Gold Set for Growth on Inflation Surge

Inflation Surge Whips Up Gold Prices

Gold prices surged nearly to a five-month high last week after official figures revealed that inflation in the US remained rampant.

According to the US consumer price index (CPI) released last week, the country’s consumer prices grew 6.2% year-on-year in October, the biggest inflation surge since December 1990. It also exceeded market expectations of 5.9%.

Core CPI, excluding food and energy, rose 4.6% annually, the fastest gain in more than 30 years.

The escalating inflation successfully drove the price of the yellow metal higher. On Nov. 10, gold prices rose as much as 2% to peak at $1,863.9 per ounce, hitting its highest level since June.

Gold prices edged higher to $1871.3 on Friday and later closed at $1,868.5 an ounce, meaning gold rates have been surging for two weeks straight. Receive latest price updates on gold and other precious metals

Fed Signals that Interest Rate Hike Is Off the Table Until 2022

While tapering often signals the beginning of an interest rate hike, Fed Chair Powell assured that the Fed is holding the benchmark interest rates at near zero. Stay alert and watch the news closely

He cited “maximum employment” as the major mandate for any interest hike, and the Fed is getting closer to meeting its goals on inflation and employment.

He said the first rate hike might occur in 2022 at the earliest, which is uplifting news for gold.

Gold Price Forecasts by Wall Street Analysts

Analysts expect gold to maintain its bullish momentum until mid-2022. Precisely, Goldman Sachs is looking for $2,000 for gold, while Soc Gen predicts gold prices to linger near $1,950 an ounce early next year.

Conversely, Morgan Stanley is less optimistic, saying that gold could experience a challenging environment next year. Its base case for gold is $1,675 per ounce for the first quarter of next year.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Will the September Jobs Report Meet the Fed’s Expectations?

With the Fed on the verge of tapering, September’s result could be critical. How likely is September’s NFP going to meet the Fed’s expectations? Find out in our latest market analysis.

Fed Signals Tapering Could Come As Soon As November

August’s non-farm payrolls report was a huge disappointment to the market. The US economy added only 235,000 jobs in August, roughly three times fewer than market forecast of 750,000 jobs.

Despite the sorely missed expectations, the Federal Reserve (Fed) mentioned at its September FOMC press conference that the economy is not far from achieving its goals on inflation and employment, and that the tapering announcement could come as early as November. Stay alert and watch the news closely

“Reasonably Good” Is Good Enough

Considering what the Fed said, the upcoming NFP could be a determining factor in kickstarting Fed’s plans to reduce its $120-billion-a-month asset purchases.

Interestingly, the Fed is not looking for a phenomenal report.

“It wouldn’t take a knockout, great, super strong employment report. It would take a reasonably good employment report for me to feel like that test is met,” said Fed Chair Powell at the September FOMC press conference.

All Eyes on Friday

With the upcoming report being the last nonfarm payrolls before the next FOMC meeting in November, the market is anxiously waiting for the data to foresee the Fed’s decision on tapering.

Economists predict that the US economy would add 488,000 jobs in September, more than double August’s disappointing result.

The optimism is not groundless. Recent data from ADP and ISM Manufacturing Employment Index has shown that job growth picked up in September.

Private payrolls increased 568,000 last month, exceeding market expectations of 428,000 jobs.

On the other hand, the ISM U.S. manufacturing index climbed from 59.9% to 61.1% in September. The reading was also the highest in four months.

This is how the market reacts prior to the event:

  • Gold: The precious metal edged higher and broke above $1,760 despite the broad US dollar strength.
  • US Dollar: The US Dollar Index (DXY) reached new 2021 highs above 94 last week. The greenback maintains its uptrend momentum on investors’ predictions that the Fed would begin rolling back its bond purchases programmes as early as November.

Are Gold Prices in a Tug of War?

After surging to a 2-month high of $1,834 on the disappointing September nonfarm payrolls last week, gold plunged below the $1,800 psychological mark on dollar strength and rising US treasury bond yields on Tuesday. Are the bears back in town, or are the bulls just waiting for their next opportunity ?

A Recap of Gold’s Recent Trend

Looking back, the bright metal tested the key resistance at $1,834 for three times in the past few months but has failed to break above it. Not only did gold fail to go past this level, it even retreated to below $1,800 this week. Follow gold price movement here 

The rise in the US treasury bond yields is attributed to the massive plunge in gold. The yield on the benchmark 10-year treasury rose nearly 5 basis points from 1.322% to 1.369%, despite last Friday’s nonfarm payrolls missing market expectations by a great extent.

Does it mean gold bulls are not coming back?

Fed’s Dovish Remarks Give a Glimmer of Hope

At the Jackson Hole Symposium held last month, Fed Chair Powell mentioned if job growth continued, the Fed could begin cutting asset purchases this year. Ironically, the news was followed by a big miss in September’s nonfarm payrolls figures. Receive latest market updates on gold 

Strategists now believe the Fed would defer its tapering announcement to late 2021 or even early 2022. A weaker USD could push gold higher.

Other Upcoming Events in Focus

  • US Core Consumer Price Index on Sep 14 at 22:30 (GMT+10)
  • US Core Retail Sales (Aug) and Initial Jobless Claims on Sep 16 at 22:30 (GMT +10)

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

 

Trading Currencies: Jackson Hole Approaches, Will We See Taper?

Don’t Hold Your Breath for Friday

The most anticipated Jackson Hole Symposium is upon us. However, we question if the ‘anticipation’ is warranted, as consensus now has the probability of Powell announcing taper timeframes below 50%.

This step back from analysts can partly explain the easing in the USD this week. But we should point out that next week there will be another month of non-farm payrolls which are likely to be in the 750- to 800,000 range and CPI data that should remain elevated.

This suggests that the September Federal Open Markets Committee (FOMC) is a much more likely time for Powell to announce something. It is also the first time a 2024 dot plot will be added to the Fed’s dot plots release.

Lots to be mindful of going forward.

This Week’s Market News Highlights

Three major reports released this week have shaken the USD pairs:

  • New home sales rose 1.0 per cent in July, a big miss on estimates of 3.4 per cent. But the annualised rate was 708,000 which beat estimates at 697,000. Growth is slowing that is clear, but overall new homes sales are at a historically strong level. Despite the better-than-expected result, the US dollar slid against most major currencies.
  • Existing home sales are showing signs of continued strength. The medium price range remained on the high side to historical values and that was despite the fact inventories rose. Existing home sales hit an annual pace of 5.99 million homes sold, the median price is now US$359,000 up 17 per cent year on year.
  • Manufacturing PMIs slipped slightly to 61.2 from 63.4. While the Services PMI fell to 55.2 from 59.9. Both however are still above pre-COVID 5-year averages. What caught our eye was the Service PMI continued to note difficulty in finding suitable staff.

Some Gain Ground Against US Dollar

Interesting to see that material exposed currencies have done well against the USD. Learn more about the US dollar’s ups and downs here

AUD/USD has moved off its $0.7134 low to be trading right back inside $0.72. At $0.7255 it is back at neutral on its RSIs.

NZD/USD jumped 0.9% to $0.695 on the RBNZ’s outlook. USD/CAD has fallen from $1.28 back to $1.261 as crude surges.

But against European and other G10 currencies, the USD is holding the line and remains overall in the ascendency.

EUR/USD is holding the $1.17 levels well, GBP/USD also is holding the new $1.37 handle. USD/JPY is hovering at the upper end of ¥109.

Thus, all eyes remain on Powell and the Board and possible new positive breakouts for the USD. Follow all the latest forex news here

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: ‘All Talk No Action’

Back to Core

Very mixed week for FX. So, in times like these we say go back to basics and base currencies, with the king of them all being the USD.

The basics are following the Federal Reserve and the US Data – let’s examine that with the release of the Fed’s Minutes from the July meeting. Read the latest news updates.

Key Takeaways from the Fed’s Minutes

The minutes, released on Wednesday (Aug 18), indicate that tapering might begin before the end of 2021. Other than that, Fed officials have not reached any consensus over the exact timeline or the economic outlook.

  • Tapering discussed, no decisions made, we note these lines: “Participants agreed that their discussion at this meeting would be helpful background for the Committee’s future decisions…No decisions regarding future adjustments to asset purchases were made at this meeting.”
  • On the structure of the QE program, “most” saw benefits of trimming the pace “proportionally in order to end both sets of purchases at the same time” (by this it means treasures and mortgage-back securities). But “several” suggested tapering is more appropriate next year due to “prevailing conditions in the labour market”.
  • The economic view: “All participants” agree the economy had made progress. “Most” believe that the Committee’s “substantial further progress” of maximum-employment had not yet been met. That very wordy statement basically means that the US is not at pre-COVID levels.
  • Inflation mandate, this is where the highest level of debate is taking place. It is clear that some believe the inflation goal had been met and is becoming structural. However, the main view around inflation is the “transitory nature of this year’s rise in inflation, as well as the recent declines in longer-term yields and in market-based measures of inflation compensation” i.e., it will ease due to transitory effects.

Fed’s Hawkish Comments

St. Louis President James Bullard continues his hawkish stance stated last week he would “prefer tapering to end by Q1 2022”. His reasoning for going this hard is it “would give the Fed more flexibility to deal with inflation” as he fears there is “more inflation than we care to admit.” He followed this up with his thought on rate hikes stating: “Q4 2022 was a logical time.”

Mixed Market Reaction

The base conclusion from the market over the week is the USD still holds the ascendency, but it is mixed.

EUR/USD hit $1.1694 last week, which is its first sub-$1.17 since November. It has recouped this level but RSI and momentum in the pair is to the downside.

GBP/USD too was weaker through the week. It was volatile around the Minutes but at $1.375 it’s a long way from the strength it had in the early part of the year, and it too has technical suggesting further weakness.

USD/JPY is one of the only pairs the USD is flat in as risk-off trading sees investors moving to the JPY. The pair got to ¥110.00 but is back in the ¥109s at ¥109.75 and is stuck in a range.

AUD/USD fell to $0.7229 last week, which is a nine-month low – it has recouped slightly but it is fighting two issues, USD positive news and negative AUD news. Iron ore is now in a bear market and falling fast. Over 12 million Australian are in lockdown and the economic recovery of last year is quickly evaporating. Get the latest update here.

Upcoming event that may affect the trend of USD:

  • Aug 27 (Fri) 9:00am CDT – Speech by Fed Chair Jerome Powell at the Jackson Hole Economic Policy Symposium

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Greenback is Back

A Sign of US Dollar Comeback

Non-Farm Payrolls (NFP) have led an incredible resurgence in the USD over the past two weeks. We had eased our positions in the USD over the past three weeks on momentum and technical indicators suggesting it was overbought. The rapid rise of the Delta variant has further exacerbated the pressure.

But the data has put the USD back on top.

US Added More Jobs Than Expected

July was a strong month for the US. NFP saw an astonishing 943,000 jobs created in July. Analyst expectations were for 870,000 while the June read was revised to 938,000 from 850,000.

A major reason for the surprise was mainly due to a government hiring surge. Private payrolls met consensus, which was 703,000. The leisure and hospitality sector led job creation, followed by education and professional and business services sector.

Lower Unemployment Rate and Higher Salary

The unemployment rate hit 5.4 per cent from 5.9 per cent. Average hourly earnings rose 0.4 per cent meaning the year-on-year pace is now for a 4.0 per cent. Participation rose to 61.7 per cent. The conclusion – this was very strong labour report.

The non-farm productivity rose 2.3 per cent in Q2. Despite the fact that the data missed expectations, it still highlights the continuing productivity acceleration from the economic rebound. The dive in productivity has been created by a sustained exit of low-wage employment and increasing hours-worked by the remaining employment market. This has translated into a 1 per cent rise in labour costs – wage growth. Read the latest market news.

The Greenback is Back

After the news, EUR/USD has fallen from $1.185 to $1.1710 in four days, a four-month low.

USD/JPY hit ¥110.55 a four-week high and up from ¥108.70 in just five days again. Interesting that this hasn’t been driven more by the fall in gold.

AUD/USD bounced off a three-week low of $0.7316 to be back at $0.7350 but since the NFP the pair has lost 1.2 per cent or $0.90 and momentum suggests the year-to-date low of $0.7289 could be under threat. Receive the latest price updates on your favourite USD pairs.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Delta Blues?

The emergence of the Delta Variant Brings New Uncertainty

We had started to turn neutral on the USD over the last few weeks. Our reasoning for this was that the unbroken run in the USD was showing signs of fatigue.

What is now adding to this fatigue is signs the Delta variant is impacting US data. The Delta variant has quickly risen to become the dominant strain in the country since late June. With events cancellations, delayed office returns, and dwindling consumer confidence, concerns remain over this highly contagious Delta variant and how it might derail the country’s economic recovery.

Upbeat Job Market Results Hint at an Economic Recovery

In early August, we saw US private sector payrolls (ADP) disappoint, rising 330,000 in July. The expectation was for 690,000 jobs to be created.

Now if we think about this 330,000, it’s still very impressive and data elsewhere is still strong. Just have a look at the ISM service read for July rising from 60.1 to 64.1 – this is a record high and was led by the “exports” and “prices paid” sectors of the survey.

Another positive sign for the market came last week as the US’s non-farm payrolls in July beat expectations. Official data showed that US employers added 943,000 jobs, and the unemployment rate dropped to 5.4%, a stark contrast to analysts’ estimation of 845,000 new job openings and a jobless rate of 5.7%. What’s more, the payroll increase is the highest since August 2020. Stay tuned to the latest market news.

The Fed’s Hawkish Remarks

But we keep hearing that “Delta is becoming an issue” and that forward indicators are showing signs of slowing.

Let’s look at the comments from Federal Reserve Vice-Chair Richard Clarida, who is a known neutral-hawk. In his remarks on Wednesday, he stated that:

  • “Policy normalisation in 2023 would be ‘entirely consistent’ with the new policy framework”
  • “That conditions for raising rates could be met by the end of 2022, with a tapering announcement possible later this year.”
  • The US will see a “healthy job gains in the third quarter”.
  • He sees inflation risk to the upside but clarified that he supports the official view that the current overshoot is transitory.
  • He is surprised by the fall in treasury yields and believes this reflects virus risks that are building.

That last line we think is poignant – it took some of the heat out of his comments and added to the volatility in the USD.

Currencies Against the US Dollar Stay Volatile

EUR/USD traded $1.1833 to $1.1902, a 3-week high. However, it has since slipped back. GBP/USD has also slipped back to $1.389 since writing but was as high as $1.395.

USD/JPY fell to a 2-month low of ¥108.72 before tracing the moves in the treasuries to move back up to ¥109.45.

AUD/USD moved back into $0.74 with a read of $0.7427. It did slide on the ISM data to $0.7370, but as we write it’s pushing $0.74 again being $0.7390. Receive the latest price updates on your favourite USD pairs.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: The USD/JPY ‘Bond’ Remains so Attractive

In the world of trading, the saying ‘the trend is your friend’ has always been a good base for a trade. However, what is even more beneficial to a trade is a fundamental correlation such as that between USD/JPY and US bond yield. Adding to this is the trader’s mantra of staying with one product and it makes for a strong case to hold the course.

Over the last few weeks, we have continuously highlighted the correlation between USD/JPY and US bonds and that is unlikely to change any time soon as we stick to the descriptions in the opening paragraphs for trading with trends, correlations and single products.

US Yields Hit New Highs

US treasury yields climbed to new highs this week before quickly giving back all gains. This has been attributed to investors preparing for the announcement on President Biden’s new $4trn spending package – but whatever the package is, the conclusion is likely to be the same: medium-term inflation, which will push long-dated yield higher and higher still. Ten-year yields hit 1.77% on Tuesday before falling back down to 1.70% – but the trend suggests 2% is only a matter of time now, as reflected from the rising breakeven inflation rate which is at the 2.36% level.

Source: YCharts

USD continues to make broad-based gains. EUR/USD which was chasing $1.22 in a mere 14 days ago is now at $1.1712 – a five-month low. The AUD/USD is struggling to hold the $0.76 handle and is back below at $0.759 and looking weak.

But it’s USD/JPY that needs the most attention having now pierced through ¥110.00 for the first time since March 2020. After its several attempts, we see a new set of targets being created. The breakdown of a clear resistance line at ¥110 will have the technical analysts excited and they will be looking for confirmation that it will break for real over the coming days. The pair topping out at ¥110.43 before the 7-basis-point slide back to 1.70% in the 10-year took some of the heat out.

But with the forecast of 2% in US long-dated bonds and a likely pop from the Biden announcement, USD/JPY’s correlation trend suggests further upside is likely over the coming period.

Coming events/holidays to watch out

  • 2 April: Nonfarm Payrolls (March) – The Market expects the payrolls to rise for the third consecutive month to 647K (previous was 376K).
  • 5 April: Easter Monday bank holiday in Australia, New Zealand, and Europe; Ching Ming Festival holiday in China.
  • 8 April: The FOMC Minutes will be released.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: A Bit of Pop in the Pop-Gun Policy from the RBA

For the first time in years the RBA caught the market slightly off guard. Not around what it did, but more around when it did it.

The Board’s decision to extend its quantitative easing program by a further $100 billion, is something most had expected it to do. The second tranche program will roll out at the close of the first tranche which could be as early as April 9. The issue was that it has announced the second tranche now, which certainly wasn’t expected, as the market has been conditioned to believe the RBA would foreshadow this move at the April board meeting and ‘confirm’ this was the case and start immediately.

This wrong-footing announcement saw Australian bond yields plummeting with the Australian 10-year falling like a stone down over 8 basis points. The AUD went from $0.7660 to $0.7615 and eased further – it is battling to hold onto the $0.76 handle and with the pressure of a falling iron ore price, it is unlikely to hold this level in our opinion.

At the time of writing, over 75% of traders are going short on the pair:

Source: Data at 14:15 on Feb 4 (GMT + 11) on Mitrade

Cash rate for 2021 & beyond

What the RBA also signalled was that Australia’s cash rate is now ‘set’ until 2024. In fact, the statement suggests it could be longer than this noting that inflation would need to be ‘materially higher’ before rates could rise. Considering the RBA’s mandate for core inflation is 2% to 3% and it hasn’t been in this band since the third quarter of 2015 – 2024, maybe it is too short of a time frame.

It also puts a ruler through any idea that short-term inflation bursts will cause the RBA to raise rate prematurely. As nations come out of the COVID crisis with inflation rates that are coming from very low bases, inflation could ‘pop’ over a quarter or so. But the RBA is signalling it needs structural change – aka what the Federal Reserve is suggesting.

So, the RBA has shown it has some ‘pop’ in the RBA’s pop-gun policy arsenal, the caught is that it’s still too small for it to be sustained, and the Fed or ECB will run it over with similar packages of their own, which is something to watch out for.

Key Events to Watch in the Coming Week

  • BoE’s Interest Rate Decision – February 4, 2021 (GMT +11)
  • RBA’s Monetary Policy Statement – February 5, 2021 (GMT + 11)
  • Nonfarm Payrolls (Jan) – February 6, 2021 (GMT +11)

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: The Return of Janet Yellen

The return of the former Fed Chair Janet Yellen to the forefront of US policy; this time on the fiscal side it’s one that the FX market will probably meet with glee.

A solid communicator and an advocator for ‘strong’ policy accommodation, Janet Yellen’s upcoming appointment to Treasury Secretary will likely mean that Joe Biden’s fiscal stimulus package will be one of mammoth proportions – and a potential short-term negative for the USD.

To highlight this point, here are some extracts from her speech that she gave about her upcoming appointment.

“We lawmakers need to ‘act big’ on the next coronavirus relief package,” she complimented by adding that the benefits of the package will well and truly outweigh the costs of a higher debt burden.

“As Treasury chief my role will be to assist in the rebuilding of economy so that it creates more prosperity for more people and ensures that American workers can compete in an increasingly competitive global economy.”

“Right now, short term, I feel that we can afford what it takes to get the economy back on its feet, to get us through the pandemic.” As rates are historically low and that debt-servicing payments as a share of the economy are lower today than before the 2008 financial crisis.

These are big statements and the ones that support the trade we have seen throughout 2020. A tidal wave of USD is likely to hit the markets in the foreseeable future.

Future of the USD trend

Her comments also back what the Federal Reserve has stated – that it will back the economy with quantitative easing and record low rates until inflation averages 2% – something that is at least 2 years off. Having US fiscal and monetary policy aligned will create some form of inflation in the future that is the intended goal and that the rates will therefore rise.

Ms Yellen’s statement coupled with last week’s statements from Fed officials show that rates for the foreseeable future will remain incredibly low.

This was seen in the movement of US treasury with US 10-year yield falling from 1.12% to 1.09% on Yellen’s remarks and have continued to fall.

Time to go ‘risk-on’?

The flip side of this is the acceleration of the risk trade with textbook moves in CHF, JPY and USD easing while the like of EUR, GBP and AUD shifting higher.

EUR/USD is now back above $1.21 at $1.2145, the GBP/USD is back above $1.36 at $1.3630 while AUD/USD is now above $0.77.

Key Events to Watch in the Coming Week

  • Fed’s Monetary Policy Statement – January 28, 2021 (GMT +11)
  • USA’s Gross Domestic Product Annualized (Q4) – January 29, 2021 (GMT + 11)

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: With a New Year Comes a Review

Happy New Year – A time of renewal, a time of new thinking and a time of excitement for change as we look to the future (even in the time of COVID).

We like to use the New Year to ‘review’ and see if we need to ‘renew’ or ‘rethink’ our FX strategy, which is what we shall do for this week’ piece.

Differences in the Global Trading Environment between 2020 & 2021

What’s changed from 2020 to 2021?

  • New administration in Washington
  • Brexit is finally complete
  • US rates have shifted

What hasn’t?

  • COVID-19
  • Unconventional policy the world over
  • Geo-political tensions – particularly in the Pacific

2021 Forex Trend Forecast

We will be watching for reactions to these points from both the fiscal and monetary sides of policy this year but what this means for FX based on the current setting is:

USD: New administration will mean increased US fiscal stimulus, and President-elect Joe Biden has already announced that he is assembling a multitrillion-dollar relief plan that would boost stimulus payments for Americans to $2,000. The discussions of the stimulus had triggered bearishness in the currency for most of 2020, but what will happen as it becomes a real event in 2021? It probably risks creating a US ‘exception’ narrative and may lead to a rise in market discussions of the Fed tapering. Either way the USD is near ‘rock-bottom’ pricing and in the short term a snap back may be seen.

EUR: Real yields and equity sentiment remain the key drivers of the EUR, ECB remains sidelined and fiscal support is piecemeal and country specific. Over 2021 it’s likely to rise naturally. Economists at Nordea expect EUR/USD to peak to the 1.25-1.27 level during the first 6 months of 2021.

GBP: Brexit is over and the oversold GBP had snapped back with gusto to end 2020. However, post-Brexit reality is COVID, as the country is now under its third lockdown, which could cause a probable double-dip recession and a likely BoE rate cut in Feb. Bearish here.

JPY: It remains a solid defensive play. USD/JPY had weakened due to the USD’s slide, however if as expected the USD finds support, the pair will struggle to fall further, much to the relief of the BoJ, which is extended until September 2021.

AUD: RBA is out of ammo in the medium term and Asia’s thrust for copper and iron ore is driving the AUD hard. However, AUD/USD is vulnerable to a short-term pullback on a pausing USD and profit taking – medium-term outlook is bullish and short-term outlook is bearish.

Key Events to Watch in the Coming Week

  • President-elect Biden’s speech – January 15, 2021
  • Fed’s Chair Powell’s speech – January 15, 2021
  • Inauguration of Joe Biden – January 20, 2021

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: The Last Bit of 2020 Still Delivering for Risk

Almost nothing can stop ‘risk’ FX – GBP, AUD, EUR and NZD are finishing the year in incredibly strong up channels.

The GBP is the most interesting here considering the probability of a Brexit Free Trade Agreement (FTA) with the EU is, in the words of Prime Minster Boris Johnson, ‘below 20%’. With Brexit finally happening on 31 January 2020, time is gradually running out. As of Monday, the GBP is now in a net long scenario as seen here.

Chart, histogram

Description automatically generated

Is USD’s downtrend going to stop anytime soon?

What is also interesting as we finish 2020 is the USD’s downward trajectory remains unabated.

After Biden named his US Cabinet members, investors tend to see more stability in US economy and its policy. In fact, the USD downtrend is actually accelerating as the forecasted stimulus hopes of Biden Administration and a Federal Reserve that is posed to do more start to become fact.

US House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin are inching closer to their COVID relief bill. The market is becoming more confident the bill will pass now that Senate leader Mitch McConnell, Senate Democratic Leader Larry Schumer and House Minority Leader Kevin McCarthy formed a bipartisan group and released a proposal for $748bn aid package excluding the two most contentious and partisan issues. This bill is seen as a ‘bridging’ proposal before a large and more board agreement is created under the new administration.

This proposed stimulus support is a huge USD negative as no other G10 currency can compete with the sheer size of the packages being put forward. This has seen G10 pairs explode higher with the GBP/USD up to $1.3445, a break above $1.349 would be a new yearly high for 2020. EUR/USD at $1.2168 continues to show that even in the face of COVID crisis across the Atlantic, risk sees 2021 in a positive light. This position was enhanced by the FDA announcing that the Moderna’s COVID vaccine is safe and effective in people ages 18 and older, clearing the way for emergency authorisation the same as the Pfizer vaccine.

The AUD may push even higher

Finally, there is the AUD/USD which is continuing to chase new 2 ½ year highs as export prices reach 7-year highs and the RBA holds the line on new packages.

Recently, the relationship between Australia and China continues to worsen. Australia will challenge China at the World Trade Organization over its barley tariffs. Despite this uncertainty, AUD/USD keeps its bullish trend.

At $0.7572 there is every chance the pair would test the level of $0.76 and would put the medium-term resistance at $0.79.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: One Down, One Still Very Much Standing

The 2 major risk events of the past 9 months continue to be the key drivers of FX risk trading.

  1. Caseloads of COVID-19 and a possible vaccine to it.
  2. The US presidential election.

The second point has now officially been ‘declared’ with President Trump finally allowing a transition process to President-Elect Biden to begin. This was probably seen as an ‘unexpected’ outcome considering the Trump team is still pursuing legal challenges in several of the swing states yet to official declare.

However, with Georgia officials declaring this week if there will be any legal challenge remaining, that could, in theory, be successful in the remaining states. Yet, it would still not be enough to get Trump to 270 electoral colleague votes that are needed to be re-elected. This ‘risk event’ is now officially over. However, the Trump presidency is not – that is still official until January 19 and there are still some risks here.

Is it time to go for risk-on markets?

The reaction to Trump’s concession was one of risk-on, the equity market made record highs in the US and the USD fell against all G10 currencies on the news, with risk currencies in the form of the AUD, NOK and SEK being the biggest movers.

AUD/USD is again through $0.73. While FX strategists at UOB group predicts that the pair may break above 0.7400 in 1-3 weeks’ time, the question for it over the final week of 2020 is will the risk levers continue to push it higher? And, will that mean a year-end target of $0.75 is still possible? The macrothematics suggest yes, but real events could still be a headwind.

Namely COVID-19 cases.

That first point is really the major catalyst now for further risk rallies or pull backs, and as discussed in last week’s note caseloads are still growing almost exponentially in the US and Europe, not to mention that global cases have already surged past 60 million, which is weighing on short-term confidence.

Beware of short-term risks

Case-in-point: the US consumer confidence fell to back into pessimism in November to 96.1 from 101.4 (100 is equilibrium). Future expectations deteriorated (fell to 89.5 from 98.2) specifically due to a resurgence in COVID cases and the subsequent restrictions. The Richmond Fed manufacturing survey for November fell more than expected, to 15 versus estimates of 20 and well down on last month’s record high of 29, most components slipped and the most notable was new orders down to 12 from 32.

This must be seen as a short-term risk for FX. Watch for possible switching to the JPY and CHF as traders cover possible volatility to end the year.

Key dates before the end of 2021

Major events that can bring volatility to the markets in the remaining weeks of this year:

  • December 10 – Vaccine Development: Some sources suggest that Emergency Use Authorization for both Pfizer and Moderna vaccines may potentially be approved on this date
  • December 14 – US Presidential Election: Members of the Electoral College will meet and cast their ballots for president and vice president
  • December 31 – Brexit: End of the transition period

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Cases Starting to Overwhelm the Vaccine

A question that you must ask yourself now is what holds more risk to FX right now – the record number of cases presenting in Europe and the US or the multiple vaccines that will be rolled out over the coming 6 to 12 months?

If we were arguing equities – market theory dictates that equities price 12 months ahead of time and come November 2021, the majority of the world will likely have been vaccinated.

But we are discussing FX and what is happening in the bond market in our view is the more telling stat for right now. US 10 treasury yields have been as high as 0.94% as presenting cases in the US are on track sometime early next week to be 200,000 a day. New York and Chicago ordering activity restrictions. Wisconsin and Michigan the same and even though Florida is resisting lockdowns, they are coming.

Infections are skyrocketing across the US and Europe

US fatalities have reached their highest point since May. Based on the data from Johns Hopkins University, the death toll in the US is now at 250,029, which is higher than any other countries. Also, hospitalisations have jumped 13% in five days across six states.

Then we look at Europe, Italy’s fatality rate is at its April peak, France is now ‘at capacity’ for hospitalisations and is the first European nation with over 2 million known cases. The UK and Spain have now reported 1.5 million cases and that figure will no doubt get bigger still.

This has to be a short-term drag, and the early data released for October, a month that saw cases starting to increase, suggests it is. US retail sales figures fell in the month of October (missed the market expectation of 0.5% and arrived at 0.3%), Europe data is showing signs of slowing. Stay alert and receive latest market updates on major events.

How is risk FX reacting to it?

This is causing risk FX to break up at the moment with the EUR separating itself from the likes of the AUD.

EUR/USD

Chart

Description automatically generated

AUD/USD

Chart

Description automatically generated

As the charts show, the risk-on trade is being applied to the AUD/USD pair, news of the vaccine and that Australia is managing the COVID crisis better than most is seeing it holding the November gains. EUR/USD, however, lost momentum even with the positive news from the vaccines, there is an interesting setup building here.

A pattern that we will be watching closely over the coming weeks as the northern hemisphere moves into peak winter.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Wanting Risk and Overbuying Risk are Two Different Things

Two big risk-on events this week have put a rocket under risk markets.

  1. President-Elect Joe Biden declaring victory but with possible checks and balances from a Republican Senate, a win-win according to the market.
  2. A COVID-19 vaccine from Pfizer and BioNTech providing very promising results from stage 3 trails.

The surge in risk buying has been going on now since Biden’s lead in major swing states took over (late last Wednesday night). The news that the stage 3 Pfizer/BioNTech trials (which is a very crucial stage in vaccine development) prevented more than 90% of symptomatic Covid-19 infections in over 40,000 volunteers is not only the most encouraging scientific advance to date, but it’s a sign that 2021 will likely be very different to 2020.

Too early to go for risk-on markets?

Risk FX initially took all of this as a signal to ‘turn on’ however as time progressed, it was also clear that risk has a dilemma. These positive external factors are over 6 months away from taking effect and possibly 9 months in respect to the COVID-19 vaccine reaching full herd-immunity. According to Pfizer, 50 million doses will be supplied by the end of this year.

There are some short-term risks that need to be considered.

EUR/USD

Second and third waves in the northern hemisphere are reaching new record infection levels (with the US recording over 130,000 cases in a single day), the impact on consumption and confidence will be huge. It may explain why EUR/USD has been patchy even after reaching a 2-month high.

Chart

Description automatically generated

The pair clearly hit a resistance and that looks to be an issue for it going into the long winter months of the Northern Hemisphere. It is not helped by the knock-on from surging US yields.

Yet, according to the economists at Rabobank, they are optimistic about the pair as they have curtailed their predictions and revised their “three-month EUR/USD forecast to 1.17 from 1.16” and their “6-month forecast to 1.18 from 1.14” based on a lower expectation of the USD.

GBP/USD

The other issue is Brexit, the 31st of December is looming large, Westminster is far from united and the EU is running out of patience this could make the end of the year very tricky for the GBP. It is one risk to watch. Traders should also pay attention to the 26th of November, which will be the date when the trade deal must be negotiated and presented to the European Parliament.

Chart, histogram

Description automatically generated

Chart, histogram

Description automatically generated

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation and therefore it should not be relied upon as such. You should seek your own advice.

Trading Currencies: It Isn’t Over Until It’s Over

America has chosen Democrat Joe Biden as its 46th president of the United States. But it’s clear that President Trump will fight it out to the very end with legal challenges and recount petitions. This is far from over and currency markets are reflecting this.

Trends of Major Forex Pairs

Here are the ranges of the major pairs and the basket itself since the close of the polls on the East Coast to now.

EUR/USD

Chart, line chart

Description automatically generated

The euro edges higher against the US dollar as the election results are awaited. As of the time of press, it hit the one-week high 1.18 threshold.

USD/JPY

Chart, line chart

Description automatically generated

USD/JPY is traded with a negative bias amid a mildly softer tone surrounding the US dollar. Market’s hope for a blue wave victory is weighing on the USD.

GBP/USD

Chart, line chart

Description automatically generated

After the BoE expanded its QE program by £150 billion and maintained cash rates at the same 0.1% level, GBP/USD jumped to near mid-1.3000s.

AUD/USD

Chart

Description automatically generated

The Aussie pair continued to edge higher as the votes are counted. Analysts at UBS predicts that the Aussie pair is likely to surge towards 0.74 by Sep 2021.

DXY

Chart

Description automatically generated

It is obvious that US dollar index is falling on the uncertainty that is coming from the elections. Its momentum remains weak near the 93.42 region.

As expected, if Trump took Florida, which he did, FX markets would react strongly and would see a repeat of 2016 becoming fact. It certainly led the bookies to flip their betting markets as fast as they did in 2016 on Florida’s declaration and that sent currencies with it. This will likely to continue in the interim.

Election Results & Beyond

Going forward, now there are several factors to consider:

What does the Senate look like?

Currently it looks like the Republicans will hold the Senate and could hold up policy over the next 4 years. Tax and regulatory reform were pillars of Biden’s campaign; this scenario might now be watered down with a Republican-held Senate.

Other Factors Not To Be Left Out

Elections aside, there are still several important issues that traders should keep a close eye on in the near term:

  • Nonfarm Payroll of October – Market is expecting the US economy to add 600K positions, with 661K jobs in the previous month. US employment sector is foreseen growing yet at a slow pace.
  • Covid-19 – Cases keep mounting in the US as there were more than 100,000 new infections recorded in a single day.
  • Brexit – 26 Nov will be the date when the trade deal must be negotiated and presented to the European Parliament. Yet, the UK and the EU are still stuck on the fisheries issues.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Waiting for a Blue Wave or Status Quo?

Under a week into the US election and there is also already a statistic that is standing out. Early voting in the US has reached 50.2% of the total vote cast in 2016. That puts the 2020 election on track for the highest ballots cast in US history. If a winner can be announced on Tuesday, it should be decisive, however nothing is assured in the lead-up to this election.

The volatility index (VIX), also known as Wall Street’s fear index, has been on the rise and it surged to above 40 on Thursday, which is its highest level since June. It is obvious that the US election uncertainty is adding pressure to the markets. Volatility is likely to be high and market gaps might appear.

Currently, the election is creating a very short-term ‘nervous lull’ in currencies as seen by the soft ranges in the USD.

Pairs That Are Worth Paying Attention To:

EUR/USD is holding between $1.1796 and $1.1839 despite COVID issues flaring in France, Italy and now Germany. Further shutdowns and possible cuts to workforce and social interaction heading to the winter months is a daunting prospect for the already faltering European economy. The analyst team at Rabobank predicts that there is “risk of a dip to 1.16 in three months”. The pair has some real headwind risks coming in the next 8-10 weeks.

GBP/USD continues to rise now above $1.30. This is despite the fact that Brexit is becoming a huge risk for the pair and that the UK is bordering on having to enact strict stage 3 lockdowns for a second time this year. Receive the latest updates on world news for your trades.

AUD/USD too has been rangebound, holding between $0.7110 and $0.7160. There is an array of data due out this week that might move the dial here. But the reaction to the CPI released on Wednesday was next to nothing falling 10 pips even with a better read than expected. The pair is waiting for the RBA next Tuesday where it is expected the RBA will enter the quantitative easing market.

Key Dates to Follow Next Week

  • Nov 3 (Tuesday) 14:30 (GMT +11) – RBA Interest Rate Decision
  • Nov 4 (Wednesday) All Day (GMT +11) – Presidential Election
  • Nov 5 (Thursday) 23:00 (GMT +11) – BoE Interest Rate Decision
  • Nov 6 (Friday) 06:00 (GMT +11) – Fed Interest Rate Decision

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Waiting for November

14 days to go in the US presidential election which is seeing the President racing around the purple states as fast as he can. The more rallies he holds, the closer this race will be come. Do not be surprised to see the polls tighten right up as he is targeting counties that only need a handful of votes to swing back to him.

This will put some volatility back into FX and indices and it will probably lead to some gapping and spread widenings the closer we get to election day. RBA’s deputy governor Guy Debelle describes the latest market behaviour as having this notable feature: “how sharply market conditions deteriorated and how quickly they recovered”.

Be mindful of this as the uncertainty and unforeseen results will see very sharp and quick movements, particularly in FX. Mind your stops and your positioning.

What are the major events that could turn the market?

Events moving the dial now:

  • House Speaker Nancy Pelosi declared she is ‘optimistic’ a deal could be reached on the latest COVID-stimulus bill and that the value would be in the range of US$2.2 trillion – the amount the Democrats have always wanted.

Curbing that ‘optimism’ was Senate Majority Leader Mitch McConnell stating that if a stimulus package comes before the Senate, passed by the House and also backed by President Trump, “[he] would consider it”.

Furthermore, Republican Senator Thune stated “it would be hard” to find enough Republican Senators to back a $1.8 trillion stimulus let alone a US$2.2 trillion bill.

  • European COVID-19 cases continue to surge. Germany had a record rise of 8,397, Italy 10,874 – the highest level since May and the UK 21,331 as it put Greater Manchester in a strict Stage 3 lockdown. Ireland too entered its strictest lockdown of the pandemic, it’s going to be a very long winter.
  • The final presidential debate on Oct 22 is expected to create momentum in the market as the second debate was cancelled due to Trump’s refusal to participate in a virtual debate after he was tested positive for COVID-19. The topics that both candidates will debate on in their final face-off are:
    • Fighting COVID-19
    • American Families
    • Race in America
    • Climate Change
    • National Security
    • Leadership

Varied performance in major USD pairs

This has led to very mixed movements in the USD against the G10, it was weaker against the European group but stronger over the Oceania currencies which is not what one would expect.

EUR/USD is now back above $1.18, jumping some 50 pips in 24 hours to a new 1-month high. Analysts at Danske Bank predicts that the euro may march towards 1.20 in December if there’s “a Brexit solution, a Biden win and an EU budget agreement”. On the Sterling front, GBP/USD continues to gain ground at $1.294. Get latest updates on the US dollar trend.

Compare this to the AUD/USD which hit a new 1-month low of 0.7021, this is a solid support level and should bounce, but it is clearly being tested. Weighing on the Australian dollar includes RBA’s dovish expectations. Early this week, when the RBA discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, AUD/USD slipped through the support level and traded around the key 0.7000 psychological mark.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Not All One Way (But Close)

It’s interesting how strong ‘risk-on’ trading has been over the past 3 to 4 weeks. The US dollar basket since the first Presidential debate has almost been in a downward linear trend that suggests the market is actually backing a change of administration at the White House.

Today (Oct. 15) was originally scheduled for the second US presidential debate in Miami, but it was cancelled after President Donald Trump said he refused to participate. Final round will be held at Belmont University in Nashville on Oct. 22.

DXY since September 28:

However, there are a few issues outside of the US election that are creeping into the trades.

AUD/USD – Challenging relationship with China

AUD/USD had been pretty steady around $0.7210 for a little while. However, news that China might be looking to freeze imports of coal from Australia broke the trend and knocked the pair to $0.7175.

Australian Treasurer Josh Frydenberg said in a conference this week that the linkages between China and Australia in terms of coal import are vitally important to the country, yet the relationship is mutually beneficial as well.

Australia’s economy has performed rather well through the COVID crisis and is likely to remain one of the better performing economies in the coming 12 months.

EUR/USD – Second wave is making a heavy comeback

EUR/USD is also coming under pressure as the second wave in Europe builds to levels not seen since the March peak with Italy’s active cases rising to 5,901 from 4,619, France now has 21,329 active cases while the Netherlands announced a partial lockdown by closing bars, restaurants and cafes from Wednesday as its active case start to impact hospitalisations. All this has seen EUR/USD down to $1.1743, a 65-pip fall, in 24 hours and is showing further weakness.

GBP/USD – Records highest daily rise of COVID cases since March

GBP/USD is suffering from the same issue as the UK’s second wave sees a new tiered lockdown structure. Currently there are 17,234 active cases, however it’s the fact that cases are now growing at a rate not seen since March that has GBP/USD on edge (~5000 cases a day). Hospitalisations stand at 3,905 but that number is sure to increase. GBP/USD fell 1% to $1.2935 and will likely fall further if numbers continue to spiral and/or lockdowns get stronger.

Vaccine news could drive the market

Given the fact that COVID is still impacting the market prices as the recent surge of cases has become increasingly worrying, headlines that evolve around the vaccine progress are likely to move the market prices dramatically. Just earlier this week when Johnson and Johnson paused its coronavirus vaccine trials after a participant experienced an unexplained illness, EUR/USD slipped below 1.18 and US stocks edged lower. Volatility will continue to be high in the coming weeks. Stay alert on news and manage your positions with risk management tools.

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.

Trading Currencies: Tweeting the Night Away

The Tweets that Broke the Market

Never forget how powerful 280 characters can be on FX especially when those 280 characters are in the hands of the US President.

For the past week, even when the President was diagnosed with COVID-19, markets both in equities and FX were moving in a ‘risk-on’ fashion on the belief that House Speaker Nancy Pelosi and Treasury Secretary Steve Mnuchin would finally come to an agreement and pass the next COVID-19 stimulus bill.

But in the space of a 10-minute tweet spree from the President announcing [that he] “instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business”, that idea was dashed.

Currencies Against the USD Went on a Slide

Interestingly enough, this goes against what the Federal Reserve believes. Jay Powell has again been testifying this week that fiscal policy should and can be used to get the US economy through the COVID-19 crisis. A point can almost be summarised as: ‘there is never too much stimulus’.

Trump’s decision to scrap the next tranche of stimulus has seen the USD ratch higher, seeing the EUR/USD dropped from $1.1790 to 1.1735, GBP/USD has now fallen a full cent to 1 cent at 1.2875. AUD/USD was already under pressure from the RBA’s tone, then Trump’s tweet storm sent it to 0.7100. Receive latest price updates on 60 hottest FX pairs

Gold Also Crashes on the News

The same happened to gold price – the bright metal plummeted 2% from a 2-week high and broke well below the $1,900 mark to around $1,877 on the news as there was a wave of selling pressure kicking in.

From gold’s trend direction, it’s clear that the market was hoping strongly for a fiscal deal. As Daniel Ghali, commodity strategist at TD Securities, mentioned, “gold has actually conditioned from a safe haven asset into an inflation hedge asset”.

He went on to explain, “as an inflation hedge asset, the bottleneck here is actually inflation expectation. The market would need to see them rise further to pull real rates lower and gold higher.”

Gold often benefits from stimulus plans as it is widely viewed as a hedge against inflation and currency depreciation.

Future of the USD Trend

Why this news matters so much is that with the stimulus bill off the table, the election becomes the only game in town, and history is now your fundamental and technical gauge.

This chart shows all US elections back to 1992, what it highlights is that the USD has appreciated in the 70 days leading up to the November election when the incumbent administration has lost.

Chart, histogram

Description automatically generated

Right now, the USD has just traded in green (mustard line) again after falling in line with the stimulus bill. With 26 days to go, the second and third presidential debates would be the key market focus. Considering Trump intends to participate in the debate on Oct 15 despite his condition, it would be interesting to see how it would go. Traders have to beware, the polls and any further signs that Trump is losing ground will likely see the USD moving higher still. Stay alert and watch the news closely

Upcoming events that may affect the trend of USD:

• Oct 15 (Thurs) 9:00-10:30pm EDT – Second presidential debate

• Oct 22 (Thurs) 8:00-9:30pm CDT – Third presidential debate

This article is prepared by Lucia Han from Mitrade and is for reference only. We do not represent that the material provided here is accurate, current or complete. The article content neither takes into account your personal investment objects nor your financial situation, and therefore it should not be relied upon as such. You should seek for your own advice.