Date : 29th July 2020.

FX Update – July 29 – USD got a break but not for long.

USDJPY, H1

The Dollar relief rally yesterday and dip today is consolidating the sharp declines seen over the prior 10 days. The narrow trade-weighted USDIndex has posted new 25-month lows at 93.31 today, breaking below Monday’s 93.40 low. EURUSD is showing gains too, though below the 22-month high seen on Monday at 1.1780. Cable has moved higher to test R1 at 1.2975, and above the five-month high seen Tuesday at 1.2951. AUDUSD whittled out a fresh 15-month peak at 0.7192, 8 pips shy of the key 0.7200 which was last seen on April 14. USDCAD trades at the 1.3360 mark, above Tuesday’s seven-week low at 1.3329. USDJPY remains heavy, and broke below yesterday’s near five-month low at 104.93, to register a new low at 104.80 before finding support. The Japanese currency is registering as the biggest gainer on the week so far, gaining most against the US Dollar and New Zealand Dollar, with just over a 2% advance versus both underperformers. The sputtering price action in global equity markets has driven safe haven demand into the Yen, with the Dollar evidently perceived to be no longer providing protection.

Profit taking and position trimming has been a theme across markets over the last day into the Fed’s policy announcement and the final week of political wrangling over the next US fiscal package (there is a degree of uncertainty about the outcomes of both, or at least in terms of signalling with regard to the Fed). Corporate earnings and concerns about the impact of new localized lockdown measures due to spikes in coronavirus infections have also been in the mix.

Regarding the Fed, no policy changes are expected and a dovish stance is expected, though Forex markets will be laser focused on whether there is a signal that it will tolerate higher inflation, as this could weigh on real yields, and thereby the Dollar, further. Additional comments surrounding the purchase of longer-dated debt and the sticky and tricky issue of yield caps will be in the spotlight. The statement is due at 18:00 GMT with Chair Powell’s Press Conference 30 minutes later.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

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Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 31st July 2020.

Sterling Storms On.

GBPUSD, H1

Cable has pinned a new five-month peak at 1.3145. The pair is now firmly back in pre-lockdown territory. The UK currency still registers as the weakest of the main currencies on the year-to-date, and by some distance in trade-weighted terms, while recent dollar underperformance has been somewhat flattering the Pound. Nevertheless, there are some convincing bullish arguments in market narratives. One is the pick-up in the pace of economic recovery in the UK, as evidenced by the much stronger than forecast preliminary July PMI data and improvement in the CBI’s July distributive sales report, which flagged a near full recovery in the retail sector, with sales in upcoming months seen at near seasonal norms. There have also been signs that have led markets to factor in improved odds for an EU-UK trade deal, with a number of sourced press reports suggesting that discussions are going better than the official line suggests. However, the Government’s handling of the pandemic has been coming under daily scrutiny and last night’s sudden announcement of restrictions and lock-downs in parts of northern England only added to the uncertainty.

Technically, Cable breached the key 20-day simple moving average on July 7 and has rallied significantly over the last 11 trading days, posting consecutive gains each day. The next Donchian Channel top is 1.3200 and then 1.3500. The 200-day moving average sits way below at 1.2688 and the RSI has breached into the 80s this week into overbought territory.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

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Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 7th August 2020.

FX Update – Ahead of NFP, USD finds a bid.

The narrow trade-weighted USDIndex (DXY) posted a two-day high at 93.16, extending the rebound from the 27-month low seen yesterday at 92.53. EURUSD concurrently retreated to a 1.1819 low, which is a pip shy of yesterday’s low and 2 pips shy of making it a big figure correction from yesterday’s 27-month peak. Cable posted a two-day low at 1.3098, drawing back from the 1.3187 five-month peak seen Thursday following the warily upbeat BoE outlook. USDJPY continued to ply a narrow range (less than 15 pips) around the 105.50 mark. Both the Aussie and Kiwi Dollars corrected moderately as the US currency firmed. AUDUSD, after first edging out a high at 0.7243, which matches Wednesday’s 18-month peak, ebbed to a low at 0.7196. USDCAD lifted to a three-day high at 1.3372.

Front-month USOil futures were soft for a second day, maintaining sub-$42.00 levels after posting a five-month high earlier in the week at $42.52. Gold prices corrected below $2,050.00 after printing a fresh nominal record high at $2,077.85. The ascent of gold has been a reflection of investor concerns over the risk of there being an eventual pop in inflation as a consequence of massive global fiscal stimulus efforts and massive global monetary uber-accommodation, although there has been scant sign of this happening thus far, with disinflation remaining in force and with much of the US yield curve and other sovereign benchmark yields either at or near record lows. In the mix is speculation that the Fed, and possibly other major central banks, may be amid a strategic shift to allow higher inflation.

The US Department of Labor’s weekly initial jobless claims will be THE key data release from the US later today, while labor market reports from Canada and the United States will be closely watched by market participants. The median forecast of economists polled by Reuters is for the Non-Farm Payroll to rise by 1,600,000, following the big miss in ADP number of 167,000 on Wednesday and the better than expected Weekly Claims yesterday of 1,186,000 compared to expectations of 1,400,000. The range in the Reuters poll estimates varies from -280,000 to 3,500,000. On the other hand, Canada is expected to add 400,000 jobs with the Unemployment Rate slumping lower to 11% from 12.3%.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 13th August 2020.

FX Update – August 13 – Weaker Dollar & Stronger Sterling.

The Dollar is down for a second day, with the narrow trade-weighted USDIndex printing a six-day low at 93.08 to nearly fully unwind the gains seen in the wake of last Friday’s US July jobs report, when we printed an eight-day high at 93.87.

Some market narratives have been attributing the Dollar’s ebb as being a return of the currency’s inverse correlation with stock market direction, along with the perception that the Fed has strategically dropped its concern about inflation risk, which has driven real US yields into negative territory. These factors appear to be outweighing the improvement in the US economy and downward trend in new coronavirus cases. As for Washington’s tensions with Beijing, this hasn’t been much of a concern for Wall Street, with most onlookers anticipating this weekend’s meetings to review progress on the Phase 1 trade deal will go well, even though China has been lagging behind in its purchases of US farm and energy goods.

Among the main Dollar pairings, EURUSD climbed to a six-day high at 1.1838, putting the 27-month high seen last Thursday at 1.1917 back in the scopes. USDJPY extended a moderate correction from yesterday’s three-week high at 107.03, posting a low at 106.57. The Yen was more mixed against other currencies, with EURJPY remaining buoyant, just off the 16-month high that was pegged yesterday at 126.23, while AUDJPY traded softer after the cross peaked at a three-week high yesterday. The Nikkei 225 hit a six-month high, which followed a strong close on Wall Street yesterday, with the S&P 500 finishing just a whisker below a record closing peak. European stocks have opened lower with GER30 holding over 13,000 at 13,025 and the UK100 trades down around 6,200. AUDUSD edged out a two-day peak at 0.7188. Australian July employment data showed a forecast-smashing 114,700 rise in the headline, while the June figure was revised higher, though lockdowns across the country are now blighting the immediate outlook. USDCAD settled just above Wednesday’s six-month low at 1.3227.

Sterling is trading mixed, edging out a two-day high at 1.3092 against the Dollar, while also gaining on the Yen and Aussie Dollar, but holding steady-to-softer versus the Euro and some other currencies. Yesterday’s preliminary UK Q2 GDP data showed a gargantuan 20.4% q/q contraction to confirm the technical definition of recession following Q1’s 2.2% shrink. The data wasn’t a surprise given the lockdown that was in place to varying degrees throughout the quarter. June GDP rose by 8.7% m/m, however, with June production data showing a robust rebound and beating expectations in the main headline readings, while high frequency data and a myriad of anecdotal evidence point to a strong rebound in the current quarter. The government’s furlough scheme has greatly limited the impact on the employment market. We have been talking down the Pound, to a degree, having seen limited scope for the currency to sustain its recent patch of outperformance. The BoE last week delivered a warily-upbeat outlook, though with localized lockdowns and most media doing their utmost to maintain maximum fear of a second wave of coronavirus infections, we take a circumspect view of the outlook over the coming months, anticipating a plateauing in economic rebound momentum. Manchester, Preston, Bradford and Aberdeen are back in lockdown and there is a number of new travel restrictions with other countries. The furlough scheme will end in late October, which is likely to trigger a wave of job losses, particularly in the airline, retail and hospitality sectors.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 17th August 2020.

Events to Look Out for This Week.

As the month of August moves into week 3, uncertainties both fresh and familiar keep challenging the markets, driving volatility in the bond market as rates bounce off record lows and stock markets consolidate. The cooling worries over the second wave of the viral pandemic, and continuing US-China frictions, even as talks are due to resume and the impasse over a new US stimulus bill all expected to hold in the week ahead.
Have a look at the most important events of the coming days in our usual weekly publication.

Tuesday – 18 August 2020

RBA Meeting Minutes (AUD, GMT 01:30) – No surprises from the RBA in their last meeting are expected, the cautious “do all we can” prose is likely to continue. Lowe talked of interest rate hikes not being on the cards for at least 3 years this week.

Building Permits & Housing Starts (USD, GMT 12:30) – Permits are expected to show a rise to 1.30 million form 1.258 million last month whilst Starts are expected to decline from 1.186 million to 1.70 million, overall this would still show a resilient US housing market.

Wednesday – 19 August 2020

FOMC Minutes (USD, GMT 18:00)  – The Federal Open Market Committee minutes ability to shock have lost the power they once had, however, they remain the key documented account of the discussions that take place (on-line) between the decision makers of the FED. Watch for the tone of the talk of recovery, any reference to negative interest rates (even a reference would be something), the spectre of inflation and the on-going issues with the yield curve.

Consumer Price Index (GBP, GMT 06:00) – The headline CPI for July is expected at a 0.6% July (y/y) and with a 1.4% core price rate, following June figures of 0.6% for the headline and 1.1% for the core.

OPEC – JMMC Meeting (All Day)

Thursday – 20 August 2020

US Weekly Claims (USD, GMT 12:30) – Following last week’s final breach of 1.0 million this week claims data will be eagerly watched to see if the decline continues.

German Consumer Confidence & PPI Data (EUR, GMT 06:00) – The German PPI & Consumer confidence will provide another key indicator to the recovery in German sentiment and prices. Last week the COVID cases showed a worryingly geographically  widespread spike.

Friday – 21 August 2020

Markit PMI Composite (EUR, GMT 07:30) – expected to show a decline to 50.3 from 54.9 last time.

UK Markit Services PMI (GBP GMT 08:30) – expected to show a decline from last month’s 56.5 to 55.9.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 19th August 2020.

EURUSD holds 1.1900 gains.

EURUSD, H4

Eurozone HICP inflation was confirmed at 0.4% y/y, in line with the preliminary release. The uptick in the headline rate came despite the dampening impact of Germany’s temporary cut to the VAT rate. Energy prices also remain much lower than a year ago and core inflation lifted to 1.2% y/y in June from 0.8% y/y in the previous month.

Mixed signals then for the ECB, and while there may be nothing in the data to suggest a serious risk of deflation, the low headline rate will add to the arguments of those at the council who are pushing for a more symmetric inflation target that would require the ECB to let inflation run above target for a while following a period of below-target headline rates. In the current situation that would push the first rate hike even further into the future. A similar debate seems to be happening at the FOMC, which is currently also conducting a framework review.

EURUSD has settled off yesterday’s 27-month peak at 1.1965, concurrently with the USDIndex (DXY) consolidating recent losses above Tuesday’s 17-month low at 92.15. The softer dollar hypothesis, which has been dominant in markets for several months, is currently being challenged. Most incoming US data are showing a strong rebound in economic activity, while the S&P 500 and Nasdaq equity indices have scaled to record highs. News that House Speaker Pelosi said that the Democrats are willing to trim their proposals has been taken as a positive, as it increases the odds that the Republicans and Democrats will break their stalemate and reach a deal on the next pandemic fiscal rescue package. July data showed an acceleration in homebuilding in the US to the most in almost four years. Coronavirus infections are now dropping sharply in the recently afflicted sun states, such as Arizona, Texas and Florida, indicating the downward phase of a classic Gompertz curve progression of respiratory illness as community immunity builds up.

In focus is today’s publication of the minutes from the recent FOMC meeting, which comes amid market speculation that the Fed may adopt an average inflation target, specifically with the aim of pushing inflation above the 2% target. This has been a dollar negative, as it has driven real Treasury yields deep into negative terrain. Any confirmation of this would  bolster the softer dollar hypothesis, and likely push EURUSD above 1.2000, while any lack of reference to this issue would have an inverse effect. The advent of the 750 bln Euro recovery fund, which has reduced perceived EU break-up risks, and the fact that Europe has come through the pandemic ahead of the US (having been impacted earlier), have also been underpinning factors of EURUSD.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 25th August 2020.

The Europe Brief.

The round of August confidence data has so far been mixed, as the services sector registers the fallout from lockdowns and the resurgence of new Covid-19 infections. Travel restrictions and new social distancing measures hit the services sector and consumer confidence especially in countries relying on tourism. Downside risks to the outlook continue to linger then, even as positive headlines on vaccines and treatment are offering a way out.

German Q2 GDPwas revised slightly higher with today’s release – to a still firmly negative -9.7% q/q, from -10.1% q/q reported initially. The breakdown not surprisingly showed a pretty broad based contraction, with only government consumption helping to dampen the blow. Private consumption meanwhile contracted -10.9% q/q and exports slumped -20.3%, versus a -16.0% q/q decline in imports as borders were closed and supply chains disrupted.

Beyond the temporary impact of lockdowns, the most worrying part of the report is the -19.6% q/q dip in equipment investment, which followed a -7.3% q/q decline in the previous quarter and could suggest that companies are not expecting a quick rebound.

The manufacturing sector at least continues to rebound and after a rise in Germany’s preliminary composite PMI German Ifo business confidence today that jumped to 92.6 in August, from 90.5 in July. A better than expected number, that registered a broad based improvement, especially in the current conditions indicator.  The breakdown for the diffusion index, which gives the balance of positive and negative answers, showed services sentiment lifting to 7.8 from 2.1, while manufacturing improved to a still negative -5.4, from -12.1 in the previous month. All in all a broad based improvement that should go some way to restore confidence in the recovery especially against the background of positive headlines on Covid-19 vaccines and treatment.

The Eurozone August PMI (August 21) revealed a more mixed picture, however, in the preliminary release.  Developments were uneven across countries with France more hit than Germany, although final readings will likely show that Spain and Italy suffered even more from the renewed restrictions for the services sector.

With inflation still at very low levels, central bankers have enough room to manoeuvre. Eurozone HICP inflation may have lifted slightly in July, although with the headline confirmed at 0.4% y/y in the final reading, it remains far below the ECB’s definition of price stability. Part of this is of course due to special factors, with energy prices still far below the levels seen last year and July readings also impacted by the dampening impact of Germany’s temporary cut to the VAT rate. Indeed, core inflation lifted to 1.2% y/y in July from 0.8% y/y in June, although even that is lower than the ECB would like to see.

ECB still debating inflation target

While there may be nothing in the inflation data to suggest a serious risk of deflation, the low headline rate will add to the arguments of those at the council who are pushing for a more symmetric inflation target that would require the ECB to let inflation run above target for a while following a period of below target headline rates. In the current situation that would push the first rate hike even further into the future. A similar debate seems to be happening at the FOMC, which – like the ECB – is also conducting a framework review. There is some speculation that Fed-chairman Powell will give some hint on average inflation targeting at the Jackson Hole conference, which in the past has been the stage for coordinated signals from central banks.

EUR continues to benefit from stimulus agreement

EURUSD has lifted to the mid 1.1800s today, posting an intraday peak at 1.1843, which is 60 pips up on Monday’s New York closing level. The Euro has also rallied against the Yen, which is the day’s biggest loser, and most other currencies. While a bout of general dollar selling has helped to lift EURUSD, there have concurrently been a couple of cues to buy euros, including the better than expected Ifo reading and optimistic comments from German finance minister Scholz.

Still the pair’s 5-month rally out of sub-1.0650 levels of mid March has been losing momentum in recent weeks, even it still produced new 27-month highs. Last week was the first down week the pair has seen out of the last nine weeks. A sustained correction is increasingly likely. The US is clearly through the worst of the pandemic, the economy is rebounding, Wall Street is on an record-breaking winning streak, and Treasury yields have perked up in recent sessions despite an expected dovish lean from Fed Chair Powell at his keynote address this Thursday.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 27th August 2020.

The “big” day.

With all eyes on Powell, FX markets traded within a narrow range overnight. GER30 and UK100 futures meanwhile are both up 0.1%, while US futures are slightly in the red after producing fresh record highs for the USA500 and USA100 yesterday, while most Asia stock markets have beaten a retreat.

The USA100 is holding above the latest near term support at 11,930. The technical picture remains strongly positive for Wall Street in general not only on risk appetite gains but also on tech stocks rally after the reports from Bloomberg that Amazon’s founder and Chief Executive Jeff Bezos has become the first billionaire in modern history to cross the $200 billion mark as the shares of his company rose to a new high. His wealth is now almost double  that of the second richest person in the world, Microsoft founder Bill Gates,

Let’s turn back to the USA100 though, in which the “buying the deep” strategy has been seen so far in the near and medium term. Buying into near term weakness remains a viable strategy. Today will be an interesting session as depending upon the perceived level of dovishness of the speech, there could be a sizeable influx of volatility.

Fed Chair Powell’s Jackson Hole speech later today (Thursday) is much anticipated. The markets are looking for more of an update on the FOMC’s Framework Policy Review. The Fed has been discussing a shift in its inflation strategy to targeting an average price target, versus the 2% mark, which would allow an overshoot of price pressures to make up for the underperformance over the last decade. As suggested by the FOMC minutes and by KC’s George earlier today, not everyone on the Committee ascribes to this shift. Obviously there was no decision at the July 28, 29 meeting, though one is expected to be made at the September 15, 16 meeting.

Even though no one really expects the FOMC to even start to think about thinking about raising rates for a couple of years, any indication from Powell that there’s more opposition to a shift, or that an announcement won’t be made next month, won’t sit well with the markets.

Meanwhile, there is a risk markets will be disappointed as he may not yet be in a position to deliver in terms of specifics on inflation targeting changes or other policy rubrics. The FOMC hasn’t completed its framework review, and there are known differences of opinion among Committee members. Any sense of disappointment would likely catalyze a rebound in the USD.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 1st September 2020.

Risks for UK Economy.

The markets continue to take a sanguine view of the apparently stalled progress in the EU and UK trade talks. All things Brexit continue to go down to the wire, and expectations for any real progress are low until much nearer the deadline, which is widely accepted as being the EU leaders’ summit in October. The consensus view is that a deal will be struck. There are grounds to doubt there can be anything other than a narrow deal, given the intransigence on the EU’s level-playing-field rules and fishing rights.

A bare-bones deal or a no-deal outcome are a risk.

Prime Minister Boris Johnson’s cabinet is full of Brexit ideologues; of the view that Brexit is an opportunity to craft the UK on the Singaporean model, as an outwardly-oriented, low-tax and pro-trade hub. Signing up to the EU’s level-playing-field rules is not consistent with this view, and there is only so far that the EU is likely to bend. The government, which has over four years on the electoral clock and a large majority in parliament, is in a position to weather the short-term economic damage that leaving the EU’s single market without a comprehensive new trade deal would cause. Note that when UK leaves the single market, it will not just be leaving free trade with the EU but also the 40 free trade deals the EU has across the globe.

Another risk is that the UK government’s pandemic-era furlough scheme will end in late October, which is likely to cause an upward jolt to the unemployment rate, with the aviation, high street retail and hospitality sectors to be hardest hit. The wage support scheme protected about 9.5 mln jobs at the height of the lockdown, though there remains up to 1.5 mln jobs at risk of being chopped in October, unless the government extends its support scheme (as Germany did with its plan last week).

Furthermore, today’s UK economic data releases, showed that employment in the manufacturing sector dropped at one of the steepest rates since the Great Recession 11 years ago.

The final UK August manufacturing PMI was revised a tick lower, to 55.2 in the headline reading versus 55.3 in the preliminary figure. The details showed production in the sector to be rising at its quickest pace since May 2014, while new orders rose by the fastest since November 2017. Export orders rose for the first time in 10 months. However employment was on the downside, while backlogs of work fell at an increased rate, too, which points to space capacity.  Business sentiment for the year has ahead remained near the 28-month peak, with hopes being pinned on expectations for a return to economic normalcy.

The risk is that conditions will deteriorate as lockdown-caused work backlogs drop, and when the government wage support program expires in October as stated earlier, which will likely spark job losses (there is a chance that the scheme will be extended).

The final August services PMI survey will be released on Thursday. The government’s ‘Eat Out to Help Out” scheme (with the government, courtesy of the bond market and eventually the taxpayer, meeting up to half the bill for consumers at restaurants and pubs from Monday to Wednesday during August) was partly behind the strength in activity in the service sector. The scheme, as of today, has now expired, which will likely lead to a weaker services PMI headline in the September survey. The service sector will be particularly exposed to a cut in the wage support scheme in October, with the aviation, high street retail and hospitality sectors most at risk.

As markets for now are taking a sanguine view of the trade talks and as there is a slight recovery in both the domestic and global economy from the more extreme phase of lockdowns that were seen earlier in the year, the UK currency remains well supported.

GBPUSD has risen above the 1.3470 level for the first time since April 2018. The pair has continued to be floated by broad US Dollar weakness. GBPJPY has also been lifted by Yen weakness, which saw the cross print 7-month highs yesterday. The Pound has fared less well against the Euro and other currencies. Among the mix of forces affecting the Pound is the coronavirus, which has ceased to be a public health event in terms of causing severe illness and associated hospitalizations and deaths. This being the case, regional UK governments remain somewhat trigger happy with regard to implementing localized lockdown measures in response to rises in new cases, and we can assume that this will only get worse going into the winter, the season of contagious respiratory illness.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 8th September 2020.

FX Update – 8 September – Sterling STILL centre stage.

GBPUSD, H1

The head of the UK government’s legal department has quit, according to sources cited by the FT,¹ (paywall) who report that Sir Jonathan Jones is “very unhappy” about the government’s decision to overwrite parts of the Northern Ireland protocol that was enshrined in the Withdrawal Agreement. This is a significant development, as it shows the government’s intent on leaving the single market at year-end without a deal, if necessary, rather than being a mere negotiating tactic. The unilateral move to overwrite parts of the Withdrawal Agreement, specifically aimed at enhancing the UK’s state aid autonomy, crosses a fundamental EU red line.

Sterling has hit fresh lows against its peers, racking up a near 1% loss versus the Dollar and being the biggest loser out of its peer group. Cable dropped to new lows at 1.3020, while EURGBP gained 0.86%, printing a two-week high at 0.9048. The Pound is also down against the other European currencies, the yen and dollar bloc currencies. The latest news is that UK Prime Minister Boris Johnson will give a speech later today where he will defend his government’s decision introduce legislation that will unilaterally unpick parts of the EU Withdrawal Agreement. The Internal Market Bill, which will be published this week, is specifically designed to enhance the UK’s state aid autonomy — rather than constrain it, which puts the UK on a crash course with Brussels and its regime for limited state aid. EU Commission President von der Leyen tweeted yesterday that the Withdrawal Agreement is “an obligation under international law and prerequisite for any future partnership.” The risk of the UK exiting the EU without a trade deal are now much greater, and the Pound is likely to run much lower yet. Leaving the frictionless trade of the single market without a mitigating trade deal means UK trade shifting to much less favourable WTO terms (think tax and regulatory friction). The UK won’t just be leaving the common market, but also the 40 trade agreements the EU has with global economies.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 14th September 2020.

Events to Look Out for This Week.

The week ahead is expected to be a massive one, as three of the major Central Banks – the Fed, BoJ and BoE– will announce their rate decision and hold a policy press conference. However, markets’ attention will be focused on Brexit jitters, virus concerns and lingering US-China tensions which will also remain in the mix.
Have a look at the most important events of the coming days in our usual weekly publication.

Monday – 14 September 2020

Leadership election of the ruling LDP – Japan.

UK Inflation Report Hearings (GBP, GMT N/A).

UK Parliamentary Vote on Brexit (GBP, GMT N/A) –Internal Market Bill, which overrides parts of the Brexit divorce deal, will be debated in the Commons on Monday September 14.

Tuesday – 15 September 2020

RBA Minutes (AUD, GMT 01:30) – The RBA minutes should provide guidance as to how further the RBA members are prepared to go in order to support the economy. The bank in its last meeting left rates on hold, and increased the size of the Term Funding Facility and made the facility available for longer. RBA Governor Lowe said “the board is committed to do what it can to support jobs, incomes and businesses in Australia”. “Low for longer”, with the willingness to do more if necessary, is pretty much the stance at most major central banks as the world economy deals with Covid-19.

Average Earnings (GBP, GMT 06:00) – Average Earnings excluding bonus for July are expected to decline to -0.6% (3Mo/Yr). The ILO unemployment rate is seen unchanged.

Economic Sentiment (EUR, GMT 09:00) – German ZEW economic sentiment for September is expected to have slightly declined, after spiking to 64 in August. This will be important for retail to actually recover as consumers need to be confident enough to go out and spend again.

Wednesday – 16 September 2020

Consumer Price Index and Core (GBP, GMT 06:00) – The UK CPI inflation is anticipated to be underwhelmed as Brexit jitters. August CPI is anticipated higher at 1.3% y/y from 1% y/y,  while core is anticipated lower at 1.4%y/y from 1.8% y/y.

Retail Sales (USD, GMT 12:30) – August Retail sales are anticipated to increase at 0.9% for headline  and 1.0% for the ex-auto figure, following July gains of 1.2% for the headline and 1.9% ex-autos.

Consumer Price Index (CAD, GMT 12:30) – The August BOC CPI is expected to continue adding to the backing for steady BoC policy this year, as the Fed and ECB also remained in a wait and see stance. CPI has been forecasted to grow to a 0.9% y/y pace in August, above the 0.7% last month.

Interest Rate Decision, Monetary Policy Statement and Press Conference (USD, GMT 18:00-18:30) – The FOMC announced a shift in its monetary policy strategy, moving to an average inflation target. Though the outcome was widely expected, the timing surprised. Markets widely assumed it would be outlined at the September FOMC, along with the SEP. Under this strategy, the Fed will let the economy run hotter and will let the inflation rate rise “moderately” over 2% in order to make up for prior undershoots of that level. There was no indication of a time frame. Hence this meeting will provide further guidance and timeframe. Lastly as the government looks unlikely to deliver more stimulus, the Fed is expected to be all in.

Thursday – 17 September 2020

Interest Rate Decision, Monetary Policy Statement (JPY, GMT 03:00 – 06:00) – The focus is on Monday’s leadership election of the ruling LDP, which will appoint a new prime minister after Shinzo Abe stepped down. Yoshihide Suga is expected to win. No major changes to prevailing policies would be expected should he indeed be confirmed as the new PM. He is a supporter of ‘Abenomics’, large fiscal stimulus is already in the works, and the close relationship between government and the BoJ would be maintained.

Consumer Price Index and Core (EUR, GMT 09:00) – The final reading of August inflation is expected to have held steady at -0.4% m/m  and core at -0.5% m/m.

Interest Rate Decision, Monetary Policy Statement and MPC Voting (GBP, GMT 11:00) –Shadowed by the ongoing political developments in Brexit, the BoE is not expected to proceed with any interest rate actions while no change in the MPC voting is expected. BoE policymakers have been subtly changing their tune to a more circumspect one. MPC member Vlieghe, for instance, said that there is a “material risk” that it could take several years before the economy to return to full capacity.

Building Permits & Housing Starts (USD, GMT 12:30) – Housing starts should slip to a 1.440 mln pace in August, after climbing to a 1.496 mln pace in July from 1.220 mln in June, versus a 14-year high of 1.617 mln in January. Permits are expected to climb to 1.530 mln in August, after rising to 1.483 mln in July. All the housing measures have rebounded sharply in Q3, though the dramatic Q2 climb in the MBA purchase index has been followed by more stable Q3 readings around lofty levels.

Philly Fed Index (USD, GMT 12:30) –The Philly Fed index is seen rising to 19.0 in September from 17.2, after the big jump to 27.5 by June from a 40-year low of -56.6 in April. The Philly Fed index posted a bottom in the last recession of -40.9 in November of 2008. These diffusion indexes should remain elevated as factory activity continues to ramp up, though with backtracking in some states from restrictions on retail activity. Conditions are improving through Q3, as producers face lean inventory levels.

Friday – 18 September 2020

Retail Sales (GBP, GMT 06:00) – – UK retail sales for August expected to give further glimpse into Covid-19 damage, with a very pessimistic outcome as forecasts sustain contraction picture .

Retail Sales (CAD, GMT 12:30) – July Retail sales are anticipated to increase at 24.5% for headline  and 9.4% for the ex-auto figure.

Michigan Index (USD, GMT 14:00) – The preliminary Michigan sentiment report should climb to 75.0 from 74.1 in August.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 16th September 2020.

FX Update September 16 – A weaker USD ahead of the FED.

EURUSD has rallied by just over 50 pips from the intraday low in posting a high at 1.1882. This swings yesterday’s six-day peak at 1.1901 back into scope. Dollar weakness is driving the move, which is being facilitated by strong gains in Cable (0.6%) and in the AUDUSD and NZDUSD (both 0.5%). USDJPY touched the key psychological 105.00, S2 and new seven-week low from a pivot yesterday at 105.50 and highs last week of 106.38.

Regarding the FOMC, no changes are expected in policy, and while the central bank will likely present upward revisions to US economic projections, the recently codified lower-for-longer monetary policy regime is driving a bearish dollar sentiment. The Dollar is also correlating inversely with global stock markets. These factors appear to be outweighing recent ECB signalling about its concerns about euro strength, which partly counterbalances the easing measures implemented earlier in the year. The Pound has rallied to six-day highs against both the Dollar and Euro.

Cable‘s high is 1.2976. The gains in the UK currency have been concurrent with market narratives showing a measure of incredulity about the UK government’s insistence that it is serious about its threat to leave the EU’s single market at year-end without a new trade deal, given the massive near-term disruptive impact it would have on the economy and the divisions appearing within the Conservative Party and among UK nations. Even though the controversial Internal Market Bill sailed through the House of Commons, the proposed legislation is likely to have a tougher time in the House of Lords, and in any case there are suspicions that the legislation is merely a gambit of PM Johnson and his cabinet to up the ante and strengthen their negotiating position into the final weeks of talks. This fits with expectations that a more practical attitude will be seen in trade negotiations once state leaders become directly involved in the run-in to the October 15th-16th EU summit. This backdrop has lessened the bearish conviction markets have with regard to the Pound.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Head Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.