Weekly Forex Analysis

Week ahead

Dollar, goes up and down with other currencies

πŸ‡ΊπŸ‡Έ The recent economic data for the United States has been disappointing, leading investors to reconsider the necessity of another interest rate increase by the Federal Reserve before the contractionary phase concludes, potentially followed by more rate cuts next year. Consequently, the US dollar has shown signs of weakness in the financial markets.

This week, the dollar’s calendar is relatively uneventful. If economic data from other countries is released with weak figures, it could bolster the dollar’s strength. Conversely, if this data appears weak, it may lead to a correction in the dollar’s value. In the event that both the dollar and other currencies weaken, there is likely to be increased demand for the dollar as it is perceived as a safe asset.

It’s a funny theory Dollar Smile Theory

When the future outlook is abnormal, the demand for the dollar will be checked. If it rises, the dollar will be corrected and vice versa from this week. In the past, the sentiment of the market is risk-averse and it will continue on Monday, the dollar may not correct before it changes.

After a barrage of disappointing data for the US dollar in the past week, investors are now wondering whether another rate hike by the Federal Reserve is needed.

This week, more attention will be focused on the purchasing managers’ index of the US service sector, as reported by the ISM Institute. Both the preliminary Purchasing Managers’ Index of the manufacturing sector and the services sector from the S&P Global Institute increased the market’s expectations for no increase in interest rates and even a decrease in August. Taking this issue into consideration, the possibility of a decrease in the ISM index in the next week has also increased. However, reducing the likelihood of another rate hike by the Federal Reserve will also depend on the sub-indices of new orders and prices. If we see declines in these two categories as well, the US dollar and Treasury bond yields may remain under pressure and the stock market will continue to rise, as rising expectations of interest rate cuts could reduce the net present value (NPV) of companies with good growth.

πŸ“… Ziwox Calendar

Mixed EUR

πŸ‡ͺπŸ‡Ί Quietly, the “stagflation” scenario is making a comeback in discussions about the Eurozone’s economic future. The European Central Bank (ECB) has acknowledged that economic growth will be much weaker than their initial forecasts, and core inflation remains stubbornly above 5%. The ECB is expected to maintain its planned 0.25% rate hike at the September meeting, but some believe this could be a mistake.

Meanwhile, eurozone leaders are still considering whether to reinstate the Maastricht debt and deficit measures that were temporarily suspended during the pandemic. While this move might benefit government bond markets in the eurozone, it could have a negative impact on the euro due to less expansionary monetary policies and more contractionary fiscal policies. Prior to the pandemic, there were discussions about keeping the budget deficit below 3% of GDP.

This week, no important data will be released for the Eurozone.

Bank of England Decision Survey

πŸ‡¬πŸ‡§ The Office for National Statistics (ONS), which is Britain’s national data office, provided assistance to UK policymakers on Friday. They revised the GDP growth for 2021 to 1.7%. This indicates that the UK has achieved pre-pandemic growth earlier than previously estimated. As a result, Germany now appears to be the weakest performer among G7 countries in the post-pandemic period. This revision may also give the government more financial flexibility, and it wouldn’t be unexpected if there’s increased speculation about potential financial measures in the Chancellor’s Autumn Statement in November.

British stock market is at high levels, the sentiment is weak and if the British PMI is published in the weak service sector, it will put more pressure on it. Technically, we are close to a mid-term support level, and like the Euro, we can have a recovery movement to the price volume area in the event of a break, and with the failure of the floor and pullback, the downward trend will continue to lower levels, which will be updated, in general, if possible. The price of maintaining this floor is placed in a range box.

High-risk market assets

The Australian dollar, Canadian dollar
πŸ‡¨πŸ‡¦ BOC will hold a meeting on Wednesday and decide on the interest rate. Their previous decision was to raise interest rates by 0.25 percent, and on the other hand, low inflation data for Canada reinforces this assumption for not raising interest rates. Inflation in Canada is currently higher than the Bank of Canada’s 2% target. However, since Canada’s core inflation rate is closer to that target compared to other major economies, Now adopt a wait-and-see approach to determine whether the past interest rate hikes continue to put downward pressure on prices or not. Anyway, Possible gains for the Canadian dollar after the central bank meeting may depend largely on Friday’s employment report for August.

πŸ‡¦πŸ‡Ί Interest rate decision on Tuesday, Sep 5. Its result can influence the market’s expectations about the future path of monetary policies of other currencies. Australia’s central bank officials did nothing to interest rates in the previous session. Expectations again for the bank to keep interest rates unchanged, the unemployment rate in Australia has increased from 3.5% to 3.7%, and core inflation in Australia has decreased from 5.4% to 4.9% annually, which makes the possibility of no interest rate hike for Australia.

Economic calendar

Important news/events for this week:


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Week ahead

Dollar rise again

The recent financial markets have been driven by sentiments, particularly revolving around the United States debt ceiling issue. Treasury Secretary Janet Yellen has raised concerns about a potential default in June if Congress fails to extend it. President Joe Biden and senior Congress members are actively negotiating to resolve the matter, which mainly centers around spending levels. Opposition Republicans have indicated a willingness to raise the debt ceiling if the Government accepts spending cuts.

Market expectations of a Fed rate hike rose to 65% after positive macroeconomic data and higher inflation figures were reported. According to the CME FedWatch Tool, the Fed is projected to hike at the 13th meeting, with interest rates predicted to rise by 0.25 percent on June 14.

Overall sentiment has turned more hawkish on the Fed, and if the debt ceiling crisis is resolved favorably and next Friday’s NFP prints more than expected, a rate hike in June seems more likely.

The next round of US employment data (NFP) on Friday is very important.

Forecasts for the US non-farm payrolls report added 180,000 jobs in May, which was less than the previous month, but still a significant figure. The unemployment rate is expected to rise to 3.5 percent, but wage growth will pick up slightly over the year.
This week, Investors will be watching the payrolls and UNEMPLOYMENT RATE. the result is Fed’s next moves, as any unexpected changes in policy could lead to significant market volatility. In the meantime, traders are positioning themselves for a potential rate hike, with many betting on a stronger dollar and higher bond yields in the coming months.

πŸ“… Ziwox Calendar

Interest rate expectations rice due to the UK inflation

UK inflation rate has hit single digits anew, though it has not attained the number foreseen by economists. The United Kingdom’s net inflation growth has surged to the same level as ten years ago.

Expectations are high for a Bank of England interest rate hike soon; from 4.5% to a minimum of 5%, and possibly even as high as 5.5% to curb inflation’s swift expansion, according to financial market predictions.

Inflation figures have impacted the British bond market leading to heightened interest rate expectations, resulting in government bond yields rising to a multi-month high and investors anticipating increased bond yields.

We don’t have any important calendar for GBP this week, but the US economic calendar is busy with the full US employment report or NFP on Friday. Continued strong growth in the US labor market will increase the interest rate of the Federal Reserve, favoring the US dollar and harming the GBPUSD currency pair. The US government and parliament are close to a debt agreement, with a deadline of June 1st, and delays will harm the US economy.

Eurozone and failure to grow

Euro had an uneventful week. Euro remained feeble versus USD and struggled against GBP. It has slumped against USD uninterruptedly for four weeks.

ECB officials continue to favor interest rate increases, yet this stance hasn’t visibly impacted the euro. This may be due to the fact that the ECB’s rate hikes have translated into higher prices, rendering the official’s hawkish outlook ineffective in shaping interest rate forecasts.

Next week, Eurozone will release inflation data, but the forecast suggests that significant deviation from expectations in the inflation data of the euro area is unlikely.

The main driver of the EURUSD currency pair is again the US dollar and the news related to the negotiations on the debt ceiling of the US federal government. In the meantime, the US NFP employment report will be very important for the market.

Release of data from China, Canada, and Australia

On Wednesday, the newest purchasing managers’ index (PMI) figures will be disclosed in China. As China’s economy has recently lost strength with the fading of the reopening boom, the results of these surveys will display if the disquieting trend persisted in May. In case it did, the currencies of countries such as Australia and New Zealand, which rely on Chinese demand for their exports, may undergo additional decline.

The fundamental bias of AUD and NZD is Bearish and the forecast is Bearish too.

The release of the latest purchasing managers’ index (PMI) figures in China on Wednesday will be closely watched by investors and analysts alike. With the country’s economy experiencing a slowdown in recent months, the PMI results will reveal whether the trend continued into May. If so, this could have detrimental effects on the currencies of countries heavily reliant on Chinese demand for their exports, such as Australia and New Zealand. As such, many will be keeping a keen eye on the figures to gauge the health of China’s economy and the potential knock-on effects on the global market.

Economic calendar

Important news/events for this week:


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Week ahead

Everything involved in FED decisions

πŸ‡ΊπŸ‡Έ More than 82% of market participants do not expect an interest rate hike by the Federal Reserve in the June 14 meeting. (The current interest rate ceiling is 5.25%.)

As it is known, market participants do not only expect interest rates to increase but also to decrease it. But it should be noted that if the stickiness of inflation is high, the Federal Reserve will probably increase the interest rate again, and because the market has predicted a decrease in the interest rate, this issue can put heavy pressure on stocks and indices. be risk-averse. Of course, this analysis is based on the assumption that the US labor market is strong and the unemployment rate is low. If the unemployment rate increases, the Federal Reserve will have to adopt an expansionary policy, and Congress will urgently increase the debt ceiling of the US government.

The US dollar is the foundation of all financial markets. Always one side of the price of commodities (like crude oil, Silver, and gold) or cryptocurrencies like Bitcoin and even the stock market is the US dollar! The US dollar is the main driver of all financial markets in the world. The US economy is the largest economy and the US dollar is the most common currency in the world. This is why all traders of all markets are confused in their decisions. Because the ability to predict the decisions of the Federal Reserve at this point in time has become difficult.

Why is the dollar strong even with the risk of rate hikes ending?

The US dollar index strengthened against most major currencies last week. In fact, the US dollar index has grown by almost 2% over the past two weeks. This is the best 10-day gain in the US dollar index since mid-September. But what happened that the US dollar index strengthened and is it possible to continue the growth of the US dollar?

The US dollar has grown as has the yield on US Treasuries. This means that the interest rate expectations of the market are retreating from the interest rate cut. Since the beginning of the US credit crisis, interest rate expectations quickly moved from interest rate increases to interest rate decreases. The market was worried that with the onset of the credit crisis, the central bank would be forced to lower interest rates to prevent recession and economic crisis. For this reason, traders buy the dollar as a safe asset

Interest rate increase or decrease?

While the market’s interest rate expectations were moving away from a rate cut, the chairman of the US Federal Reserve gave a speech saying that there is no need to raise interest rates. The market is preparing for another rate hike, but the Federal Reserve has not made a decision. This means federal uncertainty and that everything depends on the performance of economic indicators. The performance of the US economic data will determine whether the Federal Reserve will move towards raising interest rates or not.

Traders are focused on the net PCE inflation index.
April’s expectation for this index is 4.6%. This is not a good figure for the central bank. This means that the Federal Reserve may try to raise interest rates to lower it.

πŸ“… Ziwox Calendar

Eurozone

πŸ‡ͺπŸ‡Ί Even though there has been no change in the possibility of interest rate hikes for the European Central Bank, a batch of recent worrying data for Germany, along with the recovery of the US dollar, have caused the Euro to fall, and as a result, the single currency has reached several levels. Lost a key.

The EURUSD currency pair now trades in a key area of 1.0800. And the reason for that is the fear of recession and global financial problems and the growth of the dollar last week. But at these low levels, can you think of buying Euros?
A key driver of the euro’s attractiveness against the dollar recently has been the perception that the Federal Reserve has reached its interest rate peak while the European Central Bank still has a way to go for contractionary policies. Although the European Central Bank will still be on the path of contractionary policies, markets are already re-betting on an interest rate hike by the US Federal Reserve after Logan’s speech.

COT report of Euro and US dollar

Ziwox Terminal (COT report)


You should note that the US debt ceiling problems and the purchase of the EURUSD currency pair were the biggest transactions among the G10 currencies, and since recent developments have ended positively for the dollar, we will probably see a Long Squeeze in this currency pair. According to the COT report, 7667 Long net positions Increased in EUR, and 5933 Long net positions Increased in the last week and these close positions by these holders can be a Long Squeeze situation. There is plenty of room to reprice the hawkish Fed expectations, so finding a floor for the EURUSD pair is risky right now.

The PMI indicators that will be published on Tuesday can play a very important role in stopping the fall of the euro or, as we mentioned above in the (Long Squeeze), fuel a sharp and further fall. The forecasts do not indicate much change in the economic outlook of the Eurozone. The manufacturing sector is expected to contract again, with growth fueled by service industries.

RBNZ, Hike interest rates again?

πŸ‡³πŸ‡Ώ The Reserve Bank of New Zealand is holding a policy meeting this week. It is expected to raise interest rates by 0.25% on Wednesday. If it does, it would be the 12th consecutive increase since the contractionary cycle began in October last year and would take interest rates to 5.50 percent, the highest among advanced economies.

The Bank of New Zealand will release updated forecasts in its quarterly monetary policy statement on Wednesday, so the New Zealand dollar could rise if policymakers raise their terminal rate to meet or exceed market expectations.

Next, in this week’s economic calendar, we will have Australia’s preliminary PMI indicators. For Canada, April wage growth will be released on Thursday. And for Japan, we’ll have machinery orders, the manufacturing PMI, and a preview of May inflation with the Tokyo CPI.

Economic calendar

Important news/events for this week:


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Week ahead

End of interest rate hikes by FED

πŸ‡ΊπŸ‡Έ For the US dollar, the CPI index for April, due out on Wednesday, will be on everyone’s radar. The core CPI data is expected to change from 5.0% to 5.2% year-on-year, while the core CPI rate is expected to be unchanged at 5.6% year-on-year, indicating that the increase in the cost of factory goods accelerated during the month.

Also, the U.S. Nonfarm Payrolls data and last week’s US jobless claims released rose by the most in six weeks, a sign that the US labor market may be weakening. For this reason, this week’s inflation can be very important because the reduction of inflation along with the pressured job market can provide peace of mind for the Federal Reserve.

Note that investors also expect interest rates to fall by more than 0.75% by the end of the year.

Specifying the policies of banks turn by turn, Now for BOE

πŸ‡¬πŸ‡§ After a turbulent week for the European Central Bank and the Federal Reserve, it is the Bank of England’s turn.

In its last meeting in March, the Bank of England increased the interest rate by 0.25% this time after increasing it 10 times.
BOE officials downplayed the surprise rise in inflation in February and focused on their next steps, saying more accommodative policy would be needed if there was evidence of sustained price pressures. The view that European banks, including the UK, are better supervised than US banks appears to have been partly supportive of European currencies. This raises the expectation of traders and analysts to predict interest rate hikes several more times for the BOE.
Since then, data has shown that inflation has eased less than expected and the core inflation rate has remained marginally above 10 percent year-on-year, allowing investors to see around 0.6 percent more rate hikes by the end of this year. price For next week’s session, investors are roughly 85% likely to see interest rates rise by 0.25%, with the remaining 15% likely to hold interest rates unchanged.

Therefore, the market has well-priced the pound’s currency strength with a 0.25% hike, so what causes more rapid growth is a surprise greater than 0.25%.

What could further dampen the bullish outlook for the pound could be a bigger-than-expected decline in Britain’s first estimate of first-quarter gross domestic product (GDP), which is due to be released on Friday alongside the country’s trade data for March.

China, Australia, and New Zealand

πŸ‡¦πŸ‡Ί πŸ‡³πŸ‡Ώ πŸ‡¨πŸ‡³

Trade data from the world’s second-largest economy and Australia and New Zealand’s main trading partner (China) is due on Tuesday and may be of interest to traders for the New Zealand dollar and the Australian dollar.

After China’s PMI data disappointed traders last week, the release of weak trade data this week could indicate that China has yet to return to its previous decline after declaring the end of the Coronavirus in the world.

China’s Consumer Price Index (CPI) and Producer Price Index (PPI) will be released on Thursday.

Economic calendar

Important news/events for this week are:

Thu May 9:

πŸ‡¦πŸ‡Ί AUD RETAIL SALES (MOM)

Wed May 10:

πŸ‡©πŸ‡ͺ GERMAN CPI (MOM) (APR)

πŸ‡ΊπŸ‡Έ USD CPI & CORE CPI (MOM) (APR)

Thu May 11:

πŸ‡¬πŸ‡§ BOE INTEREST RATE DECISION (MAY)

πŸ‡ΊπŸ‡Έ USD INITIAL JOBLESS CLAIMS

πŸ‡ΊπŸ‡Έ USD PPI (MOM) (APR)

Fri May 12:

πŸ‡¬πŸ‡§ GDP index


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GBP england inflation

High UK inflation, helps to a rate hike

Today’s unexpectedly high CPI growth and the above-consensus reading on core inflation means is now more likely another next month 25bp rate hike from the BOE (Bank of England).

Although these data all indicate high inflation and higher-than-expected costs for the UK, it should be taken into account that UK inflation has been on a downward trend in the past few months.

core CPI stayed at 6.2%, having been expected to slip back towards 6%. Headline inflation unexpectedly stayed in double-digits at 10.1%, though that will start to change in April when the effect of last year’s electricity/gas price hike filters out of the annual comparison. We expect headline CPI to reach the 8% area next month, 5% by summer and roughly 3% around year-end on current trends.

The core CPI printed at 6.2% as expected (prev was 6%), while headline inflation was unexpectedly at 10.1%. However, the effect of last year’s electricity/gas price hike will filter out in April, and headline CPI is expected to reach 8% next month, 5% by summer, and roughly 3% around year-end.

Core CPI is much more important for BOE. Because service-sector inflation trends are more persistent and relevant over the long term for monetary policy.

Instead, it is core goods inflation that is proving much stickier than expected.

with the clear disinflationary trend in durable goods, We doubt high inflation will last given improving supply chains, lower input costs, as well as the lower orders-to-inventory ratios we’ve seen in the surveys over recent months. The Bank of England itself said something similar in its most recent set of meeting minutes.

There is a clear trend of disinflation in durable goods, and the improving supply chains and lower input costs suggest that high inflation will not last. The Bank of England also expressed a similar sentiment in their recent meeting minutes.

However, the data was high enough to push the pound higher across all currency pairs.
The thing is, in this situation, we cannot be very confident about the continued growth of the pound, and even with this positive sentiment, we cannot propose a decline for the pound. because all the data is priced until next BOE meeting, For now, patience is the best option.


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Andrew Bailey BOE

Inflation is likely to come down sharply in the UK, it’s very high

Bank of England, Andrew Bailey BOE: Inflation is likely to come down sharply in the UK, it’s very high.

The economy is stronger than expected, but wages are weakening.

What monetary policy can and should do is to make sure that the inflation that has arrived from abroad does not turn into sustained inflation at home.

As we look at the inflation outlook today, we must be aware that the full impact of the higher bank rate has yet to be felt in financial markets and the real economy.

Sometimes, changes in supply can be as sudden and as important to the inflation outlook as changes in demand.

If swelling persists, additional contraction is required.

The MPC will base its decision on evidence as it emerges.

Bank Of England BOE GBP

Bank of England hikes by 25bp

7 members out of 9 voting members of the Bank of England voted to increase and 2 members voted not to change the interest rate.

Bank of England monetary statement

Second-quarter inflation is likely to be lower than forecast in February due to longer-term energy price caps and lower wholesale prices.

If there are signs of continued price pressures, further tightening of monetary policy is necessary.

The UK banking system has strong capital and liquidity and remains resilient.

Unexpectedly strong core inflation in February reflects clothing prices that may not last long.

The UK banking system is well placed to support the economy, including in a period of higher interest rates.

We will continue to pay particular attention to UK credit conditions.

Wage growth is likely to ease slightly faster than forecast in February as inflation expectations ease.

The fiscal support in March’s budget would boost GDP by around 0.3% in subsequent years.

Businesses expect inflation next year to reach 5.6 percent in the three months to February, compared with 6.2 percent in the three months to November.

No increase in the unemployment rate is forecast and we forecast 0.2% employment growth in the second quarter, up from the -0.4% forecast in February.

FED raised interest rates by 0.25%, now it’s the Bank of England’s turn

The Federal Reserve raised interest rates by 0.25%, much of which was priced in. But Federal Reserve Chairman Powell signaled that there would be another 0.25% hike before this contractionary cycle ends, which was a hawkish tone. but, there is not even a certainty that there will be another interest rate hike or not. because Fed policy no longer depends on inflation and all banking stress and crisis available too. As Powell put it, “adequate credit enhancement from bank problems” somehow “substitutes for rate hikes.”

And uncertainty about the credit crunch adds to the confusion about the Fed’s policy

Now it is the turn of Europe and England

After the Fed meeting and Powell’s speech, European Central Bank President Lagarde reiterated that the ECB will maintain a “strong” approach to responding to inflationary risks and that the 2% inflation target is non-negotiable.

This year we see a hawkish European Central Bank and a weakened American Central Bank. The easing of the US Federal Reserve and the hawkishness of the European Central Bank could have increased the expectations that EURUSD could continue its possible growth above the 1.10 range. The 1.1275 range is currently considered a logical target for buyers.

In the case of England, the high inflation shocked everyone and the new inflation report destroyed the predictions of Billy, the head of the Bank of England, that “we will see a sharp drop in inflation”.

Due to the fact that inflation will not decrease on its own, it is almost certain that the Bank of England will increase the interest rate by 0.25% in today’s meeting and we can see higher prices for all GBP pairs.

FED Federal reserve

The central banks of the United States, England, Japan, Europe, Switzerland, and Canada are taking coordinated measures to increase the supply of liquidity

The central banks of the United States, England, Japan, Europe, Switzerland, and Canada are taking coordinated measures to increase the supply of liquidity

The coordinated action of central banks to increase the supply of US dollar liquidity

The central banks of Canada, the UK, Japan, Europe, the Federal Reserve, and Switzerland are today announcing coordinated action to increase liquidity through US dollar liquidity swap line arrangements.

Federal Reserve statement:
Daily operations will begin on Monday and will continue until at least the end of April

To improve the effectiveness of swap lines in providing dollar funding, central banks that currently offer dollar operations have agreed to increase the number of 7-day maturity operations from weekly to daily.

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