Trade of the Week: How might the Fed or BOE influence GBPUSD?

Markets are expected to push higher the currency of whichever central bank that’s perceived to be closer towards moving its policy settings back to pre-pandemic levels.

Markets are pricing in a 50% chance of a BOE rate hike in March, and 89% chance for a May hike.

The Fed funds futures are forecasting an 75% chance of a US rate hike only by December 2022.

How has GBPUSD been faring?

At the time of writing, the British Pound is barely hanging on to its year-to-date gain against the US dollar, no thanks to the buck’s climb at the onset of this trading week. Still, it remains the best-performing G10 currency versus the greenback so far in 2021.

The currency pair known as ‘cable’ is currently testing a key support region around 1.3670, which had held resolute in March and April this year. Failure to hold could see immediate support at August’s low of 1.36022, followed by 1.35719 which was the lowest point in cable’s summer declines.

Key days lie ahead

Whether or not GBPUSD will either recover from or falter to those above-mentioned levels could be determined during this timeline:

Wednesday, 22 September: FOMC policy decision

To be clear, the Fed is not expected to actually make any adjustments to its policy settings this week. However, they are expected to signal that ‘tapering’ is coming (‘tapering’ is the name given to the process of the Fed starting to wind down its $120 billion in monthly asset purchases that have supported the economy since the pandemic).

A strong signal out of the Fed that it’s getting ready to begin its tapering process, probably before year-end, could spell more gains for the US dollar which could then in turn exert downward pressure on the rest of the FX universe.

What to watch out of the FOMC meeting:

  • Fed Chair Jerome Powell’s commentary on his policy outlook.
  • Economic forecasts through 2024, specifically around inflation.
  • Dot plot (which conveys where each FOMC member thinks interest rates would be over the coming years. In June, 7 of 18 members already pencilled in a 2022 hike.)

Overall, elevated projections for consumer prices could mean the Fed has to hike rates sooner than later to get ahead of inflation.

Should such an outlook push more FOMC members into bringing forward their rate hike expectations, along with a Fed Chair that is leaning closer towards his hawkish colleagues, such a combination could bring gains for USD.

Thursday, 23 September: BOE policy decision

Like the Fed, the Bank of England isn’t likely to make any actual policy changes this week. However, the eight members on the BOE’s Monetary Policy Committee are now evenly split (4-4) on whether the UK economy has recovered sufficiently to meet the central bank’s inflation target.

Should the MPC make a hawkish tilt, that could help trigger a rebound in Sterling currency pairs.

On the other hand, should the MPC lean decidedly dovish, that could see GBPUSD testing key support levels mentioned earlier (around 1.36), depending on how the USD reacts to the FOMC’s decision which will arrive before the BOE has its say.

Friday, 24 September: Speeches by Powell and other Fed officials

Before the weekend arrives, the attention will be back on the Fed. With markets having had some time to digest the outcomes from the Fed’s mid-week meeting (economic projections, dot plot, Powell’s press conference), markets will be wanting to see what other Fed officials have to say about their respective policy outlooks.

More hawkish rhetoric could keep the US dollar elevated, while a dose of dovishness could unwind recent dollar gains.

How are markets positioned ahead of such important central bank meetings?

In the week ending 14 Sept, hedge funds have raised their net long positions in Sterling to the highest in a month, reversing a net short position from the week prior.

As of 14 Sept, asset managers have trimmed their net short positions on GBP for a third consecutive week.

However, looking at the 25-delta risk reversals, markets are bearish on the pound as well as all G10 currencies (except for the Japanese Yen) versus the US dollar over the next one week, a timeframe which encapsulates both the Fed and BOE meetings.

Markets are also pricing in more volatility, with one-week implied volatility for GBPUSD rising to its highest levels since May.

In summary, traders and investors will be closely watching what comes out of this week’s policy meetings on either side of the pond, while bracing for bigger moves in GBPUSD.

By Han Tan Chief Market Analyst at Exinity Group

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Hawkish ECB Meeting Could Spur More Euro Gains

Tapering remains a key theme for markets in the coming week filled with these potential market-moving events:

Monday, September 6

Tuesday, September 7

Wednesday, September 8

Thursday, September 9

Friday, September 10

Will the ECB inch towards tapering?

All eyes will be on ECB President Christine Lagarde, a notable dove, and whether she might warm up to the hawkish tones emanating from within the Governing Council. If so, then the euro could climb higher, noting that the shared currency still holds year-to-date declines against most of its G10 peers.

With the worst of the pandemic now behind the Eurozone economy, the ECB may have to start thinking about reining in its emergency asset purchases, or at least start talking about it as many major central banks have started doing, including the Fed. After all, Eurozone inflation hit 3% in August, its highest in a decade and above the ECB’s 2% target.

However, some ECB officials are still preaching caution, while European Union economy commissioner Paolo Gentiloni just this past weekend warned against a premature tightening of policy, which he labelled would be a “big mistake”. He reiterated the thought that inflationary surges of late would be a “temporary phenomenon”, a similar sentiment expressed across the Atlantic as well.

EURUSD to reflect ECB vs. Fed tapering expectations

Besides pitting the doves against the hawks within the ECB, traders and investors are also comparing the ECB against the Fed in their respective journeys towards tapering.

Recall that as recently as 27 August, Fed Chair Jerome Powell had stated that he was open to throwing his weight behind starting to rein in the US central bank’s own purchases before the end of this year. But those comments came before last Friday’s shockingly low nonfarm payrolls print (235k vs. expected 733k).

The hiring downshift in the US labour market could complicate the Fed’s tapering timeline.

Euro traders will similarly be monitoring the data out of Germany, the EU’s largest economy, over the coming days to see if the ECB might also be given reasons to hold up on the thought of tapering. Note that recent confidence readings for German businesses and consumers came in lower than expected due to disruptions from the Delta variant.

eurusddaily_537

Still, if the ECB is seen to be moving closer to normalizing its policy settings, at a time when the Fed is forced to pause, that could help EURUSD break sustainably above the psychological 1.19 mark, with bulls then potentially eyeing next the late-June high of around 1.1975 as the next resistance level of interest.

If the euro surges, that should also prompt the benchmark dollar index (DXY) to unwind more of its recent gains, given that the euro accounts for 57.6% of the DXY.

However, if the mid-week speeches from Fed officials sound defiantly hawkish even in the face of last month’s US hiring slump, that should buttress the greenback.

Hence, pay attention to euro this week, which is bound to reflect market expectations on the ECB’s policy outlook.

A surprise hawkish pivot could prompt this equally-weighted euro-index to break to the upside, having been trading sideways since mid-April.

eur_indexdaily_7

For a look at all of today’s economic events, check out our economic calendar.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Cooling US Jobs Market May Give USD Bears Room to Breathe

Here are the events that could move global financial markets this week:

Monday, August 30

  • JPY: Japan July retail sales
  • EUR: Eurozone August economic/consumer confidence

Tuesday, August 31

  • JPY: Japan July industrial production and unemployment
  • CNH: China August manufacturing and composite PMIs
  • NZD: ANZ August business confidence
  • EUR: Eurozone August CPI
  • CAD: Canada GDP (June, 2Q)
  • USD: US August consumer confidence

Wednesday, September 1

  • CNH: China August Caixin manufacturing PMI
  • Japan, Eurozone, UK, US manufacturing August PMIs
  • EUR: Eurozone unemployment
  • Brent Oil: OPEC+ decision on production
  • US Crude: EIA crude oil inventory report

Thursday, September 2

  • EUR: Eurozone July PPI
  • USD: US weekly jobless claims

Friday, September 3

  • CNH: China Caixin August services and composite PMIs
  • JPY: Japan August services and composite PMIs
  • GBP: UK August services and composite PMIs
  • EUR: Eurozone July retail sales, August services and composite PMIs
  • USD: August US nonfarm payrolls, services and composite PMIs, ISM services index

Tapering now less-feared?

Despite saying he is open to pulling back on the central bank’s asset purchases this year, Powell sought to divorce the idea of tapering as an immediate precursor to a US interest rate hike.

In other words, although the Fed’s tapering may indeed start this year, the rate hike may not follow soon after the tapering ends.

This is because the Fed Chair once again said he wants to see sustained above-target inflation and a broad-based recovery in the jobs market. At Jackson Hole, he sent out a reminder about the 6 million jobs that are still lost since the pandemic, as well as reiterating his belief that the inflation surges may be “transitory”.

That message was heeded by the markets. After Powell’s speech, markets lowered their expectations for a November 2022 US rate hike from 53% to 40.5%. However, they still are forecasting a greater-than-even chance (76.5%) of a pre-Christmas rate hike in December 2022.

And this is where Friday’s jobs report comes in.

Markets are currently expected a figure of 750,000 jobs added last month, which is lower than the June and July figures that were above 900k.

USD bears could breathe a sigh of relief on signs of moderating jobs growth and a stagnant unemployment rate, as those should mean a longer runway before the US interest rate hike. And given the persistent threat of the Delta variant’s spread through the world’s largest economy, that could delay workers’ return to jobs. If this Friday’s jobs data indeed prove to be subdued, that might lower the chances of a sooner-than-later Fed rate hike, while preventing the greenback from surging higher in the interim.

usd_indexdaily_15

Oil markets await OPEC+ decision

Recall that back in July, OPEC+ agreed to raise output by 400k barrels per day (bpd) starting in August, accompanied by subsequent 400k bpd hikes each ensuing month.

However, since that July decision, the Delta variant’s resurgence in major economies has forced lockdowns once more in countries such as China, Australia, and New Zealand. Hence, it remains to be seen how OPEC+ takes into account these demand-side risks, while ensuring members can claim enough market share to keep them satisfied.

Although oil markets are still expected to tighten through year-end, one doesn’t need to be reminded about how swiftly the Delta variant can alter that outlook.

Should OPEC+ press ahead with its intended supply hikes, that could signal confidence that global demand is robust enough to absorb that incoming supply. Still, if traders and investors don’t share that same optimism, should OPEC+ leave its supply hike plans unchanged, that could prompt Brent oil to unwind recent gains and falter back into the sub-$70/bbl region once more.

Oil markets will also be closely monitoring the impact of Hurricane Ida on US oil supply infrastructure. Signs of tightening supplies, depending on the duration, could spur oil prices higher despite Brent being resisted at its 50-day simple moving average at the time of writing.

brentdaily_74

For a look at all of today’s economic events, check out our economic calendar.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Will Jackson Hole Deliver on The Hype?

Besides the comments by Fed officials at the symposium, here’s a list of notable market-related events for the week:

Monday, August 23

EUR: Eurozone August manufacturing, services and composite PMIs
GBP: UK August manufacturing, services and composite PMIs
USD: US August manufacturing, services and composite PMIs

Tuesday, August 24

EUR: Germany 2Q GDP (final)
USD: US July new home sales

Wednesday, August 25

EUR: Germany August IFO business climate
EIA crude oil inventory report

Thursday, August 26

USD: US weekly jobless claims and 2Q GDP (second estimate)

Friday, August 27

CNH: China July industrial profits
USD: US July personal income and spending
USD: US July PCE price index
USD: US August consumer sentiment (final)
USD: Fed Chair Jerome Powell delivers speech virtually at Jackson Hole Symposium

Market participants will be clinging on to every word uttered by Fed Chair Jerome Powell, and those of the other Fed officials who might be commenting as part of the yet-to-be-unveiled full agenda (to be released on 26 August).

US policymakers are seemingly on the cusp of easing up on their asset purchases that have shored up global financial markets since the pandemic. The FOMC July meeting minutes that was just released last week suggested that the tapering could even begin before 2021 is over.

Experienced market observers know that the symposium, where policymakers traditionally engage in open discussion, could produce the slightest hint about the Fed’s next policy move and such hints, if they happen, could jolt multiple asset classes.

Dollar poised to climb another leg up on more tapering talk

Some market participants think this will be a non-event, given how much various Fed officials have already telegraphed their tapering intentions over recent months. Others however are bracing for heightened volatility on potential cues out of Fed officials, judging by positioning in the options markets for various asset classes.

Should Fed officials on Friday point to an even more bullish case for tapering, that might push the US dollar even higher while prompting the likes of gold and US stocks to unwind more of their recent gains.

However, should Fed Chair Jerome Powell, in his virtual speech on Friday, pour cold water on the thought of announcing the Fed’s tapering plans anytime soon, that could prompt the greenback to unwind recent gains while potentially evoking a cheer out of gold and stock market bulls.

Friday data could overshadow Powell’s speech

Investors and traders worldwide will also be assessing whether the views espoused by Powell, a notable dove, would be in line with the latest US economic data. Before the Fed chair even utters a single word on Friday, investors will be poring over the trove of figures on US personal income and spending, as well as the Fed’s preferred inflation gauge, the PCE price index.

If the data suggests that the US economic recovery is roaring ahead and that the Fed has to taper sooner rather than later, market participants might pay less heed to Powell’s potentially dovish coos and instead race ahead of the world’s most influential central bank that markets think might be at risk of falling behind the inflation curve.

USD Index forms a golden cross

Note that the equally-weighted US dollar index is now pulling away from technically overbought territory, as it moderates back to within its Bollinger band and its 14-day relative strength index returns below the 70 line which typically denotes overbought conditions. Yet, it has the potential to set a new 9-month high if dollar bulls are emboldened by heightened prospects of a Fed’s tapering announcement that’s looming closer.

And having formed a golden cross (where its 50-day simple moving average crosses above its 200-day counterpart), such a technical event also typically paves the way for more upside.

usd_indexdaily_9

For a look at all of today’s economic events, check out our economic calendar.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Market Calm Post-US CPI

The dollar is consolidating yesterday’s selloff while stock markets and bond markets have breathed a collective sigh of relief that inflation didn’t accelerate even further. Value-sensitive sectors like materials, industrials and financials outperformed on the day pushing the Dow and S&P500 to fresh record high closes. European bourses had hit multi-year highs yesterday but have opened up mixed so far.

stox50daily_7

Oil rebounds

It was a volatile day in oil markets with prices moving down towards $69 and then up above $71 on various headlines. The US administration heaped pressure on OPEC and its allies to boost supply to tackle rising gasoline prices. The Biden Presidency wants to see Americans “have access to affordable and reliable energy…at the pump”. Of course interestingly, concerns over rising commodity prices are also being voiced by the Chinese authorities.

The current increase by OPEC+ agreed recently of 400k barrels per day is seemingly not enough. But given the uncertainty around the spread of the Delta variant, it seems unlikely that the Saudis and the oil-producing group will want to increase production just yet. The contradictory nature of Biden policies is also being questioned as it urges greener energy while asking foreign producers to open the taps to lower pump prices.

brentdaily_68

UK Q2 GDP in line

Hot off the press, second-quarter UK GDP has just been released in line with the consensus at 4.8% q/q. Growth is expected to slow again this quarter due to the Delta variant putting the brakes on the economy. But economists hope that the UK should still return to pre-pandemic levels by the end of this year.

With the hawkish noises from the Bank of England last week contrasting heavily with the continued dovish stance of the ECB, EUR/GBP has pushed to new 18-month lows. Prices are now consolidating just below the 0.8471 level and bears expect to see more downside, especially as the ECB engineers a weaker currency. A soft weekly close may start to challenge the 2019 and 2020 lows at 0.8281 and below.

eurgbpdaily_120

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Trade of The Week: Can GBP/USD Breach 1.40 Again?

At the time of writing, the cable is now relying on its 50-day simple moving average (SMA) as a key support level, as traders await some major events later this week.

gbpusddaily_825

To be clear, the Pound has fared remarkably well of late, erasing much of its losses against the greenback since the hawkish surprise at the June FOMC meeting which sent the US dollar soaring.

In fact, the Pound is the best performing G10 currency against the US Dollar so far this year.

Also of note, the pound has strengthened against all of its G10 peers on a year-to-date basis.

3_aug_wcrs_2

The question facing GBPUSD traders is whether cable can stay on its perch for the immediate term?

More clues to that question could potentially be found in two major events this week:

  • Thursday, 5 August: BOE policy meeting
  • Friday, 6 August: US nonfarm payrolls (NFP)

Let’s start by casting our attentions to the other side of the pond.

How would the US nonfarm payrolls impact GBPUSD?

Markets are forecasting that 875,000 jobs were added in the US last month. While higher than June’s reading of 850,000, a mere 25k increase might not be the kind of “substantial further progress” that the Fed demands before it can start to taper (ease up on its bond purchases that have supported financial markets since the pandemic).

However, should the NFP surprise to the upside (think closer to the one million mark), that could reinvigorate dollar bulls and send the buck higher.

This is because a better-than-expected jobs report could mean that the Fed’s tapering may have to happen sooner rather than later, which then brings forward the eventual interest rate hike. Higher US rates relative to its G10 peers point to more USD gains.

A robust NFP print this Friday could buttress the “tapering sooner” narrative, which could then come at the expense of the pound with GBPUSD being dragged below its 50-day and 100-day SMAs. On the other hand, should the latest jobs data disappoint (think sub-800k), that should keep cable above its 50-SMA.

How might the BOE influence the pound this week?

The Bank of England is widely expected to leave its policy settings untouched this week, with policymakers having enough reasons to mute their hawkish tendencies for the time being.

This is because, despite signs of inflation building up (the UK’s headline CPI for June was at its highest since 2018 and well above the BOE’s 2% target), policymakers are set to remain cognizant of the downside risks to the UK economy, including:

about 1.9 million people who are still on furlough, with the scheme set to be withdrawn next month. This casts some dark clouds over the UK employment outlook in the coming months.

the delta variant still poses some uncertainties for the UK economic recovery, even though the IMF recently forecasted that the UK is set to post the fastest recovery among G7 economies this year (joint top with the US).

But we could still be in for a BOE shocker if it decides this week to adjust the threshold for winding down the quantitative easing measures.

For context, quantitative easing (QE) is, to quote the BOE, when the central bank “buys bonds to lower interest rates on savings and loans” and support the economy. Having built up a debt pile of 895 billion pounds and with inflation picking up, market participants are pondering what conditions might trigger the BOE’s unwinding of its stimulus.

As things stand, the BOE says that it won’t reduce its stock of government debt until the bank rate hits 1.5% (it’s currently at 0.1%).

“If that threshold is lowered this week, say to 1%, that could send gilt yields moving higher, bring Sterling along with it.”

Expect more pound volatility ahead

On the balance of these two major events that could impact GBPUSD this week (BOE decision and US NFP), the latter appears to harbour more potential to sway cable, especially considering that the whisper number for Friday’s job report currently stands at 920k, which is higher than the median estimate in Bloomberg’s survey (875k).

“Still, both events could surprise either way. And with such tentative outcomes looming large, markets have over the past month priced in higher implied volatility for G10 currencies versus the pound over a one-week period.”

As a potential scenario, if the BOE remains decidedly dovish while a stellar NFP print forces the Fed to become more hawkish, such a combo should prompt GBPUSD to unwind recent gains.

Alternatively, if the BOE lowers its threshold for paring down its debt pile, and the US jobs report disappoints, that could push GBPUSD back above the psychologically-important 1.40 mark.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: US Jobs Report Front and Centre

Monday, August 2

Tuesday, August 3

Wednesday, August 4

Thursday, August 5

Friday, August 6

For the US nonfarm payrolls print that’s due on 6 August, markets are forecasting that 900,000 jobs were added last month. Anything higher than 850,000 would be the highest NFP print since August 2020 and would score a third consecutive month of faster jobs growth.

A larger-than-expected July jobs increase (think closer to one million jobs added) could translate into more upside for the equally-weighted US dollar index, and put it on a path back towards its year-to-date high.

Otherwise, a lacklustre print this Friday could ensure that this dollar index remains below its 200-day simple moving average for a while longer and pare more of its gains since the hawkish surprise at the June FOMC meeting.

Markets still guided by Fed’s tapering predictions

Arguably, the biggest theme in play across global financial markets right now is the predictions over the Fed’s tapering.

Considering the robust US economic recovery, the US central bank is expected to ease up on its bond purchases that have supported financial markets since the pandemic. Exactly when the Fed will embark on such a process, at what pace (how quickly it will unwind its bond purchases), and under what economic conditions – all those remain vague at this point in time.

What we do know is that, following last week’s July FOMC meeting, the Fed reiterated that it wants to see “substantial further progress” in the ongoing US economic recovery before it will taper. However, it remains unknown exactly what constitutes “substantial” enough for the Fed.

Conflicting tapering cues within FOMC and markets

This past Friday (30 July), Fed Governor Lael Brainard reminded global investors that the US jobs market is still a long way off from pre-pandemic levels. She highlighted the “shortfall of 6.8 million jobs” that needs to be restored before the Fed tapers.

On the other hand, there was the famed hawk, Federal Reserve Bank of St. Louis President James Bullard, who also on Friday expressed his desire for the tapering to begin this fall and wrapped up by March 2022. Most economists expect the tapering to only commence next year.

Amidst all these conflicting views, it remains to be seen how the forthcoming economic data guides, not just the consensus within the FOMC, but also investors’ predictions for when the tapering will actually commence.

More gains for stocks likely until tapering draws closer

As long as the Fed’s ultra-accommodative stance remains intact, that should allow for more upside for US equities in the interim. The S&P 500 is striving to carve out a sustainable presence above the psychologically-important 4400 mark, a feat made more achievable considering that bond yields have been relatively subdued of late.

However, a stellar US jobs report this Friday would shorten the runway for equity bulls, as an NFP print that far exceeds the media forecast (900k) would ramp up markets expectations that the Fed would have to ditch its dovish stance sooner rather than later.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: OPEC+ Dispute Rolls Along

Monday, July 5

  • OPEC+ talks to resume?
  • Composite/services PMIs for China, Eurozone, UK
  • US markets closed

Tuesday, July 6

Wednesday, July 7

Thursday, July 8

Friday, July 9

Oil markets left in limbo

Recall that, on 1 July, OPEC+ had been due to announce its decision over output levels for August. The alliance of 23-nations is now embroiled in a spat over the duration of its existing production plans. This leaves global markets unsure over how much oil it will get next month and beyond.

According to media reports, Saudi Arabia and most of OPEC+ have an agreement until the end of 2022. The UAE however is reportedly holding out, only agreeing to a supply increase over the next few months but demanding better terms for next year.

To be clear, such delays and differences within OPEC+ are not new, and at least markets are cognizant that there are a few more weeks to settle this dispute. That’s why Brent prices appear unfazed by the heightened OPEC+ uncertainty during the Asian morning session.

If this impasse extends without a deal to gradually raise output (said to be anther 400k bpd next month), OPEC+ is bound to keep its output levels at current levels.

This means the world cannot get the oil it’s craving for, which could send oil prices skyrocketing even higher!

However, there is a bigger threat that could play out when the current deal ends in April 2022. If the OPEC+ alliance breaks down, that could threaten a repeat of the 2020 price war that saw every major oil-producing nation fending for itself and pumping at will.

Thanks to the global economic recovery, the world needs more oil now – that much is clear.

But consider this worst-case scenario: OPEC+ unravels at a time when more Iranian oil supplies come back to the market, pending a US-Iran nuclear deal, while the delta variant of the coronavirus reinforces lockdowns in major economies. If this trifecta of negative risks become reality, that could trigger another capitulation in oil prices, undoing much of the tremendous gains it has achieved (293.4%) since recovering from the depths of April 2020.

Need a recap on all things OPEC? Check out our ‘Markets Extra’ podcast:

(28 June 2021) OPEC Preview: Could a cautious cartel pave the way for $100 Brent?

(25 Feb 2021) What do OPEC+ and “Guardians of the Galaxy” have in common?

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Brent Oil Awaits Opec+ Decision, NFP May Dictate Usd’s Next Move

Monday, June 28

  • Fed speak: New York Fed President John Williams
  • European Commission’s summer economic forecasts

Tuesday, June 29

  • Fed speak: Richmond Fed President Thomas Barkin
  • ECB President Christine Lagarde speech
  • Germany CPI
  • Eurozone economic confidence
  • US consumer confidence

Wednesday, June 30

Thursday, July 1

Friday, July 2

  • ECB President Christine Lagarde speech
  • Eurozone PPI
  • US nonfarm payrolls

Commodities spotlight: Brent oil

OPEC+ is set to make another key decision on 1 July: whether or not to pump out more oil in August.

Analysts surveyed by Bloomberg expect the cartel to raise their collective output levels by another 550,000 barrels per day (bpd) in August. However, even such a hike is expected to leave global markets in a deficit, which could translate into more upside for oil prices.

As things stand, Brent prices are trading at their highest levels since October 2018. However, judging by its relative strength index, which has crossed the 70 mark to indicate overbought levels, Brent appears ripe for an adjustment in the near-term. Such a pullback would then clear some of the froth to pave the way higher for Brent oil.

However, the uncertainty over the US-Iran nuclear talks still looms over Thursday’s meeting. A US-Iran nuclear deal could see Iran resuming oil exports and upsetting the cartel’s supply plans. It remains to be seen how OPEC+ continues restoring its supplies into the world while taking into account this wildcard.

Still, come Thursday, a smaller-than-expected output hike of fewer than 550,000 barrels per day in August could send Brent prices even higher and closer to the psychologically-important $80/bbl mark.

Strike three for US nonfarm payrolls?

The US nonfarm payrolls has disappointed markets for the past two straight months. As things stand, economists are forecasting 700,000 jobs were added in the US labour market this month. If so, that would the highest NFP print in three months, since the March figures.

In the leadup to that tier-1 economic release, this USD index, which is an equally-weighted index comprising 6 major currency pairs, has settled into a more “normal” conditions since pulling back from overbought levels.

However, another lackluster NFP print could give the Fed more runway before having to ease up on its asset purchases, which could prompt the greenback to unwind more of its recent gains and test its 100-day simple moving average (SMA) as the next support level.

Still, the greenback could be jolted by another US jobs shocker this Friday.

A June hiring surge in the US could ramp up expectations for the Fed’s tapering once more. Such a narrative could call upon this USD index’s 200-day SMA as a key resistance level once more.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Another Hawkish Surprise?

Monday, June 21

  • Fed speak: St. Louis Fed President James Bullard, Dallas Fed President Robert Kaplan, New York Fed President John Williams
  • ECB President Christine Lagarde speech

Tuesday, June 22

  • Fed Chair Jerome Powell testimony before US House subcommittee
  • Fed speak: San Francisco Fed President Mary Daly, Cleveland Fed President Loretta Mester
  • Eurozone consumer confidence

Wednesday, June 23

  • Fed speak: Fed Governor Michelle Bowman, Atlanta Fed President Raphael Bostic, Boston Fed President Eric Rosengren
  • Markit PMIs: US, UK, Eurozone

Thursday, June 24

  • BOE rate decision
  • Germany IFO business climate
  • US weekly jobless claims
  • Fed speak: Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, St. Louis Fed President James Bullard, New York Fed President John Williams

Friday, June 25

  • Fed speak: Cleveland Fed President Loretta Mester, Boston Fed President Eric Rosengren
  • US personal income and spending, PCE inflation, consumer sentiment

The Fed’s switch in tact has send the buck soaring, as dollar bulls rejoice at the thought of a better-than-expected US economic recovery prompting the Fed into sooner-than-expected action.

However, from a technical perspective, the USD index is having a breather at the time of writing. This index is trying to pull back from overbought conditions, having broken above the upper bound of its Bollinger band while its 14-day relative strength index attempts to retrace back to the sub-70 region.

Note that this USD index is an equally weighted index comprising six major currency pairs, as opposed to the benchmark DXY which has different weightings for its 6 constituents (Euro being the largest at 57.6%, and the Swiss Franc accounting for just 3.6% of the DXY).

Still, should Fed officials tow a hawkish line over the coming days, in light of what had transpired at last week’s FOMC meeting, that could spell further gains for this USD index, potentially seeing it match its year-to-date high.

‘Markets Extra’ podcast: Fed discos to taper-town

BOE to follow Fed’s cues?

This change in approach by the Fed could prompt the Bank of England to follow suit, framing the BOE’s policy commentary in a new light. Note that UK inflation climbed above the central bank’s target for the first time in two years, with the CPI coming in at 2.1% year-on-year in May. This could hasten the BOE’s attempts to rein in surging consumer prices.

Overall, markets remain optimistic about the UK economic reopening considering its elevated vaccination rates. Still, the spread of the Delta variant remains as a source of concern, having pushed back the full reopening of the UK economy which was initially due to happen today.

It remains to be seen how the BOE will interpret such risks, and how it will impact Sterling.

GBPUSD has tumbled under the weight of the soaring greenback in recent sessions, having broken below its 100-day simple moving average (SMA), though finding support for the time being around the 1.38 mark which proved reliable in March as well as end-May. Stronger support may arrive at the 1.3670 region.

To be clear, the BOE is widely expected to leave its policy settings untouched this month, just as the Fed did. However, it’s the signaling of its future policy intentions that could rock markets once more.

Should the hawkish voices at the Bank of England also grow louder, emulating their peers from across the pond, that could allow GBPUSD to find a firmer footing above its 100-day SMA.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Markets Awaiting Next Catalyst

Dollar direction

The dollar has a small bid this morning trading just above 90 in the DXY but within this week’s range so far with no clear move lower after the nonfarm payrolls second monthly miss in a row. It seems the jobs report was not strong enough to price in a change to Fed rhetoric which many of the dollar bulls were expecting, and not weak enough for markets to turn lower.

Some market watchers are asking if we have hit the goldilocks scenario with the economy neither too hot nor too cold, but just about right. For the greenback, the fall in yields brings little support, though yesterday’s follow-through selling has not been totally convincing.

Sterling uncertain

The UK is due to fully reopen on June 21 but there are now doubts about whether this will happen as speculation is growing that this date may be put back two weeks. Although major parts of the economy are up and running already, the psychological impact of a delayed move plus the possible uncertain date of the “new reopening” is giving GBP bulls cause for thought. The UK government is set to announce its decision next Monday, 14 June, so GBP may be choppy into this date.

Cable is stuck in its 1.41-1.42 range with the 1.42 test last week being strongly sold into. The more we trade sideways and compress within narrow bands, the stronger the resultant breakout will be when it comes. Resistance sits at the high from last Monday at around 1.4250 while a strong close below last week’s low at 1.4082 needed to encourage the sellers to come out in force.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events this Week: US CPI to Inflate Expectations for Fed Tapering?

Markets appeared primarily to have latched on to the headline NFP figure of 559,000, which was below the forecasted figure of 675,000.

That jobs report alleviated some of the concerns that the Fed may have to move up its timeline for its eventual tapering of its asset purchases.

That slight respite in the ongoing inflation debate allowed the Nasdaq 100 to claim its biggest single-day gain in two weeks, while the Dollar unwound much of its pre-NFP gains.

Still, there were signs of underlying cost pressures from Friday’s jobs report.

The average hourly earnings of American workers climb by more than expected in May, while the unemployment rate also fell to 5.8% last month, compared to April’s 6.1%.

Although markets were able to ignore such inflation cues for now, focusing instead on the fact that some 7.6 million Americans remain out of work compared to pre-pandemic levels, it does not mean that the inflation debate has disappeared from market chatter.

In fact, this coming Thursday’s US consumer price index announcement could set tongues wagging once more, amidst all the other potential market-moving events lined up over the coming days:

Monday, June 7

  • Germany factory orders

Tuesday, June 8

  • Eurozone Q1 GDP (final)
  • Germany industrial production
  • Japan Q1 GDP (final), trade balance

Wednesday, June 9

  • Bank of Canada rate decision
  • EIA crude oil inventories
  • China CPI, PPI

Thursday, June 10

  • European Central Bank rate decision
  • US-Iran nuclear talks resume
  • OPEC’s monthly Oil Market Report
  • US inflation, initial jobless claims

Friday, June 11

  • G7 summit begins
  • UK industrial production
  • US consumer sentiment

Considering all the inflation markers due mid-week out of the world’s two largest economies (US and China), the ECB meeting is likely to fade into the background.

The European Central Bank is widely expected to leave its bond purchases program unchanged this month.

That sets up the euro to be more reactive to Dollar-events, with EUR/USD attempting to take advantage of the dollar’s disappointment following the NFP miss. The world’s most-traded currency pair is trying to reclaim the 1.22 mark, having recently found support at the 1.21 Fibonacci line.

Should the US May consumer price index register a lower month-on-month reading than the forecasted 0.4%, that could prompt investors into thinking that the Fed would be less inclined to adjust their support measures for financial markets. Such a narrative could lead to more weakness in the greenback, which in turn should translate into gains for the rest of the FX universe.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Dollar Respite From Manufacturing Data

It seems the overheating economy is not easing up just yet, though many economists expect that may happen during the second half of this year.

Equity markets were generally higher but the US closed mixed with value stocks such as financials and industrials back as the leaders while tech and healthcare fell. Asian stocks, aside from Japan touched a three-month peak before profit-taking in recently strong Chinese markets pulled it lower. Momentum has clearly ebbed from stock markets as investors worry that a stronger-than-expected rebound means sooner-than-expected monetary policy tightening.

The spotlight has been shining once again on gains in retail-investor driven “meme stocks”. AMC Entertainment rose more than 20% and is up more than 1,400% for the year while the infamous Gamestop surged over 12%. Short sellers are suffering as the Reddit crowd redirect their focus on these heavily shorted companies and move away from cryptocurrencies.

Booming commodities help European markets

Base metals are on the march again as copper closes above $10,000 for a third straight day and iron ore futures rebound. The OPEC+ meeting also passed with a lower-than-expected supply increase and the market has less concern over future Iranian supply as demand gathers pace through the summer months. Oil has pushed to recent highs with commodities in general seen as a good hedge against inflation.

Big commodity companies are enjoying this resurgence in commodity prices, with European stock market posting new record highs. The eurozone’s factory activity also helped yeseterday, rising to 63.1 in May, the highest since the survey began in June 1997.

Virus and reopening key for GBP

GBP/USD climbed to its highest level since April 2018 yesterday morning following a broadly weaker dollar tone and comments from the Bank of England’s deputy Governor acknowledging the potential for more sustained inflation and increasing optimism about the economic recovery. But dollar buying and increasing concern that the grand reopening in the UK slated for June 21 could be delayed due to the Indian Covid variant saw GBP sink back below 1.4150.

PM Johnson is due to give a press briefing later today so the threatened sterling breakout is on ice. Support rests at the bottom of the recent range around 1.41 while the bulls await a sustained push above 1.42 to continue the 15-month bullish trend.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Data in the Driving Seat

The dollar sold off yesterday and is moving lower again this morning as US equity futures are in the green, while Asian stocks are generally better bid.

Asian manufacturing figures out earlier today largely decelerated but remain above the key 50 threshold. The China Caixin PMI increased slightly to 52.0 in May, but firms continue to struggle with increasing raw material costs with the input costs index in China reaching the highest level since 2016.

Euro inflation rising

The eurozone CPI figures have just been released, with the May flash estimate registering a slightly better-than-expected 2% year-on-year growth for the first time since November 2018. Much of the increase is still driven by energy base effects, though core inflation came in at 0.9% year-on-year, right in line with market expectations. While the European Central Bank has oft repeated that it’s still premature to consider easing up its support measures, that stance may have to be massaged should consumer prices continue hitting or even exceeding the central bank’s medium-term target.

With next week’s ECB meeting looming, EURUSD has struggled to firm above 1.22 convincingly, with two attempts last week failing to hold. However, Friday’s price action was more constructive with lower prices being snapped up by buyers and printing a bullish hammer candlestick. The ISM manufacturing report out of the US is also released later, which is set to rise a bit from an already high level.

RBA opts not to rock the boat

Meanwhile overnight the RBA did very little and pointed to their July meeting as the next point where they reassess their quantitative easing (QE) and yield curve control (YCC) stimulus programmes. They did use slightly more positive labour market language by saying that progress in reducing unemployment has been faster than expected. On the flip side, they mentioned the ongoing uncertainty of further virus outbreaks though the hope here is that vaccinations will overcome this concern in time.

AUD/USD initially popped higher above 0.7760 but has since given back these gains.

Oil breaking higher

The US Memorial holiday traditionally starts the summer driving season stateside, which obviously has big implications for demand. But all eyes are on the OPEC+ meeting today with the possibility of hiking oil output again as the global recovery is widely expected to gather more pace in the coming months and stockpiles to be drawn down.

Any signs that the group hold output steady for now would likely provide more support to oil and oil-sensitive currencies like the CAD.

The year-to-date March high for Brent at $71.03 is firmly in view and then the spike high in April 2019 at $74.70, if bulls can hold prices up here and we get helpful news from the cartel.

Written by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Us Jobs Report Offers Next Marker in Inflation Debate

At the time of writing, US futures are holding steady even as US and UK markets will be closed on Monday.

What is an index and why it matters? A chat with Nasdaq

sp500mdaily_232

Wall Street’s so-called “fear gauge”, the VIX index, ended the trading week below the psychological 16 level. Another week of calm could send it to a new year-to-date low, below the 15.38 level set on 14 April.

Much could depend on how markets react to scheduled events this week:

Monday, May 31

  • US, UK markets closed
  • Japan industrial production, retail sales, consumer confidence
  • OECD economic outlook

Tuesday, June 1

  • Manufacturing PMI: China, Eurozone, UK, US
  • RBA policy decision
  • BOE Governor Andrew Bailey speech
  • Fed speak: Fed Governor Lael Brainard
  • OPEC+ meeting

Wednesday, June 2

Fed speak:

  • Philadelphia Fed President Patrick Harker
  • Chicago Fed President Charles Evans
  • Atlanta Fed President Raphael Bostic
  • Dallas Fed President Robert Kaplan

Thursday, June 3

  • Services/composite PMIs: China, Eurozone, UK, US
  • US initial jobless claims
  • Fed speak: Fed Vice Chair for Supervision Randal Quarles, Philadelphia Fed President Patrick Harker

Friday, June 4

  • Panel discussion with central bank heads: Fed Chair Jerome Powell, ECB President Christine Lagarde, PBOC Governor Yi Gang
  • Eurozone retail sales
  • US nonfarm payrolls

US jobs report key for Dollar direction (DXY)

The US nonfarm payrolls print is scheduled for the first Friday of every month. The figures due on 4 June carries greater weight, following the shockingly-low figures posted on the first Friday of May.

Markets would interpret another lower-than-expected jobs tally to mean that the Fed might be more willing to maintain its support measures until the job market is on a more solid footing. Hence, another lackluster jobs report could see the dollar index (DXY) relinquish the 90 handle once more.

However, a non-farm payrolls report that exceeds market expectations would be taken as a sign that the tightening labour market could further boost inflationary pressures.

Recall that this past Friday, the April US core PCE inflation’s 3.1% surpassed the market-expected 2.9%. That was the highest year-on-year print since 1992, albeit with the low base effects in play.

A bumper NFP this Friday could spur another selloff in US Treasuries, sending its yields surging, which in turn would offer tailwinds for the dollar.

Commodity spotlight – Oil (Brent)

OPEC+ is slated to decide on Tuesday whether to further loosen the oil taps over the coming months. At a time when markets are already bracing for more oil shipments out of Iran pending their nuclear talks with the US, more incoming global supplies would dampen oil prices further.

Over on the demand-side, watch the global PMI readings and the latest OECD economic outlook for the latest signs of a demand recovery. China’s manufacturing PMI released this morning shows that the sector is still firmly in expansionary territory in May, having posted a reading above 50 every month since February 2020.

Should markets grow confident that global demand can absorb the incoming supplies, this might help Brent oil claim a stronger hold on the $70/bbl handle.

Written on 31/05/21 06:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Gold hits $1900. What’s next?

A sinking dollar, real yields in deeply negative territory and Fed officials singing from the same sheet are all creating an attractive environment for gold bugs.

Fed’s chorus of patience

The latest surge in the yellow metal comes in response to the series of Fed speakers this week who have been talking down the prospect of an extended period of inflation which means the central bank can be patient in adjusting its super accommodative policy. Governor Brainard kicked off the continued dovish take on rising prices by saying that she still did not see longer term inflation expectations rising substantially and the Fed had tools to affect those if they did.

Similarly, Atlanta Fed President Bostic stated that higher price levels do not seem to be “enduring”. More recently, vice chair Clarida continued the coordinated inflation pushback though he did mention that the tapering of asset purchases may happen “in upcoming meetings”.

Of course, gold trades on the interplay between inflation and interest rates and yields have been subdued at best lately, with rates effectively staying lower for longer at present. We’ve also seen a drop in inflation protected US 10-year government bonds this week further boosting gold and fueling the strong break to the upside.

A softer dollar helps the bugs

While Fed officials push back on inflation concerns, so the dollar, which is a key driver for gold. The buck has suffered as low yields and the steady global recovery make non-dollar investments attractive for investors seeking to diversify away from the greenback for better returns. The widely watched dollar index is now approaching the year-to-date lows seen in early January, as Wall Street analysts breathe a sigh of relief that their 2021 predictions of a weaker dollar start to become a reality.

Positive on the year

If the psychological $1900 level is taken out, bulls will aim for the major retracement level (61.8%) of the August to March correction at $1922.70 ahead of this year’s high around $1959. Support sits at the 50% retracement level at $1875.72 with the 200-day moving average below here just above $1840.

The downward trendline from the August highs is key with bulls keen to consolidate above here in order to push for more upside. The daily RSI is overbought and approaching 80 so some consolidation should be expected in the near term, especially if the dollar finds some buyers.

Written on 27/05/2021 07:00 GMT by Han Tan, Market Analyst at FXTM

For more information, please visit: FXTM

Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.

Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 81% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Trade Of The Week: Amazon To Announce MGM Purchase?

According to Bloomberg, Amazon could announce a deal to snap up the Metro-Goldwyn-Mayer movie studio (the one with the roaring lion as its mascot) by today. The deal could be worth nearly US$9 billion for the stable of content belonging to the film studio, which includes popular franchises such as James Bond, Robocop, and Rocky.

Media reports on this potential takeover have lifted Amazon’s stock prices, having gained in three of the past 4 sessions. Yet, looking at the longer-term trend, the stock is in need of a bigger catalyst to break out of its sideways trend and prompt its 50-day simple moving average (SMA) to have greater liftoff above its 200-day counterpart.

Amazon’s stocks have found its presence above $3500 to be fleeting. Since posting its highest-ever closing price on September 2nd, 2020, the stock is now lower by 8.11%. In contrast, the S&P 500 has gained over 17% since, while the Nasdaq 100 has added almost 10% during that same period (2 Sept 2020 – today).

Sign of the times: teenager takes over near-centenarian

For context, the purported $9 billion price tag is just about 12% of the $73.27 billion in cash and equivalents that Amazon had as of end-March. In return, its 15-year-old streaming platform gets to add another 4,000 films and 17,000 episodes of TV shows belonging to the 97-year-old film studio.

Having struggled to notch a mainstream hit, the acquisition could also grant Amazon access to the loyal followings of Mr. Bond and Mr. Balboa, not to mention also fans of Dr. Hannibal Lecter of Silence of the Lambs.

Note that Amazon’s subscription services accounted for 7% of its total revenue in Q1 2021, a share that has remained relatively stable over the past couple of years. This relatively small piece of the overall pie whoever is important to expand its subscriber tally and keep their eyeballs glued to Amazon’s platforms.

This deal also harbours the potential for revenue-generating spinoffs, promising a broader reach for Amazon’s Prime Video, a perk for Prime’s subscribers which already number at some 200 million.

Streaming wars heat up

If this deal happens, it would only underscore Amazon’s ambitions to be a major contender against streaming giants such as Netflix and Disney+. And Amazon hasn’t been afraid to spend so it can beef up.

In 2020 alone, Amazon spent $11 billion on content for its video streaming and music services. The company has also secured exclusive rights to NFL games on Thursday nights, stretching over the course of a decade beginning with the 2023 season, which would cost about one billion dollars per year. And don’t forget that Amazon has a multi-season series of “The Lord of the Rings” in the pipeline as well (think being able to impulsively buy LOTR merch while binge-watching this LOTR series).

Still, markets would be well aware that the streaming wars are far from over.

Recall that just last week, AT&T announced that it would spin off its media operations in order to combine it with Discovery and form a new media company which would be home to the likes of CNN, HBO, Cartoon Network, the Food Network, and the Animal Planet. That would create a formidable $130 billion player in the streaming wars.

According to Bloomberg data, there have been about $80 billion worth of media takeover deals announced year-to-date. That promises heightened competition for streaming platforms.

How might Amazon’s stock prices react?

It remains to be seen whether the official announcement of the deal will actually take place. Even then, it is unlikely to significantly reduce the 8% gap between current prices and the record high.

Note that even Amazon’s blowout Q1 results announced on 30 April didn’t lead to sustained gains; Amazon is down 6.4% on a month-to-date basis. To be fair, for the same month-to-date period, Disney is also down by more than 6%, while Netflix is faring relatively better having shed 2.06%.

For the longer-term, there apparently is still plenty of love for Amazon; the stock makes up more than 5% of the portfolios of over 70 hedge funds.

However, for the immediate term, it’ll likely require a lot more than just this MGM takeover for Amazon’s stocks to post a new record high.

Open your FXTM account today


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Key Events This Week: Can US Stocks Halt Weekly Losing Streak?

Despite crypto’s continued wild sings through the weekend, US equity futures are attempting to gain liftoff during the Asian morning session on Monday, as stocks attempt to halt two consecutive weeks of declines:

Here are the key scheduled events that could influence market sentiment this week:

Monday, May 24

  • Fed speak: Cleveland Fed President Loretta Mester, Kansas City Fed President Esther George, Atlanta Fed President Raphael Bostic, Fed Governor Lael Brainard

Tuesday, May 25

  • Germany Q1 GDP (final print)
  • US new home sales, consumer confidence

Wednesday, May 26

  • RBNZ decision
  • Wall Street bank CEOs testify in Senate
  • Fed Vice Chair Randal Quarles speech

Thursday, May 27

  • Wall Street bank CEOs testify before House committee
  • China industrial profits
  • Germany consumer confidence
  • US initial jobless claims, Q1 GDP (second print)

Friday, May 28

  • Eurozone economic confidence, consumer confidence
  • US personal income/spending, consumer sentiment

Dollar plagued by inflation fears (DXY)

The dollar index is hanging on to the psychologically important 90 handle at the time of writing. However, the downward trend since end-March looks firmly intact, with DXY poised to test the year-to-date low.

The inflation outlook is likely to remain the dominant theme in global financial markets, as investors try and gain more clues from the scheduled Fed speak and US economic data releases due in the final trading week of May.

More signs of consumer prices making a roaring comeback, with a tolerate Fed remaining off in the sidelines, could prompt more dollar weakness in the week ahead.

Commodities to have larger say on kiwi than central bank (NZDUSD)

The Reserve Bank of New Zealand is unlikely to adjust its official cash rate mid-week, although it could provide upward revisions to its economic forecasts. While a more bullish economic outlook could help push the New Zealand dollar higher, it has to shake off its correlation with commodity prices which are still coming off their peaks.

Despite having weakened against all of its G10 peers except for the Norwegian Krone last week, NZDUSD remains within the 0.71-0.73 range that it adhered to for much of the first quarter of 2021 as well. NZD bulls will be hoping for commodity prices to stabilize in order to offer support for the kiwi, which has been relying on its 50-day simple moving average to buttress prices over the past month.

Consider also the FXTM New Zealand Dollar index, which is an equally-weighted index comprising:

  • NZDUSD
  • NZDCHF
  • EURNZD
  • GBPNZD
  • AUDNZD
  • NZDCAD

This index is on an obvious downward trajectory, and should this momentum persist, that could result in a new year-to-date low.

Commodity spotlight – Oil (Brent)

Brent oil registered its biggest weekly decline since March.

Oil bulls are hoping that the optimism surrounding the global demand recovery will be enough to offset concerns surrounding more incoming Iranian supply, should the US-Iran nuclear deal be restored.

From a technical perspective, its 50-day simple moving average (SMA) appears to be holding as a key support level once more. The week ahead could prove telling whether the 50-SMA can continue guiding Brent higher like it has in the past two months, despite the declines in the broader commodities complex.

Open your FXTM account today


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Stocks Bounce, Dollar Fades

Growth and cyclicals led the way with Tech especially buoyant and the Nasdaq now posts small gains for the week with the index trading above its 100-day SMA. Sentiment and volatility appear to have stabilised although the VIX remains above 20 and gold is still holding its recent gains.

On the flip side, the dollar sunk back to its lowest levels since February with US bond yields are also fading back to near the lows for the week. The market now believes there will be little action from the Fed over the next few months, with the potential for more taper talk only later this year, perhaps at the Jackson Hole symposium in late August.  This means deeply negative real rates will linger and with it the dollar may struggle to retrace meaningfully in this environment.

Bouncing retail sales end a good week of UK data

Allied to the strong employment and inflation figures out earlier in the week, the UK enjoyed another set of robust retail sales data. The headline came in at +9.2% versus the expected 4.5% m/m although there were lower revisions to the previous reading. The reopening of non-essential stores saw consumers flock back to physical stores and this rising consumer confidence should remain solid over the summer. The recovery in the UK is taking shape and this may add pressure to the Bank of England to begin tapering, although the Indian variant of Covid-19 is grabbing the headlines.

EUR/GBP – tale of the vaccines

EUR/GBP is at an interesting juncture, trading around its 50-day SMA at 0.86. After the big move higher at the start of April, prices have been stuck in a 100- point range, give or take, as the vaccine rollouts in both regions has taken on several twists and turns, but mainly positively for Europe. Bears are desperate to reassert their authority so need to see 0.8560 broken to head for the recent lows below 0.85, while the euro supporters will be cheered by the just released PMI data which beat forecasts as the region continues to reopen from restrictions.

Open your FXTM account today


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.

Wow! The Risk Rollercoaster Calms Down …

Stock markets went full circle, selling off aggressively as the sharp moves lower in the crypto space took the breath away. But the dip buyers were out in force and with the strong bounce back in cryptos, so risk assets went bid too with US equities posting minimal losses into the close.

US stock futures are modestly lower with the Vix, Wall street’s fear gauge, moving above 23.

Fed timeline

Meanwhile, during all that excitement, the dollar climbed off the floor thanks to the headlines in the FOMC minutes, which mentioned that there was some taper talk among participants. Bond yields moved higher but importantly, the 5-year part of the curve, which is most Fed-sensitive, has retraced most of its move this morning while emerging market FX sold off less than 1% in the aftermath of the minutes release.

The reality is that the Fed will want to see a number of strong jobs reports before any more forewarning about tapering and even then, it is expected to take three quarters to slow its bond buying. Add to that probably the same time frame again before a first rate hike and we are into the first half of 2023 – which is when the market is actually pricing it in.

The greenback found support again at the February lows which corresponds to the early May highs in EUR/USD. Buyers have stepped in today and will again aim for 1.22446 if bullish momentum picks up. The trendline from the end of March low is acting as good support so far this month with the 100-day SMA just above 1.20.

Crypto deleveraging

Intense selling in Bitcoin saw it down over 30% intraday at one point and touching $30,000, before rebounding quite unbelievably back towards $40,000. Other digital coins like Ethereum also got hit, losing a quarter of its value before easing back to losses over 20 per cent. More than $8.6 billion of positions have been liquidated in the last 24 hours.

The worry for crypto fans is that the China clampdown is the start of a wider one by western regulators too. The worry for institutional fund managers is that these assets involve extended leverage so in prolonged periods of volatility, we could get a broader scale of position adjustment in other markets.

Open your FXTM account today


Disclaimer: The content in this article comprises personal opinions and should not be construed as containing personal and/or other investment advice and/or an offer of and/or solicitation for any transactions in financial instruments and/or a guarantee and/or prediction of future performance. ForexTime (FXTM), its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness, of any information or data made available and assume no liability as to any loss arising from any investment based on the same.