Articles

The Japanese owner of 7-Eleven has been approached with what would be the largest-ever takeover of a Japanese company. The deal speaks to foreign companies seeking to exploit the depressed yen.

In this case, the suitor is Canadian company Couche-Tard, the owner of Circle K convenience stores. The target is Seven & i Holdings Co and it was valued at USD$31 billion before the deal and jumped 23% today.

Indications are that Japanese management will rebuff the offer but it could go hostile in a move to take over the 85,000 retail locations worldwide.

The takeaway her is that corporates are seeing value in yen-denominated assets, though that’s somewhat eroded given the recent run in the yen. Even with a premium $40-50 billion still isn’t material to the yen but Warren Buffett has also been buying yen-denominated assets in the past two years.

It will take time to turn the ship but we’re likely in the final innings of yen weakness.

This article was written by Adam Button at www.forexlive.com.

The weakness n the USD restarted from where we left it last Friday as the market remains in a risk-on mood and looks forward to the coveted Fed’s rate cuts.

We don’t have much on the agenda today as there’s just Fed’s Waller speaking at 13:15 GMT/09:15 ET and then we get the Conference Board’s LEI index at 14:00 GMT/10:00 ET which is not a market-moving release.

The recent Fedspeak is clearly hinting to a September rate cut, which is not surprising given that the market has already fully priced in such a move. Fed Chair Powell will likely seal the deal on Friday at the Jackson Hole Symposium.

Other than that, it’s just ebb and flow for now as we await the US Flash PMIs and Jobless Claims on Thursday.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

Headlines:

• It’s a slower start to the new week so far
• What are the main events for today?
• Weekly update on interest rates expectations
• Fed’s Kashkari: It is appropriate to have debate on whether to cut rates in September
• SNB total sight deposits w.e. 16 August CHF 464.9 bn vs CHF 463.1 bn prior

Markets:

• JPY leads, USD and CAD lag on the day
• European equities a little higher; S&P 500 futures flat
• US 10-year yields down 1.7 bps to 3.875%
• Gold down 0.6% to $2,492.62
• WTI crude down 0.7% to $76.08
• Bitcoin down 1.7% to $58,250

It was a much slower session as markets calmed down following the more hectic events last week.

There isn’t much on the economic calendar today and there won’t be much until we really get to Thursday. So, that might invite a bit of a lull in broader market sentiment this week.

But the Japanese yen isn’t one to be wanting to sit down though. USD/JPY fell early on in Asia before continuing its drop to 146.10 in early European trading. That was followed by a further drop to 145.18 before the pair moved back up to hover around 146.00 now, still down 1% on the day.

The dollar in general remains more sluggish, with lower bond yields also weighing. EUR/USD is hovering at 1.1040, up 0.1%, while USD/CHF is down 0.2% to 0.8640 currently.

The antipodean currencies are also higher against the dollar, helped by a stronger yuan as well. AUD/USD up 0.4% to near 0.6700 while NZD/USD is up 0.4% as well to 0.6075 at the moment.

In the equities space, investors are keeping a more tentative approach after the gains last week. European indices are marginally higher while US futures are flat, with eyes on Fed chair Powell’s appearance at Jackson Hole later in the week.

This article was written by Justin Low at www.forexlive.com.

The post Ex-Dividend 20/08/2024 first appeared on IC Markets | Official Blog.

The thing about this week is that there won’t be as much key risk events on the calendar as last week. And that means market players will not have too much to work with for the time being. Fedspeak is the main thing to be mindful about, as traders digest the key US data from last week. And also considering that we have the Jackson Hole symposium coming up.

There is the FOMC meeting minutes on Wednesday. But in terms of the economic calendar, we’ll have to wait until Thursday for PMI data and also the US weekly jobless claims. So, traders might be left in a bit of a state of flux in the sessions ahead.

For today, the Japanese yen is a standout mover though as the Nikkei fell by 1.8%. USD/JPY dropped to a low of 145.18 earlier but is now trading roughly 100 pips above that again.

The pair is moving back to its recent consolidation range after the break back above 145.00 earlier this month. And the fall in bond yields is also weighing, as noted here.

As for the risk mood today, traders and investors are not finding much conviction. European indices are lightly changed with marginal gains at best. Meanwhile, US futures are still flat and not observing much movement since Asia trading earlier.

This article was written by Justin Low at www.forexlive.com.

The unwinding of the carry trade may have seen yen shorts imploded. And that led to the sharp plunge in USD/JPY in early August. However, the event also kicked off a strong hint of risk aversion and traders turned to bonds for safety as well. It didn’t really help when market players also panicked in calling for the Fed for emergency rate cuts at the time.

All of that helped to keep the correlation between USD/JPY and 10-year Treasury yields intact.

And they have continued to move in lockstep for most parts since as well. It’s one of those correlations that don’t typically break in markets. And if it ever does, there’s always that opportunity to chase a trade on the convergence.

But for now, that doesn’t seem to be the case. That despite the more volatile nature in the Japanese yen lately. I mean today, we’re already seeing a near 300 pips range for USD/JPY already. Meanwhile, 10-year yields are down by nearly 3 bps to 3.864%.

Whatever your argument may be on the correlation between the two, one thing is for certain though. And that is the bond market is still playing a key role in driving dollar sentiment at the moment.

10-year yields briefly traded below 3.80% at the start of August but remain at the lows after the most recent rejection near the 4% mark. That’s roughly the lowest levels since the end of last year and that’s also putting the dollar index in general pinned down near its lowest since January.

This article was written by Justin Low at www.forexlive.com.

Monday’s calendar is very light, with no significant economic events scheduled. On Tuesday, Canada will release its inflation data and Wednesday will feature the release of the FOMC meeting minutes, which could shed more light on the likelihood of seeing a first rate cut in September.

Thursday will bring a series of flash manufacturing and services PMI data for Australia, Japan, the eurozone, the U.K., and the U.S. In the U.S., we will also get existing home sales figures and the Jackson Hole Symposium will begin.

On Friday, we’ll have several important releases: retail sales q/q for New Zealand, national core CPI y/y for Japan, and both core retail sales and retail sales m/m for Canada. In the U.S., new home sales data will be reported.

The second day of the Jackson Hole Symposium will feature a speech by Federal Reserve Chair Jerome Powell, who is expected to discuss the economic outlook. Additionally, Bank of England Governor Andrew Bailey is also scheduled to speak at the event.

Throughout the week, various FOMC members are expected to deliver their remarks.

The consensus for this week’s Canadian inflation data is that headline inflation will drop to 2.4%, with core inflation also expected to decline. The trimmed mean CPI is anticipated to slow to 2.8%, while median inflation is projected to print 2.5%.

Recent inflation data in Canada has shown progress, prompting the Bank of Canada’s latest rate cut. This week’s figures could offer important insights into potential monetary policy decisions at the September meeting.

According to Wells Fargo, even if inflation and hourly wage growth for permanent employees remain elevated, the labor market is softening overall and economic activity is slowing, which is easing price pressures.

If this week inflation data prints below expectations and economic activity continues to weaken, the BoC is likely to deliver another 25 bps rate cut at the September meeting.

This week’s manufacturing and services PMI data for the eurozone could provide more clues about a potential rate cut by the ECB in September. The economy saw solid growth during the first half of the year, with the GDP rising 0.3% q/q in both Q1 and Q2. This was supported by easing inflation, employment growth and rising real income. However, sentiment surveys have weakened recently, especially for Germany’s manufacturing sector. For August, the consensus for manufacturing PMI is a modest rise to 45.9 from 45.8 and services PMI is expected to decrease to 51.7 from 51.9. A significant deviation from consensus could impact the ECB’s policy decisions. Prints well below expectations will favor a September rate cut.

The consensus for U.S. existing home sales is 3.92 million, up slightly from the previous 3.89 million. The housing market continues to struggle due to high mortgage rates and rising prices, with existing home sales declining for four consecutive months as of June, nearing levels last seen in 2010. While a potential Fed rate cut in September could lower mortgage rates and attract buyers, strong price growth and slowing income are likely to limit resales.

Preliminary data from June indicates that a slight dip in mortgage rates sparked a modest rebound in activity in July. According to analysts from Wells Fargo, pending home sales and mortgage applications saw small increases, and they anticipate a 1.3% rise in existing home sales for July, reaching a 3.94 million-unit annual pace.

The consensus for Japan’s national core CPI y/y is an increase from 2.6% to 2.7%. The BoJ will closely monitor this week’s data to determine whether to implement another rate hike or delay it. One potential reason for the expected rise in inflation could be the government energy subsidies, as the pace of price increases for food and services has slowed. Inflation in Japan remains above the 2% target.

The consensus for U.S. new home sales is a rise from 617K to 628K. However, momentum for home builders is fading, with new home sales declining by 0.6% in June, marking the second consecutive decrease and leaving sales 7.4% below last year’s pace. A softer job market and expectations of lower future mortgage rates are cooling demand, while builder incentives are losing effectiveness, according to Wells Fargo analysts. In June and July, 61% of builders offered incentives, the highest percentage since January.

The Jackson Hole Symposium is an important event that many Fed Chairs have used over time to deliver significant speeches on monetary policy. Even though this hasn’t happened every year, there’s a good chance Fed Chair Jerome Powell will use this opportunity to signal an important shift in policy considering the current economic environment: inflation has decreased significantly, the labor market has softened and the unemployment rate has risen.

Many analysts believe that a rate decrease is coming in September, which is likely to be signaled during this speech. However, Powell will likely stop short of commenting on the size of the adjustment considering that another round of inflation and employment prints are expected until the September FOMC meeting. While the market already anticipates a 25 bps cut, a 50 bps decrease cannot be ruled out, depending on what the upcoming data will show.

Wish you a profitable trading week.

This article was written by Gina Constantin at www.forexlive.com.

• Domestic sight deposits CHF 457.2 bn vs CHF 455.5 bn prior

Swiss sight deposits increased slightly in the past week but nothing too notable. The figure still sits within the range of recent months, so it isn’t anything that jumps out of the page.

This article was written by Justin Low at www.forexlive.com.

• Eurostoxx flat
• Germany DAX -0.1%
• France CAC 40 flat
• UK FTSE -0.1%
• Spain IBEX +0.2%
• Italy FTSE MIB +0.3%

This comes with US futures also sitting marginally lower as the session gets underway. There’s not a whole lot to work with in terms of risk sentiment, as traders have to look to themselves to drive any moves. Fedspeak will be the key thing to watch this week but we might have to wait until Thursday for anything meaningful.

This article was written by Justin Low at www.forexlive.com.

Global Markets:

•  Asian Stock Markets : Nikkei down 2.00%, Shanghai Composite up 0.45%, Hang Seng up 0.89% ASX up 0.10%
• Commodities : Gold at $2540.35 (0.09%), Silver at $28.99 (0.51%), Brent Oil at $79.38 (-0.39%), WTI Oil at $75.22 (-0.42%)
• Rates : US 10-year yield at 3.878, UK 10-year yield at 3.930, Germany 10-year yield at 2.258

News & Data:

• (CAD) Manufacturing Sales m/m  -2.1% vs -2.3% expected
• (USD) Building Permits  1.40M vs 1.43M expected
• (USD) Housing Starts  1.24M vs 1.34M expected

Markets Update:

Asia-Pacific markets showed mixed results on Monday following a strong rally in stocks the previous week. Investors are now anticipating key central bank announcements and inflation data. The Bank of Korea is set to reveal its interest rate decision on Thursday, while inflation figures from Japan and Singapore are expected on Friday. China will announce its one- and five-year loan prime rates on Tuesday.

Japan’s Nikkei 225 dropped by 2%, with the broader Topix declining 0.75%, potentially ending a five-day winning streak. Japan’s core machinery orders unexpectedly fell by 1.7% in June, contrary to economists’ forecasts of a 1.8% increase, signaling potential concerns about capital expenditure.

In a separate development, Reuters reported that Japan’s national and Tokyo governments aim for a 700 billion yen ($4.7 billion) valuation for Tokyo Metro, with plans to list the subway operator by the end of October. Half of the company’s shares are expected to be sold in the initial public offering, potentially marking Japan’s largest IPO since 2018.

South Korea’s Kospi edged down by 0.27%, and the Kosdaq fell by 0.44%. Conversely, Hong Kong’s Hang Seng index rose by nearly 1%, and the CSI 300 increased by 0.41%. In Australia, the S&P/ASX 200 saw a slight gain of 0.1%.

In the U.S. on Friday, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all recorded modest gains, capping off a week of positive performance.

Upcoming Events: 

• 2:00 PM GMT – USD CB Leading Index m/m

The post Monday 19th August 2024: Asian markets mixed as investors await central bank decisions first appeared on IC Markets | Official Blog.

IC Markets Europe Fundamental Forecast | 19 August 2024

What happened in the Asia session?

Friday’s dollar sell-off resumed this morning with the dollar index (DXY) falling towards the threshold of 102 while the other major currency pairs rose strongly. Crude oil remains under pressure with WTI oil edging lower towards $76.50 per barrel – a clean break below this level could attract more sellers for this commodity.

What does it mean for the Europe & US sessions?

The Conference Board will release its Leading Economic Index (LEI) for the month of July later today. After falling slightly from 101.3 to 101.1 in June, this index is expected to edge lower again down to 100.7 as concerns surrounding gloomy consumer expectations, weak new orders, negative interest rate spread, and an increased number of initial claims for unemployment continue to gain traction. Should the LEI drop more than anticipated, it could add further downward pressure on the dollar.

The Dollar Index (DXY)

Key news events today

CB Leading Economic Index (2:00 pm GMT)

What can we expect from DXY today?

The Conference Board will release its Leading Economic Index (LEI) for the month of July later today. After falling slightly from 101.3 to 101.1 in June, this index is expected to edge lower again down to 100.7 as concerns surrounding gloomy consumer expectations, weak new orders, negative interest rate spread, and an increased number of initial claims for unemployment continue to gain traction. Should the LEI drop more than anticipated, it could add further downward pressure on the dollar.

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

Weak Bullish

Gold (XAU)

Key news events today

CB Leading Economic Index (2:00 pm GMT)

What can we expect from Gold today?

The Conference Board will release its Leading Economic Index (LEI) for the month of July later today. After falling slightly from 101.3 to 101.1 in June, this index is expected to edge lower again down to 100.7 as concerns surrounding gloomy consumer expectations, weak new orders, negative interest rate spread, and an increased number of initial claims for unemployment continue to gain traction. Should the LEI drop more than anticipated, it could add further downward pressure on the dollar and potentially boost 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?

The Aussie gained almost 1.4% as it closed at 0.6670 last Friday to notch its second consecutive week of gains. This currency pair was rising strongly towards the threshold of 0.6700 as Asian markets came online – these are the support and resistance levels for today.

Support: 0.6565

Resistance: 0.6790

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 Bullish

The Kiwi Dollar (NZD)

Key news events today

No major news events.

What can we expect from NZD today?

Despite a surprise rate cut by the RBNZ last Wednesday, the Kiwi rose almost 1% last week as it closed at 0.6054 to register a third consecutive week of gains. This currency pair was trading around 0.6060 at the beginning of the Asia session – these are the support and resistance levels for today.

Support: 0.5975

Resistance: 0.6100

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

Medium Bullish

The Japanese Yen (JPY)

Key news events today

No major news events.

What can we expect from JPY today?

The Japanese strengthened significantly for most parts of July as USD/JPY lost 9%.1 shedding over 1,400 pips over this period. However, demand for the yen waned over the last couple of weeks causing USD/JPY to stabilize around 144 before retracing higher to close at 147.56 last Friday. This currency pair was trading around 147.75 as Asian markets came online – these are the support and resistance levels for today.

Support: 142.10

Resistance: 150.90

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?

The Euro saw a strong bid last Friday as it rose strongly from 1.0966 to close at 1.1028. This currency pair was trading around 1.1030 at the beginning of the Asia session – these are the support and resistance levels for today.

Support: 1.0900

Resistance: 1.1105

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 Bullish

The Swiss Franc (CHF)

Key news events today

No major news events.

What can we expect from CHF today?

Demand for the franc has waned over the last couple of weeks as USD/CHF reversed off 0.8437 in early August to gain nearly 1% over this period, closing at 0.8659 last Friday. This currency pair gapped lower this morning to open at 0.8642 before climbing above 0.8650 – these are the support and resistance levels for today.

Support: 0.8585

Resistance: 0.8750

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

Weak Bullish

The Pound (GBP)

Key news events today

No major news events.

What can we expect from GBP today?

After falling for four consecutive weeks, the Pound finally found a strong bid last week as Cable stabilized around 1.2750 before rising strongly to close at 1.2945 last Friday. This currency pair opened at 1.2931 this morning and was edging higher towards 1.2950 at the beginning of the Asia session – these are the support and resistance levels for today.

Support: 1.2810

Resistance: 1.3050

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 Bullish

The Canadian Dollar (CAD)

Key news events today

No major news events.

What can we expect from CAD today?

Demand for the Loonie increased significantly over the last couple of weeks as USD/CAD fell 1.4% over this period. This currency pair opened at 1.3678 this morning to resume its downward slide – these are the support and resistance levels for today.

Support: 1.3600

Resistance: 1.3760

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

Medium Bearish

Oil

Key news events today

No major news events.

What can we expect from Oil today?

Crude oil prices reversed sharply last Tuesday with WTI oil briefly touching $80.55 per barrel before tumbling hard to close at $76.50 on Friday. This benchmark opened at $76.46 per barrel this morning and was sliding lower towards the $76-mark – these are the support and resistance levels for today.

Support: 75.00

Resistance: 80.30

Next 24 Hours Bias

Weak Bearish

The post IC Markets Europe Fundamental Forecast | 19 August 2024 first appeared on IC Markets | Official Blog.

It’s not just USD/JPY that is on the move so far today. The dollar is also marked lower against other major currencies, with EUR/USD being of particular interest as well. The pair is trading up slightly to 1.1040 after the Friday gains and looks poised to settle on a break to its highest since December last year.

The thing about the greenback’s struggle is that it comes despite traders stepping back on the more aggressive Fed rate cut pricing. I would’ve expected that to at least keep any dollar softness in check but it isn’t quite the case so far.

Traders are now pricing in just ~28% odds of a 50 bps rate cut next month. Meanwhile, there are ~95 bps worth of rate cuts priced in by year-end. Both of that are modestly lower as compared to before the US CPI report last week here.

And yet, the dollar is unable to find much reprieve in the ebbing Fed rate cut pricing. Is that a signal of more to come for the dollar for the remainder of the year?

One key spot to watch is still the bond market in that regard. 10-year yields in the US continue to languish and are now at 3.876% on the day, down by 1.5 bps. So long as yields stay pinned down, the dollar itself might struggle to find much traction or grip to hang on to.

And if the technicals are any indication, there could also be more pain in the short-term. The break higher in EUR/USD sees little challenging a further upside move towards the December highs of 1.1123-39 next.

This article was written by Justin Low at www.forexlive.com.