an additional bullish catalyst for this commodity.

The Dollar Index (DXY)

Key news events today

CB Consumer Confidence (2:00 pm GMT)

What can we expect from DXY today?

The Conference Board (CB) will release its consumer confidence survey for the month of August where sentiment is expected to remain unchanged from the prior month. Overall confidence ticked up in July but consumers were more weary about their present situation. Should we see this index drift lower in the latest survey, it could add further downward pressure on the greenback later today.

Central Bank Notes:

• The Federal Funds Rate target range remained unchanged at 5.25% to 5.50% for the eighth meeting in a row.
• The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run and judges that the risks to achieving its employment and inflation goals continue to move into better balance.
• The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
• Recent indicators suggest that economic activity has continued to expand at a solid pace while job gains have moderated, and the unemployment rate has moved up but remains low.
• In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks and does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
• In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.
• In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities. Beginning in June, the Committee slowed the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $60 billion to $25 billion.
• The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion and will reinvest any principal payments in excess of this cap into Treasury securities.
• Next meeting runs from 17 to 18 September 2024.

Next 24 Hours Bias

Medium Bullish

Gold (XAU)

Key news events today

CB Consumer Confidence (2:00 pm GMT)

What can we expect from Gold today?

The Conference Board (CB) will release its consumer confidence survey for the month of August where sentiment is expected to remain unchanged from the prior month. Overall confidence ticked up in July but consumers were more weary about their present situation. Should we see this index drift lower in the latest survey, it could add further downward pressure on the greenback which could act as a tailwind for gold later today.

Next 24 Hours Bias

Weak Bearish

The Australian Dollar (AUD)

Key news events today

No major news events.

What can we expect from AUD today?

A combination of higher demand for the greenback and a surge in durable goods orders reined in the Aussie yesterday. This currency pair rose as high as 0.6797 before reversing to drop lower and settle around 0.6770 as Asian markets came online – these are the support and resistance levels for today.

Support: 0.6700

Resistance: 0.6800

Central Bank Notes:

• The RBA kept the cash rate target unchanged at 4.35%, marking the sixth consecutive pause.
• Inflation has fallen substantially since its peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance but it still remains above the midpoint of the 2 to 3% target range.
• The CPI rose by 3.9% over the year to the June quarter, demonstrating that inflation is proving persistent. In year-ended terms, underlying inflation has now been above the midpoint of the target for 11 consecutive quarters while quarterly underlying CPI inflation has fallen very little over the past year.
• The central forecasts set out in the latest SMP are for inflation to return to the target range of 2 to 3% in late 2025 and approach the midpoint in 2026. This represents a slightly slower return to target than forecast in May, based on estimates that the gap between aggregate demand and supply in the economy is larger than previously thought.
• Momentum in economic activity has been weak, as evidenced by slow growth in GDP, a rise in the unemployment rate and reports that many businesses are under pressure. In addition, there is a risk that household consumption picks up more slowly than expected, resulting in continued subdued output growth and a noticeable deterioration in the labour market.
• Inflation in underlying terms remains too high, and the latest projections show that it will be some time yet before inflation is sustainably in the target range while recent data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out.
• Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range and will rely upon the incoming data and the evolving assessment of risks to guide its decisions.
• Next meeting is on 5 November 2024.

Next 24 Hours Bias

Medium Bearish

The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

The Kiwi retreated from yesterday’s high of 0.6232 as increased demand for the dollar and better-than-expected U.S. macroeconomic data weighed it down. This currency pair pulled back towards the 0.6200-level at the beginning of the Asia session – these are the support and resistance levels for today.

Support: 0.6125

Resistance: 0.6250

Central Bank Notes:

• The Monetary Policy Committee agreed to reduce the OCR by 25 basis points, bringing it down to 5.25% in August as inflation converges on target.
• The Committee is confident that inflation is returning to within its 1-3% target band as surveyed inflation expectations, firms’ pricing behaviour, headline inflation, and a variety of core inflation measures are moving consistent with low and stable inflation.
• Economic growth remains below trend and inflation is declining across advanced economies – imported inflation into New Zealand has declined to be more consistent with pre-pandemic levels.
• Services inflation remains elevated but is also expected to continue to decline, both at home and abroad, in line with increased spare economic capacity.
• Consumer price inflation in New Zealand is expected to remain near the target mid-point over the foreseeable future.
• A broad range of high-frequency indicators point to a material weakening in domestic economic activity in recent months – these include various survey measures of business activity, electronic card transactions, vehicle traffic, house sales, filled jobs, and job vacancies; these indicators collectively provide a consistent signal that the economy contracted in recent months.
• The pace of further easing will depend on the Committee’s confidence that pricing behaviour remains consistent with a low inflation environment, and that inflation expectations are anchored around the 2% target.
• Next meeting is on 9 October 2024.

Next 24 Hours Bias

Weak Bearish

The Japanese Yen (JPY)

Key news events today

BoJ Core CPI (5:00 am GMT)

What can we expect from JPY today?

The Bank of Japan (BoJ) core CPI eased from 2.1% down to 1.8% in July, surprising market expectations with a slower pace of price increases. Despite the ultra-loose monetary policy throughout the last couple of years, inflationary pressures have not picked up in a significant way. This latest inflation print eases the pressure on the BoJ for aggressive rate hikes and could weaken the yen in the near-term. USD/JPY rose from 144.60 to rise towards 145 following this news release and should continue to climb higher as the day progresses.

Central Bank Notes:

• The Policy Board of the Bank of Japan decided, by a 7-2 majority vote, to set the following guideline for money market operations for the intermeeting period and decided on the following measures:
  1. The Bank will encourage the uncollateralized overnight call rate to remain at around 0.25% while reducing its purchase amount of Japanese government bonds (JGB) by a unanimous vote.
  2. The Bank decided, by a unanimous vote, on a plan to reduce the amount of its monthly outright purchases of JGBs so that it will be about 3 trillion yen in January-March 2026; the amount will be cut down by about 400 billion yen each calendar quarter in principle.
• The year-on-year rate of increase in the CPI (all items less fresh food) is likely to be at around 2.5% for fiscal 2024 and then be at around 2% for fiscal 2025 and 2026.
• Meanwhile, underlying CPI inflation is expected to increase gradually, since it is projected that the output gap will improve and that medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.
• In the second half of the projection period, it is likely to be at a level that is generally consistent with the price stability target of 2%.
• Japan’s economy is likely to keep growing at a pace above its potential growth rate, with overseas economies continuing to grow moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors such as accommodative financial conditions.
• Next meeting is on 20 September 2024.

Next 24 Hours Bias

Weak Bullish

The Euro (EUR)

Key news events today

No major news events.

What can we expect from EUR today?

Business sentiment in Germany continues to worsen as it dropped from 87.0 in July down to 86.6 in August, which was slightly better than the forecast of 86.0. Bleak sentiment continues to be driven by increased pessimism among companies and a worsened assessment of their current situation. The manufacturing sector fared the worst along with the services sector while trade and construction were somewhat unchanged. The Euro reversed from yesterday’s high of 1.1201 to slide lower towards 1.1150 during the U.S. session and was trading around 1.1160 as Asian markets came online – these are the support and resistance levels for today.

Support: 1.1100

Resistance: 1.1245

Central Bank Notes:

• The Governing Council today decided to keep the three key ECB interest rates unchanged in July, following a 25 basis points cut in June.
• Accordingly, the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.25%, 4.50% and 3.75% respectively.
• Monetary policy is keeping financing conditions restrictive but at the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.
• While some measures of underlying inflation ticked up in May owing to one-off factors, most measures were either stable or edged down in June.
• The incoming information indicates that the euro area economy grew in the second quarter, but likely at a slower pace than in the first quarter.
• Services continue to lead the recovery, while industrial production and goods exports have been weak – investment indicators point to muted growth in 2024, amid heightened uncertainty.
• The Eurosystem no longer reinvests all of the principal payments from maturing securities purchased under the pandemic emergency purchase programme (PEPP), reducing the PEPP portfolio by €7.5 billion per month on average and the Governing Council intends to discontinue reinvestments under the PEPP at the end of 2024.
• The Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner and will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim and is not pre-committing to a particular rate path.
• Next meeting is on 12 September 2024.

Next 24 Hours Bias

Weak Bearish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Improved demand for the greenback supported USD/CHF as it stabilized around 0.8460 yesterday before edging up to hit an overnight high of 0.8485. This currency pair was trading around 0.8470 at the beginning of the Asia session – these are the support and resistance levels for today.

Support: 0.8435

Resistance: 0.8530

Central Bank Notes:

• The SNB eased monetary policy by lowering its key policy rate by 25 basis points for the second consecutive meeting, going from 1.50% to 1.25% in June.
• The underlying inflationary pressure has decreased again compared to the previous quarter but inflation had risen slightly since the last monetary policy assessment, and stood at 1.4% in May.
• The inflation forecast puts average annual inflation at 1.3% for 2024, 1.1% for 2025 and 1.0% for 2026, based on the assumption that the SNB policy rate is 1.25% over the entire forecast horizon.
• Swiss GDP growth was moderate in the first quarter of 2024 with the services sector continuing to expand, while manufacturing stagnated.
• Growth is likely to remain moderate in Switzerland in the coming quarters as the SNB anticipates GDP growth of around 1% this year while currently expecting growth of around 1.5% for 2025.
• Next meeting is on 26 September 2024.

Next 24 Hours Bias

Medium Bullish

The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

U.K. financial markets will reopen today after Monday’s bank holiday and we can expect higher trading volume during the European trading hours. After rising strongly over the last couple of weeks, the Pound finally lost some steam yesterday as Cable pulled back towards 1.3180 overnight. This currency pair was trading around 1.3190 as Asian markets came online – these are the support and resistance levels for today.

Support: 1.3135

Resistance: 1.3260

Central Bank Notes:

• The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-to-4 to reduce its Official Bank Rate by 25 basis points to 5.00% on 1st August 2024.
• Five members preferred to reduce the Bank Rate by 25 basis points to 5%, an increase of two from the previous meeting while four members preferred to maintain the Bank Rate at 5.25%.
• Twelve-month CPI inflation was at the MPC’s 2% target in both May and June but it is expected to increase to around 2.75% in the second half of this year as declines in energy prices last year fall out of the annual comparison, revealing more clearly the prevailing persistence of domestic inflationary pressures. Private sector regular average weekly earnings growth has fallen to 5.6% in the three months to May, and services consumer price inflation has declined to 5.7% in June.
• GDP has picked up quite sharply so far this year, but underlying momentum appears weaker. GDP had grown by 0.7% in 2024 Q1, with that strength appearing to have continued into Q2. Growth in the first half of the year had been stronger than expected at the time of the May Report. 
• Business surveys had continued to point to underlying growth of around 0.3% per quarter, somewhat weaker than headline GDP growth. A margin of slack should emerge in the economy as GDP falls below potential and the labour market eases further.
• The Committee noted that it is now appropriate to reduce slightly the degree of policy restrictiveness but monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.
• The Committee continues to monitor closely the risks of inflation persistence and will decide the appropriate degree of monetary policy restrictiveness at each meeting.
• Next meeting is on 19 September 2024.

Next 24 Hours Bias

Medium Bearish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

Demand for the Loonie remains elevated as crude oil sees a strong bid. The stronger Loonie drove USD/CAD under the threshold of 1.3500 yesterday to hit an overnight low of 1.3463. This currency pair was trading 1.3480 at the beginning of the Asia session – these are the support and resistance levels for today.

Support: 1.3435

Resistance: 1.3560

Central Bank Notes:

• The Bank of Canada reduced its target for the overnight rate by 25 basis points to 4.50% while continuing its policy of balance sheet normalization.
• Canada’s economic growth likely picked up to about 1.5% through the first half of this year and is forecasted to increase in the second half of 2024 and through 2025.
• Overall, the Bank forecasts GDP growth of 1.2% in 2024, 2.1% in 2025, and 2.4% in 2026, reflecting stronger exports and a recovery in household spending and business investment as borrowing costs ease.
• CPI inflation moderated to 2.7% in June after increasing in May as broad inflationary pressures eased.
• The Bank’s preferred measures of core inflation have been below 3% for several months and the breadth of price increases across components of the CPI is now near its historical norm but shelter price inflation remains high, driven by rent and mortgage interest costs, and is still the biggest contributor to total inflation.
• These preferred measures of core inflation are expected to slow to about 2.5% in the second half of 2024 and ease gradually through 2025 and CPI inflation is expected to come down below core inflation in the second half of this year, largely because of base year effects on gasoline prices.
• There are signs of slack in the labour market with the unemployment rate rising to 6.4%, as employment continues to grow more slowly than the labour force and job seekers taking longer to find work. Wage growth is showing some signs of moderation, but remains elevated.
• The Governing Council’s future monetary policy decisions will be guided by incoming information and assessment of their implications for the inflation outlook.
• Recent data has increased the council’s confidence that inflation will continue to move towards the 2% target. Nonetheless, risks to the inflation outlook remain.
• Next meeting is on 4 September 2024.

Next 24 Hours Bias

Weak Bullish

Oil

Key news events today

API Crude Oil Stock (8:30 pm GMT)

What can we expect from Oil today?

Increased tensions and supply concerns in the Middle East drove crude oil prices higher overnight as WTI oil surged more than 2% to climb above the $78-mark. This benchmark pulled back at the onset of the Asian trading hours to dip under $78 per barrel. Moving over to U.S. inventories, the API stockpiles have been mixed over the past four weeks, alternating between inventory drawdowns and builds. Should the API stockpiles register a higher-than-anticipated drawdown, it is likely to function as an additional bullish catalyst for this commodity.

The post IC Markets Europe Fundamental Forecast | 27 August 2024 first appeared on IC Markets | Official Blog.

Swedish Household Lending Growth YY for July: ## vs 0.7% prior

Swedish PPI YY for July: ## vs -0.4% prior

Swedish PPI MM for July: ## vs 0.8% prior

This article was written by Arno V Venter at www.forexlive.com.

USD:
Bearish

The bank expects a weaker USD in the medium term due to anticipated Fed rate cuts and slower US growth. But downside is somewhat balanced by the fact that a significant amount of easing is already priced in (approximately 190bps). Risks include the potential for slower-than-expected Fed easing and uncertainties around the upcoming US elections, which could impact the USD in either direction.

EUR:
Neutral to Bullish

Bank expects the EUR to appreciate against the USD, with a year-end EURUSD forecast of 1.12. They base their view on expectations of US disinflation supporting Fed rate cuts. The EUR is likely to perform better against CHF and CAD due to relative ECB policy, but may not gain much against GBP. Cautious on the Eurozone’s economic data though, particularly concerning weaker performances in Q3.

JPY:
Bearish

The bank holds a bearish view on the JPY, forecasting USD/JPY to reach 155 by end of the year. Driven by carry trades and structural Japanese outflows, with Japanese investors continuing to seek higher yields abroad. Despite potential risks from global geopolitical tensions, the underlying factors are expected to keep the JPY under pressure.

GBP: Bullish

BofA expects the GBP to strengthen, particularly against CHF, supported by lighter positioning and favorable relative monetary policy. The bank highlights improving UK economic data, which aligns with the expectations of a shallow easing cycle by the BoE, with a potential rate cut in November. GBP is also expected to benefit from the UK’s economic resilience in the face of global risks.

AUD: Bullish

The AUD is favored over NZD and CAD, with expectations of continued strength due to supportive global risk sentiment. The RBA is expected to maintain steady policy, pushing back against market expectations of rate cuts, which the bank expects to further support the AUD.

This article was written by Arno V Venter at www.forexlive.com.

• GBP has testified of its high beta properties after its rapid recovery in August alongside other risky assets
• Expected downside in EURGBP below 0.85 and upside in GBPUSD above 1.30 to extend
• Maintains long recommendation in GBPCHF
• Main drivers of the bullish view is positive global risk sentiment, lower yields, and improving UK domestic data (demonstrated by recent flash PMI data)
• Sterling to be supported as solid activity data should help the BoE stay in line with their peers
• Incoming fiscal policy with the budget statement is a potential risk

This article was written by Arno V Venter at www.forexlive.com.