UK inflation surprise likely to accelerate BoE's policy normalisation

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

20/07/2022

A fresh set of statistics from the UK showed that inflation is still not slowing down. The rate of consumer price growth climbed to 9.4% y/y in June after they added 0.8% for the month, four times the long-term average monthly increase of 0.2%. 

But, even more worryingly, the leading inflation indicators do not cease to surprise. The Producer Purchasing Price Index added 1.8% in June against expectations of 1.2%, to 24% y/y. Producer Output Price Index rose by 1.4% (expected 1.0%), to 16.5% YoY.

 A separate publication noted an acceleration in house price growth from 11.9% YoY to 12.8% in May. Earlier, Bank of England officials spoke about the need to accelerate policy tightening to fight inflation. Fresh reports indicate that the Monetary Policy Committee will assess the need to raise the rate by 50bp or more in the next two weeks, moving away from the measured 25bp step. 

While accelerating monetary policy normalisation has the potential to support the pound, this is bullish news for the stock market and overall risk demand. The pound is sensitive to fluctuations in risk appetite, so do not expect it to make a sustained return to growth against the dollar without a stock's bull market first.

Gold missed the latest rally, but prepares for a notable reversal

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

20/07/2022

Gold is mostly missing the latest party of financial markets, where risk appetite has increased. The value of the troy ounce has changed little since last Friday, mostly hovering in a narrow range of $1702-1716, near the lows since April 2021. 

On the technical analysis side, gold is oversold on the daily charts, as RSI has been below the 30 mark for the past two weeks. This disposition creates an impressive potential for a bounce, following the example of the stock and cryptocurrency markets, as we have seen in recent days. Interestingly, gold investors seem to have forgotten about the long-term correlations and are in no hurry to ramp up their precious metal purchases. 

For investors in such circumstances, it is crucial to understand where the more reliable signals are now: is gold's apathy justified or the optimism of stock and cryptocurrency buyers? A correction of more than 17% from historical highs makes gold an attractive investment at current levels. However, short-term speculators maintain a wait-and-see attitude. Gold needs to undergo a final surrender for an apparent reversal to the upside. 

That could be a touch of the 200-week moving average, which now passes through $1652 and almost coincides with the local retracement lows set in early 2021. The logic behind the gold sellers is now quite clear: Central banks are sharply tightening monetary policy, rising bond yields and taking control of long-term inflationary expectations. 

However, it is also worth remembering that gold's bearish cycle after the global financial crisis ended on the day that the Fed raised rates for the first time in that cycle. In the current environment, signals from leading central bankers regarding measures and interest rate levels they believe are sufficient to control inflation could kick-start a rise in gold. Signs next week that the Fed is already thinking about where it stops in its current rate hike cycle could loosen the bears' grip on gold and stop the flow from it into bonds. 

After all, central bankers must realise that because of the huge debt burden and chronic fiscal deficits, the economy is now prepared to endure much lower rates than it did in the early 1980s. And that forms a very bullish environment for precious metals. It should not be forgotten that emerging market central banks are now probably placing more emphasis on gold reserves than on dollars and euros. All of the above means that gold investors are not yet in a hurry to win back the market ripples but are preparing for a notable and sustained upward reversal, which could start in the next two months.

The previous overbought conditions, not the cooling housing market, hurts USD

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

19/07/2022

The gradual cooling of the US housing market continues, although the pace has softened somewhat. Fresh data showed a 0.6% drop in building permits issued to 1,685K (seasonally adjusted annualised rate) in June, following declines of 7% and 3% in the previous two months and 11% below the peak in December. 

The number of construction starts fell 2% to 1,559K after dropping 11.9% a month earlier and 12% below the peak in December. The current peak levels are below the historic highs before the global financial crisis, reflecting the Fed's slightly greater caution in preventing bubbles in the housing market. We should also expect that borrowers' quality and ability to make timely payments will be higher this time. 

This time Americans have a much more impressive safety cushion. Furthermore, the labour market continues to create jobs at a rate above the trend rate of 200K per month. On balance, the cooling in the construction sector should hardly be seen as a factor keeping the Fed from aggressively tightening policy in the middle of next week. 

Right now, we are only seeing early signs that key rate hikes and the accompanying rise in mortgage rates are cooling the housing market rather gently. The current slowdown could cause concern if it turns into a sustained trend before the end of the year. In that case, a reversal of Fed policy from tightening to easing could be closer than the markets currently estimate (at some point in 2024). Forecasts for the start of the Fed's easing cycle are now becoming the main driver of the FX market. 

The dollar is locally under pressure from its overbought position, which has accumulated over a year of growth. It would not be surprising if, during the coming week, the US currency corrects its previous rise while market participants take a wait-and-see attitude to the Fed's statements and actions.

Pound cuts oversold against the dollar but must fight economic headwinds

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

19/07/2022

The British pound is trying to return to levels above 1.2000. The pressure on the pound intensified on Monday evening, along with the reduced demand for risk assets after the US market. Today the pound will have to fight new headwinds in the form of local macroeconomic statistics on the UK labour market.

The number of people receiving unemployment benefits fell by 20k in June, half the number expected and 34.7k a month earlier. The number of job openings for the three months to June was 1,294k compared to 1,297k for March-May and 1,295k for February-April. The overheated labour market has begun to cool down.

Wage figures also indicate this. Considering bonuses’, earnings rose 6.2% in the three months through June compared to the same period a year earlier. Official inflation data showed a 9.1% YoY increase in May, while June’s data, released on Wednesday, is expected to accelerate to 9.3%, marking an acceleration of the fall in workers’ actual earnings. In addition, these statistics came out weaker than expected, which may additionally work to weaken the pound against its competitors.

Despite unimpressive labour market data, GBPUSD is gaining for the third trading session, which should be attributed to the market’s desire to take profits from the previous rally in the dollar.

The US currency rose too far too fast and is now subject to short-term technical pressures. Until the Fed meeting on July 27, we may see a corrective rebound capable of flattening market positioning and providing the potential for a two-way move at the outcome of the critical FOMC meeting.

Locally, despite weak data today and potentially worrisome inflation readings on Wednesday and retail sales on Friday, GBPUSD may not have significant headwinds for a rebound up to 1.2200 - a support area in May and a 76.4% Fibonacci retracement level from the February-July downtrend. This would relieve some of the pair’s oversold position but is hardly enough to break the pair’s medium-term downtrend as the UK economy is slowing more quickly than the US, suffering from high imported commodity and energy prices. 

NZD jumps on strong inflation but is unlikely to be for long

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

18/07/2022

The annual inflation rate in New Zealand accelerated to 7.3%, a new high since 1990 and above average forecasts for 7.1%. The quarterly price growth of 1.7% also remains elevated, showing no deceleration in the last quarter. Short-term inflation figures above expectations have triggered a “classic” strengthening of NZD buying. However, we believe that the market played the kiwi higher, relying on the heightened risk appetite that prevailed in the morning rather than on fundamentals.

The RBNZ still missed its chance to catch up with the pace of Fed policy tightening, as at the July 13 meeting, they raised their rate by 50 points, which is lower than the 75 points by which the Fed raised their rate. 

It is widely priced in by markets that both central banks will repeat their steps next time. Additionally, the next Fed meeting is in 9 days versus 30 days for the RBNZ, which widens the yields differential even more.

The kiwi is now locally overbought in the dollar, which forms a pullback in risky assets, and traders use fundamental news to take profits from the previous strong move.

As part of the rebound gaining momentum, it is worth paying attention to the dynamics of the pair NZDUSD near 0.7200, the level of the previous local lows. An active rise in the pair above these levels would indicate that we are seeing a broader recovery rather than a local rebound. But that will require a global dollar retreat and a sustained reversal of the markets to the upside. For now, we see a bear market with regular bounces

Oil clings to last support at 200-day MA

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

18/07/2022

Crude Oil has added 3% on Monday after finding support late last week as expectations of a meeting between the US and Saudi leaders did not materialise.

The much-anticipated and much-discussed meeting between Biden and Mohammed bin Salman took place without a joint press conference or formally announced agreements. The Saudis made it clear that the OPEC+ act is good and refused officially to commit to ramping up production despite US interest.

Over the weekend, there were also comments that Saudi Arabia has the potential to increase production to 13m BPD against the current 10m and a peak of 11m in March 2020, but reaching these levels is unsustainable due to underinvestment in the industry.

Weekly rotary rig counts from Baker Hughes point to a further gradual increase in activity in the US to 756 (+4 for the week) total, of which 599 (+2) are oil producers.

Saudi Arabia has ramped up investments in renewable energy, a strategy also followed by major US and UK producers. Because of international sanctions, Russia, Iran, and Venezuela are severely constrained in increasing their production.

OPEC+ seems to do well its homework after past episodes of the “oil wars” of late 2014 and the start of 2020, not wanting to make any sudden moves. Locally, this is positive news for the oil price, which received support on the downside.

On the technical analysis side, buying support has strengthened on the downside to the 200-day moving average in WTI. Since last Tuesday, intraday downside punctures have intensified buying, and Oil has been closing the day above this significant line that defines the long-term trend.

Brent is now trading above $100, also attempting to move upward from the 200-day moving average. We may see a serious attempt by the oil bulls to stay within the long-term bullish trend. We would only be able to say that they succeeded in the case of a strong growth above $105 for Brent and $101 for WTI. In that case, a bounce from the latter trend will exceed 61.8% Fibonacci and send Oil into the area above the previous local highs.

However, waning economic activity, with a trend of rising production and interest rates, make the scenario of further declines in Oil the main one to consider. 

With signs of US price pressure decline, will the Fed soften its approach?

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

18/07/2022

Although US retail sales figures are often the more important news, their slight overshooting relative to expectations has, in our view, less impact on markets than the import price index.

According to preliminary estimates, US sales rose by 1% in June against expectations of 0.9% and a 0.1% contraction a month earlier. Not too much better than expected, given that volume is not price-adjusted, which was higher than expected earlier in the week.

The good news for market participants is the cooling of import price increases. For the month, the index added 0.2% vs 0.7% expected and to 10.7% y/y versus 11.6% a month earlier, with 12.1% forecasted.

This deceleration results from the correction in commodity prices and the strengthening of the dollar in previous weeks. But most importantly, this index indicates that the peak of the rate of price increases is over.

More signs of a bullish trend reversal in prices might ease the Fed’s pressure on the key rate. Market participants are now trying to weigh the chances of a one percentage point hike in a week and a half. A softening of their expectations could trigger a corrective pullback in the dollar and an attempted equity market recovery.

China’s slowdown weakens the yuan

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

15/07/2022

The Chinese economy is experiencing a sharp slowdown, raising a reasonable doubt that GDP will be able to grow by the initially planned 5.5% this year. Fresh data showed that China’s economy was only 0.4% higher in the second quarter than a year earlier. The half-year increase is 2.5% compared to the same period a year earlier.

A new round of problems for property developers and an increasing boycott by mortgage borrowers to pay their debts is becoming a bigger problem. Government intervention with massive infrastructure stimulus, for example, through nationalising troubled properties, looks logical.

The flip side of the stimulus is an increase in the money supply and a weaker exchange rate. Technically, we have been seeing pressure on the Chinese renminbi against the dollar since the end of last week, and an analysis of the fundamentals suggests that this downward momentum has just begun.

This is not the first time China had had to deflect against the wind by tightening policy when the world economies softened in 2020-2021. The developed countries are quickly taking money off the table, and China is again trying to offset the external downturn with domestic consumption. And this is bad news for the Chinese renminbi.

The technical analysis indicates the almost three-month period of consolidation of the yuan against the dollar after the growth impulse in April is over. During May, the USDCNH corrected its surge from the year’s lows in February, stopping it at the classic 61.8% Fibonacci level. A bullish scenario for UDSCNH implies a rise to the 7.13-7.15 area, this is near the highs of 2019 and 2020 and at 161.8% of the rally in the first months of the year

Yen is entering the turbulence territory 

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

14/07/2022

Yesterday’s US inflation data spurred market expectations that the Fed will raise rates by 100 points at the end of July, although about a month ago, Powell called a 75-point increase abnormal.

The revision in expectations for monetary policy of the US central bank again highlighted the contrast with Japanese monetary policy and triggered a new momentum of yen weakness.

The USDJPY is already up to 139.20 at the time of writing, the highest since September 1998. But even then, almost 24 years ago, it was a turbulence zone, where the pair spent less than three months, making a quick reversal in the backdrop of a flaring financial crisis in Russia. Even earlier, in 1990, the USDJPY spent about half a year above 140, but then the dip below was a recovery of the long-term downward trend.

Either way, the 140 area in USDJPY looks like a potential area of turbulence where more volatility is expected. In previous weeks we have heard more verbal interventions from the Bank of Japan and the Ministry of Finance, as well as their joint statement (a rare event).

The new lows in the yen this week and its more than 1.4% fall since the start of the day on Thursday make it necessary to keep events around the Japanese currency on the periphery of attention so as not to miss a possible spike in volatility in one direction or the other.

The yen’s weakening is a legitimate market trend linked to interest rate differential dynamics. But the speculation that the BoJ will not change policy by moving to higher interest rates and that the Ministry of Finance will not be burning through foreign currency for interventions is now embedded in the quotations.

It is to be expected that the market will push the yen down until the Japanese authorities resort to real action rather than words. And the scale of the latter has to be sufficient. It might be an active intervention on the forex market, abandonment of Quantitative and Qualitative Easing, a combination of both, or a public refusal to defend the exchange rate.

Either way, the coming weeks and possibly months will bring increased volatility in the yen, which market participants should be prepared for

UK economy revives, helping the pound to rise against the euro

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

13/07/2022

A new package of UK macro statistics showed some recovery and exceeded expectations, supporting pound buying, although it did not help the stock market.

The monthly economic growth is estimated at 0.5% in May after a decline of 0.2% in April and +0.1% in March. And this is significantly better than the 0.1% expected.

Manufacturing showed an impressive jump, adding 1.4% for May - the best growth in 14 months.The service sector grew by 0.4% m/m, contrary to expectations of a 0.1% increase.

Equally surprising was the construction sector, where workloads grew by 1.5% mom and 4.8% YoY, coming out of the lockdown pit, renewed historical highs.

The foreign trade deficit of 21.4B was higher than the expected 19.8B, but this widening came at the expense of faster growth in imports, although exports also added impressively. The UK’s trade deficit was 24% of trade turnover. These are historically high figures but a marked improvement on the record 30% in January. 

Much of the credit for the recovery can be attributed to a weaker pound, which has boosted export competitiveness and increased construction activity. The latter can be attributed to the tailwinds from historically low-interest rates, while there are questions about whether the housing boom will continue.

A positive batch of data will likely provide the pound only a temporary respite in its decline against the dollar and spur gains against the euro. The EURGBP pair seems to have completed its corrective rebound after a long decline between September 2020 and March 2022. By the end of the year, the pair may fall to the last six years area near 0.8250. In the event of further problems in the Eurozone, the EURGBP could lose support and move towards 0.75, which has not been since the Brexit referendum

Gold fell to support but is unlikely to turn higher soon

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

12/07/2022

The price of gold fell to a new nine-month low on Tuesday, at one point falling below $1725. In the region of $1720-1740, gold has been finding support in the declines of the last 15 months, and the daily charts clearly show that gold sellers have been slowing down lately.

Interestingly, gold has been living its life in the last few days, experiencing a sharp drop earlier in the month, but gaining support last week. Judging by the market dynamics, the most aggressive decline of the single currency in the previous week has supported gold buying.

Since March, the euro gold price has already found support on several occasions at the approach of the €1700 area, an important milestone, and the area of the high in August 2020, maintaining a substantial downside potential. It would be naive to assume that buying gold now would protect capital in the event of existential problems in the Eurozone. But this assumption is difficult to confirm with history.

In 2012, gold was losing with the euro, and it only reversed upwards in the second half of the year following the recovery of the eurozone confidence.

Gold has reached the 61.8% of the 2018-2020 growth wave with accumulated local oversold. In such an environment, a short-term rebound is highly likely, which would be true if the dollar also loosens its grip.

However, a rebound in the coming days could prove to be a bull trap or not at all. Towards the most pessimistic scenario, seasonality and downside potential on higher timeframes is in favour.

Gold rarely changes its chosen trend in March-April, but it often does so in August-September. On the weekly candlesticks, the gold is far from the oversold area, and it is easy to see that we have seen reversals on these intervals when the oversold area is touched. 

A potential target for the bears could be the 200-week moving average, pointing upwards and now passing through $1650.

Dollar proves exchange rate strength, now the turn for economical one

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

12/07/2022

The euro is one hair from parity with the dollar, a psychologically important line above which the single currency has been trading for the last generation. After losing more than 4% over the week, the EURUSD looks excessively and emotionally oversold, and the oversold conditions of RSI confirm this on all time frames above H4. However, the single currency should not hope for support at these levels. 

History suggests that neither the fall below parity in 1999, nor the rebound above it in 2002, were turning points, only temporarily attracting the attention of the media and market participants. At the dawn of the single currency, the European Central Bank began to intervene in forex on the approach of 0.8500 after a 30% fall for almost two years. 

The situation is now very similar to the early 2000s, as the sell-off started from the same starting point. An analogy with the economic crisis can also be found. Both then and now, Germany was temporarily losing its status as the locomotive of the region, lacking the capacity and political will to consolidate the entire Euro-region around itself. It is only logical to expect that central bank and government politicians would be forced to respond to questions about exchange rate depreciation. 

They may harbour hopes of an accelerated normalisation of the region’s monetary policy. But the euro is a heavy machine whose movement is not easily stopped. It is worth expecting that Europe will no longer get away with soft market reassurances and modest actions, so the pressure on the single currency may persist for the foreseeable future. 

Moreover, it is quite possible that near the 0.9800 level in EURUSD, there is a “pain point”, a quick fall under which will cause a market capitulation with an acceleration of the single currency’s decline. Investors should also be prepared for a new round of discussions on the viability of the Euro-region, which means that the coming days and weeks promise to be very nervous for the single currency. 

The dollar index, where the euro holds the most weight, is also renewing its highs in 20 years. This dynamic has smoothly removed the issue of dollar sustainability that dominated the media at the end of 2020. We saw two other attempts to bury the dollar in early 2008 during the mortgage crisis and in 2011 at the start of QE. However, things quickly went wild, proving that the dollar, at least for now, is like Churchill’s definition of democracy: ‘the worst… except for all others that have been tried from time to time…’. 

Right now, we see the exchange rate strength of the dollar. Still, we should be prepared that its economical and geopolitical power will manifest itself very soon if (or rather when) investors will come to grips with the sustainability of the debt burden of Japan and some eurozone countries, which could happen in the coming weeks.

Oil completes its short-term rebound

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

11/07/2022

WTI crude oil has been losing 3.5% since trading on Monday, bouncing back below $100 after rebounding late last week. A stronger dollar and the return of a cautious tone to financial markets as the week begins indicate that downside risks continue to prevail for oil.

Baker Hughes’ weekly statistics released late last week showed another rise in the number of rigs in operation from 595 to 597. The creep continued despite a jump in commercial crude inventories (+8.2m for the week) and oil falling by more than 20% in less than a month to July 6.

The rise in oil at the end of last week looks like a technical rebound after a 15% decline in five trading sessions. Notably, oil went up amid the rising dollar environment, which looked like a sell-off reload followed by an even more substantial sell-off.

Oil was locally oversold on approaching the 200-day moving average early last week. However, before that, we saw a breakdown of the uptrend from last December, an intensified sell-off from the 50-day moving average. In addition, the upward trend breakdown was confirmed when WTI fell below the previous local lows from April last week.

Oil could slide rather quickly into the $92.70 area for barrel WTI Crude on a retest of the 200-day moving average and the area of local lows since the outbreak of hostilities in Ukraine. For Brent Crude, these are values near $96.

A decisive move below these lines could force a broader layer of buyers to capitulate, triggering an avalanche of stop orders and sending quotations to an actual peak.

Should WTI’s $92.7 and Brent’s $96 fail, the next significant stop could be the $80-85 area, taking oil back to the October 2021 highs. While the news backdrop and gas station price observations are not conducive to pessimism in oil, investors and traders should still pay attention to the slowing global economy and falling demand. Separately, the increasing supply of oil, which is holding back the growth of futures and is already putting pressure on spot prices, should not be forgotten.

US labour market: rotation or cooling off?

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

08/07/2022

The US labour market seems to be letting off steam. Indicators ahead of official employment statistics point to a cooling of the market.

New weekly jobless claims data showed an increase to 235k against expectations of 230k and 231k a week earlier. The upward trend has been in place for the last three months after touching lows of 168k. 

The open job vacancy figures for May are mainly in the same way. Their decline in the last six months from the historic highs should not be construed as a deterioration in the economy.

However, the current volume of applications and a slight decrease in open job vacancies are more likely to indicate a recovery from workers who have started to change jobs more actively. Perhaps they needed time to refresh their skills.

If we are right, Friday’s June data release could prove strong. Employment growth is expected to slow from 390K to 275k and wage growth to 5% y/y. Significantly higher data would indicate a labour market rotation. In this case, the 20-year highs for the Dollar look justified, and there remains further upside potential on expectations of further aggressive tightening from the Fed. If the rate of new job gains continues to slow down, however, this would be an extremely negative signal that could halt the Dollar’s rally.

Euro oversold, but this is far from a final sell-off

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

08/07/2022

The single currency fell to 1.0071 in the early European session on Friday. For EURUSD is a new low since December 2002 and a continuation of the massive sell-off that started last Tuesday.

Looking solely at the technical picture, the pressure on the EURUSD intensified after touching the 50-day average last Monday – the informal resistance line for the previous 13 months. The pair has been selling after several touches of this line since late February.

The parity is in a couple of steps, and so far, it is difficult to find any reason why the Euro might not fall below this psychological level. Furthermore, although the weaker Euro is pro-inflationary, policymakers in the Eurozone may see it as a tool for boosting export competitiveness.

Although EURUSD is over-sold in the short term on the daily charts, the pair’s break away from the trend has not been anything out of the ordinary in recent months, suggesting a relatively orderly sell-off.

The RSI index has entered oversold territory at weekly and monthly intervals. Contrary to the indicator’s logic, historically, we have seen an acceleration of the sell-off and not the rebound.

The Euro remains a falling knife, which is very dangerous to catch despite seeming oversold. The current strong trend is one of those cases where it is more prudent to wait for reliable signs of a reversal and not rush to “catch the bottom”. 

EURUSD does not recover sharply from such devastating falls, as it is the most liquid pair, with tens of trillions of dollars in turnover. In 2000 and 2015, it took more than two years for the EURUSD to recover above levels where it fell into oversold territory on the RSI monthly charts in a month. A reliable signal, in this case, was the divergence of the price chart and the said index. 

The following important stop for the EURUSD looks like the area of 0.97, where the pair might find itself before the end of the month. However, we should not be surprised if the decline continues up to 0.85-0.87 and lasts for another 2-4 quarters

US labour market: rotation or cooling off?

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

07/07/2022

The US labour market seems to be letting off steam. Indicators ahead of official employment statistics point to a cooling of the market.

New weekly jobless claims data showed an increase to 235k against expectations of 230k and 231k a week earlier. The upward trend has been in place for the last three months after touching lows of 168k. 

The open job vacancy figures for May are mainly in the same way. Their decline in the last six months from the historic highs should not be construed as a deterioration in the economy.

However, the current volume of applications and a slight decrease in open job vacancies are more likely to indicate a recovery from workers who have started to change jobs more actively. Perhaps they needed time to refresh their skills.

If we are right, Friday’s June data release could prove strong. Employment growth is expected to slow from 390K to 275k and wage growth to 5% y/y. Significantly higher data would indicate a labour market rotation. In this case, the 20-year highs for the Dollar look justified, and there remains further upside potential on expectations of further aggressive tightening from the Fed. If the rate of new job gains continues to slow down, however, this would be an extremely negative signal that could halt the Dollar’s rally.

Boris Johnson gives the pound a bounce

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

07/07/2022

The impact of British politics is once again dominating UK markets. Numerous cabinet resignations and the demand for Boris Johnson to step down have proved to be a driving force for GBP currency pairs and the British stock market.

Recent reports suggest that Johnson is willing to step down as leader of the Conservative Party but remain Prime Minister until the results of the party election in the autumn.

Markets have taken the latest reports positively in hopes as it will reduce the degree of uncertainty and hope that the new cabinet will focus on dealing with economic hardship rather than the prime minister. 

As a result, GBPUSD has added to 1.1980, 100 pips above the lows on Wednesday at the end of the day. It is unlikely that the change of the UK leader will fundamentally change the economic outlook, as so much now depends on external factors and the Bank of England’s policies.

Nevertheless, a “relief rally” in British assets is likely. 

This could be especially true for the British pound. The GBPUSD daily charts show an oversold and bullish divergence with the RSI. Such a disposition suggests support among buyers closely monitoring the technical picture, of which quite a few are on the currency market.

Oil set to erase the rally since Dec 2021

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

06/07/2022

Brent crude is losing more than 10% in just over a day to $100, repeating the lows of early May and raising the question of breaking the uptrend since last December.

In our view, the trend break occurred when the price moved below the 50-day moving average and was confirmed yesterday after a failed attempt to return above it.

Additionally, the latest downside momentum sent the price below the 61.8% Fibonacci retracement level of the mentioned rally, an important indication that we see more than a corrective pullback. Apart from technical factors, there are also enough fundamental reasons for market participants to tune in for a decline in the price. 

For example, the impetus for the last rally late last year reported that the more contagious COVID-19 strain was not causing an increase in hospitalisations and countries continued to lift coronavirus restrictions. But Europe is now facing a significant surge, gradually reinstating some restrictions. The other factor - demand growing faster than supply recovery - is also running out of steam amid signs of falling consumption and slowing growth.

History is also on the side of the bears. The most significant reversals in oil over the last decade and a half have occurred precisely in the middle of the year, with the most notable examples in 2008 and 2014. This is also what we are seeing now.

Again, it would not be surprising if the nearest stop on the way down for oil is the start of the last step of the rally in February, around $95 per barrel for Brent and $92 for WTI. The 200-day moving averages for those instruments also pass near those levels. A fall below would signal an actual market collapse, opening the way quickly for another 15-25% decline.

Gold is drowning

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

06/07/2022

Gold collapsed more than 2.3% in trading on Tuesday, the second steepest daily drop a year after falling 2.5% on June 13. The sharp decline yesterday was due to a combination of several negative factors.

The most obvious factor is the sharp rise in the Dollar on forex, where the DXY index (a basket of the world’s six most popular currencies) has renewed its highs over the last twenty years. Gold often acts as an “anti-dollar with leverage” for investors, so it was unsurprising to see such a market reaction yesterday.

A second possible explanation is a bearish signal, the “death cross”. The 50-day Moving Average fell below the 200-day MA on Monday, but we saw a full-swing market reaction only after liquidity returned after the long weekend in the USA. 

The third factor was the continuing sell-off in industrial metals and the drop in Silver due to the worsening global economic outlook. Silver dipped below $19 an ounce on Wednesday morning, the lowest since July 2020. The price of Gold is now at its low since late last year. This position simultaneously shows us buyer strength and tremendous potential for a decline.

That said, the fundamental factors behind Gold’s weakness are still in place, from a sharp tightening of monetary policy to weak demand for Gold from central banks and investors whose spending has increased significantly in recent months.

A critical intermediate stage in the Gold price decline looks to be the $1730 area, where a 61.8% correction from the 2018-2020 rally, from where Gold gets good demand from last August to September, is taking place. A double top is forming on the long-term Gold charts, showing the inability of bulls to consolidate the price above $2000/oz the last cycle. A ‘double top’ pattern would form with consolidation below $1700, the March local lows. The final downside target in case of a double top could be the $1300 area, which could take up to six quarters to reach.

Russian Rubble fall may not stop until 85 per Dollar

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

06/07/2022

The Russian rouble suffered a loud fall on Tuesday, losing more than 10% against the Dollar and Euro on the MOEX.

The USDRUB was at one point above 62.3, although it was still a hair away from 50 as recently as last Wednesday. While the government, business and the Central Bank have been complaining about strengthening the rubble for weeks, it was only last week that they found some pain points, which caused the Russian currency to reverse.

Firstly, the government and the Central Bank have been more openly and unequivocally telling the rouble where it should go, calling acceptable levels near 70, but not 50 per Dollar.

Secondly, the Bank of Russia was lowering rates and relaxing currency controls. Reports of the possibility of withdrawing up to $1m a month to unfriendly countries revived the rubble sellers in the market.

Thirdly, the bitter dividend disappointment by investors, most notably from Gazprom. It is far from the only one to have cancelled dividends on the Russian market, but by a wide margin, it is the biggest; in addition, its board of directors approved a record dividend in May, but the government (the main shareholder) preferred to take its own, raising the MET for last year retroactively.

Fourthly, the traditional high season for the balance of payments was over, and this was unfortunate enough to overlap with the fall in oil prices. The latter trend showed more signs of breaking the upward trend, having turned into a correction.

Fifthly, the overbought technical rubble has reached extremes, which previously almost unmistakably predicted a reversal. Under the above factors’ overhang, impressive pressure formed, and many speculators rushed to the exit.

Among the potential targets for the current rise, 75 is worth looking at. This is the level of 73.4% of the amplitude of the decline from 140 to 50. It is also the equilibrium level for most of 2020 and 2021.

However, given the adverse economic backdrop and potential sales and energy price problems due to the global slowdown on top of sanctions, a level of 85 per Dollar at the end of the year looks reasonable.

The euro has lost its latest deep-pocketed buyer

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

05/07/2022

The single currency collapsed below 1.03 for the first time since December 2002. The 1.0350 area euro buyers have managed to defend three times in the last month and a half and at the end of 2016.

In our view, we should look for traces of the changed approach of the Swiss National Bank in that the euro has broken the dam. For the past seven years, the SNB has been active in the forex market as soon as the EURCHF weakening trend became sustained.

The SNB did not disclose any details, but in late February, it probably stopped the euro from falling below parity against the franc, at the end of last year, reversed it near 1.0370, and in March 2020, hedged it from declining below 1.05.

The rate hike last month was a public step in the fight against inflation, while the revision of the FX interventions policy was another covert turnaround by the SNB. Indeed, it would be naive to assume that the central bank would raise rates to fight inflation without abandoning the interventions that have protected Switzerland from deflation in previous years.

The SNB is thus no longer the last line of defence for the euro, leaving it alone with a melting trade balance and a widening gap between real and nominal interest rates.

And in this situation, euro buyers have nothing to cling to now other than expectations of weak US labour market data. The currency market may avoid a further sell-off in the euro until Friday’s statistics release. However, if it comes without unpleasant surprises, the next big stop for EURUSD could be around 0.99.

High Turkish inflation keeps pressure on TRY

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

05/07/2022

The Turkish lira has been losing more than 1% over the last 24 hours following the release of another batch of inflation statistics which show no sign of easing and trades near 17.0.

Consumer prices rose by 5% during June, and the annual growth rate accelerated to 78.6%.

The annual producer price growth accelerated to 138.3% compared to 132.2% the month before. The development of this index indicates that there is still room for consumer inflation growth acceleration as manufacturers still have room to pass on increased costs to final prices. Judging by the increasing monthly rate of consumer price increases, manufacturers are accelerating this cost pass-through, but they are not there yet.

Last month’s end, we saw the Turkish lira gain protection on a pullback near the December highs, when the USDTRY fell to 16 from 17.40. However, this corrective pullback was short-lived and failed to change the trend. The USDTRY has stayed above below the 50-day moving average.

Rising inflation and a central bank constrained by Erdogan do not make the recent jump in the lira sustainable. Instead, it will only inflame the currency market speculators, who will quickly return it to the recent highs near 17.40.

The highest gap between inflation and the key rate (now at 14%) amongst the world’s biggest economies continues to pressure the Turkish currency. Therefore, an even deeper depreciation is possible soon, which can only be stopped by an even greater restriction of capital controls or central bank interventions.

NFP this week will test the Dollar's year-long trend

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

05/07/2022

While the calendar's second half of the year started last Friday, it will probably not begin in the markets until the upcoming US jobs data is released this Friday. It is worth sorting out where the US currency currently stands on the forex market.

The Dollar Index has climbed to a 20-year high in the middle and at the end of June after a 12-month upward move. That's an impressive age for a currency market, but it still takes more than old age to change a direction.

To assess the chances of a trend reversal in the USD, investors and traders should now pay closer attention to the labour market data and the Fed's reaction. Weak employment growth data could confirm the current level of the Dollar Index as unbreakable. However, we shall still have to wait for data assessments from the Fed to confirm this.

However, another option is more likely. High inflation could stimulate the recovery of the labour market as more and more people will look for earning opportunities. This would pave the way for another 75-point key rate hike by the Fed in the second half of July, allowing interest rates to reach neutral levels in the next 6-8 months. That is much faster than developed country competitors will do, forming the conditions for further strengthening the Dollar.

Another attempt to take the 105 level by storm will likely be more successful. A corrective pullback in May from these heights was followed by a much shallower retreat in June, reflecting a strengthening of the bulls' position. As has been the case over the last year, significant technical support is the 50-day moving average.

Should the week's outcome follow the first bearish scenario, investors and traders should keep an eye on the 103.5 area. A sharp pullback below that would be a significant reversal signal. However, the index will likely touch new highs before the reversal.

Crude oil downtrend unlikely to end above $93, possible dip to $85

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

04/07/2022

WTI closed last week with minor changes, close to $107. The dynamics of the previous two weeks indicate a timid attempt to return to the bullish trend after the correction. However, there are more signs of an end to the bullish trend so far, despite the rebound.

The US oil producers are expanding their drilling activity. Baker Hughes reported last Friday that 595 oil production rigs are operating across the country, up 1 for the week and +219 for the year. It takes about half a year from drilling to production, and that's a substantial margin for the future.

The production dynamics suggest that there are enough wells already in operation to replace those that have run out and ramp up supply. Production last week was 12.1m BPD. More oil than America has produced in its history for only 13 months since March 2019. So, a lot of oil is already supplied, some of which the US can export.

Meanwhile, the strategic reserve continues to sell off at a record pace, dropping to levels where it last was in 1986. Interestingly, these government interventions are sufficient to stabilise commercial reserves.

The US is no longer short of oil and petroleum products, conditionally sending the surplus through overseas sales from reserves. Initial logistical difficulties and seemingly endless production force majeure in OPEC countries (the new incident in Libya at the weekend) are holding back the fall in quotations.

Oil trader Vitol, before that Trafigura, spoke of signs of oil demand destruction at current prices. Previously, after 2010, oil prices above $100 were also holding back economic growth and could only hold higher for as long as monetary or government stimulus was in effect and crashed as soon as conditions started to tighten. That is precisely the situation we are now in.

The technical analysis of the charts, in our view, remains on the side of the bears. The WTI price has failed to break above the former uptrend support line and remains below the 50-day moving average.

Should the oil price fall below last month's low of $101, it would signal that the bears are gaining an increasing advantage, and further declines could accelerate sharply. A complete correction of the latest bullish rally could be a return to $92. However, a deeper slide towards $80-85 cannot be ruled out if economic data worsens further and inflation requires further decisive rate hikes.

Silver and gold in search for a bottom

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

01/07/2022

Gold dived below $1800 on Friday morning, testing this year’s low at $1790. It has managed to get support from buyers on a dip below the important round level in the last six months, but this time buyers may come to the rescue much later.

The latest financial market dynamics (falling equity prices and yields) suggest the markets are banking on a recession. Meanwhile, central banks are only picking up speed in tightening monetary policy, creating pressure on long-term inflation expectations. In such an environment, demand for gold as insurance against inflation promises to decline in the coming weeks. A reversal in gold may not occur until G7 central banks begin to soften their rhetoric, which could take months.

The performance of silver is even more pessimistic. Gold’s little sister is far more sensitive to production cycles. Since the beginning of last month, signs of an economic slowdown have formed a downward momentum in silver, forming a bearish technical picture.

The drop of silver below $21 earlier this week marked a consolidation below the local lows of early May after a corrective bounce. The next stopping point for silver might be the $18.10 (8.5% below today’s price), where the 161.8% level of the March-May decline lies. In addition, here is the former resistance area from 2017 to 2020. It now has the potential to become an equally important long-term support.

For gold, the significant downside milestone is now the $1700-1730 area, where last year’s lows and the 61.8% retracement level from the 2018 to 2020 rally are concentrated. If that level also falls in the coming weeks, the next line of gold defence in gold could be the $1650 level, where the 200-week average and the 50% retracement level from the two-year rally pass through.

The dollar index may have peaked, but risks remain for Europe, Japan

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

29/06/2022

In the financial markets, the demand for risky assets has done its baby steps in recovery. The currency market recently has been moving in small increments, but straightforwardly, selling off the dollar against most developed country rivals.

Interestingly, this retreat is more measured than in the second half of May and is not supported by the dynamics of US bond yields. Yields on 10-years have been rising for the last three trading sessions, reaching 3.2%, failing to return to below 3%.

The dollar’s weakening against the background of rising yields reflects two processes. Firstly, there is some increased confidence that the US economy will be able to adjust to higher inflation. Secondly, the loss of upward momentum in the dollar - is the consequence that other central banks have gone out at the same pace of policy tightening, and the markets are starting to put a comparable rate of policy tightening with the Fed into quotations.

This behaviour of the dollar fits into historical patterns, with the average dollar’s momentum that lasts about one year in response to a policy reversal from a pause to a tightening.

Such an approach suggests that the 17.7% dollar rally that started in May 2021 is now over. The final chord was the rally in anticipation of a rate hike of 75 points on 15 June, which simultaneously led to a peak in the index.

However, it is also worth remembering the lessons of history not to be too bearish about the USD because the tighter financial conditions in the USA often end with aftershocks in other parts of the world. Such was the series of defaults by Asian countries in 1997 and Russia’s domestic debt default in 1998, triggering a series of local currency devaluations. After the global financial crisis, we saw the default of Greece with intense pressure and a loss of confidence in the euro.

In our view, investors now should again focus on the risks to the eurozone and Japan, not to mention the growing wave of problems in the middle emerging countries suffering from soaring food and energy prices. Investors and traders should pay close attention to these areas, lest they be trapped in overconfidence that the peak of market fear is over.

G7’s ban on Russian gold may not stop its drop

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

27/06/2022

G7 countries are discussing refusing to import gold from Russia - another attempt to limit the country’s export earnings. However, this news is more about headlines than the potential to become an actual market mover.

The price of the troy ounce rose by $12 to $1838 on Monday’s open and changed a little since. The 0.6% increase shows that commodity buyers are not so concerned about commodity shortages.

The G7 countries and most major economies in the EU have not been buying Russian gold for many months, so the announced measures will have little effect on current demand but will only document the status quo.

As with oil, we may see a temporary and time-limited supply shock due to a change in logistics, but not a loss in the share of gold that Russia supplies to the world market. However, gold was already winning back this shock at the beginning of March.

Potentially, this is good news for mining companies outside of Russia, as the competitiveness of their products in developed markets will be further enhanced.

It is worth paying attention to how Newmont, Barrick Gold or ETF funds that include gold or silver producers will trade. If we do not see a rise in prices or a surge in volumes today, we should not expect this news to affect the market any further.

A glance at the gold chart from the tech analysis side is not bullish just yet, either. Gold is traded under the 200 SMA, and it has not been able to break out of this line for the last month and a half. 

Meanwhile, the 50-day average is moving towards the 200-day, promising a death cross early next month. In the last two periods (February and August 2021), gold has lost about 7% after the occurrence of this bearish signal. It is well worth expecting that this time too, we only see a consolidation before another round of declines into the $1730 area before the end of September.

Bitcoin to reach 200K

Here is why:

27/06/2022

In 2011 The Bitcoin High and Low were:

High $29.60

Low $2.05

%93 decline from that high.

In 2013 The Bitcoin High and Low were:

High $230

Low $68

%70 decline from that high.

In 2015 The Bitcoin High and Low were:

High $1237

Low $315

%74 decline from that high.

In 2019 The Bitcoin High and Low were:

High $20,000

Low $6,230

%66 decline from that high.

What we can see from those historical data is that the average declines from the past 4 highs was around %75. 

This means every time Bitcoin reached a high, it then went on to drop by around %65 - %75 (on average) from that high, before starting a new bullish move later on down the line.

Taken this important fact into consideration, the most recent high for bitcoin was $68,999 which was in 2021. Therefore we should now expect a %75 price decline from that high of $68,999 before a new bullish move begins.

So, our price prediction for Bitcoin is as follows:

Bitcoin should now continue to drop until it reaches the price range of between ($14,000) and ($15,000) approximately before starting a new bullish move.

After it reaches that price range, it should then start to form (a bottom) and from that low point, we should then expect a start of a new bullish momentum which (this time) should take us all the way towards a new all time high which should now be $200,000 per Bitcoin. Yes you read it right ($200,000) per each Bitcoin.

And the reason for this (crazy) price target is because Bitcoin always previously rallied between 3 to 5 times the previous high in every new bullish move. 

And our most recent high was $68,999. Therefore our next price target is going to be above the price level of $200,000 per Bitcoin by the end of the next bullish move.

So the question is: Once Bitcoin reaches the price levels of around ($14,000) - ($15,000) will it then be time to start buying Bitcoin as well as other Cryptocurrencies (and hold them) in order to take advantage of the next bullish Bitcoin move? 

I guess we're just about to find out!

S&P 500 has biggest daily pct gain since May 2020 

25/06/2022

Oil uptrend broken, potential bears target at $60-80

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

24/06/2022

Brent crude oil is trading 14% below the highs set on June 9, showing declines almost every day since then. The sharp decline, more than 3.5% on Tuesday, has secured a break of the 50-day average and a break of the trend support line since December. Yesterday, we saw an attempt to get back above that level, following the rally in the stock indices.

Although the formal break of the uptrend is only after a drop below the previous lows, near $101, we believe that the oil uptrend is already broken. Interestingly, it was not Biden’s measures to curb prices through tax cuts and a sell-off from reserves that played into the hands of the bears. Oil was among the first to react to signs of slowing economic activity as a pro-cyclical commodity.

An increased chance of a recession in the US and the world has caused a sustained sell-off. It happens despite a parallel weakening of the dollar and a decline in bond yields, which often fuel the oil price.

A major part of the story is the market sentiment for energy stocks. The giants, Chevron and Exxon Mobil, lost more than 3% yesterday against a 1% rise in the S&P500. Both of these stocks peaked on June 9, but now they are on the verge of a bear market, losing around 20% from the peak, coming at elevated trading volumes. This is a significant indicator that the oil uptrend has played out.

It is becoming clear that the world is not facing a catastrophic supply collapse as oil from Russia trickles into Asia. In parallel, OPEC and the US are increasing their production. At the same time, the energy price has become too high for buyers, leading to a drop in demand.

If we are right, the initial correction in oil prices may not have any meaningful stops until a pullback to around $100 against the current $107 in the next couple of weeks. Stabilisation near $100 would be an optimistic scenario. The world saw similar swings in the $100-130 range from 2011 to 2014, shifting more and more towards the lower end of that range over time.

However, we see a more pessimistic scenario as the baseline. The 2011-2014 sideways trend is partly since monetary policy has remained extremely loose all this time. And it is essential to remember that at that time, the Fed raised rates by 25 points every two meetings versus 150 points in the last three meetings. In other words, oil went straight from a turbulent phase (akin to 2009-2011) into a situation similar to the end of 2014. 

However, we exclude a scenario of more than a threefold collapse, as was the case from 2014 to 2016, as OPEC+ has become more coordinated over the past eight years. This coordination is likely to prevent the oil price from falling below $60 in a pessimistic scenario for the economy, allowing it to quickly bounce back to $80-85.

USDJPY may find a ceiling as high as 150

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

22/06/2022

The Japanese yen leads in losses against the dollar amongst the G10 currencies. And so far, there are indications that the USDJPY’s rising trend will only be interrupted by technical corrections in the coming weeks or months.

The main fundamental driver for the USDJPY is the substantial divergence in the US and Japanese monetary policy. The former has raised its key rate by 150 points in the last three meetings and started selling assets off the Fed balance sheet. The latter has maintained its crisis rhetoric, promising to continue with QE and increasing bond purchases to keep 10-year yields close to 0.25%.

The currency market is not only wagering on the present but is actively putting expectations into prices. From this perspective, the USDJPY exchange rate results from an overlay of the key rate expectations, which are best reflected in 2-year bond yields. The spread started rising steadily in early 2021, at the same time as USDJPY began to rise.

The spread between the US and Japanese 2-year yields exceeded 3% this month, reaching 3.5%, the highest since 2007, although it was only 0.25% at the beginning of last year. Approaching a spread of 3% has not stopped the Fed from tightening, nor the Japanese rhetoric, so it makes sense to tune in to a return to pre-World Financial Crisis norms, i.e., above 4.3% versus 3.2% now, leaving the potential for around a third of the movement that already passed.

If these correlations between the USDJPY and USDJPY 2-year yield spreads remain in place, we could see the USDJPY continue to rise to 150 yen, last seen in 1990 and twice as high as the historic lows of 2011.

Suppose the Japanese monetary authorities and the Ministry of Finance manage to steer the yen through such a devaluation, preserving confidence in the financial system. In that case, this could revive the economy by raising export competitiveness, potentially returning the Land of the Rising Sun to export-oriented status.

UK inflation indicates that the Bank of England is moving too slow

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

22/06/2022

Consumer inflation continues to gain momentum in the UK. Data for May showed that CPI accelerated to 9.1% y/y - a record among the G7 and a 40-year high. The monthly price growth rate was 0.7% compared to 2.5% and 1.1% in the previous two months. However, apart from the reversal to lower base commodity and energy prices in the last couple of weeks, there is little indication that the Bank of England can relax. Moreover, it needs to double the pace of the rate increase from 25 points at once.

Last month producer input prices rose by 2.1% and output prices by 1.6%, reaching an annual rate of 22% and 15.6%, respectively. Under these conditions, producers and retailers will continue to pass increasing costs down to consumers. Unlike in the early years after the financial crisis, retail sales and employment are strong, which allows such a shift of rising outlays to end consumers.

It could take another two months of waiting for a turning point in inflation, the CPI will reach a high base effect, and in that time, the CPI could get double-digit y/y growth rates.

In this environment, the Bank of England’s moves to raise the rate by 25 points at each meeting are not capable of curbing inflation. 

Perhaps the main positive effect of this policy is the devaluation of the pound’s purchasing power and the reduction of the debt burden in real terms. However, the more obvious consequence of such policies is a drop in confidence in local financial markets and the pound, which we see with the Japanese yen at its lows against the dollar in 24 years.

GBPUSD is now trading at 1.22 - near the psychological low of 1.2000, where it received critical support in 2017 and 2020. But that support may not survive the third test of strength due to an increasingly threatening gap between inflation and interest rates, which would devalue debt. But this is a risky policy that could undermine confidence in the financial system, which will require decisive and brutal measures for the economy to restore.

S&P500 bounces back from oversold, but what’s around the corner?

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

22/06/2022

The US market opens later today after a long weekend. S&P500 futures indicate a 1.5% gain to Friday’s closing level, playing off the positive outperformance on the outside. The currency market has also swung towards buying risky assets, reinforcing hopes of at least a rebound in the coming days after a 13.5% dip from the highs to the lows of the month in the first two weeks of June.

In equities, the positive tone is set by the performance of Asian equities and the recovery of major European indices from oversold territory. The DAX40 and FTSE100 are recovering from their lows of March. Both indices have stuck within the Fibonacci retracement pattern and got support at 61.8% for DAX and 76.4% for FTSE from the pandemic amplitude.

The weakening of the traditional shelter currencies - JPY, CHF - is setting a positive tone. The USDJPY has updated to a new high since 1998, above 136, indicating a return of risk appetite in some financial market segments. USDCHF settled near 0.9660, stopping the decline after last week’s unexpected SNB rate hike.

The euro and the pound are also gaining against the dollar, signalling a recovery in risk appetite. However, it is essential to note the fragility of the current rebound. Most likely, we will see a corrective bounce after the worst week in equities in more than two years. 

However, finding medium-term reasons to buy “risk” is still tricky. Aside from the BoJ, the main central banks are tightening policy or promise to do so as soon as next month. And so far, we see no sign that this trend is about to end or reverse.

Thus, cautious investors can still only tune in for a short-term bounce but do not hold out hope that the markets have bottomed out. The bear market in the USA will likely continue until we hear from the Fed the first hints of a halt to aggressive policy tightening. Until then, a bear market with occasional corrective bounces is likely.

History also tells us that after entering a bear market phase and losing 20%, the market loses about another 20% on average (about 2900 for the S&P500) before it finds its footing. This scenario looks especially relevant when the Fed is not at all concerned about markets correcting, as it did at the beginning of the pandemic.

But it is too early for the bears to celebrate because they have yet to break the emerging rebound and push the S&P500 below 3500, significant psychological support, where the 200-week moving average and critical support/resistance levels of the second half of 2020 are located. Our pessimistic scenario could be reversed if the S&P500 exceeds the 3900 mark during the emerging rebound. In that case, a reversal of the equity market to the upside would have to be considered.

Local retreat in gold

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

21/06/2022

Despite attempts at rebounding equity markets, moderate pressure on gold has persisted for the third consecutive trading session. This pressure is directly linked to rising long-term bond yields on US debt and several other developed countries.

Bonds and gold work like communicating vessels: rising real long-term yields draw capital to the debt markets away from gold. Over the last two years, the inverse correlation between gold and US 10-year Treasury yields has been very strong: gold prices peaked in August 2020, while yields rose from 0.5%.

Last week, when the 10-year Treasury yield was rising temporarily to 3.5%, it tested the $1800 area.

However, there are several essential points to understand in this correlation. First, the 10-year Treasury yields touched 11-year highs last week, while gold has retreated only to the levels last seen at the start of the year. In other words, an active capital outflow from gold only occurs when yields decline sharply, whereas the long-term trend favours the shiny metal. This correlation can easily be explained by inflation, which eats into the purchasing power of money in the long term.

Secondly, 10-year yields are not so much influenced by short-term Fed interest rates as economic growth forecasts. Increased chances of a recession in the foreseeable future have dampened long-term yields. In addition, there are signs that the upward movement in UST yields was too fast, setting up a corrective pullback in the near term.

In our opinion, the potential danger for gold is a further tightening of the Fed’s tone, i.e. hints of new steps of a 75-point rate hike and a willingness to keep rates above inflation. But so far, we have seen a significant outperformance of inflation over key rates, and comments from FOMC members indicate a willingness to stop with a tightening in the 3.5-4.0% area, with no attempt to ride out inflation and a reversal to a rate cut as early as 2024. Such outlooks are keeping long-term bond yields in check and, at the same time fuelling interest in a strategy of buying gold during intense downturns.

Locally, creeping upward bond yields are working for sellers of gold. This also has a bearish signal in the form of consolidation below the 200-day moving average.

However, gold’s resilience drew attention when markets overestimated expectations of a rate hike from 50 to 75 points and multiple buying gains on dips under the 200-day moving average since December last year.

The sell-off in the S&P500 has not triggered a wider risk-off

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

17/06/2022

US stock markets updated multi-month lows on Thursday, pushing the S&P500 back to December 2020 and the Nasdaq back to November 2020 at one point. On Friday, before active US trading starts, we see the market attempting to form Friday’s profit from the recent sell-off.

In the meantime, it is worth paying attention to several indicators that might point to a long pause in the decline of the markets or even a probable upturn. Perhaps they will also act as a basis for a broader rally.

The yields of the 10-year Treasuries have retreated to levels below 3.4%. Yesterday we saw intense intraday swings with another attempt to break above 3.5%. However, towards the end of trading, when actively managed funds dominated the market, there were active purchases of US government bonds, which pressured the yields back to 3.2%.

This could manifest rising recession bets in the USA or a downgrading of long-term economic growth estimates. However, there is a positive side effect to falling yields. A peak followed a sustained yield rise over a couple of weeks in the S&P500. A sustained reversal to lower yields could also increase the equity market and restore demand for risky assets.

The dollar index is also retreating. The Dollar Index fell sharply yesterday, hitting a sell-off during the New York session. Most of the time, DXY and stocks are moving in opposite directions. Their lockstep move rarely lasts long. Looking back at buying US bonds, it could be assumed that there is more chance of a further bounce in equities. However, there will be much more certainty for a fundamental reversal of the stock market to the upside if yields fall below 3%.

Separately, one should not overlook the influx of buyers into gold. To a large extent, it can be explained by a weaker USD and lower bond yields. But it is also psychologically crucial that gold has managed to hold above $1800 and closed above the 200-day moving average on Thursday. The long lower shadow of the weekly candlestick might precede several weeks of growth, as it was in March and August 2021. For gold, that might be enough to dislodge the aggressive sellers and attract buyers who believe the worst is over. 

Yesterday’s oil and gas crash is the first sign of a break in the energy uptrend 

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

15/06/2022

Oil and gas took a massive hit during the New York trading session. Oil and gas fell sharply for different reasons, but in both cases, we could witness a bearish energy reversal after more than fivefold price gains from the macrocycle lows of April 2020.

Natural gas was momentarily losing over 20% on Tuesday on reports that Freeport LNG is set to get its terminal back online within 90 days. It is speculated that a full recovery is not expected until the end of the year, but gas futures have managed to cut losses from 20% to 18%, trading at $7.26 at the time of writing.

It’s counter-intuitive, but the gas price peaked on the day the Freeport LNG fire was announced on June 8, and from a peak at $9.6, the price has fallen by a quarter. If we do see a reversal, it would not be surprising if gas loses ground rapidly down to 6.5 or even 6.0 before the bears make their first attempts to lock in profits.

Oil is also turning around. Brent is in its fifth trading session showing a downtrend with a sequence of increasingly lower lows and highs. Yesterday morning, we saw bulls’ efforts to break the trend run into furious selling as the price lost 5% or almost $6 in less than five hours.

We had already seen in early March that oil was looking too expensive for buyers in the market and economy, causing a demand shock and triggering a correction. Fresh data from the IEA highlights that global inventory rose in April for the first time in almost two years. However, OPEC+ is increasingly falling short of quotas, and US production has stagnated near 11.9m BPD for the last ten weeks.

Our estimate is that we will see the end of a multi-month rally in oil strengthen if Brent consolidates below $114. That would be a drop from the beginning of the month and a dip below the locally significant level, which was resistance in April and May and support in early June. 

An even more reliable signal for the bears’ victory would be a consolidation below $110, where the 50-day moving average now passes. That could open a direct and unexpectedly fast road to the area of $100 by the end of August. However, we expect it to stay in the $100-120 range for the rest of the year.

Markets jumped the gun, expecting to hawkish Fed tomorrow

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

14/06/2022

The S&P500 index fell 3.9% intraday on Monday, closing the index in the bear market territory. The Nasdaq collapsed more than 4.6%, losing a third of its all-time high in November last year.

The dollar index closed above 105 on Monday, renewing 20-year highs. On Tuesday morning, markets are technically bouncing back after yesterday’s strong move, with index futures adding more than 1% at the start of the European trading session and the DXY retreating to 104.60.

Whether we see a double-top formation in the Dollar Index or a temporary stop before a breakout upwards, we are unlikely to know before we see the market reaction to the Fed’s Funds rate decisions and comments tomorrow evening.

The strong market movement from late last week was driven by consumer inflation, which in May hit a record since 1981, rising to 8.6% y/y. This data has triggered a wave of reassessment of the market outlook. Rate futures right now are laying down a 98% chance of a 75-point hike as early as tomorrow against a 35% chance the day before.

These are rather stressed estimates of the situation. But such a move would be too extreme for the Fed, which had previously warned that it was prepared to make several moves with a 50-point hike. In our view, the most hawkish of the realistic scenarios involves a 50-point rate hike and a hint of a 75 step up at the end of July if required.

Suppose the Fed’s tone is in line with our expectations. In that case, the dollar could retreat from its extreme valuations and a more sustained rebound in equities as the most frightening outlook for the economy recedes into the background.

However, although it will raise the rate by 50 points, the chances are high that the Fed will indicate a willingness to be more aggressive by warning of a readiness to raise the rate by 75 points in the next few meetings. Predictions about when the Fed intends to end policy tightening are equally crucial for the markets.

The markets expect the rate to peak at 4.00% in March next year from 0.75%. Market expectations on how the Fed will act in the short and medium-term have formed an emotional bias towards excessive tightness.

However, with high and still rising inflation expectations, it may not be in the interest of the Fed to soften these expectations too much in the coming days and weeks. The latter means that the Fed could warn that it is prepared to act more firmly afterwards by keeping demand for the dollar and pressure on assets until the peak in inflation has occurred.

Oil may have started its turn down

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

13/06/2022

Oil fell symbolically over the past week, losing 1.3% to $116.3 a barrel of WTI amid trading in Europe on Monday.

Locally oil looks like a solid defensive asset, with oil companies such as Exxon Mobil renewing record highs, attracting investor capital. While geopolitics and strong demand are behind the sector’s growth, the risks may outweigh the upside potential at current levels.

Technically, oil remains within the upward trend formed late last year. Intra-week price dips under this line have been instead actively bought out.

At the same time, on the weekly charts, WTI oil formed a double top, failing to close the week above $120. The red line for oil could be to consolidate below $110 at the end of this or next week.

On the same weekly timeframes that best fit commodity markets, the WTI has stalled at the overbought area of the RSI index. In the previous year and a half, we had a similar situation four times, all ending in a corrective pullback. 

Among the fundamental factors is the increase in the number of working oil rigs in the USA last week to 733 in total, of which 580 were producing oil. Separately, US Treasury Secretary Yellen said late last week that production in the country is picking up, which we have yet to see in the reports.

OPEC countries have also been increasing their production capacity, raising the quota target by 648K BPD in the last two months, instead of the previous step of 400K and later 432K BPD per month. So far, the cartel has not scooped up quotas, but high oil prices and a sustained rise in the cap will attract new investment, as it did in the last decade, which has caused oil prices to fall chronically.

There is also downward pressure on the bears’ side in the equity market. So far, oil has ignored the flight from risky assets, but history teaches us that such periods do not last, and oil could start catching up with the rest of the market very soon.

GBPUSD and FTSE100 have not recouped their downside potential

by FxPro’s Senior Market Analyst

Alex Kuptsikevich

13/06/2022

GBPUSD is trading near 1.2250, losing about 3% in the last four trading sessions. Pressure on the pound intensified on Monday, releasing a disappointing set of statistics. Monthly estimates showed the economy shrinking by 0.3% for April, contrary to expectations of a 0.1% growth. Industrial production data also fell short of expectations.

High employment levels do not promise a rapid expansion in the current environment. As we can see, manufacturers generally prefer to take a wait-and-see attitude, maintaining a 0.7% y/y gain.

For the UK economy, it will get worse before it gets better. And it is not very good news for the GBPUSD. Sterling is approaching the lows of mid-May. A move below 1.2150 would confirm that we have only seen a rebound in the bear market at the end of last month, and we shouldn’t be surprised by an intensified sell-off and possible failure with a potential target at 1.1500 (March 2020 lows and 161.8% of the March-May 2022 anti-rally).

The FTSE100 has fallen sharply below its 200-day moving average due to pressure on global markets. This dip attracted buyers in March and May as volatility began to subside. The 7700 level from 2018 remains too attractive for long-term sellers. In February 2020 and two years later, we saw a furious sell-off as powerful fundamentals were on the bears’ side, as they are now. Correction targets for the FTSE100 could be levels of 7000 for a relatively soft landing and 6800 for a deeper correction. 

Flight of cryptocurrencies interrupted

FxPro Senior Market Analyst

Alex Kuptsikevich

02.06.2022

Bitcoin collapsed 5.6% in the past 24 hours, retreating again below the $30K mark. Ethereum lost 6.1%, while leading altcoins in the top 10 fell from 5.2% (BNB) to 11.5% (Solana).

Total crypto market capitalisation, according to CoinMarketCap, sank 5.3% overnight to $1.23 trillion. Bitcoin’s dominance index fell 0.2% to 46.1%.

By Thursday, the cryptocurrency Fear and Greed Index was down 4 points to 13.

Bitcoin fell sharply in the US session on Wednesday, along with stock indices, following a strong ISM Manufacturing PMI release. The data raised expectations of the US Fed monetary policy tightening. A stronger dollar and reduced risk traction in stock markets interrupted BTC’s flight, which returned to the previous sideways range it had been trading since mid-May.

The Solana blockchain network suffered another disruption on Wednesday. Solana’s validators failed to process new blocks for eight hours, leading to a complete shutdown of all its applications.

Executives at two Australian banks, ANZ and NAB, said they do not plan to allow their retail customers to trade crypto assets due to the high risks of losing funds.

Heng Swee Keat, deputy prime minister of Singapore, warned retail investors against investing in cryptocurrencies, recalling the collapse of Terra and UST. Crypto-assets are very risky and need proper regulation, he said.

Following the collapse of the Terra ecosystem, the Basel Committee on Banking Supervision of the Bank for International Settlements (BIS) plans to issue a second, even more “conservative” version of its recommendations on cryptocurrency regulation.

Harvard University’s anti-digital experts have urged US lawmakers to resist the pressure of crypto investors and not make any easing of the crypto industry.

Is the Crypto Market a dead Cat Bounce?

02.06.2022

On Wall Street, the term dead cat bounce is used to describe a brief recovery in the price of a declining asset that is shortly followed by a continuation of the downtrend. 

It is said that the term derives from the idea that “even a dead cat will bounce if it falls from a great height.” This phrase originated on Wall Street and was popularly applied to situations where one can see a small comeback during a major decline.

In certain situations, a Dead Cat Bounce may be used as a technical analysis pattern for financial markets and cryptocurrency traders. The pattern may be included in the group of continuation patterns, which means it could be used to forecast the continuation of previous major price movement.

During the initial stages of a Dead Cat Bounce pattern, it might be confused with a general trend reversal. However, after some time, the price refuses to go up, and the downward trend continues, breaking previous support levels and creating new lows. As such, Dead Cat Bounce patterns may also result in what is called a bull trap, where investors open long positions hoping for a trend reversal that doesn’t happen.

The first usage of the term Dead Cat Bounce in the news media happened in early December of 1985. Financial Times journalists Horace Brag and Wong Sulong quoted a broker that said: “this is what we call a dead cat bounce.” The broker was referring to the financial markets of Singapore and Malaysia, which showed signs of recovery after strong downward movements. After that, Malaysian and Singaporean economies continued to go down and would only recover in the following years.

The crypto market took a major beating in 2022 amid an uncertain global regulatory environment and the geopolitical situation. But, the intensity of the sell-off increased significantly after the Terra fiasco. LUNA, once known as one of the world’s most valuable cryptocurrencies, lost its entire value within a few days. Amid jittery market conditions, investors pulled out billions of dollars from the market.

But, the crypto crash is nothing new for those who held their assets in the market corrections of 2017 and 2020. Throughout its history, the crypto market has emerged as the winner for most of its long-term holders. Is the situation different this time? Well, if we look at the trend today, it seems like the recent sell-off was one of many we have seen before. 

Crypto bulls termed the latest rebound as a sustainable rally while critics think that it is nothing more than a dead cat bounce. Leading names in the crypto ecosystem believe that the long-term potential of Bitcoin and other digital currencies is still massive, however, investors must stay away from the market during extremely volatile conditions. “The situation on the market is still tense, therefore, traders should brace themselves for increased volatility in the coming days,” a financial markets expert recently advised traders and investors.

Where gold’s downtrend is heading 

FxPro Senior Market Analyst

Alex Kuptsikevich

01/06/2022

Gold has shed its position for the second day in a row, losing more than 1% during that time, and that might be just the beginning of a new downside wave, which will potentially take the price down to $1650. However, investors and traders will likely consider the potential to outweigh the risks early on. 

The momentum of the ounce’s decline from April 18 to May 16 took more than $200 from the peak to the bottom and was sharp enough for the bears to need a recharge. However, at the beginning of last week, the rebound began to choke around 61.8% of the initial rally - clearly within the Fibonacci pattern. 

Yesterday Gold closed below its 200 SMA, and the debt and equity markets went back to selling. This dynamic is a significant signal that the bounce and consolidation phase ends in a victory for the dollar bulls, which increases the pressure on gold. 

By Fibonacci, the final selling point, in that case, would be the 161.8% level of the initial momentum, somewhere around $1650, where the price was by the end of February 2020. That is, before the spike, the subsequent failure, and a long pandemic rally. 

Such a scenario would be very nice, but several factors could prevent it from materialising. Gold has been repeatedly redeemed on dips to the $1750 area in the past year. Inflationary acceleration and geopolitics gradually raised the bar from which purchases prevailed. 

There is also a $1750 mark near 61.8% from the 2018-2020 rally, and the bulls can step up the onslaught at the top defence level. If they fail to do so, there could be an absolute capitulation in gold. 

The entire decline path can be broken down into several phases. Initially, the bears need to break support at $1780, the previous local lows. Next, the decline may encounter support from more principled buyers in $1740-1750. If the sellers are stronger here, gold could fall back to $1650 before the end of August. 

A respite for the dollar bulls or a trend reversal? We will find out today 

FxPro Senior Market Analyst

Alex Kuptsikevich

31/05/2022

In the US debt market, 10-year Treasury yields have exceeded 2.8% after floundering around 2.7% last week. This small move for bonds is having severe consequences for almost all markets. 

The dollar index is almost in sync with long-term bond yields pulling away from its 50-day moving average, coinciding with a 50% correction from the rally from late March to mid-May. 

EURUSD and USDJPY are moving today towards the prevailing trends of recent weeks. As in the case of the 10-yr yields and DXY, the dollar bulls went back into play after touching the 50-day averages for these instruments. 

US equity index futures are losing traction, with the S&P500 pulling back from levels above 4200 to 4140. 

Interestingly, pressure increased in oil, despite a potentially positive backdrop. 

The market dynamics on Monday and Tuesday morning may not be indicative as they do not include liquidity from the US. Investors and traders should therefore pay increased attention to Tuesday’s close of trading. 

We may well have an answer today as to whether the recent dollar weakening was a bullish respite or a break in the yearly upward trend. 

The lack of desperation in crypto for a real rally 

FxPro Senior Market Analyst

Alex Kuptsikevich

01/06/2022

Bitcoin slowed late Tuesday afternoon, retreating from local highs near $32.3K to $31.5K. Ethereum has lost 2.5% in the past 24 hours to $1930. Other altcoins in the top 10 are losing between 0.3% (BNB) and a 6.5% increase (Cardano) over the day. 

Total cryptocurrency market capitalisation, according to CoinMarketCap, declined by 1.3% overnight to $1.30 trillion. Bitcoin’s dominance index rose another 0.3% to 46.3%. The cryptocurrency fear and greed index were up 1 point to 17 by Wednesday but still in “extreme fear”. Bitcoin updated three-week highs above $32,300 on Tuesday, continuing the previous day’s rising momentum. According to CoinShares, institutional investors invested $87 million in crypto funds last week, reaching $0.52 billion since the start of the year. Glassnode notes that most HODLers continue to build up their positions in bitcoin.  

A possible signal of the end of the bear market could be the capitulation of long-term investors, who sold BTC last week at an average loss of 27% compared to the quotes at the time of purchase. The crypto market is still full of optimists, while a real bull market is more likely to sprout from despair or oblivion. 

We saw despair in March 2020 and an example of oblivion - more than a year of decline since the December 2017 peaks. It has now been half as long, so we should be prepared to see a rally in a falling market in the coming months, but not a repeat of the October 2020 to April 2021 rise. Bitcoin ended May down 17.1%, failing to live up to historical trends indicating a relatively successful month. The crypto market was adversely affected by the collapse of the Terra ecosystem. According to Glassnode, Luna Foundation Guard sold 80,081 BTC in May to support the UST stablecoin. In terms of seasonality, June is considered a relative success for BTC.  

Over the past 11 years, bitcoin has ended the month up seven times and down four. The average rise was 16.7%, and the average drop was 11.3%. In the first case, BTC could end June at around $37,000, recouping almost all of May’s decline, while in the second, it could end June at near $28,200. 

Brent storms $120, but the rally may be nearing the end 

FxPro Senior Market Analyst

Alex Kuptsikevich

31/05/2022

Brent spot prices were approaching $120 earlier today on news that the EU managed to agree on an immediate embargo on 2/3 of oil imports from Russia. We saw Oil trading above current levels for just a couple of days in March. 

Over the last four days, as discussions on the ban on oil imports have continued, its price has risen by more than 7%, and much of the news may already have been priced in. 

Current levels are at a considerable distance from the highs of 2008 at $146 and below the peaks of 2011 and 2012 when they briefly went above $126. However, from a historical perspective, prices are close to unsustainably high levels. 

Already, high energy costs are causing a decline in retail consumption in Europe and the US, the world’s wealthiest regions. No doubt developing countries are experiencing an even more significant slowdown in their economies because of prevailing high fuel prices. 

Oil is susceptible to fluctuations in supply and demand, so a shift in the balance of supply and demand by a couple of per cent sometimes triggers movements of tens of per cent, as happened more than once in the past decade. The high cost of fuel is already causing a reduction in consumption, which, combined with higher quotas in OPEC+, will shift the balance towards the buyers in the coming months. 

From current levels, we would venture to guess that oil has minimal short-term upside potential to bounce back from the news emotionally. A prolonged lull could follow, with movement in the $100-120/bbl range until the end of the year, during which time demand and supply will adjust to the new reality. 

The longer-term prospects remain an open question. The chances are now roughly equal that the oil market at levels near $120 remains at the foot of an extended multi-year rally or is ready to repeat the collapse of 2014 or 2008. 

The Crypto market pushes back from the bottom 

FxPro Senior Market Analyst

Alex Kuptsikevich

31/05/2022

Bitcoin jumped 7% on Monday, ending the day at around $31.2K. On Tuesday morning, positive momentum persisted, with the rate climbing above $32.0K, a 20-day high. 

Ethereum added 8.2%, while other top-ten altcoins gained between 4.9% (BNB) and 14.8% (Cardano). The total capitalisation of the crypto market, according to CoinMarketCap, rose 4.3% overnight to $1.31 trillion, with the Bitcoin Dominance Index rising 0.1 points to 46%. The Cryptocurrency Fear and Greed Index was up 6 points to 16 by Tuesday but still in “extreme fear”. 

 Due to the US bank holiday, markets were minimally active on Monday, but the momentum was on the plus side. The emerging rebound from the bottom may be self-sustaining at first, as many market participants believe that the crypto market has corrected enough to become attractive for long-term buying.  

However, fundamentals such as halving, soft monetary policy or accelerated adoption are needed for growth to continue. But the latter is not easy right now. Bank of America CEO Brian Moynihan has stated that the bank has no plans to introduce cryptocurrencies in the foreseeable future because the industry is too strictly regulated. 

After the Terra project collapsed, CFTC Commissioner Caroline Pham compared investing in crypto-assets to buying lottery tickets, which can be expected to both win and lose. 

Real Vision CEO Raoul Pal reiterated that in the long term, Ethereum, the leading smart contracts platform, will surpass bitcoin in terms of market capitalisation, trading volume and number of active wallets. SkyBridge Capital founder Anthony Scaramucci noted the interest of large investors in spot bitcoin ETFs and suggested they could be launched as early as this year. 

Payments service MoneyGram plans to launch Stablecoin transfer services in partnership with Stellar. 

The new German inflation record did not scare off euro buyers 

FxPro Senior Market Analyst

Alex Kuptsikevich

30/05/2022

A preliminary estimate showed that German inflation continues to pick up, reaching 7.9 y/y in May. This is a new inflation record since 1951, and the reading was also above the forecast of 7.6%. 

A separate release of import prices noted an acceleration of this type of inflation from 31.2% to 31.7%. Although it was slightly lower than the expected 32.0%, this extreme reading was not only due to a jump in energy and food prices but also to a 15% fall in EURUSD over the past 12 months. 

Historically, EURUSD has fallen in this way, with even more amplitude several times, but as a rule, it was during times of economic recession. Now we are seeing one of the rare instances of the single currency failing in a growing economy, which further inflates the sails of inflation. 

With such inputs, there remains pressure on the ECB for more dramatic monetary policy tightening measures.  

Perhaps a hawkish U-turn by the European Central Bank is now the most plausible way to halt the weakening of the EURO and contain inflation. 

And it seems that the ECB is just in the process of this turn, forming the basis for buying the euro against the dollar and pound after touching multi-year lows earlier in April and May. 

TRADER'S flock to safe havens after the fed's minutes

27/05/2022

The price of Gold was up on Friday morning in Asia and was set for a second weekly gain after the dollar retreated from 20-year highs.

Gold futures were up to $1,852.70 by (3:30 AM GMT).

The US dollar, which normally moves inversely to gold, was down on Friday, continued a fall in the previous session, and was set for a second consecutive weekly decline.

Minutes of the last FOMC meeting showed that most participants believed that 50 basis point rate hikes would be appropriate at each of the next two meetings in June and July to get on top of inflation.

Gold Price Prediction: From a Technical-Analysis stand point, Gold is still moving upwards in a bullish channel, and looks steady and comfortable to continue marching upwards, all the way towards the price level of $1928.

There is nothing to fear but the Fed itself

DAVID BAILIN

27/05/2022

SUMMARY

A very fast-moving correction is gripping equity markets because the economy is slowing, and the US Federal Reserve is still taking its fastest and most aggressive rate stance in decades. But indiscriminate selling, rather than tactical reallocation, may cause markets to plunge further.

• As the S&P 500 approaches bear market territory, investors are looking to the Fed to see if it can engineer a “soft landing.” But the very use of that phrase ignores its definition. To achieve a soft landing, the Fed would typically need to raise interest rates just enough to slow inflation in an overheated economy without causing a severe economic downturn. Therein lies the stock market’s anxiety. The economy is slowing and the Fed is still taking its fastest and most aggressive rate stance in decades.

• We modified our ratios for our ROBUST, RESILIENT and RECESSION scenarios to 20%, 45% and 35% respectively this past week. The increase in the RECESSION scenario percentage is linked to market action as markets typically lead the economy, particularly when a strong direction is sustained. The loss of confidence and the actual loss of buying power can be self-reinforcing.

• In our view, a recession is not the only way for the Fed to stabilize inflation. A policy of gradual rate increases and patience may achieve the same goal. We see evidence that demand will be satisfied through an ongoing supply recovery. US industrial production is finally catching up to the rapid growth of imports. Both are now rising faster than consumer demand, measured in real units.

• We believe there is a 70% probability that we are at or near peak rates for 2022. Last month, the GIC raised long-duration US Treasuries to an overweight for the first time since yields bottomed in 2020. We believe the positive correlation between high quality bonds and equities will break down, as has been evident in recent days as the equity selloff intensified. In our view, long-term government bonds should soon take comfort in a slowing growth outlook, and (with a lag) decelerating inflation. In the five previous cases of significant joint stock/bond losses during the past 60 years, long-term US Treasury returns were positive in all five cases.

• To illustrate Citi Global Wealth Investment's philosophy, we conducted a hypothetical analysis of investor behaviors during five market crises over the past 50 years. In one scenario, staying invested – or better yet, deploying cash sitting on the sidelines – may lead to outperformance versus a de-risking strategy.

Global shares rise after Fed meeting notes hint at future rate hikes

26/05.2022

By Elizabeth Dilts Marshall

NEW YORK, May 25 (Reuters) - Global shares rose on Wednesday after notes from the U.S. Federal Reserve's early May meeting showed a strong likelihood that the world's most powerful central bank will approve two more half-percentage-point rate hikes in coming months.

Wall Street ended higher as investors were heartened by the fact that policymakers at the Fed unanimously felt the U.S. economy was very strong as they grappled with reining in inflation without triggering a recession.

All participants at the Fed's May 3-4 meeting backed a half-percentage-point rate increase - the first of that size in more than 20 years - and "most participants" judged that further hikes of that magnitude would "likely be appropriate" at the Fed's policy meetings in June and July, according to minutes from the meeting. read more

MSCI's gauge of stocks across the globe (.MIWD00000PUS) gained 0.70% at 4:15 p.m. EDT (2015 GMT), and Europe's STOXX 600 (.STOXX) rose 0.63%.

The Dow Jones Industrial Average (.DJI) rose 191.66 points, or 0.6%, to 32,120.28, the S&P 500 (.SPX) gained 37.25 points, or 0.95%, to 3,978.73 and the Nasdaq Composite (.IXIC) added 170.29 points, or 1.51%, to 11,434.74.

Earlier on Wednesday, the Reserve Bank of New Zealand raised interest rates by half a point. While that move was expected the RBNZ warned bigger and faster hikes may become necessary. read more

ANZ chief economist Sharon Zollner said the Fed's minutes showed that they also feel that "large hikes now buy flexibility later," Zollner wrote.

Investors still fear that rate hikes could bring the world's largest economy to a standstill.

Nicholas Colas, cofounder of DataTrek Research, said the U.S. markets, which have whipsawed in recent weeks, will bottom once the Fed indicates inflation has started to ease.

"The Fed is using stock prices as a primary tool in their fight against inflation," Colas wrote in a note Wednesday. "Lower stock prices tell companies to stop hiring so aggressively and feeding wage inflation. They also create a reverse wealth effect, which should curtail consumer spending."

The U.S. dollar index - which measures the currency against six major rivals - snapped a two-day losing streak to rise 0.393%. The euro was down 0.56% at $1.0674. /FRX

Global markets in 2022

DISLOCATION

New home sales in the United States fell 16.6% month-on-month in April, the largest decline in nine years, and new orders for U.S.-made capital goods rose less than expected in April.

The drop in capital goods orders pointed to some moderation in business spending on equipment early in the second quarter, and headwinds are growing from rising interest rates and tightening financial conditions.

The yield on 10-year Treasury notes slipped 1.5 basis points to 2.745% after falling in the morning to 2.708%, a low last seen March 14. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 1.5 basis points at 2.506%.

Investors in Asia had remained nervous about growth being impacted by the effects of persistent Chinese COVID-19 lockdowns, which threaten to undermine recent stimulus measures in the world's second-largest economy.

Emerging market stocks rose 0.19%. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.25% higher, while Japan's Nikkei (.N225) lost 0.26%. Australian and Korean shares (.AJXO)(.KS11) rose 0.4% and the Taiwan Weighted Index (.TWII) and Hong Kong's Hang Seng (.HSI) advanced 0.8% and 0.2%, respectively.

Among the main commodities, spot gold dropped 0.6% to $1,853.91 an ounce.

Oil prices rose on Wednesday, buoyed by tight supplies.

Brent crude futures for July settled up 47 cents at $114.03 a barrel, while U.S. West Texas Intermediate (WTI) crude for July delivery ended up 56 cents to $110.33 a barrel. read more

Reporting by Elizabeth Dilts Marshall in New York Additional reporting by Marc Jones and Sujata Rao in London Editing by Kirsten Donovan, Peter Graff and Matthew Lewis

Will we see a rates INCREASE in today's fomc minutes?

25/05/2022

The event of the day is the FOMC meeting minutes. The Fed is stuck between a rock and a hard palce.If they continue to raise interest rates at the current level, this could cause a recession. However, they are compelled to tame inflation.In this meeting, we will understand how the Fed is thinking. If the outcome of the meeting throws up surprises, expect potential volatility for the Gold price as investors seek shelter in safe havens.

Also watch the US30, which could see investors moving away from stocks.

Asia stocks up but investors worry about rate hikes, China lockdowns

25/05/2022 

Kanupriya Kapoor

May 25 (Reuters) - Asia stocks rose on Wednesday even as central banks piled into aggressive rate hikes to battle soaring inflation and left investors worried about slower global growth.

MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.72%, with Australian shares (.AJXO) up 0.72%, Seoul (.KS11) adding 0.84% and Taiwan (.TWII) advancing 1.07%.

Hong Kong's Hang Seng (.HSI) and China's main indexes (.SSEC), (.CSI300) also traded higher, while Japan's Nikkei share average (.N225) slipped 0.04%.

European markets also looked set for a firmer open, with pan-European futures up 0.93% and FTSE 100 futures rising 0.88%.

The U.S. dollar index =USD - which measures the currency against six major rivals - rebounded 0.16% to 101.92, a level not seen since April 26. Meanwhile the kiwi hit a three-week high of $0.65 after the New Zealand central bank raised rates by an aggressive 50 basis points and signalled more to come. read more

Overnight, Wall Street reeled from weak housing and manufacturing data, while U.S. central bankers backed two more big interest rate hikes as early as June and July to fight 40-year-high inflation.

The Nasdaq Composite (.IXIC) dropped 2.35% and the S&P 500 (.SPX) lost 0.81%.

New home sales in the U.S. fell 16.6% month-on-month in April, the largest decline in nine years, sending U.S. Treasuries yields down to one-month lows as investors turned once again to safety. The benchmark 10-year note was at 2.766% and the 2-year yield was at 2.522%.

But Atlanta Fed President Raphael Bostic warned headlong rate hikes could create "significant economic dislocation" and was among a handful of Fed policymakers who favour reducing the pace of rate hikes later in the year if inflation cools. read more

Investors in Asia remain similarly nervous about growth being impacted by the effects of persistent Chinese COVID-19 lockdowns, which threaten to undermine recent stimulus measures in the world's second-largest economy.

"In Asia, investor debate centers on whether or not China's easing policies are sufficient to offset downward pressures,” Stephen Innes of SPI Asset Management said in a note.

"Fiscal multipliers will be minimal in an economy where economic activity have slowed sharply. Moving beyond mobility restrictions in short order is a pre-condition, but not a guarantee, for an Asia-led economic recovery."

Gold prices dipped 0.19% to $1,862.27 per ounce, having risen to their highest in two weeks on Tuesday, as the greenback gained.

Oil prices climbed more than 1% on the prospect of tight supplies. U.S. crude futures rose to $111.05 a barrel, and Brent rose to $114.86. read more

Stocks tumble on growth concerns, bond yields slip

By Herbet Lash & Lawrence White

24/05/2022

NEW YORK/LONDON, May 24 (Reuters) - Shares slid worldwide on Tuesday as supply chain woes and surging costs hurt corporate earnings and manufacturing output slowed, while Treasury yields dipped as the weakness in equities revived a safe-haven bid for U.S. government debt.

The stock market's two-day relief rally ended as investors worried about slowing economies. Corporate profit margins have been squeezed, with soaring inflation forcing consumers to cut discretionary spending.

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U.S. and euro zone business activity slowed in May. S&P Global attributed the decline in its U.S. Composite PMI Output to "elevated inflationary pressures, a further deterioration in supplier delivery times and weaker demand growth."

Surging freight and raw material prices led Abercrombie & Fitch Co (ANF.N) to say it will face headwinds until at least year-end, a day after Snapchat parent Snap Inc (SNAP.N) said the U.S. economy worsened faster than expected in April. read more

The economy likely will slump as the Federal Reserve hikes interest rates to stamp out inflation, said David Petrosinelli, senior trader at InspereX.

"It's really all about a hard landing and the Fed really being boxed in the corner with only demand-side tools to help," he said. "They really need to squash demand."

MSCI's gauge of stocks across the globe (.MIWD00000PUS) closed down 0.91%. The pan-European STOXX 600 index (.STOXX) fell 1.14%.

Exquisite Seaside Location

On Wall Street, the Nasdaq Composite (.IXIC) dropped 2.35% and the S&P 500 (.SPX) lost 0.81% as investors turned to defensive positions. But shares pares losses late and the Dow Jones Industrial Average (.DJI) managed to close up 0.15%.

Value shares rose 0.17%, while growth shares (.IGX) fell 1.90%.

Shares of Snap plummeted 43.1%, dragging down several social media and internet stocks. Abercrombie fell 28.6%.

In Europe, all major sectors posted broad declines, with luxury stocks and retailers taking the lead.

European Central Bank Chief Christine Lagarde said she saw the ECB's deposit rate at zero or "slightly above" by the end of September, implying an increase of at least 50 basis points from its current level as the bank fights inflation.

"It has raised jitters in global markets about the possibility at least of a more aggressive move by the ECB," said Phil Shaw, chief economist at Investec in London.

"There were reports overnight that some hawks on the governing council thought her comments yesterday seemed to rule out a 50-basis-point hike, but her remarks today appeared to leave that on the table," he said.

Germany's 10-year Bund yield fell 9 basis points to 0.959% , and Treasury yields skidded to one-month lows as those on benchmark 10-year Treasury notes > slid 9.8 basis points to 2.761%.

The U.S. dollar index hit nearly a one-month low after Lagarde comments gave the euro a boost.

The dollar index fell 0.362%, with the euro up 0.39% to $1.0731.

Lagarde's remarks should pressure the U.S. dollar in the short-term after its recent rally to the highest level in two decades, said Bipan Rai, North America head of FX Strategy at CIBC Capital Markets.

But "the broader macro backdrop still supports the risk-off take," Rai said. "The dollar still has more room to run over the medium term."

DISAPPOINTING DATA

Markets took some comfort from U.S. President Joe Biden's comment on Monday that he was considering easing tariffs on China, and from Beijing's continuing promises of stimulus. read more

Yet China's zero-COVID-19 policy and its lockdowns have already done considerable economic damage.

JPMorgan cut its forecast for second-quarter Chinese gross domestic product to a 5.4% contraction from a prior forecast for a 1.5% decline after disappointing data in April. On an annualized basis, its global forecast for the quarter is 0.6%, the weakest since the global financial crisis outside of 2020.

Oil prices traded little changed as tight supply worries offset concerns over a possible recession and China's COVID-19 curbs.

U.S. crude futures settled down 52 cents at $109.77 a barrel, and Brent rose 14 cents to settle at $113.56.

Gold prices rose to their highest in two weeks as the safe-haven metal's appeal was lifted by a weaker U.S. dollar and lower Treasury yields.

U.S. gold futures settled up nearly 1% at $1,865.40 an ounce.

Bitcoin last rose 0.99% to $29,371.04.

Reporting by Herbert Lash in New York and Lawrence White in London; additional reporting by Wayne Cole in Sydney; editing by Simon Cameron-Moore, Jonathan Oatis, Tomasz Janowski and David Gregorio

Understanding markets and inflation

DAVID BAILIN

23/05/2022

Inflation makes the risk of recession greater. Yet, the medicine the Fed wants to apply – ever higher rates – may have painfully little impact on inflation. Global markets keenly await what comes next.

• The sharpest about face in Fed policy in modern history has propelled a record large combined drop in equities and fixed income, with both US stocks (as measured by the S&P 500) and long-term US Treasuries falling more than 10% in the last six months for the first time ever. The forward returns for the 10-year US Treasury note were higher after all five periods when both stocks and bonds fell together. The returns for US equities were higher in only three of the five. This is why we believe Bonds are Back.

• With the economy facing supply shortages, a recession will not bring the war in Ukraine to a more rapid conclusion, nor the end of the pandemic. We fear that the Fed’s medicine, applied too quickly, may engender a hard landing for the economy, while not lowering inflation that quickly.

• With corporate profitability far above trend – EPS gained 47% last year – profits are vulnerable to retrenchment. A drop in profits in 2023 has become more likely. This fear of a decline in corporate profits is one factor driving the sharp decline in equities. This is why we are not inclined to relax our defensive bias in equity markets now. We are overweight essentials such as pharmaceuticals and cyber-security providers.

• We also believe that growth equities in essential, durable demand areas will eventually feel relief from valuation pressures as government bond yields peak. Innovation is continuous while markets have notable periods of euphoria and panic.

• Though the Fed cannot control the speed that inflation will fall, the Fed will determine the rate at which the economy will slow. While we are hopeful they will use forward looking analysis to determine their interventions, markets are watching closely to see if the fight against inflation is going to be harsh or more thoughtfully engineered.

Oil climbs in tight market as U.S. driving season looms

by Sonali Paul

23/05/2022

MELBOURNE (Reuters) - Oil prices rose in early trade on Monday with U.S. fuel demand, tight supply and a slightly weaker U.S. dollar supporting the market, as Shanghai prepares to reopen after a two-month lockdown fuelled worries about a sharp slowdown in growth.

Brent crude futures rose 82 cents to $113.37 a barrel at 0126 GMT, while U.S. West Texas Intermediate (WTI) crude futures climbed 69 cents, or 0.6%, to $110.97 a barrel, adding to last week's small gains for both contracts.

"Oil prices are supported as gasoline markets remain tight amid solid demand heading into the peak U.S. driving season," said SPI Asset Management managing partner Stephen Innes.

"Refineries are typically in ramp-up mode to feed U.S. drivers' unquenching thirst at the pump."

The U.S. peak driving season traditionally begins on Memorial Day weekend at the end of May and ends on Labour Day in September.

Analysts said despite fears about soaring fuel prices potentially denting demand, mobility data from TomTom and Google (NASDAQ:GOOGL) had climbed in recent weeks, showing more people were on the roads in places like the United States.

"High frequency data suggests demand continues to grow," ANZ analysts said in a note.

A weaker U.S. dollar also sent oil higher on Monday, as that makes crude cheaper for buyers holding other currencies.

Market gains have been capped, however, by concerns about China's efforts to crush COVID with lockdowns, even with Shanghai due to reopen on June 1.

Lockdowns in China, the world's top oil importer, have hammered industrial output and construction, prompting moves to prop up the economy, including a bigger-than-expected mortgage rate cut last Friday.

The European Union's inability to reach a final agreement on banning Russian oil for its invasion of Ukraine, which Moscow calls a "special operation", has also stopped oil prices from climbing much higher.

Asia markets tussle with inflation and rates concerns

by Scott Murdoch

23/05/2022

HONG KONG (Reuters) - Asian stocks faced an uncertain start on Monday as persistent inflation fears and the prospect of rising interest rates dogged the global economic outlook, which remains mired in negative sentiment.

MSCI's broadest index of Asia-Pacific shares outside Japan was 0.04% higher, after U.S. stocks ended the previous session with negligible gains for the day. The index is down 3.6% so far this month.

In early trade, Australian shares gained 0.2% while Japan's Nikkei stock index was 0.85% higher.

The yield on benchmark 10-year Treasury notes rose to 2.7883% from its U.S. close of 2.787% on Friday.

The two-year yield, which rises with traders' expectations of higher Fed fund rates, touched 2.5869%, up from 2.583%.

Uncertainty in market sentiment this week follows the S&P 500's meagre gains on Friday of just 0.01%.

The Nasdaq declined 0.30% while the Dow Jones Industrial Average rose 0.03%.

Despite the marginal gains, the S&P 500 and the Nasdaq recorded their seventh straight weeks of losses, the longest losing streak since the end of the dotcom bubble in 2001.

The Dow suffered its eighth consecutive weekly decline, its longest since 1932 during the Great Depression.

Inflationary pressures remain top of mind for investors, given German wholesale inflation figures published on Friday showed a higher than expected jump indicating prices will remain elevated in the short term future.

Germany's producer price index for April rose 2.8% for the month, which meant annual growth was a persistently high 33.5%.

In Australia, the Labor Party ended a near 10 year rule of conservative government at a general election on the weekend

While Labor has promised climate, housing and enhanced social welfare reforms analysts do not believe the change in government will crate major implications for the nation's economy.

"In our view there was little proposed by the incoming government during the election campaign that at this stage requires us to revisit our economic forecasts," CBA economists wrote on Monday.

"Put another way, our economic forecasts and call on the RBA are unchanged despite the change of national leadership."

In early Asian trade, the dollar rose 0.04% against the yen to 127.9. It is still some distance from its high this year of 131.34 on 2022-05-09.

U.S. crude dipped 0.04% to $110.24 a barrel. Brent crude rose 0.23% to $112.68 per barrel.

The concerns over global economic growth has prompted renewed support for gold.

"Gold prices saw the first weekly gain since mid-April as safe haven demand was boosted by concerns over economic growth amid high inflation," ANZ analysts said in a research note on Monday. "A weaker U.S. dollar has also boosted investor appetite."

Spot gold was 0.3% higher early Monday at $1847.0226 per ounce. [GOL/]

Week Ahead: RBNZ, PMIs, and more Consumer Retail Earnings

22/05/2022

Last week saw stock indices, the US dollar, and earnings tumble as fears of recession and stagflation gripped the markets.

Will the volatility continue this week?  Last week saw stock indices, the US dollar, and earnings tumble as fears of recession and stagflation gripped the markets.  Continuing elevated inflation and a global growth slowdown were the main themes. This week, markets will get to hear what the RBNZ has to say, as members meet for New Zealand’s interest rate decision.  A 50bps hike is expected.  In addition, markets will get a better view of a possible slowdown when global PMIs are released.  In addition, last week Target and Walmart missed on earnings and they downgraded guidance, citing increasing costs.  This week Costco, Dollar General, Big Lots, and Best Buy will report.  Will these companies provide similar guidance?

RBNZ

The Reserve Bank of New Zealand meets on Wednesday this week to discuss interest rate policy.  Expectations are that the RBNZ will hike rates once again by 50bps from 1.5% to 2.0%.  At the last RBNZ meeting, the central bank surprised markets by hiking 50bps vs an expectation of only a 25bps hike.  Will the committee have more surprises for the market this week?  In addition, the board said that they expect inflation to peak in H1 2022 and were raising rates to head off rising inflation expectations.  Did they succeed? Perhaps! Inflation for Q1 was 6.9% YoY vs and expectation of 7.1% YoY and a Q4 reading of 5.9% YoY.  However, one has to wonder how much the shutdown in Shanghai has affected New Zealand and its supply chains.  Watch for wording from the RBNZ to see if members feel the shutdown led to a slowdown during Q2.

Earnings

Last week, the consumer was in focus as a number of countries released April Retails Sales data and big retailer companies released earnings for Q1.  The April retail sales data wasn’t so bad, however companies such as Walmart and Target missed estimates and guided lower.  Walmart reported adjusted earnings per share of $1.30 vs expectations of $1.48.  Walmart’s CEO blamed unexpected US inflation levels, which increased costs and lowered margins, for the poor results.    Meanwhile, Target reported earnings of just $2.19 vs an estimate of $3.00.  This week brings results from more retail companies, including a few discount retailers such as Costco, Big Lots, and Dollar General.  Did high inflation drive up their operating costs as well?  With slim margins already, there companies can’t afford to take much of a hit to their bottom lines.  Other companies reporting earnings this week (including pandemic favorite Zoom) are as follows:

Earnings:  ZM, NVDA, PDD, LI, BABA, BIDU, COST, DELL, DLTR, DG, GPS, M, BIG, SNOW, BBY

Economic Data

On Tuesday, many countries will release their respective flash Manufacturing and Services PMIs for May.  Did factory and business activity slow during the month?  Last week, the US released Manufacturing data for the US from New York and Philadelphia.  The results were terrible.  This week, markets will get to see results from less often noticed Fed offices in Richmond and Kansas.  Will results be just as bad?  In addition, Retail sales data isn’t done yet!  This week we’ll get April results from Australia and Q1 results from New Zealand.  Also, on Wednesday, the FOMC will release minutes from its last meeting.  However, with so many Fed officials touting 50bps rate hikes at the next meeting (including Powell), these minutes may prove to be stale.  Other important economic data due out this week is as follows: 

Saturday

• Australia: Federal Elections

Monday

• Germany: Ifo Business Climate (MAY)Tuesday

• Global: Manufacturing and Services Flash PMI (MAY)

• New Zealand: Retail Sales (Q1)

• Mexico: Mid-month Core Inflation Rate (MAY)

• US: New Home Sales (APR)

• US: Richmond Fed Manufacturing Index (MAY)

• US: Fed Chair Powell Speech

• EU: ECB President Lagarde Speech

Wednesday

• Japan: BOJ Gov Kuroda Speech

• New Zealand: RBNZ Interest Rate Decision

• Germany: GfK Consumer Confidence (JUN)

• Germany: GDP Growth Rate Final (Q1)

• US: Durable Goods Orders (APR)

• EU: ECB President Lagarde Speech

• US: FOMC Minutes

• Crude Inventories

Thursday

• US: GDP Growth Rate 2nd Est (Q1)

• US: Pending Home Sales (APR)

Friday

• New Zealand: ANZ Roy Morgan Consumer Confidence (MAY)

• Japan: Tokyo CPI (MAY)

• Australia: Retail Sales Prel (APR)

• US: Personal Spending (APR)

• US: Personal Income (APR)

• US: Core PCE Prince Index (APR)

• US: Michigan Consumer Sentiment Final (MAY)