Articles Tagged with: usd

Forex Week Ahead – Dec 15, 2024 – Anticipating Central Bank Decisions and Key Economic Indicators

Key Insights

​This week is crucial for Forex market participants as major central banks finalize their year-end policy decisions.​ Anticipated moves from the Federal Reserve, Bank of Japan, and Bank of England will significantly impact currency valuations. The U.S. Federal Reserve is expected to implement a 25 basis point rate cut, reflecting a cautious approach amid persistent inflation and a solid labor market. Traders should also monitor the upcoming Purchasing Managers’ Index (PMI) releases and inflation data across several economies, as these will provide insight into economic health and central bank strategies.

Market Overview

Last week’s Forex market saw the U.S. Dollar Index (DXY) gain about 1.3%, reflecting a robust market response to ongoing economic data releases. The prevailing sentiment was supported by sticky inflation figures that complicate the Fed’s rate-cut plans. Key reports showed the U.S. Consumer Price Index (CPI) rose by 2.7% year-on-year, slightly surpassing forecasts and reinforcing the narrative of sustained inflation pressures. The Euro faced headwinds, remaining under 1.0500 against the Dollar due to uncertain economic conditions in the Eurozone, while the British Pound showed resilience amid better-than-expected economic data, supported by a hawkish stance from the Bank of England.

In global contexts, the Japanese Yen saw mixed reactions ahead of the BoJ’s decision, which is expected to maintain a dovish approach despite some upward pressure from strong domestic consumption data. The outlook for the Canadian Dollar is contingent on inflation reports following the Bank of Canada’s aggressive rate cut. Overall, the Forex market is likely to experience heightened volatility as investors digest the ramifications of central bank announcements and incoming economic data.

Currencies Summary

🇺🇸 U.S. Dollar (USD): Last week, the DXY posted steady gains bolstered by inflation data showing a 2.7% rise in CPI, thereby adding doubts to the possibility of aggressive rate cuts. The upcoming Fed meeting is crucial, as a dovish tone could lead to a pullback in USD momentum, presenting opportunities for currency traders.

🇬🇧 British Pound (GBP): The GBP remained strong as UK economic data outperformed expectations, particularly in labor market statistics. Market sentiment suggests that the BoE will likely maintain rates, providing the pound with ongoing support. The upcoming CPI and labor data this week will be vital in gauging the economic trajectory and the pound’s resilience.

🇪🇺 Euro (EUR): The Euro struggled against the advancing USD, maintaining pressure below the 1.0500 mark due to ongoing challenges within the Eurozone economies. Preliminary PMIs this week could signal further economic deterioration, impacting the Euro’s stability against the Dollar and other currencies.

🇯🇵 Japanese Yen (JPY): With expectations for no rate changes from the BoJ, the Yen faces a crucial period that may see further weakening unless there are unexpected hawkish signals from policymakers. The strength of the Yen remains intertwined with global economic trends and local inflation metrics.

🇨🇦 Canadian Dollar (CAD): The CAD is under scrutiny following a significant rate cut from the BoC last week. The Friday release of inflation data will be critical, as continued inflation could mitigate prospects for further rate cuts, affecting CAD valuations through investor confidence.

Upcoming Economic Calendar

The upcoming economic calendar features critical data releases such as the U.S. Core Personal Consumption Expenditures (PCE) Price Index on Friday, which is closely watched by the Fed. Additionally, preliminary PMIs from the Eurozone will be released on Monday, UK job data on Tuesday, and UK CPI on Wednesday. These events are essential as they provide insights into economic health and inflationary pressures, helping traders make informed decisions about their positions and strategies based on central bank outlooks.

Conclusion

This week’s Forex market is poised for significant movements due to central bank decisions and pivotal economic data releases. Traders should focus on how these factors will shape currency valuations and the broader economic landscape. Engaging with these insights can help traders navigate the potential volatility and make strategic trading decisions in a dynamic market environment.

Forex Week Ahead – Dec 2, 2024, Economic Data Sets the Stage, Eyes on U.S data, JOLTS Job Openings, NFP

Key Insights

The upcoming week is pivotal for the Forex market, centered on the Non-Farm Payrolls (NFP) data, which is expected to show an increase of roughly 195,000 jobs. Analysts are also watching key metrics including the ISM manufacturing and services PMIs, ADP employment numbers, and JOLTs job openings, all of which will influence market sentiment as traders adjust their expectations around Federal Reserve interest rate policies.

Market Overview

Last week, the Forex market saw significant activity amid a slew of economic reports. The dollar began cautiously as traders anticipated the NFP report and other employment data set for release this coming week. Analysts project a slight rise in the unemployment rate to 4.2%, which could maintain the pressure on the Federal Reserve to consider a 25 basis point rate cut during its December 18 meeting. The dollar index recorded fluctuations but managed to close the month with a 1.8% gain, despite last week’s downturn.

As the markets anticipated the upcoming FOMC meeting, the discussion surrounding interest rates gained momentum. The expectations around employment metrics reinforced the view that strong job creation could result in adjustments to anticipated rate cuts. Geopolitical factors and inflation concerns also played a role, with persistent inflation reportedly complicating the economic outlook.

Currencies Summary

🇺🇸 US Dollar: The dollar has shown volatility, with last week’s decline stemming partially from cooling rate cut expectations. The upcoming NFP report will be crucial in shaping future movements.

🇪🇺 Euro: The euro gained against the dollar due to stronger-than-expected economic outlooks in the Eurozone, but political uncertainties remain a concern.

🇯🇵 Japanese Yen: The yen maintained strength as expectations rose regarding interest rates, bolstered by recent comments from the Bank of Japan.

🇨🇦 Canadian Dollar: The Canadian dollar’s movements were influenced by the performance of energy prices, with upcoming employment data also likely to impact its direction.

🇦🇺 Australian Dollar: The Aussie dollar remains sensitive to global economic conditions, and data releases next week will be pivotal for its valuation.

Upcoming Economic Calendar

Next week, traders should closely monitor significant calendar events, including the ISM manufacturing and services PMIs, JOLTs job openings, and the ADP employment report on Wednesday. The highlight of the week will be the NFP release on Friday, which is forecasted to show a gain of 195,000 jobs, crucial for shaping market sentiment. These events are critical as they provide insights into labor market health and influence expectations for the Federal Reserve’s monetary policy, impacting currency valuations and trading strategies.

Conclusion

The coming week will be essential for Forex traders as key employment metrics are released, shaping expectations for monetary policy decisions. Notably, the NFP report will be the focal point, which could realign market sentiments and impact currency movements significantly. Traders should prepare to adjust their strategies based on these pivotal economic indicators.

Forex Week Ahead – Nov 25, 2024, RBNZ Rate Cuts, US PCE Data, and Eurozone CPI Insights

Key Insights

The upcoming week is pivotal for the Forex market with several influential data releases. ​Key highlights include the Reserve Bank of New Zealand (RBNZ) expected to slash rates by 50 basis points, significant PCE inflation data in the US, and flash CPI results from the Eurozone.​ The outcomes of these events will likely influence currency valuations, particularly for the New Zealand dollar, the Euro, and the US dollar.

Market Overview

As traders brace for the week ahead, the Forex market is set for heightened volatility influenced by important economic data and central bank decisions. Last week, the US dollar extended its rally following Donald Trump’s election victory, raising questions about future Federal Reserve actions and economic policy direction. The RBNZ’s anticipated rate cut could weaken the New Zealand dollar, potentially leading it to fresh annual lows. On the European front, rising inflation could deter the European Central Bank (ECB) from aggressive rate cuts, thus providing some support for the Euro against the dollar.

Currencies Summary

🇺🇸 USD: The recent uptrend continued with strong data, positioning the dollar as a formidable force. The focus next week is on the PCE inflation report, with core inflation expectations possibly rising from 2.7% to 2.8%, impacting Fed rate-cut decisions.

🇪🇺 EUR: The Eurozone may see volatile movements as flash CPI reports are released. With expectations of CPI rising from 2.0% to 2.4%, the Euro could find itself supported, countering aggressive cuts from the ECB.

🇳🇿 NZD: The New Zealand dollar is likely to be pressured by the RBNZ’s anticipated 50 bps rate cut. A more aggressive reduction could escalate losses for the Kiwi, pushing it closer to 2024 lows.

🇨🇦 CAD: The Canadian dollar’s recent performance has suffered amid aggressive rate cuts from the Bank of Canada. Upcoming GDP data may provide hints about future monetary policy shifts, which could lead to market fluctuations.

🇦🇺 AUD: Australia’s CPI figures will be scrutinized closely. An increase to 2.3% could foster support for the Australian dollar, despite its overall weaker tone compared to the US dollar.

Upcoming Economic Calendar

The upcoming week features a series of critical economic events. On November 27, the RBNZ will announce its rate decision, likely slashing rates by 50 bps. The US PCE inflation data will be released on the same day and is crucial for assessing future Fed cuts, predicted to influence market trends significantly. Eurozone flash CPI data on November 29 could deter immediate ECB cuts, while in Australia, October’s CPI and Q3 capital expenditure data will be released on November 27 and 28, respectively. Each of these events is essential in shaping traders’ strategies for the upcoming week due to the influence they wield over currency movements.

Conclusion

The Forex market stands on the precipice of several potential shifts influenced by critical upcoming economic data releases and central bank meetings. With traders closely monitoring the impact of the RBNZ, Fed, ECB, and other central banks, the week ahead promises to be filled with uncertainties and opportunities.

10 Year Treasury reaches 5%, an alarm for risky assets

The 10-year Treasury bond yield is widely recognized as the benchmark for the global cost of capital and a measure of risk-free returns. Consequently, the disparity between the earnings yield of the S&P 500 index and the yield on the 10-year Treasury bond represents the risk premium associated with stocks.

Stock risk represents the degree to which stocks are perceived as an appealing investment in comparison to other asset classes. In the present circumstances, stock risk has plummeted to near-zero levels, signifying that stockholders are not being rewarded for assuming additional risk. This situation has created significant pressure within the stock market.

The current level of risk is at its lowest point in the past two decades. This decline in risk can be attributed to various factors, including the rise in the dollar index. However, this situation carries substantial implications, particularly for economically disadvantaged countries. It makes it increasingly challenging and costly for these nations to service and repay their debts.

The convergence of these factors, with stock risk hitting historic lows and the strengthening of the dollar, underscores the complex dynamics impacting both global financial markets and the economic well-being of nations with high debt burdens.

This phenomenon demands careful monitoring and analysis as it can have ripple effects throughout the financial world and international debt markets.

The yield curve is the difference between the yields of ten-year and two-year bonds; In normal economic conditions, naturally, the yield of ten-year bonds should be higher than the yield of two-year bonds.

Inversion means that the yield of two-year bonds is higher than the yield of ten-year bonds; Since the 1970s, whenever there has been an inversion of the yield curve, we have seen a recession in the coming months.

Due to the existence of inflation and the increase in yield of bonds due to the increase in interest rates, it is not possible to get a definite recession signal from the current inversion and more data needs to be examined.

A recession is a period of economic decline characterized by a decrease in economic activity, rising unemployment rates, and reduced consumer spending. During a recession, the concept of the “Dollar smile” refers to a graphical representation of the U.S. dollar’s exchange rate. It illustrates that the dollar tends to strengthen during both economic downturns and periods of strong economic growth, forming a smile-like shape on a chart. This phenomenon suggests that investors often seek the safety of the U.S. dollar as a global reserve currency during times of uncertainty, making it a preferred asset in their portfolios.

The risk of recession is closer than ever

A sharp inversion of the yield curve and the possibility of recession

The yield curve is the difference between the yields of ten-year and two-year bonds; In normal economic conditions, naturally, the yield of ten-year bonds should be higher than the yield of two-year bonds.

Inversion means that the yield of two-year bonds is higher than the yield of ten-year bonds; Since the 1970s, whenever there has been an inversion of the yield curve, we have seen a recession in the coming months.

Due to the existence of inflation and the increase in yield of bonds due to the increase in interest rates, it is not possible to get a definite recession signal from the current inversion and more data needs to be examined.

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ECB rate hike But makes EUR weak!

This rate hike, is the tenth consecutive policy rate hike since July last year, hiking all interest rates by 25bp and the rate is 4.5 right now. Higher inflation and inflation forecasts look like the main drivers of the hike. The ECB’s communication is clear: today was the last hike in the current cycle

This announcement could potentially lead to some market reactions. Traders, accustomed to these consecutive rate hikes, may view this as the end of the cycle. Consequently, the EUR currency might experience a weakening effect. As a result, it is important for market participants to adjust their strategies accordingly, considering the implications of this final rate hike by the ECB.

The European Central Bank (ECB) decided to raise interest rates for the tenth consecutive time since last July. This move was driven by a greater concern about the fear of not fully controlling inflation and the risk of ending the rate hikes too soon, rather than the increasing risk of recession in the eurozone. Following a total increase of 450 basis points, the ECB’s main policy rates are now at a historic high.

More insights into the reasons behind this decision and the discussions that took place will be shared during the press conference, scheduled to begin at 2:45 pm CET. At the moment, it is evident that the ECB is deeply troubled by inflation. This includes both the current inflation rate and the anticipated future inflation, as indicated by the latest ECB staff projections, which foresee headline inflation reaching 3.2% in 2024.

You might be wondering why the ECB isn’t taking a step back and waiting to assess the full impact of the previous rate hikes. The answer is straightforward: it’s about maintaining credibility. The ECB’s primary responsibility is to ensure price stability, which the eurozone has not experienced for nearly three years. While the recent surge in inflation is primarily influenced by factors beyond the ECB’s direct control, the ECB must demonstrate its commitment to curbing it. The potential consequences, such as a more pronounced economic slowdown in the eurozone, are of lesser concern to the ECB, at least for now.

Looking ahead, if the economy weakens further and a disinflationary trend gains momentum, it will become increasingly challenging to justify additional rate hikes before the year’s end. The official communication’s statement that “based on its current assessment, the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target” suggests that today’s rate hike may well be the final one.

In summary, today’s interest rate hike not only bolsters the ECB’s credibility but also signals the end of the current rate-hiking cycle.

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FED interest rate hike probability

Based on the latest market pricing, the probability of an interest rate hike by the Federal Reserve in November has increased to 52%

The rise in expectations followed a surprise survey of the services sector by the Institute for Supply Management in August, which showed an acceleration in economic activity, including prices paid. The overall index rose to 54.5 from 52.5, and the prices sub-index increased from 56.8 to 58.9, reflecting rising price pressures in the economy. Market participants are currently grappling with uncertainty about how much the Federal Reserve will raise interest rates and how long interest rates will remain high. Federal Reserve officials have made it clear they will keep interest rates on hold for now, but will closely monitor economic data to determine their next steps. While some economic indicators have begun to moderate, the strong performance of the US services sector serves as a forward-looking indicator of continued economic strength.

An interesting perspective to consider is that earlier in the year, there was considerable talk of an impending recession, causing companies to take a cautious approach and potentially causing consumers to cut back on spending as well. However, the predicted recession never materialized and companies now find themselves with empty inventories but still experiencing high demand. As a result, they are putting aside their previous concerns and are actively investing in replenishing their inventories. It is important to realize that most of the stagnation is caused by psychological factors and this psychological barrier may have been removed, at least from a business perspective.

However, the impact of higher interest rates on consumers, especially in terms of the affordability of items such as new cars and mortgages, can be a gradual process. The market is currently pricing in an 89 basis point cut in interest rates by December 2024, but that forecast still depends on how the economic data unfolds. The possibility of higher interest rates for a longer period is certainly a possibility. Currently, the key point of these developments is the strengthening of the dollar in the currency market; Because expectations of a possible increase in interest rates in November continue to affect currency valuation and financial markets.

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‘A credit crunch has started’ as banks tighten lending by the most on record, Morgan Stanley CIO says

  • The credit crunch stemming from March’s bank crisis has begun, according to Morgan Stanley’s Mike Wilson.
  • Wilson pointed to a big drop in bank lending and tightening credit standards in recent weeks.
  • The data fuels Wilson’s view that the stock market is in for more pain in 2023.

The credit crunch stemming from the fallout of Silicon Valley Bank has begun, with data showing clear tightening of lending standards by banks, according to Morgan Stanley’s top stock strategist Mike Wilson.

In a note on Sunday, the Morgan Stanley CIO said that the last two weeks have shown the steepest decline in lending on record as banks scramble to offset the breakneck pace of deposit flight, which has accelerated in the month since SVB failed.  

“The data suggest a credit crunch has started,” Wilson said in the note, adding that $1 trillion in deposits has been withdrawn from US banks since the Federal Reserve began raising rates a year ago. 

Further illustrating the credit crunch is the most recent small business lending survey, which last week showed that credit availability has seen its largest drop in 20 years, coming alongside the highest interest rates seen in 15 years. 

That’s worrisome for the US economy and markets, which have already been squeezed since the Fed embarked on an aggressive campaign to raise interest rates and bring down inflation.

Tighter financial conditions could raise the risk that the economy falls into a recession this year, as both companies and households experience difficulty obtaining credit. 

The spate of bank failures and the ensuing credit crunch fuel Wilson’s view that stocks are in trouble this year. 

Previously, Wilson forecasted as much as a 20% drop in the S&P 500 in 2023 as corporate earnings drop, with the worst earnings recession since the 2008 recession potentially on tap this year. 

He notes that major indexes holding steady since the SVB episode should not be taken as a sign that everything is fine, but rather an indicator that stocks are at risk of a sudden drop similar to what has been seen in small caps and bank stocks since March. 

“To those investors cheering the softer-than-expected inflation data last week, we would say be careful what you wish for,” Wilson said, pointing to the March Consumer Price Index report, which showed inflation climbing less than expected. “If/when revenues begin to disappoint, that margin degradation can be much more sudden, and that’s when the market can suddenly get in front of the earnings decline we are forecasting,” he added.

source: businessinsider.com

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GBPUSD BUY idea

GBP/USD needs balanced GDP data to climb.
The pound has been positive for several months, benefiting from the surprising economic strength of the UK. On the other hand, the US dollar has fallen behind, but the recent concerns about the global economy have moved the flows toward the safe dollar.
Markets are mostly bearish today, with the only catalyst for their movement being non-farm payroll data.
In order to see the correction of the US dollar, despite the disappointment, we need below $200,000 to force the Federal Reserve to stop raising interest rates. But not so weak that it can ensure the flow of orders in US dollars.
Weak wage growth will also help.
In such a case, GBPUSD has the space to increase levels up to 1.252
But to enter the purchase transaction, one should wait for the failure of the 1.245 level to enter the transaction at this level in the pullback.

GBPUSD long/Buy idea by Alisabbaghi on TradingView.com

The JOLTS index fell below 10 million for the first time since May 2021.

The JOLTS index fell below 10 million for the first time since May 2021.

The US factory orders index was reported as -0.7%.
US employment statistics – February fell below 10 million jobs, which is the first and most important sign of the end of US interest rate hikes, as well as increased fear of recession.


At the same moment, the price of gold reached over 2000 dollars with strong growth.

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