Currency and Stock Markets. Daily Insights

stoch

Active Member
NFP report will decide the fate of September Fed QE announcement



Powell stuck to the hawk line in Jackson Hole last week, but avoided specifics to allow himself room for maneuver at future meetings. The Fed chair hinted at the possibility of QE tapering start this year, which the markets apparently interpreted as sure event. The question is when the QE announcement will be made - in September or towards the end of the year. September shift in the Fed policy is likely to require a strong upside surprise in the August Non-Farm Payrolls report.

Majority of Powell peers at the Fed spoke in favor of making an announcement on QE in September and saying goodbye to the asset-purchase program already in the 1st or 2nd quarter of 2022. However, Powell opted for cautious stance saying that it "might" be appropriate to start trimming the Federal Reserve’s activity in the Treasury and MBS markets this year, with a decision based on incoming data and delta strain dynamics in the US in the fall.

Powell acknowledged that the recovery is happening faster than expected and that inflation in the United States has taken off. At the same time, there is no guarantee that its temporary nature cannot change to a permanent one.

What cheered the markets and hit the dollar is comments of the Fed chair on employment, interest rate path and risks of a premature policy change. Powell said that in a weak labor market, early tightening could hit economic activity and employment, undermining all the gains from stimulus policy. In addition, he said that changes in QE shouldn’t be viewed as a signal of the Fed intentions regarding the timing of a rate hike, which also greatly disappointed proponents of the Fed hawkish policy stance.

Relatively dovish position of the Powell last week led to broad dollar sell-off with EURUSD rising to two-week high of 1.18. The pair scored 8 winning days out of 9 as the liftoff began thanks to synergy of buyer interest as can be seen from the intersection of lower bound of the downside trend channel and strong annual support area 1.1650-1.17:



This week the Eurodollar is to challenge the upper border of the short-term trend channel. Considering vast of unused upside momentum on 1D timeframe with RSI at ~ 52 points, support of both short-term and medium-term buyers, there are high chances of a breakout before the NFP The nearest target for bulls resides in horizontal resistance zone of 1.1880 - 1.19. However, in the medium term, the pair remains in a downtrend. This can be seen from the downward slope of the annual trendline starting from 2021. It follows from this that holding gains above 1.19 will be difficult as ECB outlook remains pretty dovish. A negative NFP surprise is likely to fuel dollar sales boosting EURUSD recovery towards 1.20 as expectations for the announcement of QE tapering will move to the end of the year.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
Record downturn in China's services sector could spark a new wave of risk-off


After spending a day in consolidation, greenback could find enough buying interest and continued to fall in price on Tuesday. The US currency index tests support at 92.50 level. Long-term US bond yields continue to pull back in disappointment after a slight surge ahead of Powell's speech, 10-year bonds offer 1.28% to maturity on Tuesday, compared to 1.35% at their peak last week. Fears of inflation, to which long-term bonds are particularly sensitive, appear to be weakening, and there is a growing risk that the Non-Farm Payrolls report will surprise this week from the negative side.

Sharp slowdown of activity in the Chinese services sector in August puts a deep dent on global recovery expectations. The corresponding official PMI gauge suddenly fell from healthy 53-56 points, landing in the depression zone at 47.5 points:





The pace of MoM deceleration was only higher only in February 2020, when China hit the economy with the lockdown. The strong negative surprise will likely make investors doubt that global economy will be able to maintain current pace of expansion and market bets for extension of stimulus measures may rise. Strangely enough, the dollar's sell-off intensified after release of the Chinese data:







Activity in the manufacturing sector also fell short of expectations, albeit to a much lesser extent: PMI has been declining for the fifth month in a row and in August it barely remained in the expansion zone at 50.1 points. The forecast was 50.2 points. Continuing at this pace, the index may find itself in depression zone as early as next month.

Market participants associate the weak data with the dynamics of credit impulse in China, which has been weakening in the past few months entering contraction zone:





Other fundamental factors include government crackdown on the tech and private tuition sectors (which should obviously suppress services sector activity), severe government response to the covid outbreak and reduced travel between provinces due to fears of being locked down in a non-hometown.


High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
Big negative surprise from the Conference Board. What are the takeaways for the NFP?

Greenback struggles to take off from 92.50 support level ahead of US labor data for August. DXY rallied on Tuesday thanks to the outflow from Treasuries market as distant bond yields apparently rose in response to hawkish remarks of some ECB officials. The 10-year yield rose from 1.27% to 1.35% as the ECB policymakers hinted that it may be appropriate to start tapering of special asset purchase programs (the so-called PEPP). Given that the major central banks try to keep up with each other in terms of policy easing and tightening, this were interpreted as a hint that the Fed may be more eager to taper than previously expected.
More specifically, here is a statement by the head of the Danish Central Bank, Knot: "The inflation forecast in the Eurozone has improved markedly and justifies an immediate reduction in PEPP, a complete curtailment of the program in March 2022 and a return to pre-crisis discipline in policy."

However, Nomura's latest forecast does not anticipate a shift in PEPP until at least March 2022:



The ECB is due to holding a meeting on Thursday, September 9 and based on emergence of hawkish rhetoric, there is growing risk that Lagarde will hint that PEPP cannot last forever. In anticipation of this surprise, the euro may extend gains against its peers, given that now the European currency has very low expectations for tightening, since the ECB until recently refrained from hawkish hints in every possible way.

Ahead of the NFP, markets are closely watching data that may indirectly indicate a change in employment in the reported month. Among important indicators, one can single out the consumer confidence indices, the dynamics of which is tied to income and income expectations of households. Yesterday was published a report on consumer confidence from the Conference Board, which decreased compared to the previous month (129.1 against 113.9 points). In addition, the index did not live up to expectations and also came below the most pessimistic forecast. We can recall the depressing dynamics of the index from U. of Michigan in August (drop by 10 points), which may also indicate a tipping point in consumer sentiment and expectations in August. In general, consumer sentiment is deteriorating and either this is the result of expectations of sharply increased inflation or worsening income outlook. By the way, one-year inflation expectations, calculated on the basis of the report, rose to 6.8% - this is the maximum since 2008:


Source: ZeroHedge

It is clear that high inflation starts to negatively affect consumer decisions, from this point of view, it is time for the Fed to curb stimulus measures, since it is more and more difficult to assert about the temporary nature of inflation and this may at some point result in a loss of confidence by market participants in the Fed's actions, which is fraught with increased policy costs.
The Conference Board report, together with the Michigan report, suggests that we will face moderate job growth in the United States. Nevertheless, inflation dynamics indicate that the Fed will not be profitable to deviate from its implicit QE promises made in Jackson Hole. The combination of these events - a weakening economic outlook and a course to cut stimulus from the Fed risk negatively affecting stock prices, inducing correction from ATH.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
Big negative surprise from the Conference Board. What are the takeaways for the NFP?

Greenback struggles to take off from 92.50 support level ahead of US labor data for August. DXY rallied on Tuesday thanks to the outflow from Treasuries market as distant bond yields apparently rose in response to hawkish remarks of some ECB officials. The 10-year yield rose from 1.27% to 1.35% as the ECB policymakers hinted that it may be appropriate to start tapering of special asset purchase programs (the so-called PEPP). Given that the major central banks try to keep up with each other in terms of policy easing and tightening, this were interpreted as a hint that the Fed may be more eager to taper than previously expected.

More specifically, here is a statement by the head of the Danish Central Bank, Knot: "The inflation forecast in the Eurozone has improved markedly and justifies an immediate reduction in PEPP, a complete curtailment of the program in March 2022 and a return to pre-crisis discipline in policy."

However, Nomura's latest forecast does not anticipate a shift in PEPP until at least March 2022:



The ECB is due to holding a meeting on Thursday, September 9 and based on emergence of hawkish rhetoric, there is growing risk that Lagarde will hint that PEPP cannot last forever. In anticipation of this surprise, the euro may extend gains against its peers, given that now the European currency has very low expectations for tightening, since the ECB until recently refrained from hawkish hints in every possible way.

Ahead of the NFP, markets are closely watching data that may indirectly indicate a change in employment in the reported month. Among important indicators, one can single out the consumer confidence indices, the dynamics of which is tied to income and income expectations of households. Yesterday was published a report on consumer confidence from the Conference Board, which decreased compared to the previous month (129.1 against 113.9 points). In addition, the index did not live up to expectations and also came below the most pessimistic forecast. We can recall the depressing dynamics of the index from U. of Michigan in August (drop by 10 points), which may also indicate a tipping point in consumer sentiment and expectations in August. In general, consumer sentiment is deteriorating and either this is the result of expectations of sharply increased inflation or worsening income outlook. By the way, one-year inflation expectations, calculated on the basis of the report, rose to 6.8% - this is the maximum since 2008:


Source: ZeroHedge

It is clear that high inflation starts to negatively affect consumer decisions, from this point of view, it is time for the Fed to curb stimulus measures, since it is more and more difficult to assert about the temporary nature of inflation and this may at some point result in a loss of confidence by market participants in the Fed's actions, which is fraught with increased policy costs.

The Conference Board report, together with the Michigan report, suggests that we will face moderate job growth in the United States. Nevertheless, inflation dynamics indicate that the Fed will not be profitable to deviate from its implicit QE promises made in Jackson Hole. The combination of these events - a weakening economic outlook and a course to cut stimulus from the Fed risk negatively affecting stock prices, inducing correction from ATH.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
Key reasons why weak August NFP wasn’t a surprise. EURUSD weekly setup.


The odds of a September Fed shift in policy retreated further after release of August NFP report last Friday. The payrolls gain was a big miss as it was three times less than consensus of 725K. Judging by the greenback’s price action on Friday and Monday, there was no serious change in expectations: investors continue to expect that the Fed will taper QE this year, however expectations of the announcement completely shifted to November or December.

The US economy created 235K thousand jobs in August, against the forecast of 750K. If it had happened a month ago, traders would probably have crossed out the Fed's tightening from the list of expectations, but August was not easy for the economy due to the action of an exogenous factor - the delta strain of the coronavirus. Consumer mobility declined in early August, and the service sector in some states faced restrictions again. The peak of impact was just in the reporting week for the NFP. Therefore, with regard to the service sector, it is probably correct to say that job growth did not slow down, but was restrained.

Other aspects of the report also point to a temporary slowdown in job growth. For example, the growth of jobs over the previous month was revised up to 1.053 million, and wages rose surprisingly in both monthly and annual terms. For example, in August, the average hourly wages increased by 0.6% against the forecast of 0.3%:



It is unlikely that we would have seen such a dynamic if the demand for labor was weak. Also released on Friday, ISM's US service sector activity index exceeded forecast, with the hiring component only slightly changed from the previous month (53.7 vs. 53.8 points in July):





Again, weak labor demand would send the index below 50 points, which as we can see didn’t happen despite the fact that hiring slowed down.

The dollar index tested the level of 92 after release of the NFP. Despite the attempt to break through, the price failed to gain a foothold below despite the large downbeat surprise in the data. Today buyers are developing an upward rebound amid weak trading activity. The rise will most likely fizzle out in the area of 92.40:



The main risk event this week will be the ECB meeting. Last week, some of the ECB's monetary policymakers said publicly that they are ready to discuss cutting asset purchases. Considering EURUSD, it is clear that the main events on the side of the dollar have been priced in, therefore, for some time the pair may be influenced by events related, among other things, to the position of the ECB.

This week, a meeting of the European regulator will take place on Thursday, and if Lagarde speaks about the possibility that in the near future it is worth starting to discuss cuts in anti-crisis measures, the euro will receive additional support amid expectations of an increase in European bond rates due to a decrease in ECB activity in the debt market.

In my opinion, the risks for EURUSD are skewed towards more upside this week due to the upcoming ECB meeting, targets above 1.19 remain relevant, especially if the European Central Bank offers hawkish surprise this week.



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
The RBA gives green light to AUD decline, Euro waits for hawkish signals from the ECB

As market volatility continues to dwindle, investors are likely to favor currencies where central banks are raising interest rates. However, paths of monetary policy are still highly dependent on a country's success in the fight against the delta strain and the possible risks of a fresh autumn wave. Contrary to expectations, the Reserve Bank of Australia has become one of the first to indicate that it may be premature to scale back asset purchases.

FX liquidity continues to improve after Monday's Labor Day in the United States. Expectations that the Fed will postpone tightening the policy until the end of the year are holding back the development of corrective sentiment in US equity market. The Reserve Bank of Australia gave a positive signal regarding the prospect of keeping rates low in developed countries at its meeting today, deciding to extend QE by three months to mitigate the impact of lockdowns introduced in response to the delta strain outbreak. There are no broad expectations that other Central Banks will follow the case, but clearly RBA gave food for thoughts with its unexpected dovish move.

The prospect of developing the downside momentum in AUDUSD is becoming more realistic, given the fact that the RBA may start to lag behind the Fed in the tightening race after the US Central Bank meeting in mid-September. The nearest targets for the pair are the levels 0.735 and 0.73:



European markets struggle to sustain gains today while futures for US indices are also tending to decline. The cryptocurrency market turned out to be even less stable and turned into a full-fledged correction. The US dollar is holding up and it is obvious that the support is provided by the growing risk-off.

Interestingly, the dollar advance is not uniform. The American currency rose against all major opponents (including commodity currencies) except the euro. This can be explained by expectations of a hawkish shift in policy at the ECB meeting on Thursday. A hint of PEPP tapering will likely trigger Euro rally above 1.19, but if this does not happen, there may be pullback in hawkish expectations, which are priced in the euro.

It should be tough for greenback to develop upward momentum given the technical resistance - the upper border of downward channel, which is guiding USD decline currently:




Better-than-expected Chinese foreign trade data in August bolstered hopes that global expansion would not slow down much in the fourth quarter. At the same time, the index from ZEW on business sentiment in Germany came slightly worse than forecasted. Together with expectations that the ECB will make an announcement related to tighter monetary policy, this has led to a weak performance in European risk assets today, which is expected to continue until the ECB meeting.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
Preview of the trading week: Watch out for FX and equity rotations before the Fed meeting

The beginning of the week turned out to be quite calm and measured for FX space as investors are making necessary rotations before a number of central bank meetings next week, including the Fed. The focus this week will be on US inflation and retail sales for August due out on Tuesday and Thursday. Strong prints could propel development of expectations that the Fed will follow in the footsteps of the Bank of England and the ECB, announcing that it is ending extraordinary support for the economy.

The dollar index retests last week's high (92.86) after a two-day downward correction with mixed success. Among the major currency pairs, the dollar shows the greatest gains against the euro, franc and yen, that is, where low interest rates prevail. This may indicate that investors are buying dollars in advance, on expectations of higher government bond rates in the United States. It is easy to guess that such expectations may be tied to the Fed meeting next week. Weak performance of the US technological sector this week may become another signal that the market undergoes rotation from long-duration stocks to its primary substitutes - long-term bonds (mainly influenced by the Fed's QE).

Since the beginning of August, the yield on the 10-year Treasury has consistently set lows above the previous ones, which may indicate a predominance of expectations for higher rates. However, the weakening of the US fundamental component still serves as an effective counterbalance to these expectations - the yield struggles to rise above 1.4%:




European markets and futures for US indices hover in positive territory within 1%.

In addition to preparing for the Fed, investors may also be preoccupied with a follow-through of infrastructure spending story in the United States. The Democrats said they plan to find means for the package by hiking corporate tax from 21 to 26.5% and the tax on capital gains from 20 to 25%. That's less than what was proposed earlier this year, but the Senate's push for the bill could once again spoil the mood of the stock market, as was the case with the initial tax hike announcements earlier in the year.

The rebound of the European currency after the ECB meeting proved to be short-lived, since deeply negative rates allow the euro to maintain its status as a popular funding currency and, all other things being equal, increased demand for risk leads to a weakening of the euro. In addition, as mentioned above, expectations that the rate differential between bonds of European countries and the United States will widen after the Fed may now increase the supply of the euro.

Strong inflation and retail sales in August may increase the flow to dollars, as the chances of a hawkish shift in the Fed's position in this case will be higher, although the US Central Bank is now "a fan of employment data". According to the dollar index, one can count on a test of the area where resistance has been concentrated for the last month and a half - the level of 93.20:




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
US August inflation: more price gains ahead but not enough for September Fed policy shift


US price pressures somewhat receded in August, reflecting mainly the cooling off in consumption hot spots which emerged after the lifting of social restrictions. These spots featured abnormal rise in prices, primarily driven by temporary factors, such as supply chain disruptions and bottlenecks and pent-up consumer demand. Overall, inflation has become more even, affecting more goods and services, while inflation expectations ticked higher, which may worry the Fed.

US consumer prices increased by 0.3% MoM, which is slightly below the forecast of 0.4% while core inflation, which has higher significance for the Fed's policy, added just 0.1%, falling short of 0.3% expectations. The easing of core inflation was apparently the primary reason for disappointment and triggered sell-off of the US currency on Tuesday. Today sellers renewed pressure on the dollar while US bond yields trimmed down recent gains.

Considering contribution of individual categories of goods and services, it can be seen that there is strong MoM deflation in the components, where prices have been recently rising at abnormal rates. Airline prices dropped 9.1%, used cars fell 1.5%, car and truck rentals tumbled 8.5%, and hotel bookings dropped 3.3%. These changes in prices basically made the key main contribution to the August slowdown in inflation.

The NFIB's report on firms' decisions to raise / lower / hold prices calls into question the prospects of easing of inflation in the near future. According to the latest data from the agency, 49% of enterprises are raising prices, and 44% expect to make additional price hikes in the future. Both are at their highest level in 40 years. This important indicator of inflation was also mentioned by the Fed in the latest release of the Beige Book, which suggests that the US Central Bank takes these data into account as well.

Another reason to expect persistence of inflation is the rise in house prices. In the United States, the dynamics of housing rent is about a year and a half lagging behind changes in real estate prices, given their sharp rise in 2021, rents’ upward adjustment in the future will likely lead to higher consumer inflation:



Case Schiller US Home Price Index

On Friday, there will be data on consumer inflation expectations from U. of Michigan. The latest reading is 2.9%, however, if inflation expectations rose again in August, the Fed officials may start to mull over the need to communicate a chance of a rate hike next year, since one of the main goals of the Fed's policy is to not let inflation expectations drift from their inflation goals. Given that firms are still willing to transfer rising costs to consumers after positive experience with the pent-up demand, higher expectations of inflation US households may be quite justified, which may eventually trigger some Fed response.

However, in the FX market, the bets for the Fed's early move towards policy tightening seems to be decreasing. On Wednesday, we see that the dollar suffers the biggest losses in pairs with EUR, CHF, JPY - by 0.24, 0.38 and 0.39%, respectively. On Monday, before the release of the CPI, the opposite trend was observed - the dollar posted the largest gain against these currencies:



Taken together, these phenomena may indicate an inflow and then an outflow of investors from countries with low interest rates on expectations that the Fed will begin to tighten policy and raise rates on Treasury securities and subsequent disappointment after release of the August CPI.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
The Fed is about to unwind stimulus, but is the US economy ready for it?


Risk assets came under serious pressure at the beginning of the week, although the first signs of a sell-off appeared as early as last Friday. S&P 500 futures were down 1% on Monday, the first support line can be expected in the 4300-4320 area after a 50-day MA test:




The flight from risk was more pronounced in European equities where major indices erased more than 2%. Hong Kong's Hang Seng fell more than 3% on Monday as China's Evergrande and its huge $300bn debt continue to fuel risk aversion not only in offshore China, but is also beginning to echo in overseas asset markets.

At the heart of risk aversion are investors’ doubts that the Fed picked the right time to signal that it moves to unwinding stimulus. This week the FOMC meeting is due at which the policymakers are expected to clarify the central bank position on QE tapering and interest rate outlook (aka dot plot). The likely shift in monetary policy may come at the time of slowdown in hiring pace and falling consumer expectations. Recall that employment gains in August was three times lower than projections, and consumer expectations, according to the report of U. Michigan, failed to rebound in September after falling to 70 points in August. The index of consumer expectations ticked higher just by 0.7 points, i.e., it remained for the second month in a row at the lowest level in almost 10 years:



At the same time, it was a little strange to see retail sales rebounding by 0.7% August, but let’s make it clear that the survey data of U . Michigan consists primarily of leading indicators, therefore, retail sales may catch up with the decline in consumer expectations in the next months.

And if expectations regarding the start of QE tapering are more or less priced in (respective announcement in November or December), changes in dot plot are far less certain. A number of FOMC members have already signaled that first rate hike could be done in 2022, if we see more peers joining their camp and the median of expectations shifts to 4Q of 2022, then the pressure on risk assets is likely to increase significantly. In addition, we cannot rule out medium-term strengthening of greenback against this background, since the US will pull ahead in comparison with other economies in terms of expected growth of bond yields.

Also, this week there will be meetings of a number of other central banks - England, Japan and Switzerland. The big uncertainty for the pound is that the Bank of England has given a signal that it is ready to raise rates earlier, but the data on the economy over the past month, in particular retail sales, began to deteriorate. Therefore, the Central Bank will have to choose a more cautious position, and the scale of disappointment for the Cable will depend on how much the pain the Bank is ready to deliver to the market.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

stoch

Active Member
Oil prices poised to challenge yearly highs before the OPEC meeting


The week of central bank meetings is over and the focus of market participants shifts to the US politics, energy markets, Treasuries sell-off and Eurozone inflation figures. If the US Congress cannot find a way out of the existing dilemma regarding the public debt ceiling, the demand for risk will probably alternate with a flight to quality, and USD may extend this rally on the back of risk-off.

Risk assets started the week on a positive note, except for Nasdaq futures, which went into negative territory due to rotation of investors in falling Treasury bonds. On Monday, the yield on 10-year Treasury bonds continued to rise, which began last week after the Fed meeting, and reached its highest level since the end of June - 1.5%. The past meeting of the Fed showed that the number of FOMC members expecting that the first rate hike will take place next year has risen sharply - from 3 to 9 members. This circumstance forces investors to re-consider the likelihood of the first rate hike in 2022, which hits bonds with longer maturities. In addition, there are technical patterns that pointed to the risks of flight from Treasuries:





Congress needs to agree on a freeze or increase in the public debt ceiling to avoid a government shutdown in mid-October. So far, there are no signs that Senate Republicans are willing to cooperate on this issue, so risk assets may face several more weeks of nervousness. Congress will also discuss a $ 550 billion infrastructure spending package, but the amount of aid, as we can see, is much more modest than originally proposed.

The rise in energy prices is also attracting attention, be it oil, gas or coal. Oil prices are poised to retest yearly highs on the back of strong upside momentum. Extremely high gas prices are forcing consumers to switch to oil, which propels oil prices higher in the short-term. From a technical point of view, a new leg of the price rally can be in its early phase, since on September 10 the price broke correction channel and so far has slightly deviated from key moving averages on the daily timeframe, indicating modest risks of overbought:




Prices are likely to extend gains before the OPEC meeting on October 4, providing support for the currencies of the countries that export oil and gas - the Norwegian krone and the ruble.

A number of Fed officials will speak this week and, judging by their interest rate projections expressed in dot plot, they are likely to advocate the benefits of an early rate hike. At the same time, the situation with Evergrande remains uncertain and the presence of a constraining factor of demand for risk is likely to provide support for the dollar. A retest of the annual high on the DXY (93.50 zone) and an exit to the target of October 2020 - the level of 94.00 is likely.

The first estimate of inflation in the Eurozone for September will appear on Thursday. On Thursday, there will be data on Germany, on Friday - a preliminary estimate for the entire Eurozone. Perhaps the release of inflation data will be the best chance for EURUSD to catch on to the 1.17 level. In addition, the ECB Symposium will be held in Sintra on September 28-29, where the regulator may shed light on plans to reduce asset purchases in December, which in turn may also support the euro.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
 

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