NFP Still The Key Event on The Risk Calendar

The importance of this set of data may ebb and flow, but it has generally stood the test of time as the key gauge for monetary policy decisions going forward.

The NFP is the release of data which includes around 80% of the US workforce employed in manufacturing, construction and goods. The report does not include government employees, private households or (obviously) those who work on farms. Both the headline numbers, including all-important revisions, unemployment figures and average hourly earnings give investors and traders a vital insight into the state of the world’s biggest economy, showing how businesses are performing. During the pandemic, this has been more valuable than ever, even if the collection of the data has proved difficult and made analysis and forecasting of the report even more precarious than normal.

Part two of the Fed’s mandate

Inflation and employment are the two key pillars of the US Federal Reserve’s mandate. We now know that Chair Powell has ticked off the first goal as the Fed’s favoured measure of inflation is at a 30-year high with labour shortages and supply bottlenecks unlikely to ease in the near-term. Powell confirmed in his Jackson Hole speech that “substantial further progress” has now justifiably been met.

But it’s a different story regarding jobs which remain some 5.7 million below the pre-pandemic level of February 2020. This is obviously a clear improvement on the low point when employment was down over 22million last year when the May NFP printed a negative 20.537 million jobs last year. (Gulp!) With now two straight months of 900k+ jobs gains, the key question for markets and Fed policy is whether we have reached “substantial progress” on the other part of the Fed’s mandate.

Buoyant forecasts, but dollar offered

Aside from the influence on the Fed’s policy stance, this Friday’s report and its potential impact on global markets will also inform us about how the jobs market is holding up as the Delta variant took off. Several activity readings, including yesterday’s ADP report, have softened recently and we may see more of that in job growth. This month’s NFP will also set the stage for how the jobs market may fare as parents and school children head into another uncertain academic year which begins in September. Recent common wisdom is that parents will go back to work, driving accelerated job growth.

Consensus estimates see a headline figure of 750k, and the household survey is likely to report another decline in the unemployment rate in August to 5.2%. This is because participation should rise as unemployment benefits cease and workers return to the labour force.

A strong report should at least cement views that the Fed will announce tapering in September and start in November or December. But the Fed is still in a relatively cautious policy shift mode, especially as there are clears signs of ebbing wider economic data and this has seen the greenback drift lower this week. Breaking the link between tapering and tightening is the next potential market focus and future NPF reports will have a big say in this, as always.

Written on 02/09/2021 by Lukman Otunuga, Senior Research 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.

Trade of The Week: Oil Shaky Ahead Of OPEC+ Meeting

Despite bulls dominating the scene last week, both Brent and WTI Crude have posted their first monthly loss since March.

The terrible combination of Delta worries and China growth concerns may spell trouble for oil as September kicks off while widespread flooding from Hurricane Ida could keep bears in the vicinity. With these negative themes stacked against oil and clouding the demand outlook, all eyes will be on the highly anticipated OPEC+ meeting on Wednesday afternoon.

Will OPEC+ Stick to Planned Output Hike?

Markets widely expect the cartel to maintain its current plan to increase production by 400,000 barrels per day despite pressure from the United States to pump more.

The question is whether expectations match or differ from reality?

Given the ongoing developments revolving around Covid-19, the cartel may reiterate that the variants pose a particular risk and may tweak production hikes accordingly. This could be in the form of reducing or halting the 400,000 bpd increases if the demand outlook starts to look unfavourable.

On the flip side, the positive vaccine-related developments across the globe have boosted optimism over a pickup in fuel demand. Looking beyond the risk associated with the Delta menace, other factors could fuel the demand recovery – allowing OPEC+ to stick with its production revival plan until the end of December 2022.

Demand outlook set to improve?

It was only a few weeks ago that the International Energy Agency (IEA) cut its forecast for global oil demand for the rest of 2021 due to the Delta variant. Interestingly, OPEC stuck to its prediction of a strong recovery in world oil demand this year and further growth next year.

OPEC could be on the money, especially when factoring in the stalled prospects of renewed Iranian exports, ongoing government stimulus, and improvement in gasoline demand as road and airline travel rebound.

It does not end here. According to a Bloomberg report, demand seems to be improving in the world’s second-largest oil consumer with traffic on China’s busy streets recovering as lockdown restrictions ease.

Let’s not forget about the US jobs report

The NFP report is likely to be the biggest market-moving event of the week, especially after Federal Reserve Chair Jerome Powel offered no concrete taper signals at Jackson Hole last Friday.

Investors will closely scrutinize the jobs report for fresh clues to when the Federal Reserve will begin asset tapering. A strong jobs report may boost sentiment towards the US economy and fuel taper bets consequently propelling the dollar higher. As the value of the dollar rises, the prices of both Brent and WTI crude fall. Alternatively, a disappointing jobs report could cool taper talk bets, essentially weakening the dollar – pushing oil prices higher.

Brent & Crude remain in bearish channel

Taking a look at the technical picture, Brent crude remains in a bearish channel on the daily charts. Despite the sharp rebound witnessed last week, the commodity is still on route to concluding August roughly 4.6% lower.

The recent candlesticks on the daily charts suggest that bulls could be exhausted with sustained weakness below $73 triggering a decline back towards $70.30 – a level where the 100-day Simple Moving Average resides. A break below this point could see Brent sink towards $67.46, $67 and $64.60, respectively. Alternatively, a solid daily close above $73 may pave a path towards $75 and potentially higher.

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We see a similar story on WTI Crude with prices down over 6.57% in August and trading within a bearish channel on the daily charts. Resistance can be found at around $69.50 with the 50-day Simple Moving Average just above this level. A strong breakout and daily close beyond $69.50 could encourage a move towards $72 and $73.50, respectively. Should $69.50 prove to be reliable resistance, a decline towards $67, $65, and $61.50 could be on the cards.

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Written on 01/09/2021 by Lukman Otunuga, Senior Research 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.

Will the Powell Rally Rollover into September?

China’s factory activity expanded at a slower pace in August, raising concerns over the country’s economic growth. King dollar extended losses as US Treasury yields remained subdued while gold flirted near key resistance levels. In Europe, stocks have opened in the green as investors evaluate the latest inflation print from the continent released this morning before the September ECB meeting.

August has certainly been another positive month for global equity markets with the dovish comments from Federal Reserve Jerome Powell last Friday adding icing to the cake. Equity bulls are loving Powell’s messaging, especially after he stressed that Fed tapering and rate hikes are mutually exclusive events. With the S&P 500 on track for its seventh straight monthly advance and hitting its 12th all-time high this month, the path of least resistance certainly points north.

As we head into the new trading month of September, the key question is how much further can stock markets rally before bears enter the scene? Risks in the form of the Delta menace, concerns around China’s slowing economic growth and regulatory crackdown among other themes could impact upside gains. In the meantime, the overall market mood remains mixed with all eyes on the US jobs report on Friday.

Dollar humbled by Powell

The dollar is struggling to nurse the wounds inflicted by Jerome Powell’s dovish speech last Friday. It has weakened against every single G10 currency this morning with the Dollar Index dipping below 92.50.

Investors who were expecting the Fed Chair to make an official taper announcement or even provide fresh insight into the central bank’s plan on tapering were left empty-handed. Powell offered no concrete taper signals and made it clear that the Fed was in no rush to raise interest rates, despite the recent spike in inflation. According to Powell, the “substantial further progress” test has been met for inflation while there has also been “clear progress towards maximum employment”.

Given how he highlighted how there was “much ground to cover to reach maximum employment”, this makes Friday’s jobs report all the more important. Before this major risk event, investors will be offered appetisers in the form of the US August consumer confidence report and weekly jobless claims.

Currency spotlight – NZDUSD

The New Zealand dollar entered Tuesday’s session with a spring in its step, appreciating against every single G10 currency. Buying sentiment towards the currency remains supported by optimism over the lockdowns successfully reducing new Covid-19 infections. This optimism seems to have overshadowed the fact the New Zealand business sentiment fell in August, even before the lockdowns were enforced across the country. Looking at the technical picture, the NZDUSD has the potential to push higher if prices can conquer the 0.7080 – 0.7110 zone, where the 100 and 200-day Simple Moving Averages reside.

Commodity spotlight – Gold

After experiencing a sharp appreciation last Friday, gold continues to hover around key resistance levels. The precious metal may remain on standby ahead of the heavily anticipated US jobs report on Friday. In the meantime, gold is likely to be influenced by the dollar, treasury yields and risk sentiment. Should bulls fail to secure a daily close above $1818, prices may drift lower back towards $1800 in the near term.

Written on 31/08/2021 by Lukman Otunuga, Senior Research 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.

Red Everywhere, Watch AUD/JPY for As a Guide

The known challenges to the markets, namely the spread of the Delta variant, rising inflation, and the Fed policy outlook have suddenly exploded into life. It’s all in timing some might say, which is especially true in trading.

The single Covid case in New Zealand set off alarm bells everywhere, with the Ardern government swiftly ordering a national lockdown due to its “zero Covid” strategy. Going hard and early instead of light and long has proven to have far less of an enduring economic impact. But the RBNZ was forced to delay its planned route to policy normalisation, even if it did surprise more hawkishly on its future rate projections.

Fed set to reduce the punchbowl

With global growth forecasts being re-rated on disappointing China data amid rising Delta variant cases, we’ve also heard from Fed officials who are now ready to taper before the end of this year. Sufficient progress has been made towards the inflation target and progress is being seen towards the FOMC’s employment goal.

Remember that the bumper July payrolls came after the Fed minutes, so a solid August report is probably good enough to announce a tapering framework potentially at the September meeting. With consensus veering towards a faster taper too, an end date around the middle of next year could be on the cards, paving the way for a rate rise by the end of 2022. This has certainly given the equity bulls some jitters, even if bond market consensus was spot on. Of course, increased volatility and Delta variant concerns may be a factor going forward.

Aussie’s perfect storm

Risk-taking is on the back burner for now, which means high beta commodity currencies like the Aussie are in a world of pain. The worst performing major this month, collapsing commodities, and plunging iron ore prices need to be added to the list of drivers hurting AUD. Similarly, the global bellwether copper has fallen every day this week until today and is now touching the 200-day moving average. This has pushed the RBA far down the list of major hawkish central banks, highlighted by their recent minutes which hinted at a much more dovish debate under the surface.

AUD/JPY global risk gauge

This currency pair is viewed as the best risk barometer and a metric for measuring broader sentiment is AUD/JPY, even if the historic positive correlation with US equity markets has decoupled since mid-June. The woes of the Aussie are well known, while the yen has also been getting a decent tailwind from falling US Treasury bond yields. The pair is making new year-to-date lows again today after slipping below the July low at 79.84 and the January low at 79.20. Next support comes in around 78 and the 38.2 Fib retracement level.

We are on for seven days of losses now and prices are oversold on the daily RSI and have scythed through the lower Keltner band. This warns of a pullback, though buyers will need to get back above 80 to slow the strong bearish momentum.

Written on 20/08/2021 by Lukman Otunuga, Senior Research 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.

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Sea of Red as Dollar Hits New Highs

US equities extended losses for a second day with the major indices down 1%. In turn, Wall Street’s fear gauge, the VIX, has spiked higher above its 200-day moving average and is trading beyond 21. This tells us how worried institutional investors are in the current bull market.

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Risk sentiment dour

There aren’t many buyers or bulls out there this morning. While equities are being shunned, commodities are being sold with oil down for a sixth consecutive session and at three-month lows. Gold is pausing after its stupendous climb off the ropes after last week’s flash crash while growth bellwether copper has fallen to a two-month trough.

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The broadest measure of Asian shares is currently trading at its lowest level since December with the Hang Seng leading the way down. European markets are catching up with those across the pond while US futures are firmly in the red.

USD on the rise after Fed taper steps

We wrote yesterday about how the FOMC Minutes would offer clues on when the bank might start tapering its bond purchases.

Well, officials confirmed that inflation was now comfortably above their average 2% target and one or two more strong job reports will now be required for “substantial progress” to be made in the economy.

The Fed is still split on timing, but most members judged tapering could start this year. The minutes do not seem to set up a taper as early as next month. But the timetable is well within the consensus on Wall Street. This means with the bumper July payrolls already working their magic (and notably after these minutes), a solid August report could see a taper pathway announced at the September meeting.

Markets reacted quite modestly to the minutes initially. But this morning, dollar bulls are emboldened and have pushed to new long-term highs. The DXY breached the March top at 93.43 so a strong weekly close is probably needed to really rubber stamp the next leg higher for the greenback. Bulls will aim for last year’s November peak at 94.28, while long-term buyers may have the September high at 94.74. in their sights.

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Oil sinking on the broader market selloff

Commodities and oil have come under more pressure this morning with Brent off nearly 1% today and below $67. The spread of the Delta variant is clouding the demand picture. Output data from China also showed the least crude is being processed by Chinese refiners in 14 months. No doubt OPEC+ will be keeping its eye on prices and the demand side. The group recently left its forecasts unchanged and any rollback in the easing of production cuts could spark ire from the US.

Regarding technicals, May lows look like next major support at $64.60 with the 200-day moving average just below $64.

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Written on 19/08/2021 by Lukman Otunuga, Senior Research 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 Picks Up Bullish Momentum, FOMC Minutes on The Radar

The increasingly fragile market sentiment has steadied but the persistence of the virus continues to weigh on the global growth outlook. In this context, king dollar is asserting its reign once again and is outperforming most major currencies today.

Investors are trying to balance up the reopening of economies as vaccination rates go up, but are also seeing the spreading delta variant being reflected in slowing economic data which has been surprising to the downside in recent weeks. The impact of the Chinese regulatory crackdown and geopolitical instability in the Middle East is also helping boost safe haven currencies and hurt high-yielding commodity currencies.

We get the July FOMC Minutes later today which should offer clues on when the bank might start tapering its bond purchases.

With inflation comfortably above the average 2% target, one or two more strong job reports are required for “substantial progress” made in the economy.

Of course, we have had much Fed chatter already from officials so choppy trading should be expected this evening. A hawkish tilt towards taper by the end of the year may embolden dollar bulls and confirm current market timing.

RBNZ hawkish hold on lockdown

The RBNZ meeting already had a spotlight on it after the Ardern government were forced into a three-day national lockdown after finding a new Covid case yesterday. There have been many surprise reactions to this abrupt action, but it’s worthwhile understanding that the country operates a “zero Covid” strategy.

This means politicians go hard and early instead of long and light, and over the course of the pandemic, this has been proven correct, for New Zealand at least. The economic impact is far less and a large proportion of spending ends up being delayed rather than lost altogether. Longer-term economic scarring is less with the cost of early action paling in comparison toa slow response. Time will tell of course on how long the lockdown needs to be with a handful of other cases now detected.

The RBNZ therefore kept rates on hold, but policymakers were confident in signalling this was merely a delay to the rate hike cycle. Projections by the bank were also more hawkish than expected with more than one 25bp hike by year end, followed by four more by the end of 2022.

While initially spiking to a new low at 0.6868, NZD retraced a fair chunk of this move. We are currently trading on the 20 July low at 0.6880 so a weak close below here does open up fresh downside towards 0.6797.

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Written on 18/08/2021 by Lukman Otunuga, Senior Research 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.

Virus Caution Dents Risk Appetite

European stocks have opened slightly lower this morning amid the Delta fears and geopolitical tensions in Afghanistan. Despite closing at record highs overnight, US stocks could come under pressure today if the risk-off mood accelerates the flight to safety.

All in all, the next few hours promise to be eventful for financial markets as investors juggle key economic data from major economies, the continued rise of the Delta variant and a speech by Federal Reserve Chairman Jerome Powell.

US Retail Sales & Powell in focus

The dollar continues to nurse the deep wounds inflicted by last Friday’s dismal consumer sentiment report. It has kicked off Tuesday on a firm note, appreciating against all G10 currencies this morning ahead of the retail sales data and Jerome Powell’s speech.

US retail sales for July are expected to drop -0.3% month-over-month compared to the 0.6% gain witnessed in June. Given how consumer spending accounts for a handsome chunk of the US economy, the data is significant and could influence Fed taper expectations. In regards to Powell’s speech, any fresh insight offered on the Fed’s future course of action or hints about tapering could result in dollar volatility. Nevertheless, investors will continue to look towards the Jackson Hole symposium in late August for clues to the central bank’s next move.

Currency spotlight – GBPUSD

The British Pound has woken up on the wrong side of the bed this morning despite the better-than-expected UK jobs data.

According to the Office of National Statistics (ONS), the unemployment rate in the UK fell to 4.7% in June beating market expectations of 4.8%. The number of people in work rose by 95,000 in the three months to June, stronger than the 75,000 market forecast. Average wages also beat expectations, rising 7.4% compared with the 6.6% in the previous month while wages including bonuses hit 8.8%, above the 8.6% estimate and higher than the upward revised figure of 7.4% in May.

Despite this strong report, the GBPUSD is under pressure on the daily charts with prices approaching the 200-day Simple Moving Average.

As the broader risk-off mood encourages investors to seek safety in destinations like the dollar, this could drag GBPUSD lower. A daily close below 1.3750 could signal a decline towards 1.3640 and lower.

Commodity spotlight – Gold

Gold staged a stunning rebound last week as the combination of dollar weakness and Delta variant fears injected gold bugs with a renewed sense of confidence. The precious metal has entered the week with a spring in its step amid the risk-off mood with prices trading back above $1792 as of writing. A strong daily close above this point could open the doors towards $1800 and $1830. Alternatively, should $1792 prove to be reliable resistance, a decline back towards $1760 could be on the cards.

Written on 17/08/2021 by Lukman Otunuga, Senior Research 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.

Week In Review: More Record Highs, Gold Rebounds, US Inflation Steadies

Last Friday’s blockbuster US nonfarm report certainly lingered in the mind of many investors as the week commenced with the dollar and treasury yields pushing higher. Just looking at the economic calendar, one could see that this would be another eventful week packed with speeches from US central bank officials and key economic data from major economies.

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Commodities stole the spotlight at the start of the week with oil extending losses as the Delta Covid-19 variant spread across Asia. In regards to gold, the precious tumbled to levels not seen in five months, cutting through multiple support levels like a hot knife through butter.

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A sense of caution enveloped markets on Tuesday as persistent concerns over the spread of the Delta variant drained risk sentiment.

On the data front, the German ZEW Economic Sentiment dropped more than expected to 40.4 in August, down from 63.3 previous. Interestingly, the Euro weakened against almost every single G10 currency on Tuesday excluding the Swiss franc and Japanese Yen.

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Our trade of the week was Brent oil which has shed over 7% this month. We discussed the possibility of increased oil price volatility amid Delta fears and other key risk events. On Thursday, OPEC’s monthly report revealed that the cartel stuck to its prediction of a strong recovery in global oil demand in 2021 despite concerns over the Delta variant of Covid-19. However, the International Energy Agency (IEA) adopted a gloomy outlook, warning that demand growth would slow sharply due to the spread of the variants. Brent remains under pressure on the daily charts, ending the week below $70.

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Mid-week it was all about the US inflation report which seemingly peaked in July. Consumer prices printed at 5.4% which was the same reading as the prior month. The report cooled Fed taper bets, sending the dollar lower while propelling the S&P 500 and Dow Jones to record highs.

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In fact, the precious metal concluded the week almost 1% higher despite the gut-wrenching selloff on Monday.

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In other news, the UK economy grew by 4.8% during the second quarter of 2021. The growth rate was in line with market expectations but slightly below the Bank of England’s 5% forecast. Sterling depreciated against every single G10 currency this week excluding the Swiss franc.

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Stocks across the globe hit record highs on Friday as equity bulls drew more strength from the US inflation data and robust corporate earnings.

King dollar found itself under pressure with the DXY tumbling towards 92.50 after consumer sentiment in the US plunged to its lowest since 2011.

This unexpected reading is likely to complicate things for the Federal Reserve as the taper debate rages on.

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Written on 14/08/2021 by Lukman Otunuga, Senior Research 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 Remain Cautious Amid Delta Fears

The negative developments revolving around Covid-19 have certainly left investors on edge with caution likely to remain the name of the game over the next few days.

Nevertheless, the week ahead promises to be eventful and potentially volatile thanks to key economic data including the US CPI report and speeches from numerous Fed members.

Speaking of central bank officials, Federal Reserve Bank of Atlanta President Raphael Bostic said on Monday that the Fed could start tapering in the final quarter of 2021 amid strong job gains. Although Richmond Fed Thomas Barkin said that the economy has made progress, he believed that there was still some room for improvement in the labor market. Both Bostic and Barkin are voters this year on the Federal Open Market Committee (FOMC).

Dollar King of the castle?

The dollar remained firm on Tuesday morning after last Friday’s blockbuster US jobs report boosted expectations over the Federal Reserve tapering sooner than expected. Rising bond yields and hawkish comments from Atlanta Fed’s Bostic have supported the upside, with the Dollar Index (DXY) trading around 93.00 as of writing.

The next few days could see increased volatility thanks to the numerous speeches from Federal Reserve officials and the widely anticipated US inflation report.

Headline CPI is expected to print at 5.3% year-over-year while core CPI is forecast to come in at 4.3%. The monthly reading is expected to drop to 0.5% in July from the 0.9% seen in June and core CPI is projected to print 0.4%, down from the 0.9% in the previous month. Further signs of rising inflationary pressures could instil dollar bulls with a renewed sense of confidence as expectations intensify over the Federal Reserve shifting its policy outlook. On the flip side, if inflation cools this may reduce some pressure on the Fed to act, potentially sending the dollar lower.

There are also a couple of Fed members scheduled to speak this week which could spark more dollar volatility. Cleveland Fed President Loretta Mester will steal the show today while Atlanta Fed President Bostic and Kansas City Fed President Esther George are due to speak on Wednesday.

Taking a look at the technical picture, the Dollar Index is turning bullish on the daily charts with the first key level of interest at 93.19. A breakout above this point may open the doors to 93.44 – its highest level in 2021.

Commodity spotlight – Gold

What a terrible way to kick off the trading week!

Gold collapsed like a house of cards yesterday, cutting through multiple support levels like a hot knife through butter thanks to last Friday’s strong US jobs data.

As expectations grow over the Federal Reserve tightening monetary policy sooner than anticipated, investors offloaded the precious metal, sending prices to levels not seen in five months.

Although the precious metal has edged higher today as bulls desperately struggle to nurse the deep wounds inflicted from the brutal selloff, gold remains heavily bearish on the daily charts. It will be interesting to see how the pending US inflation data influences prices. Looking at the technical picture, sustained weakness below $1760 may result in a decline back towards $1700 and below. Alternatively, a breakout above $1760 could trigger a move towards $1792 and $1800.

Written on 10/08/2021 by Lukman Otunuga, Senior Research 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.

Will the BoE Hawks Win The Day?

Suspense is elevated with policymakers squaring up over asset purchases and potential signals over ending the bank’s QE programme.

Upbeat new forecasts

Super Thursday means we get new economic projections from the Old Lady. The spread of the Delta variant may see a downgrade of third quarter forecasts though the bank is expected to signal that the economy remains on track to reach pre-pandemic levels by year-end.

Inflation forecasts will probably be shifted higher in line with re-opening price spikes with a peak of 3.5% in the near-term. The bank believe that higher inflation is temporary even as inflation expectations have drifted above 3% one year out. CPI projections are forecast to show that inflation is set to fall back to target by 2023/24.

Any discussions around balance sheet reduction will cause the market to perk up. The previous 1.5% Bank rate threshold for kicking this process off will be lowered at some point, so any more colour here will see market volatility.

Vote in focus

More broadly, consensus sees a low probability that the MPC turn more hawkish at this meeting. The majority of analysts do not expect hints at an earlier hike and no more than two votes for an earlier end to QE, which is set to be completed in December.

Ramsden and Saunders are the two hawkish outliers at present, taking over the mantle from the recently departed Haldane. The forecast 6-2 vote remains a key variable for markets with risks fairly asymmetric on this outcome. There is probably a risk that part of the market has priced in more than two votes who think purchases should be curtailed. But the lack of a hawkish signal like this would potentially see some GBP weakness and the repricing of interest rate expectations.

Potential for GBP Short covering

If the MPC do look beyond the current Delta variant uncertainty with a split vote and see that significant progress is closer than many think, GBP bulls will push for more gains. The covering in short GBP/USD positions should then push cable up to 1.3950 and into the 1.40 resistance level with 1.4110 a target above here.

That said, the ending of the 1.9 million workers on furlough in September is perhaps a key marker for policymakers giving them more clarity in their decision making. Consolidation above the 200-day moving average at 1.3750 is crucial for further upside.

Written on 05/08/2021 by Lukman Otunuga, Senior Research 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.

Week In Review: Market Caution, China Crackdown, Dovish Fed

On Tuesday, market sentiment remained shaky as investors kept a close eye on China following the multiple crackdowns. It was a big day for big tech as Apple, Microsoft and Alphabet released their quarterly earnings. Earnings and revenues from the tech titans crushed market expectations.

In the currency space, we set our sights on the dollar ahead of the Federal Reserve policy meeting. There were other key data points such as second-quarter GDP and core PCE inflation that were likely to influence the currency’s performance.

Our trade of the week for the Social media index which tracks the overall performance of social media companies via Twitter, Facebook, Snap, and Alphabet all in equal weights.

It was all about the Federal Reserve policy meeting on Wednesday. As widely expected, the central bank left monetary policy unchanged and maintained a dovish stance. Anyone who was expecting a hawkish surprise was left empty-handed after Chair Powell stated that rate increases were “a ways away”. A cautious Fed dealt a heavy blow to the dollar while injecting equity bulls with a renewed sense of confidence.

In fact, stocks across the continent were painted green on Thursday thanks to the Fed’s dovish message overnight. The US Senate voting to move ahead on the $1.2 trillion infrastructure plan and robust earnings in Europe also supported the risk-on mood.

One of the major talking points near the end of the week for the US GDP report for Q2. The largest economy in the world grew at a 6.5% annualised rate in the second quarter of 2021. Although this was below the 8.5% expectations, it was still the biggest increase in growth seen since the third quarter of 2020.

Caution was the name of the game on Friday as China’s regulatory crackdown continued to spook investors. U.S stocks fell, registering losses for the week after e-commerce giant Amazon late Thursday reported disappointing quarterly results. Nevertheless, the S&P 500 has ended July with another month of gains.

In other news, the core PCE which is the Fed’s favoured measure of inflation edged higher to 3.5% in June from 3.4% in May – its biggest increase since July 1991.

Looking at commodities, gold found itself under pressure at the end of the week thanks to a strengthening dollar. However, the precious metal was able to end July with a monthly gain. Renewed signs that the Federal Reserve may not taper anytime soon may sweeten appetite for the precious metal in the new month. With prices back below the 200-day Simple Moving Average, bears could steal return to the scene.

By Lukman Otunuga, FXTM Senior Research Analyst

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.

Cautious Fed Hurting The Buck

FOMC wait-and-see mode remains

Chair Powell and his fellow policymakers acknowledged that economic activity indicators have continued to strengthen and the economy has made progress towards its goals of price stability and maximum employment. But especially on employment, there is still some way to go for the recovery to be substantial enough to start tapering asset purchases. Inflation is still seen as transitory but is not broadly based and Chair Powell specified that one-off price rises, even if they are not reversed, are no sustained inflation.

Many in the markets are touting the Jackson Hole symposium at the end of next month as the big date for more taper detail. But, with only one NFP jobs report next week to be released before then, is that enough information for the Fed to shift their bias? There are then three FOMC meetings left in the year in September, November and December.

China soothes equity jitters

Equities finished mixed in the US with tech outperforming. Facebook beat earnings expectations but warned of a significant growth slowdown and the stock fell as much as 5% in extended trading. European bourses have started the morning in the green after China took steps to calm recent investor fears which helped the Hong Kong market gain over 3%.

Gold enjoying dollar woes

With the hawks disappointed after the FOMC meeting, dollar selling is helping to push gold out of its recent range. The bullish break is now within touching distance of the widely watched 200-day moving average at $1,822. A strong close above here should see the July highs at $1,829/34 come into view fairly quickly. Solid support sits at $1,789.

Gold chart

By Lukman Otunuga, FXTM Senior Research Analyst

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.

ECB Meeting in Prime-Time Summer

Lower for longer?

The strategic review by the bank changed the inflation target to a hard 2% with over and undershoots equally undesirable and allowed only on a temporary basis. Does this new assessment simply formalise the current trajectory then or suggest a more dovish road for the ECB going forward? This is the key question as it may mean that hitting the new target will probably take the ECB longer to achieve, which ultimately means the case for prolonged easy monetary policy is strengthened.

Markets may also think that the bank will increase asset purchases under their standard QE programme (APP) while unwinding the emergency asset purchase programme (PEPP). This points to the pace of tapering for next year being slower than previously expected. We note that the buying pace of bond buying is usually only discussed when new staff projections are at hand and the next such meeting is in September.

Improving picture but bumpy road to recovery

Many analysts expect President Lagarde to acknowledge the improving data picture which has generally hit expectations, and the positive contribution from the vaccine rollouts. But risks lurk on the horizon in the shape of the dominant Delta Covid-19 variant which means an uneven and fragile recovery.

Crashing bond yields may also be an area of debate as the July core bond surge might make even the ECB slightly uncomfortable.

What’s priced?

With the majority of analysts expecting nothing other than a dovish stance, the real question for traders is how much is priced in already. This is especially the case not only due to the recent declines in yield, but also in the euro. That said, the single currency has been supported this week in its guise as a safe haven, only underperforming JPY and CHF.

All eyes are on a break of yesterday’s low at 1.1751 leading down to the key cycle low at 1.1704. Any more bullish tact by Lagarde will need to push above 1.1850 to arrest the bearish momentum in the world’s most traded currency pair. There is also the risk of any pronounced price action being over-interpreted, as we are most definitely in less liquid seasonal summer markets.

For more information, please visit: FXTM

Written on 22/07/2021 by Lukman Otunuga, Senior Research Analyst at 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.

Vol Picks Up Heading Into Summer

Yields collapsing

The real action is taking place in the bond market where recent moves have been pretty extraordinary even by the standards of the recent past. The benchmark US 10-year treasury note yielded 1.25% on Thursday morning, plunging 20 basis points in three days. This “flattening” of the yield curve, where short term rates fall faster than interest rates further out, has dominated bond markets since the US payrolls numbers last Friday. 

The reflation tale has lost momentum in double-quick time with position adjustments being pared back at the worst of times – that is, when macro expectations are being reined in and when market liquidity is drying up ahead of the summer.  Essentially, we are seeing a recalibration of inflation expectations in the wake of the supposed Fed’s hawkish pivot at its June meeting. 

Risky currencies hammered

With concerns over the major increase in infection cases in the Delta variant, this general environment is helping safe haven JPY and CHF while the mighty dollar is taking a breather, having recently made fresh three-month highs.  The yen is on track to post one of its biggest daily increases this year as investors dump risky positions in currency markets. 

The rollback in the reflation trade is bad news for commodity-dollar currencies with AUD hitting levels last seen in early December. The Australian dollar is widely viewed as a proxy for risk appetite and has also not been helped by RBA Governor Lowe reiterating that inflation may only rise when the unemployment rate falls further and holds in the low 4% area, an outcome not expected until 2024. Of course, this comes after the bank took its first step towards QE tapering by announcing a smaller, third round of bond buying. 

OPEC+ disarray

Added to this summer cocktail for commodity currencies is an oil market which has dropped over 7% in the last few days, since the OPEC+ meeting failed to agree on production output levels for the next few months. With the rapid rising virus count in numerous countries around the world, an extended period without a deal could spur an increased amount of noncompliance. The early summer months are certainly alive with action in both financial markets and in several sporting arenas.

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.

Calm Before The Storm in Oil Markets?

OPEC+ abandons meeting, what next?

Brent crude oil prices punched above $77.50 this morning to the highest levels in three years after yesterday’s talks between OPEC and its allies were postponed indefinitely amid rising tensions between the UAE and Saudi Arabia.

The key question is whether such a move will result in higher or lower oil prices in the medium to long term. If things are left in limbo with no deal reached, this may result in the group keeping output unchanged in August and the rest of 2021. Such a scenario could see higher oil prices.

However, if the infighting means no OPEC+ deal by April 2022, this could result in a “free-for-all” as major oil producing nations pump at will. If this is anything like what we witnessed in the 2020 price war with Saudi Arabia and Russia, oil prices would experience a steep selloff.

Dollar under pressure

King dollar has stumbled into Tuesday’s session under pressure, weakening against every single G10 currency. It seems Friday’s mixed US jobs report has triggered some profit taking around the greenback with the DXY hovering above the 92.00 level as of writing.

Although the US economy created 850,000 jobs in June which was above market expectations, the unemployment rate edged up to 5.9%. These diverging labour market gauges are key elements in the Fed’s assessment and point to a Fed standing on the sidelines and not under pressure to change policy.

While the jobs data has eased rate hike worries, the recent jump in oil prices could revive these concerns. Higher energy costs may fuel inflationary pressures, strengthening the argument for the Federal Reserve to tighten monetary policy down the road – something that could provide a tailwind to the dollar.

On the data front, investors will direct their attention towards the ISM Non-Manufacturing PMI for June which is due later in the day. All eyes will also be on the latest FOMC minutes on Wednesday which could provide clues about the central bank’s hawkish shift at its June meeting.

Looking at the technical picture, the Dollar Index remains bullish on the daily charts despite the recent declines. A pullback could be on the cards with 92.00 and 91.70 acting as levels of interest before prices potentially rebound back above 92.50.

Commodity spotlight – Gold

Gold appreciated above $1800 this morning thanks to the weaker dollar. Easing concerns over the Federal Reserve raising interest rates sooner than expected have also helped gold bugs ahead of the meeting minutes on Wednesday.

Looking at the technical picture, the precious metal has the potential to test $1825 and $1842 if a daily close above $1800 is achieved. Alternatively, a move back below $1800 could result in a decline back towards $1760.

Written on 06/09/2021 by Lukman Otunuga, Senior Research 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.

Dollar Makes a Move

The Chinese composite PMI unexpectedly fell from 54.2 to 52.9 earlier this morning with details showing a stabilisation of the manufacturing gauge but a setback in the non-manufacturing reading. New restrictive measures in Gaundong to contain a regional Covid outbreak are mainly responsible for this with waning external demand contrasting with rising domestic orders.

Risk mood improved

Markets took comfort in Moderna saying that its vaccine is effective against the Delta variant of the virus with the S&P500 marginally higher and closing at all-time highs. The tech-laden Nasdaq also notched another record peak rising for a sixth day in seven with Facebook pulling back after hitting the magical $1 trillion market cap level. Also adding to more positive sentiment was the US Consumer confidence which jumped with a bounce both in expectations and the current situation.

The dollar went bid breaking out of its recent range and is heading towards the post-Fed highs.

In EUR/USD, this means we are trading below 1.19 again with eyes on the recent cycle lows at 1.1847.

With the monthly US labour market report out on Friday, focus will be on US ADP data today which will be monitored for any signs that private sector hiring has quickened. Although not a great predictor of the NFP headline number, a big beat or miss today can cause near-term volatility. Expectations are for a punchy 600k reading with many analysts hopeful that jobs data comes in strong going forward.

Eurozone inflation subdued

Consensus expects headline and core Eurozone inflation prints to remain relatively subdued at 1.9% y/y and 0.9% y/y respectively when the data is released this morning. Country figures already pointed to a slowdown and these are fairly tame readings compared to those elsewhere. With the outlook remaining muted, the ECB will continue to be one of the last remaining dovish central banks on the block.

Written on 30/06/2021 by Lukman Otunuga, Senior Research 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.

Fed Flip-Flopping Into Summer

Right on cue, last week’s Fed meeting injected some much-needed volatility into markets with stock markets selling off sharply, bond markets waking up to a more hawkish dot plot and the dollar surging higher. Position adjustment, especially in fixed income markets, saw traders running for cover causing many to question the extended price action.

With the dust now settling, it seems this has as much to do with an unwinding of reflation trades as it has to do with a change in macro views. With short-end yields rising and the long end falling, the flatter yields curve only makes sense if the Fed is going to hike earlier than previously thought.

Stalemate among Fed governors

In the near-term, this week has also seen the market contend with a multitude of Fed speakers sitting on different sides of the fence. Chair Powell has struck a decidedly more cautious tone, repeating the temporary nature of current price pressures and that the Fed will not act pre-emptively but wait for actual evidence of imbalances in the data. Other officials insist several months of job gains are needed to reach the Fed’s goals with rate lift-off some way off.

The flip side has hawkish policymakers sticking more closely to the new dot plot script, expecting a first-rate hike next year and favouring asset purchase tapering sooner than expected on the back of a faster recovery from the once-in-a-generation pandemic slump. Meanwhile, comments from those who sat squarely on the fence that believe price pressures will ease as bottlenecks are worked out have emanated from other officials, but they are unsure exactly how long the process will take and so are willing to change their outlook as needed.

Market stalemate with a hawkish twist

Importantly, market moves have been more contained amid this cacophony of Fedspeak, with the dollar only rising against low-yielding currencies. After the more hawkish turn of the Fed’s rate projections, there now seems to be a realisation that the world’s most important central bank is still some distance from adjusting policy, with rate hikes themselves even further up the road to normalisation. The market has taken the more soothing line it would seem and is now relatively comfortable with the slightly more bullish policy skew. In this environment, commodity currencies should get supported, especially those backed by central banks who are ahead of the pack in the tightening cycle.

Written on 24/06/2021 14:00 GMT by Lukman Otunuga, Senior Research 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.

Powell Calms Markets

He repeated the temporary nature of current price pressures and although the recent debate on QE is on the cards, the Fed is nowhere near hiking interest rates. Other Fed officials this week have spread a similar message with New York Fed President Williams warning overnight that the recovery requires more time.

The latest smoke signals from the Fed all point to September as the key meeting when the Fed is most probably able to declare that substantial progress towards their goals has been achieved. This means we should perhaps pencil in the Jackson Hole symposium in August as the precursor to this where Powell really preps the markets.

Stocks certainly gained from the more dovish rhetoric with the tech-laden Nasdaq hitting fresh record highs. The broader S&P500 gained too with only the defensive utilities sector in the red. European bourses have opened up this morning marginally higher after Asian markets posted solid gains.

Dollar holding up for now

After hitting a two-month high at the end of last week, the greenback has suffered two days of losses and given back roughly a third of its sharp gains posted since the FOMC meeting last Wednesday.

Commodity-linked currencies benefitted the most from the more cautious Powell and this may be the case through the summer as those central banks on the hiking cycle see their currencies appreciate the most.

EUR/USD too was helped by markets breathing a sigh of relief, although the 1.20 barrier above is formidable with a confluence of resistance including the 50% retracement level and the 100-day and 200-day simple moving averages below and above.

EUR/GBP moving lower ahead of BoE

We get UK and European PMI data released today and traders will be on the look out for signs that we have seen a peak in manufacturing and a pick up in services due to covid restrictions easing. EUR/GBP also has to contend with the Bank of England meeting tomorrow, which my colleague Han Tan discussed yesterday and the potential for a hawkish surprise.

Perhaps the market read the report as sterling has appreciated against almost every single G10 currency today and EUR/GBP is breaking down through recent support at 0.8542. The downward trendline from the December high has acted as resistance above and bears have their eyes on the cycle low at 0.8472.

By Lukman Otunuga Research Analyst


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.

All Eyes on Jerome Powell’s Testimony

Asian shares were mostly up this morning following a rebound on Wall Street overnight.

In written remarks prepared for his testimony before the House Select Subcommittee on the Coronavirus Crises and released yesterday, Powell reiterated his view that the recent jump in inflation would prove transitory. While such comments seem to have soothed concerns over the Fed’s hawkish tilt, the question is for how long? Given how markets remain highly sensitive to comments from Fed officials and inflation expectations, the next few days promise to be quite eventful for markets with numerous Fed speakers on the roster.

Dollar waits for Powell

The dollar was on standby on Tuesday as investors waited for testimony by Jerome Powell.

Despite the weakness witnessed yesterday, the dollar remains in a position of power backed by Fed hawks. With the next few days jampacked with speeches from US central bank officials and key economic data, the greenback could be in store for a wild ride. Focusing on today, market players will closely scrutinise Powell’s Q&A for insight into the health of the US economy and outlook for monetary policy after last week’s Fed fireworks.

Looking at the technical picture, the dollar Index (DXY) remains heavily bullish on the daily charts. After being boosted by the Fed last week, the dollar has smashed through multiple walls of resistance. A strong move back above 92.00 could encourage an advance towards 92.50 and 92.80. Alternatively, sustained weakness under 92.00 may trigger a technical pullback towards the 200-day Simple Moving Average around 91.50.

EURUSD attempts to defend 1.19.

The euro has entered Tuesday’s session on a shaky note against the dollar with prices wobbling around 1.19 as of writing.

After the brutal selloff witnessed last week, the euro experienced a rebound on Monday forming support around 1.1850. Investors may turn their attention towards the Eurozone consumer confidence flash survey for June which is forecast at -3 compared to the -5.1 in May. Speeches from the ECB’s Lane and Schnabel are also on the calendar and any positivity could lend euro bulls a helping hand, pushing EURUSD back towards 1.1950 and possibly higher.

Commodity spotlight – Gold

Gold experienced a small bounce yesterday thanks to a weaker dollar and dovish comments from Federal Reserve officials. However, the precious metal remains shaky and vulnerable to further losses and this continues to be reflected in price action. A stronger dollar and the prospects of higher interest rates are set to offer the zero-yielding metal nothing but more potential pain ahead.

Looking at the technical picture, prices are heavily bearish on the daily charts with sustained weakness below $1800 opening the door to $1750 and $1735. Alternatively, a breakout above $1800 could trigger a move towards $1842, a level found above both the 50-day and 200-day Simple Moving Averages.

By Lukman Otunuga Research Analyst


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.

Fed’s Hawkish Suprise

Growth is seen higher at 7% (yes SEVEN!) in 2021, half a percent up from the prior forecast, 3.3% next year and 2.4% in 2023. Unemployment was left broadly unchanged and core PCE inflation is forecast to rise sharply this year at 3% (+0.8% higher than the previous estimate) before slowing to 2.1% in the following two years. Chair Powell admitted higher inflation could go on for longer though he doesn’t expect it to feed into expectations.

Big dot plot change

The majority of the FOMC brought forward en masse their rate hike outlook and this proved the biggest sucker punch to markets who have been guided over the past eighteen months by nonstop easing and a persistently dovish Fed who has remained purposefully behind the curve. Two hikes are now suggested in 2023 (from zero in the prior meeting) and seven out of 18 members already expect one next year. This all means that tapering, let along the beginning of taper talk, is not so far away!

Dollar bid

This is all quite a shock from the FOMC even if markets had set itself up for one, with traders expecting the Fed to remain fairly cautious while acknowledging rising price pressures. Going forward, the Fed is now more likely to respond to data and is more prepared to tighten than previously thought.

The dollar has burst higher and there is plenty of room for US real rates to continue rising from their low base which means more upside.

This should also mean higher volatility which is good news for traders! EUR/USD especially, has broken out of its recent range and smashed down through the 1.21 support. Although the pair paused last night at the 200-day SMA, this morning has seen follow-through selling as we dip towards the next Fib level at 1.1950.

Gold also got hit as swarms of buyers dashed for the dollar and shorts were desperate to cover positions. After the 200-day SMA got taken out overnight, $1800 is the next support level ahead of the 100-day SMA just below here.

By Lukman Otunuga Research Analyst


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.