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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IMF Warns Europe About Banking System Threat

via MarketPulse:

The eurozone’s creaking banking system poses a serious threat to global financial stability, according to the International Monetary Fund which warned European leaders to accelerate plans to support weak banks and create a banking union.

In a report that forecasts a “goldilocks” outcome of stable growth, IMF financial counsellor José Viñals said the end of low interest rates in the US, coupled with a failure by the Obama administration to monitor risky lending, a sharp slowdown in China and disruption to emerging markets could all upset expectations of a smooth recovery.

“Can the US make a smooth exit from unconventional policies? I call this the ‘Goldilocks exit’ – not too hot, not too cold, just right.

This is our base line, most likely outcome. After a turbulent start, the normalisation of monetary policy has begun. But a bumpy exit is possible.”

He said the eurozone’s incomplete repair of bank and corporate balance sheets continued to place a drag on the recovery, while the widening gap between Germany and the poorest of the 18 member states was restricting the flow of funds around the currency zone and hampering the growth of smaller businesses. “Thus, further efforts must be made to strengthen bank balance sheets, through the European comprehensive bank assessment and follow-up, and to tackle the corporate debt overhang,” he said.

The IMF, which published the global financial stability report on Wednesday, acts as lender of last resort to bankrupt countries and is one of many economic organisations to worry about the effects on global growth of the US attempting to behave as if the recovery is complete when many countries are still struggling to cope with the aftershocks.

via The Guardian

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Technical analysis of USD/CHF for March 28, 2014

Show full picture Overview: USD/CHF is expected to trade in a higher range. It is supported by the dovish Swiss National Bank’s monetary policy stance, positive dollar sentiment, and franc sales on the buoyant GBP/CHF, AUD/CHF, NZD/CHF, and CAD/CHF crosses. But the USD/CHF gains are tempered by the franc demand on the soft EUR/CHF cross and positions adjustment before weekend. Daily chart is positive-biased as MACD and stochastics is bullish, five-day moving average is above 15-day MA and is advancing. Trading recommendation: The pair is trading above its pivot point. It is likely to trade in a higher range as far as it remains above its pivot point. As far as the price is above its pivot point…

via Forex analysis review:

Overview:

USD/CHF is expected to trade in a higher range. It is supported by the dovish Swiss National Bank’s monetary policy stance, positive dollar sentiment, and franc sales on the buoyant GBP/CHF, AUD/CHF, NZD/CHF, and CAD/CHF crosses. But the USD/CHF gains are tempered by the franc demand on the soft EUR/CHF cross and positions adjustment before weekend. Daily chart is positive-biased as MACD and stochastics is bullish, five-day moving average is above 15-day MA and is advancing.

Trading recommendation:


The pair is trading above its pivot point. It is likely to trade in a higher range as far as it remains above its pivot point. As far as the price is above its pivot point, a long position is recommended with the first target at 0.8910 and the second target at 0.8930. In an alternative scenario, if the price moves below its pivot points, short positions are recommended with the first target at 0.8810. A breach of this target will push the pair further downwards and one may expect the second target at 0.8785. The pivot point is at 0.8835.

Resistance levels:



0.8910



0.8930



0.8960

Support levels:



0.8810



0.8785



0.8765

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Technical analysis of USD/CHF for March 28, 2014

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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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Week in FX Europe – BoE Shake Up No Match For Yellen’s FOMC

via MarketPulse:

Geopolitical risk continues to be high after Crimea’s overtly pro-Russian vote in Sunday’s referendum. The fact that energy and other commodities had high stocks before the Ukraine-Russian turmoil decreased the effect that it had on prices. Russian stock markets where the hardest hit this week with western counterparts unfazed and even boosted by President Putin’s words about no further Ukrainian region expected to join. The EUR/USD stood mostly in a very tight range around 1.39 before the US Federal Reserve’s FOMC.

The Bank of England governor announced his shake up of the Old Lady. Answering two of the biggest complaints about the central bank Carney appointed a new Chief Economist and a Deputy of Banks and Markets. The fact that the market was calling out the BoE for being out of touch with the economy and having the wrong forecasts explains the first appointment. The biggest loser in the shake up was MPC member Fisher who oversaw one of the people who have been suspended in the ongoing FX manipulation probe. This probably means that Fisher will be out when his term ends.

Sanctions against Russia continue to rise. The US has used the more aggressive language, but in the end both the EU and the US have been limited to sanctions on individuals in the periphery of the conflict and no direct economic sanctions for Russia. The US has nothing to lose as trade with Russia is small. Russia does not hold that much US debt that could hurt the US if they decide to sell. Europe on the other hand has a much co-dependant relationship with Russia. The Europe needs Russian energy. Germany in particular accounts for most Russian exports to Europe. Russian in exchange needs the profits from those energy exports to sustain its economy. German sanctions would hurt Russia, but would also impact the rate of growth of the economy and Europe as the teuton nation is the engine of the region.

The Janet Yellen era at the United States Federal Reserve has officially begun. Her first Federal Open Market Committee was memorable. The actual FOMC statement was what the market has come to expect from central bank communication: Optimistic, but cautious. The expected $10 billion added taper continues the trend set by Bernanke in the December FOMC. What took markets by surprise was Mrs Yellen first post FOMC press conference.

The Fed chair said that the quantitative easing program would could end by fall if the current pace continues to be constant and rates could be higher six months after that. Nowhere in the FOMC statement did that timeline appear. In fact the actual release foresaw low rates for “considerable time”. Yellen surprised by giving a closer date that most analyst expected given other Fed members previous statements.

What begun last summer with another apparent off script comment from Ben Bernanke regarding tapering seems to be moving forward. The era of record low rates around the world seems to be over. Emerging markets were particularly hard-hit by the tapering announcement. This time around the USD has made big gains against all currencies across the board.

The Fed chair word’s dropped the EUR/USD below the 1.39 range and well into 1.37. It has seen retreated slightly to above 1.38. Deflation and the strong euro continue to be a concern for the European Central Bank. Thanks to Yellen they have to focus only on deflation for now.

• EU Preparing Further Sanctions Against Russia


• Russian Shares Fall After New Western Sanctions


• 12 More Russians Names Added To Europe Sanction List


• ECB Draghi Pleased With EU’s ‘Great Progress’ On Banking Union Deal


• Russia Downgraded to Negative Outlook by S&P


• UK Budget Cuts Won’t Help It Regain AAA Rating


• Drop in UK Exports A Warning To Sustained Growth


• Greece Could Issue Bonds Soon


• Germany Has Low Appetite For Russian Sanctions


• European Banking Union Negotiations Completed


• Unemployment In Europe Expected To Stay High In Next 4 Years


• Risk Off Sentiment Flows Into Europe As Stocks Decline


• Moldovan Region Requests Russian Reunification


• Greece Reaches Deal for Next Bailout Tranche


• UK Chancellor Says Economy Growing Faster than Expected


• Putin’s Comments Put Risk Back on the FX Table


• German Courts Approve Legality of EU Bailout Funds


• BoE Shake Up Announces Two New Deputies


• London Properties Hit Record High

WEEK AHEAD

* GBP Consumer Price Index

* USD Durable Goods Orders

* JPY National Consumer Price Index

* EUR German Consumer Price Index

* GBP UK Gross Domestic Product

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Putin Warns Against Counterproductive Sanctions

via MarketPulse:

Stock markets extended gains on Tuesday afternoon, continuing to bounce back from a heavy bout of selling, as Russian President Vladimir Putin quelled fears of immediate conflict in Ukraine.

Putin, speaking at a press conference in Moscow on Tuesday, said there was “no need yet” for Russia to exercise its authority, adding that he was not considering the annexation of Crimea and any force used would be a last resort. He also directly addressed Monday’s heavy selling in stock markets saying that the move would only be “temporary.”

Russia’s MICEX Index pushed higher on Tuesday, surging over 5 percent, having lost nearly $60 billion in market capitalization on Monday, ending the session down 11 percent – its worst fall in five years.

via CNBC

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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 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

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