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Tickmill UK Fundamental Analysis

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  #201  
Old 07-02-2022, 19:07
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Default Re: Tickmill UK Fundamental Analysis

Dollar is back on growth track thanks to hawkish NFP, possible upside surprise in January CPI

The surprisingly strong NFP report for January markedly eased pressure on the dollar as it reminded that the Fed is likely to lead a hawkish policy reassessment by the central banks of major economies. After release of the report, the two-year US bond yield surged by 9 bp to 1.3%, indicating that the report made a strong impression on the market, in particular due to low expectations after gloomy ADP print:



The strong labor market report also lifted the chances of a 50bp rate hike by the Fed from 8.5% to 32.7%:



Speaking about which currencies are more vulnerable to declines against the dollar than the rest in the current central bank tightening environment, it’s reasonable to focus on JPY and CHF. Central banks here are the least likely to react to inflation-related developments due to the long period of deflation and the fear of reacting too soon, breaking off the desired trend. The euro suddenly gained more resilience as the ECB took a big step towards tightening policy last week, after which short-term rates shot up (yield on 2-year German Bunds from 0.05% to 0.25%) due to which demand for cash rose. Over the weekend, the comments of the ECB official Knot turned out to be interesting, as they can shed light on the fate of EURUSD in the medium term. He said that it is possible to see ECB rate hike by 25 bp in October followed by increment hikes of 25 bp. The underlying market expectation after the ECB meeting is now the outcome, where the central bank will be raising rates by 10 bp starting from July. In addition, Knot said that inflation in the Eurozone is mainly generated by fuel prices, while in the US it is the result of rising consumption; it follows that the tightening cycle in the US may be more pronounced than in Europe. Therefore, we can assume that the breakdown of EURUSD towards 1.15 most likely will fizzle out soon and the price may soon look for reversal points. Sell-off in USD pairs, including EURUSD, may resume this week, in particular after the release of CPI in the US for January. Strong growth should increase the chances of a 50 bp Fed rate hike in March, which, in fact, is now the main potential driver for the recovery of the dollar. EURUSD is likely to test support at 1.1380 ahead of the CPI report, as the chances of a positive surprise in the data are high, especially in light of January's wage growth picking up to 0.7%, as shown in the NFP report.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #202  
Old 10-02-2022, 04:59
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Default Re: Tickmill UK Fundamental Analysis

US CPI will likely surprise on the upside due to labor market imbalances


On Wednesday, sellers in the sovereign debt markets take profits before release of the key inflation data point for the market (US CPI), yields pulled back from key resistance levels (2% on 10-year Treasuries, 0.25% on German Bunds). Another driver of the rally could be acknowledgment, that there was an overreaction to the ECB and Fed meetings and actual pace of policy tightening could be slower. At the same time, demand for risk appears to be on the mend, European indices and futures for US indices rose, yield search puts constraint on early dollar rally, DXY continues to consolidate around 95.50 ahead of CPI print tomorrow:





Tomorrow's US CPI for January will decide the fate of the Fed's March rate hike by 50 bp (either make it a baseline scenario, or lower the chances). The report will be critical to answering the question of whether the Treasury sell-off continues and whether the 10-year rate goes beyond 2%, which could trigger a breakout move, as there was initial test of 2% key resistance zone yesterday.

Even with consensus of 7.3% in headline inflation and 5.9% in core inflation, there is some room for a surprise on the upside, primarily due to strong wage growth due to ongoing labor market imbalances (0.7% MoM in January vs. 0.5% expected). The jobs quit rate in the United States remains at an all-time high together with a significant increase in wages, they fell into a positive feedback loop - the negotiating power is now on the side of workers which is quite unusual:





Today, representatives of the Fed Bowman and Mester will have their say, the focus is on assessing the persistence of pro-inflationary factors in the economy. Fed rate hike by 25 bp already priced in, the chance of 50 bp outcome is approximately 25%. The ECB releases winter forecasts for growth and inflation today, markets are focused on inflation estimates in 2023, since the ECB is expected lift-off the rate next year. The euro is likely to react positively to the report if the inflation estimate will be above 2%. Also, today there will be a QA session with ECB official Schnabel, who was one of the first to start sounding the alarm about inflation and will probably try to draw attention to this issue again.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #203  
Old 28-02-2022, 19:17
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Despite major escalation markets are still reluctant to price in major spillover effects from Ukraine conflict

As geopolitical tensions increased sharply on Monday, policy tightening cycles of central banks and inflation challenges have been pushed deeper on the sidelines. The focus remains entirely on military operations in Ukraine, as well as the sanctions war between the West and Russia. The third package of EU sanctions, including financial, transport, technological, export and other restrictions, caused panic in the Russian currency market on Monday, which led to collapse of the ruble by more than 20% in the first two hours of the trading session. The Russian Central Bank raised interest rate to 20%, effectively limiting speculative pressure on the currency, carried out currency interventions for $1 billion, temporarily banned brokers from executing orders to sell securities from foreign investors, which caused the latter to panic. ADRs of Russian companies traded on the London Stock Exchange plunged 50-60%. Russian currency devaluation was apparently brought under control later in the session, at least partially. The stock market section of the Moscow Exchange is closed today.

Representatives of the Russian Federation and Ukraine sat down at the negotiating table in Belarus, but the chances of a peace agreement that would suit both sides are small. The Ukrainian authorities probably believe that the growing support of the West, primarily in the form of arms supplies, sanctions pressure, as well as reception of refugees, has significantly improved their negotiating position (than, for example, at the beginning of last week), due to the fact that Moscow receives a signal that Kyiv may be ready for a protracted conflict, while at the same time the original goals of the Russian intervention, steep price of the military campaign (primarily large economic costs), makes serious concessions for Russia unlikely.

However, de-risking in global asset markets, despite the risks of an even more escalation, remains quite contained. Greenback rose as US investors flew European asset markets and safe heaven demand increased in general. European stock indices traded moderately in red. Sovereign debt yields rebounded after falling early in the session. This suggests that there is no panic that the local risk will become a trigger for global recession, at least for now:





Gold posted moderate gains as well, which once again underscores the fact that investors are in no hurry to take Ukraine conflict beyond the scope of local risk:





Oil quotes showed mixed performance, financial sanctions against the Russian Federation have led to the fact that the price differential between Russian Urals with world oil benchmarks has widened, which indicates less market appetite for Russian grade of oil. An important event for the market will be OPEC+ meeting on March 2, where output policy for April will be discussed. The key uncertainty is whether OPEC+ will increase production faster, trying to avail of higher prices, or stick to the schedule. For Russia, it should be tempting to continue pushing oil prices up, urging OPEC to gradually hike output, as this will in some way act as a response to Western sanctions in the form of higher risks of cost-push inflation for Western economies. Therefore, the risks for oil prices, without taking into account possible de-escalation of the conflict in Ukraine, appears to be skewed towards further rally.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #204  
Old 07-03-2022, 16:41
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Default Re: Tickmill UK Fundamental Analysis

Market Watch March 7th: All eyes on commodity markets


FX developments are now entirely subject to the buying frenzy in commodity markets as severe disruptions in supply chains become increasingly evident. Prices for certain commodities are updating highs at an unprecedented pace, rumors about embargo of Russian exports and threat of stagflation in Europe are becoming key trading themes in major asset markets. In the current juncture, pressure on European currencies and currencies of emerging markets is unlikely to ease soon.


Dollar: risk aversion adds hefty premium

The dollar continues to outperform the G10 currencies as flight from risk intensifies. Option premiums in FX surged while sell-off in European equities gathered pace. US statements that embargo could be imposed on Russian oil exports (which is about 5 million b/d) led to a surge in oil to $139 and ruble depreciation to 140 per USD.

Other signs of stress in the market include continued widening of the FRA-OIS spread (an indicator of credit risk in the interbank market). Despite the fact that the Fed has a sufficient set of tools to provide liquidity and a generally high level of liquidity in banks after the pandemic, high uncertainty forces banks to cut lending. More information on this issue will appear on Wednesday, when data on the demand for 7-day USD swap lines from the Fed will be released. Last week, the ECB's auction on 7-day USD swap lines indicated rather high demand - $272.5 million from European banks.

The cutoff of 7 Russian banks from SWIFT on March 12th could also hide many black swan risks. The freezing of Russian assets is already affecting European fixed income market - the German Finance Ministry was forced to issue additional bonds maturing in 2024, as some of them were included in the frozen Russian assets. At the same time, ETFs to emerging markets are now facing capital outflows and, due to the fact that exit from Russian assets is not available, other emerging markets are under pressure. The most vulnerable among them are Brazil, Mexico and Poland.

Euro: Conflict in Ukraine causes more pain

EURUSD continues to decline against the backdrop of a lack of prospects for an early resolution of the conflict in Europe, and so far, the balance of risks is skewed towards further decline. This is also indicated by huge demand for insurance against the fall of EURUSD in options, even exceeding the demand that was at the beginning of the pandemic in 2020. Some resistance to the current decline in EURUSD can be expected at 1.0760-1.0770, stronger at 1.0640, this is the low of March 2020:





Pound: better than euro, but not very good either

At the same time, the pressure on the pound is less strong, as a high percentage of extractive enterprises included in the FTSE 100 index and which are now doing better, reduces capital outflows. In addition, the Bank of England looks more determined to respond by raising interest rate to fight excessive GBP decline. From the technical point of view, EURGBP has broken through the important support level of 0.8270, which in itself is a signal for further downside.



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #205  
Old 15-03-2022, 09:26
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USD poised to renew highs on China Covid issues, FOMC expectations


The dollar has got another growth driver. The PBOC unexpectedly lowered reference rate of CNY/USD, which may indicate its willingness to weaken yuan against US currency. This is usually seen as downside factor for Asian currencies which ultimately may also support USD demand.

Markets’ risk-on/risk-off swings continue to depend on the progress of peace talks between Ukraine and the Russian Federation as this determines expectations of sustainability of current trend in commodity inflation which hinders growth of a large number of companies, especially in those countries that are dependent on commodities imports. There is also some attention to the situation in China, where the outbreak of covid forced authorities to reinstate covid restrictions in large industrial and commercial centers - Shanghai and Shenzhen. This bodes ill for production and could create ripple waves in supply chains, which also have implications for inflation. China, judging by their stance, are not much willing to deviate from the policy of “zero covid cases”.

The role of renminbi in global FX have increased recently as since the start of the Russian special operation in Ukraine, CNY/USD has risen by several percent, which could look like the yuan is taking on part of the task of being a safe haven currency, like the dollar. However, the PBOC’s actions show that it may be willing to boost activity through exports growth and sees weakening of the yuan as a solution. USDCNY came out of a tight range gaining 0.7% in a few days:





Coupled with covid measures, this maybe be regarded as a signal of some slack in China economy or at least concerns about a slack, which may lend more heft to the current story of safe heaven USD.

If this interpretation of the yuan's weakness is correct, Asian currencies, as well as ZAR and BRL, commodity currencies from the EM sector, could come under pressure as well.

In this week, market movements will be also determined by the expectations regarding upcoming FOMC meeting, which will be held on Wednesday. The Fed is apparently forced to deliver a vigorous response to inflation shock, especially in the very sensitive (both politically and economically) spending item both US households and government – gas. Barring significant de-escalation in Ukraine (which could quickly unwind a large part of geopolitical premium in the dollar), USD looks poised to extend rally past recent highs.

In terms of technical analysis, USD overbought conditions have eased after the currency index soared to almost 99.50 in a very short period of time (two weeks), pulled back, and retested the resistance zone. Now there is a correction as part of the zone retest, there is no more flight into the USD based on surge of market risk-aversion, however rally looks persistent:





Also, as it became clear from the last meeting of the ECB, the potential of the US Central Bank and the ECB to respond to inflation by tightening policies is now significantly different. The ECB gave a signal that it is extremely constrained in actions, since other indicators of the economy and the degree of involvement in the trade war with the Russian Federation do not yet allow moving the rate, while the US economy, at least judging by the trend in employment, is in much better shape for these actions. Hence the formation of corresponding expectations for the dollar.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #206  
Old 15-03-2022, 12:27
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Greenback unwinds safe-haven premium, China Covid efforts in focus

Economic news from China today beat expectations in a positive way, especially surprising was the growth of retail sales as market set quite low expectations on the figure. Restrictions on mobility inside the country during the Lunar New Year, which were supposed to contain growth in retail consumption and social distancing measures introduced to combat Covid outbreak, unexpectedly had less effect on retail consumption. Positive news should help the PBOC to slow down or pause easing of monetary policy.
Retail sales grew by 6.7% in February against the forecast of 3%. Industrial production rose by 7.5%, almost doubling the forecast. Investments in fixed assets more than doubled the forecast and amounted to 12.5%. The yuan strengthened slightly against the dollar.

Global markets seem to be pricing in reduced level of risks of further escalation of the Ukraine conflict, oil has collapsed (down by 8% on the main benchmarks), gold declined 1.33%. Over the week, gold prices fell by 6%, oil by 23%.

The geopolitical premium in dollar is correspondingly reduced, EUR and GBP win back losses. Looking ahead to the end of the week, the main focus is tomorrow's Fed meeting. A 25 bp rate move seems to be warranted, shifts in expectations will primarily depend on hints about May decision (25 or 50 bp rate hike).

There is some positive momentum in the Russian ruble, however, due to capital controls and trade blockades, even a normally liquid market such as the foreign exchange market is now extremely illiquid in Russia. The market is trying to take into account the optimism before the upcoming talks between Ukraine and Russia, which are expected to take place today.

The leading indicator of risk aversion/risk-taking right now may be evolution of the covid situation in China. Major cities such as Shanghai and Shenzhen are experiencing a partial lockdown. It should be noted that the outbreak occurred in the northern part of China, where more heavy industry is concentrated. The measures introduced lead to suspension of production and shipment of goods. Attention is also drawn to the news about the new strain VA.2, which, according to preliminary data, is more severe than Omicron. Examples from the recent past show that when news about a new strain reaches critical mass (detection in several countries), markets lose their temper, so to speak, and go into risk-off.
This is how the dynamics of reported cases of Covid in China looks now:



The release of PPI in the US is scheduled for today, which will provide more information about price pressures in production chains and may also slightly correct expectations for tomorrow's Fed meeting. The indicator is expected to print at 0.9%. Later, ECB President Christine Lagarde will speak, who may give more information about how the ECB is going to deal with the consequences of the impact of trade sanctions on the Russian Federation.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #207  
Old 16-03-2022, 16:11
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EURUSD forms a triangle pattern and downside breakout is likely


Markets are expecting a 25bp rate hike from the Fed today and indications in Dot Plot for an additional rate increase of 90-100 bp this year. Forecasts of a higher terminal rate this year should be a positive surprise for the dollar. The degree of concern about the conflict in Ukraine and its economic implications is also a very important element of today's Fed communication, since the level of investor confidence in the Fed forecasts will depend on this. Markets will also pay much attention today to the release of Canada inflation report for February, which will likely impact BoC’s decision at the upcoming meeting.

Statements by Ukrainian and Russian officials characterizing the progress of the negotiations point to a de-escalation, which is causing a pullback of recent movements in gold, oil, USD, as well as sovereign debt yields. One of the clearest examples was the statement by Ukrainian President Zelensky that the country would not be able to join NATO. The dollar, which has been fueled by geopolitical tensions all this time, is retreating, European currencies have accordingly acquired a growth driver. The Chinese Central Bank unexpectedly interrupted weakening of the yuan, which has been propping up UD demand, in addition, the announcement of Saudi Arabia that it is considering the possibility of accepting payment for oil supplies to China in yuan was unpleasant news for the US currency. After all, the long-term demand for the dollar is based, among other things, on the concept of the so-called "petrodollars".

Markets have little doubt that the Fed will raise rates by 25 bp today – chances of an increase by 50 bp. estimated at 10%. Technical policy adjustments such as reverse repo and banks' excess reserves rate changes will also be scrutinized by investors.
The main market reaction will depend on the published economic forecasts, as well as Dot Plot - the aggregate opinion of officials about how the rate will change this year, in the medium and long term.

The base case is an indication in Dot Plot that the interest rate will be increased by another 90 bp this year. However, the combination of a higher inflation outlook and lower GDP growth (i.e., stagflationary outlook) may suggest that the Fed will be limited in actively raising rates, and in this case the risk of a negative reaction to the dollar will be high.

However, in the medium term, the chances that the Fed meeting will be more positive for real rate growth in the US than the last ECB meeting for real rate growth in the EU are higher. Restoring trade links and addressing disruptions in EU supply chains is a medium-term factor that will have a negative impact on the EU economy, curb growth, fuel resilience of inflation and its broad impact. The US is now less exposed to these risks, which leads to a more favorable forecast for real rate growth.

EURUSD found a balance near the level of 1.10 ahead of the Fed meeting, the pair has been forming a characteristic triangle for a week, which usually precedes a breakout movement. If the Fed does take a decisive step forward today, investors will most likely be inclined to search yield in the US financial market for some time, which will put pressure on EURUSD. Based on these considerations, a downward exit from the triangle is a more likely scenario:




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #208  
Old 23-03-2022, 04:15
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Default Re: Tickmill UK Fundamental Analysis

Breakout in USDJPY could signal new leg of the bullish rally with 7-year high as target



Powell's speech yesterday definitely impressed investors as the Fed Chair took the opportunity to communicate a possibility of faster rate hikes which was interpreted as the policy bias of the Fed getting more hawkish. Markets were quick to price in 50 bp hike on May as a baseline scenario, the odds of the outcome rose from 50% to 60%:




One of the Fed officials, James Bullard, said yesterday that it is appropriate to hike interest rate to 3% before the end of the year, market expectations center around 2.7%. New details from the Fed exacerbated US yield curve inversion – short-term Treasury yield rose so much that the spread between 10-year and 2-year bonds narrowed to 0.17%, reflecting increasing market concerns about the Fed’s policy error:





High oil prices are fueling speculations that the global economy will soon slide into recession. It is appropriate to recall the 80s when the then head of the Fed, Volcker, faced dilemma similar to Powell’s - an inflation shock due to high oil prices and the need to tighten policy. Then the rate was raised to 15%, which turned out to be excessive and plunged the US economy into recession. The dollar then rose significantly. Now the Fed has also set a course for tightening, and with each new statement the bar is getting higher.

The combination of high oil prices and increasingly hawkish Fed policy stance is a strong precondition for weakening of the Japanese yen. Today we see a significant rally in USDJPY by almost 1 percent. The status quo of the Bank of Japan increases risks of further collapse of the yen, it is quite possible that the breakout of 118.5 on USDJPY (the upper limit of the medium-term trend) and then 120, an important resistance level, should bolster speculations about a rally towards the 7-year high at 125:



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #209  
Old 24-03-2022, 07:54
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Double bottom in EURUSD suggests bearish breakout towards 1.08 may be in cards

Fixed-income markets of advanced economies show signs of recovery after a heavy sell-off on Tuesday. European currencies cede ground against USD after a brief rebound. US 10-year Treasury yield bounced off 2.40% and is moderately down. GBPUSD fall intensified after release of February inflation data, which together with the dovish BoE shift in March hit UK real yields outlook badly. Annual inflation in England accelerated to 6.2% (forecast 5.9%) – the highest level in almost 30 years:



Producer price inflation also hit a new high of 14.7%, setting the stage for high consumer inflation next month.

The dollar resumed advance against the background of an increasing number of signals that the Fed will tighten monetary policy much faster than the central banks of other developed countries. Following the speech by Powell and a number of other top managers of the Fed on Monday and Tuesday, there was a strong reassessment of expectations for the next two Fed meetings. Markets now expect the rate to be at least 75 bp higher after two next meetings, the probability that interest rate will be 100 bp higher estimated at about 35%. This means that markets are quite seriously considering the scenario that the Fed will raise rates by 50 bp for two meetings in a row.

Another powerful USD driver are expectations for the Fed's terminal rate (the rate level at which the Fed will complete tightening cycle). Now it is at the level of 2.75%, but may soon reach 3%. It is clear that the vector of markets’ interest rate expectations suggests more near-term USD gains are ahead with the biggest advance to be seen against currencies where central banks persist with low rates, as well as against European currencies, which continue to be pressured by uncertainty around the Ukraine conflict and its economic consequences.

With the equilibrium in sovereign debt markets, USDJPY has also stabilized, however, the pair is apparently bracing for a breakout of 121. Also, pressure on the yen and European currencies is exerted by a strong increase in oil prices, which creates a dilemma for the central banks of these countries – slowing growth potential and high inflation which greatly limits ability of monetary policy to affect output. Attempting to contain inflation by raising rate, the central bank only stifles growth.

EURUSD dived below 1.10 again forming double bottom at 1.0950, suggesting bearish breakout may be in cards. In case of a leg lower, retest of horizontal support at 1.08 looks highly likely in the near term:





Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #210  
Old 29-03-2022, 08:28
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Default Re: Tickmill UK Fundamental Analysis

Dollar renews rally ahead of payrolls release, USDJPY targets 125


Stagflation risks seem to take their toll and after a short pause European currencies and the Japanese yen continued to depreciate against greenback. The dollar index rose by almost half a percent advancing past 99.00 handle. USD also rises on the assumption that the US March labor market report will surprise on the upside cementing market view that the Fed will raise interest rate by 50 bp two meetings in a row.

Among currency pair majors, a particularly strong reassessment of expectations occurs in USDJPY and GBPUSD. The yen slipped more than 1% against the dollar and technically any significant resistance can be expected near 125 handle. Cable tumbled by half percentage point against the dollar as markets gradually come to realize that the Bank of England may have promised too much in terms of tightening policy and will likely be more dovish at the next meeting. The ECB has been less hawkish in its recent policy guidance, being more cautious in dropping hints about unwinding of monetary stimulus, hence there may be less pressure on EURUSD from dovish reassessment of future ECB policy.

The US yield curve inversion reached a new extreme, with the spread between 30-year and 5-year US Treasury yields reaching zero for the first time since 2006:





This means that markets expect a short period of relatively high rates followed by a long period of low interest rates. High and low rates, respectively, accompany periods of ups and downs in the business cycle. Periods of yield curve inversion are often accompanied by strong dollar.

There may be also some focus on EU inflation report slated to release this week. Price growth is expected to accelerate, over 6% in Germany and 6.7% in the Eurozone. Core inflation is expected to exceed 3% YoY. However, given clear signals of cost inflation due to the strong rise in energy prices, the effect of the data on foreign exchange market may be insignificant, as investors are likely be prepared for an upside surprise.

Several of the ECB's talking heads will also speak this week, including Lagarde. Despite expectations that the ECB will raise rates this year and more than once, policy gap with the Fed is growing, and ECB officials are unlikely to be able to do anything about it.

Important economic reports on Britain are not expected this week, Rishi Sunak and the head of the Central Bank Bailey will make comments in Parliament. The dynamics of the pound will depend on the behavior of the dollar this week.

The Bank of Japan intervened in the bond market, however, it did not succeed in holding back capital outflows. The yen looks vulnerable to further declines due to a combination of high fuel prices (together with Japan's high reliance on energy imports) and Fed policy expectations. The movement of USDJPY towards 125 seems to be a matter of time.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #211  
Old 30-03-2022, 16:12
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Default Re: Tickmill UK Fundamental Analysis

Technical setup in the Dollar Index suggests upside rebound is in cards


The rebound in SPX over the past 10 days was in the 2% of the strongest bear market rallies (defined as a fall 20%+ from ATH) in nearly 100 years of observations, indicating speculative flows could play a good part in it. According to Nomura strategist McElliott, the rally was fueled by buying frenzy of retail investors, suggesting there is a high risk that the rally isn’t sustainable:



Yesterday SPX added 1.23% in spite of moderately negative background in geopolitics and persistent inflation challenges. European markets do not share the optimism of US indices today - main equity indices bear moderate losses within 1.5%. There is conflicting information on the de-escalation of the conflict in Ukraine: nodding its head initially that, yes, the situation is moving towards a truce, the West later changed its stance and began to interpret the “partial” withdrawal of Russian troops from Kyiv and Chernigov as another maneuver to buy time. Clearly, the surge in risk appetite seen in recent days could be very volatile.
The dollar, within the continuing negative correlation with the US stock market, lost another half a percent today. The situation resembles a long squeeze against the background of the emergence of a clearly-defined catalyst that is easier to interpret by majority of the market (“soon end of the war”) and monetary policy divergence factor is likely to come back into spotlight soon.
The dollar index has formed a nice range of 97.80-99.40 on the daily timeframe as part of a bullish trend. Often this pattern indicates that the trend will continue. Selling of the dollar in the last few days has been rapid, the RSI is approaching the overbought zone. Betting on a false probe lower or a rebound from 97.80 looks an interesting opportunity:



Yesterday's reports on the US economy (Case-Schiller index, JOLTS, Consumer Confidence) refuted hopes that inflation in the US is slowing down. At the same time, the market is strengthening the opinion that the Fed will continue to revise the pace of tightening policy upwards. The gap between Fed-targeted interest rates and inflation expectations has never been so wide – the Consumer Confidence report pointed to household expectations of inflation at 7.9%, while the Fed interest rate is in the range of 25-50 bp. Markets are predicting 9 more rate hikes of 25bp each this year (i.e., range 250-275 at the end of the year):



The head of the Central Bank of England, Bailey, in his speech yesterday warned that the British economy is sliding into stagflation - a state characterized by low rates of real output and high inflation. He called the ordeal Brits are facing a historic shock to real incomes. The Central Bank is really in a dilemma: if the rate of real output (real income growth) is already low) how to contain inflation by tightening policy without sending the economy into recession? In the second quarter, according to the forecasts of the Central Bank, inflation will accelerate to 8%. Nevertheless, the Central Bank is betting that price growth will begin to slow down at the end of this year (the timing has already been shifted more than once). The easing position of the Central Bank will probably remind the pound sterling more than once.


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High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #212  
Old 12-04-2022, 15:29
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New cycle high in US CPI is not enough for greenback to push higher

US CPI in March surprised on the upside adding some strength to greenback. Broad prices rose by 8.5% against the forecast of 8.4%. On a monthly basis, consumer price index jumped 1.2%:






However, core inflation, which excludes fuel, slowed to 6.5% vs. 6.6% expected, which tells us that fuel has made a big contribution to the rise in headline inflation. Looking under the hood, we see that in March, the increase in energy prices in the United States amounted to as much as 11% MoM:





The US is facing a cost-push inflation shock, but the pass-through of this inflation to other consumer prices will depend on persistence of the trend – fuel and food prices are notorious for high month-to-month volatility. If oil prices turn into a bearish correction, the chances of aggressive rate hikes by the Fed, currently priced in the interest rate markets, will decrease, as details of the report show that this is the fuel prices that drive up headline inflation rate. Elsewhere, inflation has been fairly modest, and the recent boom in used car prices has turned into deflation, with prices down 3.8%. Serious concern from the Fed can only be expected if price growth becomes broader, which is not yet the case.

There were no surprises in the German inflation report - consumer prices rose by 7.3% yoy, the main contribution to the rise of headline reading was also made by energy prices.

The unemployment report in the UK was somewhat disappointing; job growth was only 10,000 against the forecast of 50,000. Unemployment was 3.8%.

On Wednesday, the dollar index made a second attempt to gain a foothold above the level of 100, so far to no avail. There is some calm on the geopolitical front, barring escalation the situation is stabilizing. Nevertheless, oil prices rebounded, Brent and WTI added an average of 4.8%. EURUSD consolidates near 1.09, the Cable posts modest gains ahead of important data releases. Tomorrow's UK inflation data may come as a bullish surprise for the markets, so a pullback in GBPUSD towards 1.30 can be seen as a good entry point for long position on expectations of a strong CPI.



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High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #213  
Old 13-04-2022, 15:06
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Gold is poised to retake $2000 level and here is why

US inflation report for March released on Tuesday stirred debates about inflation peaking (core inflation 6.5% vs. 6.6% forecast, used car prices -3.8%), but the bearish impact on the USD was short-lived - Fed hawk Brainard came to the rescue with comments about interest rate and QT, which fueled rally of Treasury yields. According to Brainard, the Fed may decide on balance sheet runoff as early as May and started to sell assets already in June. Regarding rate hikes, Brainard hinted that the Fed will not drag out the process of tightening and will quickly bring it to the desired level. The bearish candle on the dollar index (drop from 100+ to 99.80 points) on the CPI release swapped for a very aggressive rally towards a new local high at 100.50 points. Interestingly, after leaving the March range of 97.80-99.50, the breakout and subsequent rally faced little selling resistance at 100 and 100.50 points, while the price range during the rally was unusually tight:





The breakout occurred at about the same time that the EU began to develop the thesis of protracted Ukraine conflict. Statements of EU officials that the hostilities may not end soon and that "the war must be won on the battlefield" undermined the market's hopes for early peace talks, which led to an increase in the geopolitical premium. In the same period, gold, a traditional defensive asset, also moved into growth, gaining 2.5%:





The new phase of the escalation is only about a week old and is probably far from its climax, so in the absence of large-scale de-escalation announcements, demand for the dollar and gold will remain high and the rally will continue. In this regard, the bet on retest of $2000 in gold looks justified. At the same time, the weakness of the Euro, the British pound, and the Japanese yen, which is also under pressure due to continuing rally of longer maturity Treasury yields, will likely only increase.

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High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #214  
Old 18-04-2022, 13:05
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Bearish ECB signal sets the stage for further EURUSD decline, 1.05 level in sight


Costly in terms of economic costs, the policy of “zero covid cases” forced the Chinese Central Bank to cut reserve ratio for banks by 25 bp on Monday. According to the PBOC, this should boost liquidity in the banking sector by 530 billion yuan which should in turn stimulate lending. The easing measures taken by the PBOC send a warning signal to global asset markets about potential setback in China growth in 2Q. Data on the Chinese economy for 1Q came out better than expected, except for retail sales, which plunged in March by 3.5% YoY, more than twice as much as expected. Unemployment rose from 5.5% to 5.8%.

EURUSD struggles to recover after collapse on last Thursday below the previous local low, to 1.0750:





The catalyst for selling was the ECB meeting, in particular Lagarde's downbeat comments, which showed a high level of concern about macroeconomic stability. Together with very modest initiatives to use monetary tools to combat the blow from inflation, the ECB basically acknowledged that there is little it can do in the current juncture. Lagarde said that the downside risks to the economy rose substantially and inflation became broader (dimming hopes that inflation will subside as oil prices pull back). The eagerness of the ECB to respond was quite disappointing - according to Lagarde, quantitative tightening (selling bonds from the balance sheet) is not yet discussed, and QE will end only in the third quarter. Bloomberg, citing its sources, reports that ECB policymakers “still see it as possible” to raise interest rate in July, that is, the baseline scenario is that there will be no rate increase at the next meeting, the first increase is expected to happen only after the end of APP, i.e., in the 4Q of this year.

The contrast between the policy stances of the ECB and the Fed reveals more and more nuances that speak in favor of a weaker Euro. The Fed pledged not only to raise rates at a high pace, but also hinted that balance sheet runoff may begin as early as July. The ECB is not only not going to catch up, but also hints that the pace of tightening may slow down due to "significant risks" to growth. In this regard, the risks for EURUSD, in my opinion, are skewed towards further decline.

From the viewpoint of technical analysis, a rebound in EURUSD within the current downtrend can be expected at 1.0650 (March 2020 low), a reversal - in the range of 1.045 - 1.05:





In one of the previous articles, I discussed new local highs for the dollar and gold. Now we see the dollar index has broken through 100.50, and gold has approached $2000. I do not think that this is the limit, primarily because hopes for a peaceful resolution of the conflict in Ukraine are fading before our eyes, and the rhetoric is increasingly concentrated around the scenario of a protracted confrontation. All this promises a long period of high inflation coupled with low output rate. In this economic regime, the dollar and gold are usually seen as one of the best instruments for hedging.


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  #215  
Old 04-05-2022, 14:00
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Preview of the FOMC meeting: balance sheet run-off announcement is the key thing to watch

The Fed is expected to deliver a 50 bp rate hike today and announce the start balance sheet runoff. Markets will be interested in the pace of QT, since this will determine supply of longer-maturity Treasuries on the market in the medium-term which has a great influence on greenback demand. For example, the pullback of 10-year Treasury yields from 3% to 2.92% caused dollar sell-off on Tuesday and also helped EURUSD and GBPUSD to defend critical support levels - 1.05 and 1.25. The pairs continue to stay range-bound ahead of the FOMC meeting:



Such dynamics suggests that the pairs could finally choose direction after the Fed meeting, which is unlikely to be limited to one session, since significance of the Fed meeting in May is high. Firstly, the macroeconomic background has changed significantly, it became clear that high inflation will last longer than previously thought, and secondly, a plan to reduce assets from the balance sheet will be made public. This monetary tool, given the amount of funds on the Fed's balance sheet, which is at a record level and amounts to almost $9 tn, will have serious consequences for the US fixed income market:





The Fed accumulated on its balance sheet mainly long-term bonds and MBS which means that balance sheet runoff will primarily impact the far end of the yield curve (the aggregate of interest rates on bonds depending on the maturity). The dollar is known to be the most sensitive to the movements of long-term bonds yields so the dollar may respond significantly to the balance sheet decision. A short-term breakout in EURUSD, GBPUSD below 1.05 and 1.25 cannot be ruled out if the Fed simultaneously raises rates by 50 bp and chooses aggressive pace of selling assets, as this will leave the central banks of the EU and the UK further behind in the race to tighten monetary policies. If the rate of balance sheet reduction comes below consensus ($50 billion per month), it will most likely be difficult for greenback to advance to new highs, as the bar for a market surprise is high.

Admittedly, the Fed has plenty of room to act aggressively, with the number of new US job openings reaching a new record high of 11.266 million:




It is clear that there is a serious shortage of workers in the United States, which will likely continue to translate into robust wage growth, and hence consumer inflation, since wages are both the costs of firms, which are passed onto final prices, and the basis of consumer demand, which also determines price growth in an economy.

The ADP report released today was somewhat disappointing - job growth amounted to only 247K against the forecast of 395K. However, given the record high number of open vacancies, the data may be interpreted as another signal that employers could not find workers and most likely this was reflected in the growth of wages, which the NFP will tell us on Friday.

During the Fed meeting, the market may also implement the “sell the facts” strategy, this must be taken into account because the markets have probably price in incoming information on inflation, labor market, activity in the manufacturing and services sectors, as well as external supply shocks. A continuation of the dollar rally will likely require shocking Fed action, such as a 75bp rate hike, which is unlikely to happen.

Retail sales in the Eurozone in April did not live up to expectations, growth amounted to only 0.8% in annual terms against 1.4% forecast. Such dynamics complicate the task for the ECB to move to raise rates, but some officials are in favor of a July hike. Nevertheless, the centrists from the Governing Council are silent, therefore, serious catalysts for the growth of the Euro from the ECB, at least until the June meeting, are not expected.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Last edited by TickmillNews; 04-05-2022 at 14:04.
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  #216  
Old 10-05-2022, 13:34
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Too difficult to resist to buy the dip as S&P 500 tumbles to crucial 4000 points support level

Some stabilization in risk demand after yesterday's sell-off is helping currencies correlated with economic growth expectations (high-beta currencies) to regain some of what they lost yesterday. Against this backdrop, the dollar's rally is being thwarted, but any correction lower could be met with strong support as the Fed has taken a major lead in the tightening race, stagflation concerns have not gone away, and risk asset sentiment remains highly volatile. SPX also played its role when reaching a critical support of 4000 points, which can be perceived by the broader market as a technical buy signal.

Futures for US stock indices are in moderate plus, not exceeding 1%. The catalyst for yesterday's sell-off was broad market panic as central banks signaled their intention to hike interest rates at a time of deteriorating global economic growth prospects. These include stagflation in Europe, risks of a recession in the fourth quarter, continuing devaluation of the yuan as a sign of predicaments in the Chinese economy, as well as high degree of geopolitical risk related to the conflict in Ukraine. It is no surprise that the dollar is holding its positions and is not in a hurry to move into a correction despite the relative overbought (highest level in 20 years). Currencies that correlate with the business cycle were hit more than others, which also indicates the nature of the correction - investors are reducing their exposure in countries that show outstripping growth rate in the business cycle upswing phase. So, for example, since the onset of broader economy growth concerns, AUD, NZD lost 3-4% against the dollar while EUR and GBP losses did not exceed 1-2%:



The slowdown in China affects the economies of New Zealand and Australia, for which the Middle Kingdom is one of the main trading partners while global liquidity concerns primarily affected the Norwegian Krone. Since May 5, the USDNOK currency has risen by almost 5%.

The Fed said yesterday that liquidity in key markets is falling, which could result in investor flight. The warning exacerbated the fall.

The economic calendar today is not particularly interesting, investors could pay attention to the NFIB report on small businesses in the US, in particular, how firms assess the situation with hiring. Also speaking today are a number of Fed officials, the focus is how intensified market correction will affect their forecasts for policy tightening and whether fears of stagflation in the US will be voiced.
Demand for risk will continue to determine currency moves in the short term. Given the potential for SPX to rebound, there may be some demand for commodity currencies (CAD, AUD, NZD), the dollar may go slightly negative. However, as mentioned above, a steady decline in the dollar at this stage is unlikely and long positions on the correction towards 103.50 on the dollar index (DXY) look quite justified.

EURUSD, in turn, may correct higher, however, given the discussion of the oil embargo from Russia, the potential for strengthening above 1.0650 in the next few days looks unlikely. Bullish momentum for the pair can be set by ECB officials such as Joachim Nagel and De Guindos, whose rhetoric will likely be associated with the prospect of a rate hike in July. However, the number of ECB rate hikes this year remains a subject of debate, and it is to these comments that the Euro may be particularly sensitive.

Technically, the pair continues to stay in the range from 1.048-1.060 in anticipation of new important information. Such information will probably be the announcement of an embargo on Russian oil, since in this case the EU will likely face a new round of inflation, which, as the behavior of the pair in March-April has already shown, has a very negative effect on the Euro:



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #217  
Old 11-05-2022, 11:24
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US April CPI could be the key catalyst for S&P 500 rebound, deeper greenback sell-off


An attempt by S&P 500 to decisively break below 4000 points on Tuesday was not successful, however, the subsequent rebound has not yet found wide support among buyers. Retail and institutional sentiment indicators are in an extremely bearish zone (13-year high), which increases the odds of a rebound in case of emergence of some bullish catalyst:





Today's US CPI release for April appears to be a good potential bullish trigger. Headline inflation is expected at 8.1% (down 0.4% compared to March), core inflation at 6% (down 0.5% compared to March). Core monthly inflation is expected to come at 0.4% and this is where the market will look for a signal that price growth starts to fade as YoY inflation will likely be distorted due to base effects. If MoM inflation falls short of expectations, pressure on the Fed to fight inflation, as the market perceives it, will ease, and policy tightening will shift to a less aggressive pace than has been priced in.

However, three Fed officials (Mester, Waller and Barkin) were quite open yesterday in favor of two consecutive 50bp rate hikes in June and July, after which the Fed will have to conduct an interim assessment of impact of the rate hikes on inflation in order to understand how to proceed further in the second half of the year. Lower-than-expected monthly core inflation will likely help market to rule out the case for 75 bp rate hike at the upcoming meeting, which in itself will already be a bullish signal for the market.

At the same time, the ECB continues to ramp up its hawkish rhetoric. This can be seen from yesterday's speech by member of the Governing Council Nagel. In his opinion, the risk of “late action” has increased significantly, the ECB should curtail its bond buying program as early as July (the ECB spoke about September at the last meeting) and raise interest rate on deposits in the same month if incoming data reveals no signs of inflation easing. Inflation in the German economy was 7.4%, according to data released today.

The continued consolidation of USDCNY around 6.73 at least means that there is one less reason to sell risk today. Tesla CEO Elon Musk described the lifting of the Shanghai lockdown yesterday as "rapid," which is also encouraging. Consumer inflation in China beat expectations accelerating to 2.1% YoY, once again emphasizing that the challenge posed by inflation is global.

The dollar continued to snap back recent gains on Wednesday, the greenback index fell below 103.50 (a weekly low). If US equities bounce today, a stronger move down to 103 will likely follow. According to JP Morgan, the dollar's recent strength is due to a downward reassessment of growth forecasts outside the US rather than the hawkish Fed. Despite the fact that the Fed pushed back on 75 bp rate hike, long positions in USD, according to the bank's analysts, still make sense. In the stock market, JP Morgan sees the defensive sector (companies whose revenues are less correlated with the phases of the business cycle) as the favorite, which tend to outperform in the bear market and hence will draw increased attention from market players.

In my opinion, in the event of a worse-than-expected CPI report today, EURUSD has a chance to make a tactical bounce, given that there is a necessary prerequisite for this – substantial decline in the last few months and range-bound movement, which is a classic technical analysis case for a reversal. The pair is also near the lower bound of the existing bearish channel, which could be also used by market players as an indication of support zone:




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #218  
Old 16-05-2022, 17:36
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Gloomy China data sows panic, but EURUSD still has a chance to rebound


A glimmer of hope after equity markets’ rebound last Friday was dampened after release of China economic data on Monday. Industrial production in China contracted 2.9% YoY against the forecast of 0.4% growth, retail sales collapsed by 11.1% missing estimate of -6.1%:





Unemployment also rose, from 5.8% to 6.1% in April. The data overshadowed the news that the government are beginning to gradually lift the lockdown in Shanghai, China's major industrial and financial center.

S&P 500 futures were up at the beginning of the session, but after the release of the data, the price went down and found some balance around 4000 points. European markets are in the red ahead of release of the EU inflation data, which is likely to indicate resistance to fading, increasing chances that the ECB will begin to prepare markets for earlier action in policy normalization. In particular, the case with the July rate hike remains the main uncertainty for the markets in the ECB's action plan. Despite the fact that more and more officials are talking about the benefits of a rate hike in July, there is still no final clarity. Therefore, the inflation report has every chance to impress the market, in particular, there is a risk that the Euro may tactically strengthen against the dollar.

Other important updates include an updated Goldman Sachs forecast for the growth rate of the US economy in 2022. The investment bank cut its forecast growth rate from 2.2% to 1.6%, likely reflecting the White House's austerity plan, under which the government intends to reduce the public debt by 1.5 trillion dollars.

The dynamics in the foreign exchange market remains highly dependent on the mood of investors in the stock market, where there are desperate attempts to find a balance after seven consecutive weeks of decline. Local macroeconomic data continues to play a secondary role, especially in non-core economies. The role of the real rate differential has also decreased somewhat (capital flows to where there are expectations of a higher real rate), as anxiety and even panic about stagflation and recession due to the instability generated primarily by commodity markets come to the fore. As long as these factors continue to influence, demand for the dollar is likely to remain elevated. In particular, data on retail and existing home sales in the US may reinforce the view that the US economy is now one of the most resilient to the challenges of stagflation.

If the S&P 500 manages to stay above 4000 today at the American session, which will allow us to consider the state of the market as stabilization, EURUSD will have a chance to grow to 1.05-1.055 (especially if inflation in the EU is higher than the forecast in tomorrow's report), and GBPUSD - to 1.2320, a previous support zone:




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #219  
Old 19-05-2022, 12:38
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Flight from risk gains momentum, setting stage for a rally in Gold


The flight from risk assets becomes more apparent on growing concerns about global slowdown and even recession, in particular, markets appear to be pricing in that the US economy will not be able to carry out soft landing (lowering inflation while maintaining positive GDP growth) that the Fed pledged to deliver in spite of aggressive tightening cycle, which led to textbook reactions in various asset classes: stock prices fell, bonds, as safe-haven instruments, rose in price, and the dollar fell, as foreign investors apparently reduced their exposure in US papers.

The magnitude of collapse in US equity markets on Wednesday (the worst in two years), which saw S&P 500 falling by 4% and Nasdaq erasing 5% from its market cap ensured proliferation of bearish momentum to Thursday trading. SPX futures broke below another key threshold of 3900, European indices suffered losses by an average of 2%. Further events are likely to unfold according to the classic scenario: the Fed will bend at some stage of equity sell-off, soften the rhetoric, which will become the main signal for a reversal. But given that most FOMC officials, including Powell, use the word "committed" in their comments regarding the short-term future of the policy, it may take quite a while for markets to see a welcomed policy shift.

The speed and the magnitude of equity markets downside should also imply there are concerns about potential downbeat surprises in corporate earnings and firms’ forward guidance, which, in principle, have already started to materialize. For example, $200bn Cisco released “shocking” earnings report yesterday that fell short of expectations in many respects (including forecast of negative growth in revenue in 4Q against expectations of positive growth), which led to a price drop of 20%:





The situation with covid in China remains controversial, while Shanghai gradually lifts lockdowns, an increase in the number of new cases in Beijing and Tianjin indicates a high risk of new social restrictions in these cities. In particular, a lockdown in Tianjin, a major port city in China, is a major risk for the markets, as it could exacerbate supply chain disruptions, which are well-known for their inflation effects in the countries which import China goods. As the positive trend in the reopening of Chinese economy started to show cracks oil prices were hit hard erasing 8.5% since Wednesday afternoon.

The decline in oil prices and reduced investment demand for the dollar allowed EURUSD to reclaim 1.05 level. Minutes of the ECB meeting are due today, which may offer additional support to the battered Euro as based on the comments of ECB officials, the commitment to fight inflation is gaining broad support in the Governing Council, which is likely to be reflected in the Minutes today. EU money markets price in 100 bp rate hikes from the ECB this year, respectively, the ECB should soon begin to actively catch up with expectations, otherwise the Euro may quickly cede ground to the dollar as monetary policy gap will set to widen again.

The rebound in demand for safe-heavens is not yet so clear, but is already visible in gold, given that we are at an early stage of factoring in recession expectations, the upside potential for gold prices, provided recession expectations take roots, is high. From the viewpoint of technical analysis, the price of gold has been in a well-formed bearish corridor since mid-April, while on May 16 we saw the first signs of a bull market. A breakout of the upper bound of the corridor (~1835-1840 dollars per ounce) could trigger extension of the rally:




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #220  
Old 27-07-2022, 13:55
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Preview of the FOMC meeting: hints on interest rate path in 4Q could be the key thing to watch


Greenback index continues to consolidate in a tight range on Wednesday in the run-up to FOMC meeting. The range has been forming for about a week and indicates short-term equilibrium in USD supply and demand before release of the key market information. The presence of the pattern suggests that a breakout on Fed information will indicate the direction of a fresh trend leg. From a technical perspective, market looks poised to test lower edge of the channel (105.70-106) before possible resumption of the upside:



The risk of surprise in the policy today is quite low, according to Fed funds rate futures, the chance of a 75 bp rate hike is more than 90%. At least two Fed speakers stated unequivocally that they will vote for 75bp, leaning towards the idea that US inflation spike in June above 9% was transitory. In addition, data from U. Michigan showed that inflation expectations declined in July, which in fact is one of the key goals of Fed’s monetary tightening. It’s also important to note that the Fed rarely goes against market consensus, so most likely today we will see a rate hike of 75 bp and lack of significant market reaction to this outcome.

Instead, market participants can focus on hints that may help to assess the size of rate hikes in 4Q meetings. Current consensus market estimate of the rate path suggests that the Fed will deliver 50 bp in September and 25 bp in November and December. Any surprises in this direction will likely determine short-term demand for USD and US Treasuries of shorter maturity.

The Fed will not release updated economic forecasts and Dot Plot at today's meeting, so keep in mind that Powell's press conference and FOMC statement will be the main sources of information.

The Conference Board's report on consumer confidence, released yesterday, pointed to a weakening US expansion in the third quarter. The key indicator has been declining for the third month in a row, although not as fast as in June. The current conditions index, based on consumer assessments of business prospects and the state of the labor market, fell from 147.2 to 141.3 points. The expectations index also moved lower, but the decline turned out to be insignificant - from 65.8 to 65.3 points:



Inflation expectations, according to the CB report, fell to 7.6% from 7.9% in June.

The moderately weak report and the signal of easing inflation expectations have become another argument in favor of the fact that the Fed will be cautious today, raising the rate by 75 bp and will likely hint at slowdown in the pace of policy tightening in line with current expectations.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #221  
Old 28-07-2022, 13:01
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Default Re: Tickmill UK Fundamental Analysis

Fed signals increasing policy flexibility, Euro takes dovish clues from persistent inflation


US equities rose and the near end of the yield curve fell following the Fed meeting (2-year Notes 3.1% -> 2.99%), as the Fed rhetoric began to shift from high inflation to a potential economic slowdown due to policy tightening. Recall that in May and June, the comments of the Fed officials, including chair Powell, tried to convince the markets that the Fed was throwing all its efforts into fighting inflation and unfortunately the US economy will have to pay the high price in terms of slowing growth rates. At the time, equity and dollar markets traded the idea that the Fed was tightening when the US expansion started to show first cracks, which could potentially exacerbate downturn. However, data on June retail sales (+1% MoM), U. Michigan inflation expectations (7.9% -> 7.6%), US gasoline prices in July showed that a favorable mix of still decent growth rates and slowing inflation is emerging in the economy, which should in theory increase Fed flexibility and help the central bank to slow down costly tightening process. The Fed's vague forward guidance outlined yesterday and the move away from a front-loaded tightening approach in favor of data oriented one (the ECB did the same at the last meeting) had two important consequences: the dollar and markets in general should become more sensitive to incoming data that will pave the way for the next Fed decision, and the risks of a dovish Fed tweak at the upcoming meetings, increased.

Analyzing the probability distribution of how much the Fed rate will rise by the end of the year, it can be seen that the 100 bp outcome still has the highest probability, but the probability of 75 bp outcome increased while the odds of 125 bp and higher decreased, signaling dovish market interpretation of the yesterday FOMC meeting:



Today's release of US GDP data will be the first test of the dollar's reaction function to incoming data. Consensus forecast is 0.5% QoQ in the second quarter, but data on firm inventories and foreign trade point to downside risks.

The release of the Durable Goods Orders report yesterday underpinned demand for risk, as the figure was well above the forecast - growth in June was 1.9% MoM, against the forecast of -0.5%. Apparently, good dynamics was ensured by the growth of orders in the defense sector, excluding orders in this sector, the gain was 0.5% against the forecast of 0.2%. Orders for durable goods is the function of consumer expectations, as they are expensive purchases, so the better-than-expected print provided additional positive information on household expectations.

Inflation data in Germany disappointed, the report showed today that inflation slowed down from 7.6% to 7.5%, missing forecast of 7.4%. At the same time, the price level increased by 0.9% MoM, falling short of 0.6%. Considering that the ECB at the last meeting signaled that the significance of incoming data in policy is increasing, the initial negative reaction of EURUSD to the report is likely to gain momentum.

From a technical point of view, the potential reversal of EURUSD after the parity test began to fade - the price, after the rebound to 1.025, fluctuates in the range of 1.02-1.01, slowly sliding down against the backdrop of negative news on inflation and growing risks of an energy crisis, especially in light of news about falling gas flows from the Russian Federation via the Nord Stream 1. As I wrote in the previous article, the risks in this story are skewed towards further escalation, and therefore there should definitely be bearish bias due to concerns of slowing activity on the back of lower gas consumption and likely higher inflation in the coming months. The pair is in a clear bearish trend and, as we know, without meeting resistance, the trend tends to continue. There are no resistance factors yet, so the downward movement should rather be considered as a continuation of the bearish trend:



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #222  
Old 29-07-2022, 14:06
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Default Re: Tickmill UK Fundamental Analysis

Was market reaction to US GDP number too emotional? Looking under the hood, it may seem so


Demand for risk increased markedly, greenback declined and US bond yields took out recent lows (2.8% for 10-year bonds, 2.9% for 2-year bonds), finding an equilibrium at the lowest levels since April, as the US economy unexpectedly for many, including doomsayers, showed negative growth rate in the second quarter. Nominal output fell by 0.9% QoQ, missing estimate of 0.5%, which formally means that US entered recession. The release of the report made a strong impression on the dollar, as earlier at the meeting the Fed made it clear that after hiking interest rate by 75 bp two times in a row, further rate hikes will be much more dependent on incoming data i.e., adjustment of the path of tightening in either direction is now more likely. After the release, the dollar index fell from 107 to 106.50, and then continued its gradual decline to 105.50, from where it was able to rebound:





The contraction in US GDP has cast a shadow over the investment thesis that US assets provide the best risk/reward ratio in the face of a global slowdown, high inflation, geopolitical risks and a cycle of central bank tightening. In addition, the weak report spurred a revision of the Fed's policy tightening forecasts: the expected aggregate size of the rate increase by the end of the year was reduced from 100 bp to 90 bp.

However, looking at the details of the report, one can find arguments in favor of the fact that the market reaction to the weak report was excessive and, in fact, the US economy did not enter a recession. If we look at the contribution of each component of GDP, we can see that growth was pulled down by volatile components - firms' investment in inventories (-2% of the total) and investment in fixed assets (-0.7% of the total). Consumer spending growth in the second quarter was positive at +1%:





The downturn phase of the business cycle is usually characterized by contraction in consumer spending and rising unemployment, but so far in the US, these two indicators do not give cause for concern. In the labor market, initial jobless claims have risen for the fourth week in a row, but the Fed has warned that tightening policy will have some costs, so the deterioration in individual indicators is not much of a surprise.

The Fed officials' argument that recession risks are exaggerated also continues to be based on the fact that the classic signs of lower consumer spending and rising unemployment are absent. Raphael Bostic said in an interview yesterday that the economy is far from recession, but he shares concerns that a "self-fulfilling prophecy" effect could actually make matters worse.

In general, in my opinion, the effect of a weak report on GDP should come to naught next week and the dollar index will be able to resume growth. From a technical point of view, the dollar index completed bearish pullback to the lower edge of the main trend channel, which creates conditions for a rebound:




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #223  
Old 02-08-2022, 12:41
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Default Re: Tickmill UK Fundamental Analysis

Despite risk of slowing Fed tightening, Dollar correction may be over and here is why



The planned visit of US House speaker Nancy Pelosi to Taiwan has the potential to exacerbate relations between the US and China, which in the foreign exchange market will be expressed in the strengthening of the dollar, increased demand for safe heavens, weakening of the CNY and currencies that get clues from the moves of the Chinese currency (AUD, NZD). AUDUSD upward momentum is under additional threat as the RBA signaled that inflation peak is finally in sight. EURUSD may slide towards 1.02.

Rumors that the Fed will slow down the pace of tightening after a series of weak US reports since last week (in particular, downbeat GDP figure in 2Q) kept dollar pressured at the start of the week. However, betting on the continuation of the long squeeze becomes risky, as by correcting expectations for tightening, the markets are unlikely to drift away much from the Fed's guidance, risking making a mistake. Geopolitical and economic uncertainty outside the US persists, so the idea that the dollar will be in demand as a defensive asset for some time remains justified.

Reports that the speaker of the lower house of Congress Nancy Pelosi will visit Taiwan and the sharp reaction of the Chinese authorities, who promised a military response, keep investors in suspense, risk assets are in the red and the dollar attempts to gain foothold on Tuesday, pricing in escalation. Among the G10 currencies, the most vulnerable to the escalation are the AUD and NZD, which have already lost 1.3% and 0.6%, following growing Renminbi weakness.

This week is fully of US labor market reports, the significance of which has grown in light of the fact that the Fed shifted to meeting-by-meeting approach, hinting that policy actions will more depend on incoming data. In addition, signs that US inflation is easing increase the importance of other macroeconomic parameters, including labor market parameters. This week will see the JOLTS report on new vacancies, ADP on Thursday and NFP report on Friday. The focus will also be on speeches by Fed officials such as Charles Evans, Loretta Mester and James Bullard. In my opinion, the risk of upside correction in DXY to the level of 106 increases, given that the bearish pullback from yearly high pushed prices to the edge of the medium-term channel, in addition, another technical level, the 50-day moving average, has acted as a support:





Reports on the European economy are not expected today and events in geopolitics are likely to be the main drivers of EURUSD. Any unfavorable development in relations between China and the United States will most likely have a negative impact on the European currency, firstly, due to the growth in demand for the dollar as a defensive asset, and also due to the fact that trade risks will increase, because EU exports rely heavily on Chinese demand.

Even if the situation with Nancy Pelosi's visit to Taiwan takes a de-escalation course, EURUSD strength is highly doubtful, as EU growth prospects are vague due to the risks of an energy crisis while potential recovery in risk demand may increase the tendency to use the euro as a funding currency, which will lead to increased supply of the common currency.
The pair in the short term may resume movement to 1.02 and test support levels below.

The RBA raised rate by 50 bp today, as expected, but the signal that further policy action will increasingly depend on incoming data increased the risk of a pause in tightening in case of downside surprises in the data. Increased tensions in US-China relations have intensified the fall of AUDUSD, in case of an escalation, there is a risk that the pair will test 0.69. The meeting report is out on Friday and due to the shift in priorities for what to focus on, the report will likely contain some market-moving information that will cause volatility in AUD.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #224  
Old 03-08-2022, 14:30
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Default Re: Tickmill UK Fundamental Analysis

Upbeat US ISM release suggests hopes of Fed dovish shift may fade quickly




Provocative from Chinese point of view, Nancy Pelosi's visit to Taiwan and the promised tough response from the Chinese authorities met with a rather tepid market reaction yesterday, the main US indices closed in a moderate minus, the dollar index met resistance at 106.50 and turned lower on Wednesday. The Fed's verbal interventions have brought back to reality dreamy Treasury investors, who have recently been increasing their bets that the central bank will soften the pace of tightening or be forced to cut rates in 2023. Yields on 10-year bonds jumped yesterday from 2.52% to 2.7%, which also provided support for the dollar. The OPEC+ meetings passed without surprises for the market, the participants agreed to moderately increase production.

Pelosi's visit to Taiwan received a lot of attention, primarily because of China's alarming warnings, but further developments showed that an escalation had been avoided. China "retaliated" by banning sand exports to the island, expanding restrictions on fruit shipments to Taiwan, and announcing military exercises Aug. 4-7. It also became known that the Chinese manufacturer of batteries for electric vehicles changed his mind about investing in the construction of a plant in the United States. That's all.

There were also speculations that China might respond by dumping Treasuries, causing market instability, but China's decline in Treasury holdings is due to other reasons, most notably the need to sell foreign exchange reserves to contain CNY devaluation. The mainland yuan has been under significant pressure from an outflow of investors who expected the hard lockdowns to trigger a severe slowdown in China. In addition, China could sell bonds as a precautionary measure, alarmed by the case with the freezing of Russian foreign exchange reserves.

A number of Fed officials who spoke yesterday hinted that investors may be delusional in expecting the central bank to slow down policy tightening or that the tightening cycle will quickly give way to an easing cycle in 2023. Loretta Mester said yesterday that she sees no signs of much easing in inflation, and that the risks of wage inflation due to a strong labor market (which will cause spillovers to consumer inflation, aka second-round effects) are high. Therefore, the Fed will raise rates and will do it vigorously. Comments from other Fed officials also focused on a strong labor market, a major pillar of the economy that keeps the Fed on course. As a result, 10-year yields jumped up yesterday:






The ISM report in the US non-manufacturing sector today pointed to a favorable combination of the dynamics of inflation index and other indicators, including leading ones. The overall figure beat estimates, rising from 55.3 to 56.7 points (forecast 53.5 points). The price index fell from 80.1 to 72.3 points, indicating a weakening increase in inflationary pressure, while the index of new orders rose from 55.6 to 59.9 points, business activity - from 56.1 to 59.9 points. The hiring index is getting out of the negative zone - 49.1 against 47.4 points. In general, the report proved to be much better than expected, due to which the dollar was able to bounce even higher:





The raft of upside surprises in the report suggests that the much-discussed “soft landing” by the Fed officials - reducing inflation while preventing economy from falling into recession is feasible. In my view there is a risk that market players will again price in the outstripping growth rates of the US economy compared to competitors, and therefore better real yield outlook. In turn, this will likely be one of the main bullish drivers of the dollar.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #225  
Old 04-08-2022, 13:54
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Default Re: Tickmill UK Fundamental Analysis

Decreasing US economic uncertainty pushes equity prices back into bull territory


Incoming data on the US economy continues to surprise on the upside, triggering massive unwinding of recession bets and luring investors back into risk assets on decreasing uncertainty. One such report was the ISM report on the non-manufacturing sector released yesterday which surprisingly showed that the sector continued to expand in July at a healthy pace despite aggressive Fed rate hikes and consumer spending pressured by high inflation. The behavior of the index components proved to be even more unexpected: the price index fell from 80.1 to 72.3 points, indicating that pipeline inflation pressures decreased, the new orders index rose from 55.6 to 59.9 points, laying the groundwork for expansion of activity next month, while the business activity index, contrary to expectations of a decrease, rose from 56.1 to 59.9 points.



ISM Report Price Index



ISM Report New Orders Index


The reason why the report had major bullish implications for the market is simple – accelerating inflation combined with the Fed's ultra-aggressive pace of rate hikes led to a sharp rise of recession plays in May and June. The point is that the tightening was supposed to suppress high inflation, but at the cost of “demand destruction”—lower consumer spending and reduced investment. However, a number of recent data, in particular the ISM report, have shown that the scenario of a "soft landing" of the economy, which the Fed hopes so much for – bringing inflation back under control while maintaining positive growth rates in consumer demand and investment - is becoming more realistic. The July reports did indeed show the first signs of an easing in price pressures, while at the same time, activity and output indicators, leading indicators such as new orders continued to rise, and in some cases even better than estimates. Given that there is still much uncertainty priced in risk assets, the current rebound should have some room to continue especially if data continues to show resilience of economic activity to the Fed tightening and inflation. The next report in focus is labor market’s NFP which will likely extend the streak of positive US data surprises, giving another boost to risk assets (i.e., equities) and greenback.

Also yesterday, two Fed officials, Barkin and Daly, made comments, refuting rumors about policy easing cycle next year. According to the policymakers, the inflation comedown will likely be slow (due to the fact that approximately 50% it is driven by supply-side factors) while fears that policy tightening will drive the economy into a recession that will require rate cuts, are exaggerated. In general, this week, the Central Bank increased verbal interventions to curb the rise of market expectations that the pace of policy tightening will slow down or that the easing cycle will start next year. As a result, the odds that the third rate hike by 75 bp will take place in September increased from 26% to 45.5%:



Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #226  
Old 10-08-2022, 11:53
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Default Re: Tickmill UK Fundamental Analysis

Better than expected China inflation hints US CPI report may deliver bullish surprise today


US bonds remain under selling pressure ahead of release of the US inflation report today. This makes it more difficult for yields to rise further in the event of a positive surprise, however, the near end of the curve may be more sensitive to the release, as the Fed, as we know, can only influence short-term market rates. In addition, inflation data may finally affect expectations regarding the Fed's decision to sell bonds from the balance sheet (quantitative tightening).

The first half of the week proved to be trendless for the dollar, the US currency erased gains fueled by the strong unemployment report published last Friday. There will be a major event today in terms of implications for Fed policy that is likely to be the most important not only this week, but even this month. The US CPI is expected to indicate a weakening in headline inflation and an acceleration of core inflation above 6% YoY.

Sustained high core inflation, which is more difficult to control via monetary tightening should be an argument in favor of the Fed's position, which says that much remains to be done to restore price stability. In addition, core inflation, in line with the forecast, should reinforce expectations that the Fed will raise rates by another 125 bps before the end of the year. If there is no significant acceleration above the forecast, which will be very unexpected, because preliminary data indicate a reversal in the price growth trend, then the impact of the report on the foreign exchange market will be limited to keeping dollar within its current range (106-107 on DXY). There is still a little more than a month before the Fed meeting in September, and if volatility remains low, interest in carry trading will additionally provide moderate support to the dollar due to the fact that the supply of low-yield currencies such as EUR and JPY will increase.

EURUSD continues to dangle near annual lows, and apart from an increase in expectations of easing of the pace Fed's tightening, there are no reliable fundamental grounds to hold bullish view on the pair. Geopolitical risks and uncertainty in the EU's energy security continue to be a source of significant premium in the common currency. Since there are no reports on the EU economy today, the movement in the pair will most likely be tied to the release of CPI. The decrease in potential volatility in currency options suggests that the market has no desire to test lower levels (1.00-1.01). At the same time, technical analysis indicates a gradual increase in pressure from buyers after the main rebound wave, which increases the chances of an upward breakout:



The decline in inflation in China in June, both manufacturing and consumer, increases the chances of seeing a favorable outcome for the markets of the US CPI release today. Today's report on China showed that consumer inflation was 2.7% against the forecast of 2.9%, manufacturing inflation - 4.2% against the forecast of 4.8% in July.


Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #227  
Old 11-08-2022, 13:31
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Default Re: Tickmill UK Fundamental Analysis

EURUSD breaks bearish channel on the CPI report signaling about possible medium-term reversal



Equity markets made another leap upwards amid a buildup of expectations of a slight dovish shift in the Fed policy. This was facilitated by release of the US July CPI, which showed that inflation in July decelerated faster than expected. Core inflation remained unchanged at 5.9% (despite expectations of acceleration), headline inflation slowed down by 60 bp. to 8.5%. The main contribution to the easing in headline inflation was expectedly made by fuel and gasoline prices:



The decline in gasoline prices eased inflation pressure in transportation services as well, where prices declined 0.5% MoM. Some cooling of consumer demand occurred in the market of used cars, where monthly deflation of 0.4% was observed. Clothing prices inched lower by 0.1%.

The dollar lost about 1% yesterday against a basket of major currencies as the CPI report dented prospects of 75 bp rate hike in September. The odds, according to rate futures, have fallen below 40%, the base case is now a 50 bp rate hike. In the Treasury market, the shift in expectations did not last long, largely thanks to the comments from Fed officials (Evans and Kashkari), who, after the release of CPI, continued to develop the recent line of rhetoric of the Fed - the chances of US recession are low, the fight against inflation is not over and policy easing is not expected next year. Yield to maturity on two-year US bonds fell by 20 bp after the release, but recovered 15 bp towards the end of the day. Today the short-term bond trades at around 9 bp below the yield, which was before the release of CPI (3.28%).

A real shift in market expectations and the Fed policy should probably be expected after two key indicators of inflation trend - shelter prices and wages - show signs of slowing down. The first one is important because it is the most "sticky" among all inflation components, the second - because it is a leading indicator of cooling of consumer demand. As long as the imbalance in the US labor market persists, and it generates wage inflation, the Fed is unlikely to change its rhetoric, given how the central bank damaged its reputation with a belated start of tightening and huge underestimation of inflation persistence in the first half of 2022.

The next major event for those who follow the Fed's policy will be the Jackson Hole Symposium August 25-27, which is famous for central bank officials sharing their strategic views on how monetary policy should be conducted.

On the technical side of EURUSD chart, as expected, market made a breakout from the bearish channel following formation of the wedge pattern, and today a test of the key resistance line took place, which until the beginning of July acted as support (1.04). The prospect of EURUSD movement further up will be determined by a potential breakout of the line and the possibility of fixation above it:




Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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  #228  
Old Today, 13:19
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Default Re: Tickmill UK Fundamental Analysis

Three key factors of short-term support of the Dollar


Foreign trade indices of major energy importers continue to hit new lows and markets are increasingly focused on how governments will respond to rising natural gas prices. At the same time, the weakening of the yuan and a number of potential upside surprises for the US economy today decrease the odds of a bearish dollar correction after the rally.

There are now three factors of short-term support for the dollar. The first factor is the supply shock on the gas market, which drove up gas prices, due to which large importers (EU, Asian countries) are faced with a situation where import price increases significantly outpace export price growth, which is a negative income shock. Governments are expected to take measures to mitigate the blow to the economy and what they offer will impact growth outlook, and hence real yield outlook offered by domestic assets. In turn, these expectations will form the demand for national currencies. So far, there are no tangible support measures, so currencies such as the Euro, Pound Sterling and the Yen are again under serious pressure. The US economy is relatively insulated from a gas supply shock by being less dependent on external energy supplies, which is factored into additional demand for the US dollar.

The second factor is a signal from the Chinese Central Bank that the economy needs a weak yuan to stimulate the movement of the economy towards its goals. PBOC cut the medium-term lending rate by 10 bp, which was a signal for USDCNY buying. In a few days, the price added about 1% approaching 6.80 and now the attention is on whether the Central Bank will further weaken the reference rate:





Earlier in April, when USDCNY surged 6%, the dollar rose against a basket of major currencies by about the same amount as well, suggesting that the situation with monetary stimulus in China will also act as a support factor for the dollar.

Data on the US economy, which has been surprising on the upside in August, may also be an argument in favor of a strong dollar. Today and tomorrow the reports are due on industrial production and retail sales. Given that the sharp drop in gasoline prices is a positive shock to both supply and demand (lower costs, more consumer spending power), the risks on these two reports are skewed towards a positive surprise. The Fed will put out the Minutes of the last FOMC meeting, given hawkish FOMC members’ bias, despite favorable signals in inflation, a hawkish surprise tomorrow cannot be ruled out.

The news that the German government is imposing a gas levy suggests that the government doesn’t have enough means to smooth out the shock and also that inflation may be more persistent. In turn, this may require more tightening by the ECB, however raising rates in a period of fragile growth creates the risk of an accelerated slowdown in the economy. EURUSD is likely to retest 1.00 given the failed upside breakout of the medium-term bearish channel and subsequent downside breakout of the key short-term uptrend line that guided EURUSD recovery after the parity test, indicating that the next support should be expected at the level of 1.00:





Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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