Week In FX Europe – BoE To Judge Slack Before Hike

via MarketPulse:

The Bank of England rate announcement nearly got lost in the shuffle this week. Yesterday, Governor Carney and his fellow policy makers left both the benchmark rate at +0.5% and the overall size of its bond portfolio at £375b.

With the Fed trying to wind down its bond-buying stimulus, the ECB humming and hawing about implementing QE, Governor Carney at the BoE is expected to keep policy unchanged throughout the remainder of this year.

The UK economy is currently “basking in a spell of rapid growth and low inflation.” Earlier this week the IMF indicated that it expects the UK economy to expand +2.9% this year (less than the BoE’s forecasted rate of +3.4%), outpacing both Germany and US growth. Despite the dip in February’s inflation rate (+1.7% annualized), it is expected to hover close to the BoE’s +2% target throughout the year.

Governor Carney has been rather vocal and adamant that UK rates will remain low, keeping the BoE’s easy-monetary policy intact at least until employment improves further and when the nation’s economy is running to its full potential.

Like any G7 monetary authority, the timing of the first rate hike will be of the utmost importance. If authorities wait too long to tighten, inflation may take off. If they act too quickly, then economic recovery could quickly stall.

Fixed income traders are pricing in the BoE’s first-rate hike during Q1, 2015 – perhaps even six-months before the Fed and certainly much sooner than the ECB. No matter when authorities do decide to tighten, any rate rise is expected to be slow and limited to start.

A change in the BoE’s interest rate guidance last month (originally rates were to begin to tighten when unemployment hit +7%, currently hovering at +7.2%) emphasized that once the +7% has been passed authorities would keep a loose monetary policy at least until the “slack” in the labor market and broader economy has been reduced. To date, UK policy makers seem to have underestimated the “real” strength of the own country’s job market.

Expect going forward a hot debate in reference to the word “slack” – Carney thinks there is more “slack” in the labor market than the MPC’s best estimate.

• Spain Deflation Lower Than Reported Earlier


• UK Chancellor Says Economy Has Proven IMF Wrong


• Putin Pressures West on $2.2 Billion Ukrainian Energy Debt


• Fitch Raises Portugal Rating to Positive


• NATO Says 40,000 Russian Troops Must Withdraw From Ukraine Border


• UK Construction Shrinks in February Weather Blamed


• German Central Banker Reaffirms Deflations Risks Limited


• UK House Prices Could Rise 6% For Five Years


• Greek Bond Sale Had Huge Demand


• IMF Warns Europe About Banking System Threat


• JPMorgan CEO Says US Banks Healthier than European


• UK Trade Deficit Narrows in February


• Greek Bond Auction Welcomes 4 Year Low Yields


• Confidence In Greek Debt High – CNBC Poll


• IMF Cuts Russia Growth Forecast


• Economists Poll Says One in Three Chance of ECB To Start QE


• UK Business Confidence Rises Survey Says


• Ukraine Misses Gazprom Debt Deadline


• UK Manufacturing Grows 1 Percent in January


• IMF Forecasts UK Growth At 2.9 Percent in 2014


• UK GDP Keeps Growing But Population Rise Limits Recovery


• Hungary Prime Minister Reelected

WEEK AHEAD

* USD Advance Retail Sales

* GBP Core Consumer Price Index

* EUR German ZEW Survey

* USD Consumer Price Index

* NZD Consumer Prices Index

* CNY GDP YTD

* EUR Euro-Zone Consumer Price Index

* CAD Bank of Canada Rate Decision

* CAD Consumer Price Index

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Week In FX Europe – CB’s, Debt Agencies and Governments Gotta Work Together

via MarketPulse:

Are we about to face a period of “considerable turmoil’? Central Banks in the developed world are preparing to reverse some of the stimulus programs that they have put in place over the past six-years. The Paris based research body – OECD – insists that the agencies that have been responsible for selling government bonds will have to work with their respective CB’s to ensure that the “exit from all said programs run smoothly.”

The reversing of stimulus needs to come, but the potential problems have more to do with CB’s communicating their respective exit strategies without creating unnecessary volatility that could cause longer lasting negative effects. The challenge for CB’s and relevant agencies is to go about their “exit” strategy without causing yields to back up aggressively. Central Banks have yet to decide on what portion of their holdings they will be required to sell and over what time period.

The OECD said that bond sales by CB’s would likely take place when the borrowing needs of governments remain high – this will obviously lead to interest rates to back up further. Backing up is only natural; it’s the speed and aggressiveness that could become an issue. Already we have seen that investors reaction to a Fed taper has caused US yields to “move earlier and more sharply” than probably warranted by policy makers. This is not a good situation for any economy that has questionable growth rates. The reality is that this is all new for Central bankers and investors alike. Tapering has been a “novelty” and reversing this stimulus has never been done before. With that in mind it may not be possible for the financial markets to execute an “exit” without at least causing some minor financial turbulence.

Expect to hear unified dulcet tones from Central Banks, governments and debt management agencies getting louder as we approach an exit!

• European Banks Slow Down Debt Repayment Schedules


• Greek Economy Starts Showing Signs of Recovery


• IMF Announces Ukraine’s $18 Billion Bailout


• European Consumer Confidence Rises in March


• Russia Growth Was Questionable Even Before Crimea


• UK Recovery Could Signal End to Low Rates


• New Technologies Could Offset Russian Gas Supply Shortage


• After Sanctions Russia Looks East


• UK GDP Growth Downgraded to 1.7 Percent in 2013


• UK Current Account Deficit Reaches 22.4 Billion Pounds


• UK House Prices Rise 7 Percent in January


• Dutch PM Warns Russia If Further Action Taken


• Italy Holds Key To Europe’s Recovery


• BNP Paribas Optimistic About Eastern Europe


• German Business Sentiment Drops On Crimea But Hopeful on Economy


• German Central Banker Says QE Not Out of The Question


• Russia and West Continue Dialogue Over Crimea Actions


• Russia Sanctions Could Push Nation into Recession


• G7 Meeting To Suspend G8 Until Russia Changes Course


• ECB Council Member Says Bank Keeping an Eye on Euro Regarding Inflation


• G7 To Focus on Ukraine This Week


• Anti-Austerity Protest in Spain Turns Violent

WEEK AHEAD

* EUR Euro-Zone Consumer Price Index Estimate

* CAD Gross Domestic Product

* AUD Reserve Bank of Australia Rate Decision

* EUR German Unemployment

* USD ISM Manufacturing

* EUR European Central Bank Rate Decision

* USD ISM Non-Manufacturing Composite

* CAD Net Change in Employment

* CAD Unemployment Rate

* USD Change in Non-farm Payrolls

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Technical analysis of USD/CHF for February 28, 2014

Show full picture Overview: USD/CHF is expected to trade with bearish bias. It is undermined by the weaker dollar sentiment, flows to haven CHF amid tensions in Ukraine and franc demand on rebounding CHF/JPY cross and on soft EUR/CHF cross. But CHF sentiment are dented by weaker-than-expected Switzerland 4Q GDP growth of +1.7% on-year (versus forecast +2.1%). USD/CHF downside is also limited by the positions adjustment before weekend. Daily chart is mixed as stochastics is bullish at oversold zone, but MACD is still in bearish mode, five-day moving average is meandering sideways, inside-day-range pattern was completed on Thursday. Trading recommendation: The pair is trading below its pivot point. It is likely to trade in a…

via Forex analysis review:

Overview:

USD/CHF is expected to trade with bearish bias. It is undermined by the weaker dollar sentiment, flows to haven CHF amid tensions in Ukraine and franc demand on rebounding CHF/JPY cross and on soft EUR/CHF cross. But CHF sentiment are dented by weaker-than-expected Switzerland 4Q GDP growth of +1.7% on-year (versus forecast +2.1%). USD/CHF downside is also limited by the positions adjustment before weekend. Daily chart is mixed as stochastics is bullish at oversold zone, but MACD is still in bearish mode, five-day moving average is meandering sideways, inside-day-range pattern was completed on Thursday.

Trading recommendation:

The pair is trading below its pivot point. It is likely to trade in a lower range as far as it remains below its pivot point. Short position is recommended with the first target at 0.8790. A breach of this target will move the pair further downwards to 0.8770. The pivot point stands at 0.8855. In case the price moves in the opposite direction, bounces back from support level, and then moves above its pivot point, it is likely to move further to the upside. In that scenario, a long position is recommended with the first target at 0.8875 and the second target at 0.8910.

Resistance levels:



0.8875



0.8910



0.8935

Support levels:



0.8790



0.8770



0.8750

The material has been provided by InstaForex Company – www.instaforex.com

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Technical analysis of USD/CHF for February 28, 2014

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Technical analysis of USD/CHF for Feburary 14, 2014

Show full picture Overview: USD/CHF is expected to trade in lower range. It is undermined by the negative dollar sentiment and franc demand on the buoyant CHF/JPY cross and on the soft EUR/CHF cross. But the USD/CHF losses are tempered by the positions adjustment before weekend. Daily chart is negative-biased as the MACD is in bearish mode, stochastics are turning bearish. Trading recommendation: The pair is trading below its pivot point. It is likely to trade in a lower range as far as it remains below its pivot point. Short position is recommended with the first target at 0.8995. A breach of this target will move the pair further downwards to 0.902. The pivot point stands at 0.8955. In case the price moves in the…

via Forex analysis review:

Overview:

USD/CHF is expected to trade in lower range. It is undermined by the negative dollar sentiment and franc demand on the buoyant CHF/JPY cross and on the soft EUR/CHF cross. But the USD/CHF losses are tempered by the positions adjustment before weekend. Daily chart is negative-biased as the MACD is in bearish mode, stochastics are turning bearish.

Trading recommendation:

The pair is trading below its pivot point. It is likely to trade in a lower range as far as it remains below its pivot point. Short position is recommended with the first target at 0.8995. A breach of this target will move the pair further downwards to 0.902. The pivot point stands at 0.8955. In case the price moves in the opposite direction, bounces back from support level, and then moves above its pivot point, it is likely to move further to the upside. In that scenario, a long position is recommended with the first target at 0.8995 and the second target at 0.902.

Resistance levels:

0.8995

0.902

0.904

Support levels:

0.89

0.888

0.8855

The material has been provided by InstaForex Company – www.instaforex.com

For more info: Technical analysis of USD/CHF for Feburary 14, 2014

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Technical analysis of USD/CHF for Feburary 14, 2014

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Week In FX Europe – Can Draghi Defend His Deflation Views With Gusto Again?

via MarketPulse:

Deflation remains the ECB’s nemesis and the pressure has piled again on Euro policy makers after Friday’s disappointing headline consumer price print. The annual rate of inflation for the 18-members that share the single currency, the EUR, fell to a new record low in January, with flash CPI, y/y falling to +0.7% from Decembers +0.8%. Analysts had expected an uptick to +0.9%.

With a print like this the market will expect the ECB to be more proactive. Draghi and company last cut rates in November when their annual rate of inflation fell to +0.7% from +1.1% m/m, and further away from their target just below the psychological +2% level.

Falling prices or low inflation will hinder the regions recovery from its long debt and banking crisis. Even worse, it could push the EUR members into a deflation atmosphere where prices actually fall as consumers delay their future consumption and investment needs. A lengthy period of falling prices will only further damage the Euro-zone tentative progress. Already Governments and households are struggling to finance their current debt load and when prices fall that effective “fixed” debt burden rises.

Some will argue that there are some tentative signs, like falling employment (Jan. +12% vs. +12.1% m/m) that consumer spending will rise over the coming months. But, will it be strong enough to support prices? That is the question facing the ECB. Can Draghi continue to voice with the same confidence that deflation won’t be visiting the currency bloc? Consumer price reports like this will keep the debate alive. Expect a chorus of individuals to ask for more additional stimulus to help the struggling periphery. Next weeks ECB rate announcement will make for interesting reading.

Europe’s backbone Germany is not making it any easier for Euro policymakers. German retail sales on Friday fell -2.5% in December, and easily wiped out the previous months gain of +0.9% in November. On a positive note, it does tend to be a volatile number. Friday’s headline print is in stark contrast to other recent positive reports. January’s German unemployment fell sharply, consumer confidence is on the rise and inflation remains relatively low – these are all positive that could lead to increase household spending and be a GDP plus.

• Economic Recovery Optimism Rises in Europe


• Danish Government Split on State Owned Energy Company


• What Happens in EM Stays in EM Says Goldman


• Selling In Lira, Rand Continues Despite Rate Hikes


• European Money Supply Falls To Lowest Level in 3 Years


• Angela Merkel Fires Spying Claim at US In Her State of the Union


• Turkey Move Does Not Solve Emerging Markets’ Problems


• Analysts Remain Skeptical About UK’s Recovery


• Greek Bond Yields Hit by Emerging Marking Rout


• French Unemployment Hits Record High


• Britain’s Economy Grows Fastest in Six Years


• German Business Sentiment Rises in January


• Goldman Sachs Says European Stocks Not Cheap As Well as Riskier


• Gap Between London and Rest of UK Widening


• Europe True Jobless Rate Higher As People Given Up Seeking Jobs


• European Banks Face Rising Borrowing Costs

WEEK AHEAD

* USD ISM Manufacturing

* AUD Reserve Bank of Australia Rate Decision

* NZD Unemployment Rate

* GBP Bank of England Rate Decision

* EUR European Central Bank Rate Decision

* USD Change in Non-farm Payrolls

* CAD Unemployment Rate

* GBP Gross Domestic Product Estimate

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EUR Splutters, EM Dives While Investors See Red

via MarketPulse:

Tapering is not tightening – this well versed Fed fact seems to have fallen on deaf ears when you mention emerging market currencies. However, if you include some Chinese manufacturing contraction and dour employment numbers from the world’s second largest economy, emerging markets should be worried. The pull-back from EM currencies is showing no signs of a pause after the US Fed confirmed market expectations yesterday that it would pare its monthly bond buying by another $10-billion a month ($65-billion).

During this morning’s European session, it was the Hungarian forint’s (HUF) turn to bear the pressure, following in the footsteps of the Turkish lira (TRY) and South African Rand’s (ZAR) dismal display earlier in the week. EM currencies are finding it difficult to adjust to a new environment of restrictive monetary policy, particularly that of the US’s Fed. Despite the EM uncomfortable ride, analysts note that the impact of the pain from tapering is being expressed mostly through currency value readjustment – a certain positive that eventually makes EM currencies competitive again.

Currently, investor’s appetite for risk remains subdued. Risk-off sentiment following yesterday’s losses on Wall St., coupled with a less hawkish RBNZ statement and mixed with a soft final Chinese PMI (49.5) is weighing on commodity currencies like the AUD and NZD. Asian losses have been limited overnight, in part due to Chinese New Year holidays. However, the various asset classes were still capable of giving up most of the good from the Turkish central banks (CBRT) aggressive hike action from the previous session. The Kiwi in particular has fallen to a new month low of $0.8140, in the aftermath of the RBNZ overnight cash rate decision of standing “pat” at a record low rate of 2.50%. RBNZ did acknowledge “considerable momentum” for their economy and forecasted growth to be in line with 3.5% GDP in Q4. Adding weight to the NZD pressure was the mention from Governor Wheeler that the current high level of FX rate is “unsustainable” in the long run.

Europe and the EUR in particular are not escaping the investor’s wrath. It seems that the “deflation theme,” the ECB’s nemesis, has moved back to the front burner, particularly after the German State CPI’s for this month all registered negative month-over-month readings earlier this morning. The EUR has so far managed to penetrate the psychological €1.36 handle despite another improvement in German monthly Unemployment data (-28k, m/m). Not helping the single currency’s plight is that the regions confidence levels remain “patchy.” The market seems to have caught itself long the single currency, and the longer the EUR technically trades below 1.3665-75 will open up a “bear” channel to test support south of 1.3580 level.

The pound is not immune to its own fallout either. Sterling this morning has been pressured lower by a mixed bag of UK data – despite mortgage approvals being at a six-year high, the M4 money supply growth slowed sharply. Throw into the mix, the BoE’s Carney reiterating that UK’s recovery has a way to go before a rate hike, has also been adding pressure to the pound from the sidelines. Dealers remain comfortably short and expect losses to extend to the 30-day lower Bollinger Band (£1.6303) over the coming sessions. Expect capital markets to remain on edge as the PBoC and the Chinese government continue to struggle with domestic financial risks, and as investors adjust to further EM tightening.

Other links:

Central Banks Efforts Fade Fast

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Global Economic Concern sees Currency Volumes Drop

via MarketPulse:

Foreign-exchange volumes fell in the U.S., the U.K. and Singapore in October from six months earlier amid a slide in trading of the dollar against the yen and as concern a partial shutdown of the U.S. government would hamper the global economy pushed volatility to the lowest since 2012.

Average daily currency-market turnover in the U.S. was $816 billion in October, a 19 percent slide from April, the Foreign Exchange Committee reported in a twice-yearly survey. Volume in the U.K. declined to $2.23 trillion in October, a 12 percent decline from April, the Bank of England’s Foreign Exchange Joint Standing Committee said. Singapore currency trading fell 14.7 percent to $282 billion, the Singapore Foreign Exchange Market Committee reported.

The JPMorgan Chase & Co. Group of Seven Volatility Index fell to 7.51 percent on Oct. 24, the lowest since Dec. 20, 2012.

Bloomberg

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