Tickmill UK Fundamental Analysis

[TickmillNews]

Yen left adrift as Bank of Japan’s dovish position holds steady


The dollar is gradually recovering after major losses last week:



The plunge occurred on Thursday following the release of US import price data. In May, import prices declined by 0.6% for the month, allowing market participants to reassess the level of expected US inflation and consequently the likelihood of a July tightening by the Federal Reserve (Fed). Previously, during the FOMC meeting, Fed Chair Powell stated that the central bank would increasingly rely on incoming data to make decisions. Such statements are typically made when the central bank anticipates an approaching turning point in the business cycle, in this case, a definitive shift to lower inflation trends. In other cases, central banks often resort to implicit guarantees (forward guidance) that they may continue to lower or raise rates for some time. Approaching a turning point consequently increases market sensitivity to the incoming data points, which often go unnoticed. In this case, it was import prices and initial jobless claims, which once again exceeded expectations.

From a technical analysis perspective, the dollar index is trading within a downward corridor. Last week, during the decline, the price confirmed the lower boundary of this corridor (at the level of 102 on the DXY) and entered into a bullish correction on Monday. The magnitude of movements is insignificant, reflecting the fact that the major events that could have influenced market expectations occurred last week.

The analysis of the Bank of Japan meeting, which took place last Friday, is also noteworthy as it may have serious consequences for the yen. The market was not expecting a rate hike since the central bank continues to use a more powerful easing tool by controlling the yield of long-term government bonds. When it approaches a certain upper boundary (in this case, 0.5%), the Bank of Japan begins to buy bonds, thereby preventing the yield from rising further. Thus, the cost of long-term borrowing in the economy is maintained at a very low level given the current circumstances. It looks like this:



The central bank was expected to allow for wider yield movements (declare an upper boundary above 0.5%), but it did not even do that. This further widens the policy gap between the Bank of Japan and other central banks that are raising rates, and the Japanese yen weakened against the dollar even during its steep decline last week. On the USD/JPY technical chart, it can be seen that the price tested the upper boundary of the channel multiple times and broke out of it last week. It is worth noting the flag pattern (rise + consolidation) before the breakout, which suggests that the decline of the yen will likely continue. Some resistance is likely to emerge near the November 2022 high (at the level of 142.50):



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.

[TickmillNews]

Bank of England's Underestimated Inflation Forecasts Expose Insufficient Policy Tightening


The surprise in UK consumer inflation for May was incredibly strong, raising concerns that the Bank of England's may go into overdrive with the policy tightening. GBPUSD initially tried to gain strength, but it quickly became clear that additional tightening measures could hurt UK’s growth prospects, resulting in the Pound sell-off.



In May, UK consumer inflation reached 8.7%, surpassing the forecast of 8.4% (previously 8.7%). More importantly, core inflation continued to accelerate, hitting 7.1% in July, surpassing the projected 6.8% (previously 6.8%). This marks the second consecutive month of core inflation acceleration, jumping from 6.2% to 6.8% in April. Inflation in the services sector, known for its less volatile trends, exceeded the central bank's forecast by 0.3%, significantly increasing the pressure on the Bank of England. If the bank's response is perceived as too lenient, concerns may arise about their control over the situation. The market not only dismissed doubts about a 25 basis point rate hike at tomorrow's meeting but also factored in a potential 50 basis point increase. Market participants may also expect the central bank to forecast a prolonged period of high interest rates.

From a technical analysis perspective, GBPUSD is likely to continue its decline, with sellers eyeing the 1.258-1.262 range. This area is significant as it intersects an ascending trendline and a former resistance line that could now act as support:



The decline in the GBPUSD pair may also be influenced by a stronger dollar. Market participants are increasingly betting on the dollar rebound ahead of Powell's two-day testimony in Congress, starting today. Based on comments from Federal Reserve officials last week, Powell might take this opportunity to adjust market expectations, specifically addressing unwarranted expectations of rate cuts this year and emphasizing that the fight against inflation is far from over. Furthermore, the recent update to the Dot Plot indicated that officials anticipate two more rate hikes. However, the adjustment of derivative contracts sensitive to interest rates, particularly overnight interest rate swaps, did not reflect these expectations. The implied terminal rate is only 24 basis points higher than the current rate, which is well below two 25 basis point increases. This circumstance increases the likelihood of Powell engaging in hawkish verbal intervention today.

A crucial factor for a potential dollar rally will be breaking out of the bearish channel and establishing a foothold above the upper boundary, corresponding to a breakthrough of the 102.75 level on the dollar index.



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.

[TickmillNews]

The flow of US data dashes hopes of a pause in the Federal Reserve's tightening



Gold investors appear to have become weary of waiting for low interest rates (as central banks show no indication of halting their current tightening course), developments in the US banking stress narrative or geopolitical tensions that would ultimately validate their optimistic outlook for gold's growth potential. On Wednesday, gold accelerated its decline, and the test of the $1900 per troy ounce level loomed on the horizon:



In early May, the price of gold rebounded from its historical peak, forming a double top. In mid-June, after a tense struggle between sellers and buyers, it exited the medium-term ascending channel (white parallel lines). Currently, a short-term bearish corridor is taking shape (red lines). The chart also reveals a broader ascending channel (orange parallel lines). Its lower boundary, intersecting with the lower boundary of the short-term bearish channel, which corresponds to approximately the $1880 per troy ounce area, may form an interesting support zone where the price could reverse and move upward again. Clearly, one of the three drivers mentioned earlier must come into play: stress in the banking sector due to growing interest rate disparity between banks’ assets and liabilities, signals of easing core inflation, or a new wave of geopolitical tensions.

Yesterday's comments from ECB officials in Sintra showed that hoping for soft rhetoric today from the heads of the US, EU, and Japanese central banks is unlikely. The wording contained a very clear hint at a rate hike: signals of slowing core inflation in the EU are unconvincing, so a pause in July is unlikely. Based on this, one can assume that Lagarde, Powell, and the head of the Bank of Japan, Kuroda, will develop this idea today since core inflation is indeed currently holding at a relatively high level and receding slowly:



Incoming data from the US effectively quells the market's concerns that central banks are making policy mistakes. Durable goods orders in the US (a strong indicator of household income expectations) rose by 1.7% in the month, surpassing the forecast of -1%. Consumer confidence was directly confirmed by the Conference Board's index, which reached 109.7 points in June, surpassing the forecast of 104 points. Concerns about inflation were amplified by real estate market data: the price index increased by 0.7% in the month, exceeding the forecast of 0.3%. Additionally, API data showed strong demand for fuel as crude oil inventories declined by 2.4 million barrels, compared to a forecast of 1.467 million.

The dollar has turned higher against major currencies ahead of Powell's speech in Sintra. On the technical chart, it can be seen that the dollar index exited the bearish channel, rebounded after reaching its upper boundary, and continued to rise. The medium-term resistance is located in the range of 103.50-103.70, where the corresponding trendline was previously formed by the price:



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.

[TickmillNews]

US June CPI strips dollar of any support as odds of hawkish Fed outcome plummet


The US June CPI report left the dollar entirely defenseless, causing the US currency index to plummet to nearly 100 level:





As seen in the chart, this is the lowest level since April 2022, meaning the dollar index has not been in this area for over a year. Dropping below the 101 level, the dollar index broke through a support area that was formed by a double bottom in February and May 2023, so we are likely to see further downward movement as an important support level has been breached. To assess the potential decline of the dollar, it's worth looking at the EURUSD chart, which provides more informative insights. There are two areas where dollar buyers may make their presence felt - 1.12500 and 1.15. The first level coincides with the upper boundary of the current ascending channel, while the second level aligns with a long-term resistance trendline that price tested in 2011, 2012, 2014, and 2021:




It should be noted that the US currency had been already in a downbeat mood before the CPI was released. The DXY had been on a slippery slope for the fifth consecutive day yesterday, largely influenced by the unexpectedly dovish rhetoric of two top Federal Reserve (Fed) officials, Daly and Bostic. They notably deviated from the central line of communication between the regulator and the markets by stating on Tuesday that monetary policy is already restrictive enough and that the Fed may need to take time to observe how the economy responds to policy tightening. Of course, such comments contradict Powell's statements at the ECB Sintra symposium, where he said that no officials anticipate a rate cut this year and that the vast majority of FOMC members believe that the interest rate should be even higher.

Yesterday's inflation report clearly shifted the balance of power in favor of the doves within the FOMC. Overall inflation declined to 3% (forecast was 3.1%), while core inflation, which excludes goods and services with volatile prices, slowed from 5.3% to 4.8% (forecast was 5%). The significant progress in core inflation, which FOMC officials referred to as the key variable determining short-term Fed policy, allowed the markets to reassess the likelihood of two rate hikes this year to the downside. If a week ago the probability of the Fed raising rates twice by the end of the year was 36%, it has now decreased to 13%. Consequently, the outcome with one rate hike has become the baseline, with the probability rising to 64%:



Today, the US producer inflation index for June is also due, and the markets are likely to pay some attention to it, considering that it is a leading indicator for consumer inflation. The indicator is expected to be at 0.2% MoM. The market may also pay attention to the data on initial and continuing jobless claims, the importance of which has significantly increased since the June NFP indicated the first signs of weakness in the labor market. The key report for tomorrow is the University of Michigan Consumer Sentiment Index for July, which is expected to be slightly higher than the previous month at 65.5 points.


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.

[TickmillNews]

Is the Global Disinflation Wave Gaining Momentum? UK and US Inflation Data Suggest Yes


GBPUSD experienced a rapid decline on Wednesday after the release of British consumer price data, revealing an unexpected drop in core inflation from 7.1% to 6.9%. It became evident that disinflation is slowly spreading beyond the USA. The pound plummeted by nearly 1% against the dollar, breaking through the 1.30 level. From a technical analysis perspective, the price is still holding above the uptrend line, indicating potential for further upward movement. However, to confirm this, it would be beneficial to assess the buying initiative with a corresponding correction to the trend line. Based on the chart below, the target level for this correction could be around 1.282 (marked by the yellow circle). The main target within the upward trend since October last year is the level of 1.3450/1.35, where the major resistance trend line, formed by price extremes in 2015 and 2021, is located:





The British data did not go unnoticed in European trading, as market participants rushed to price in the risk of the rising wave of disinflation affecting the EU economy in the near future (or possibly already). Consequently, the ECB will likely have to temper its ambitions and hint at a pause after the July rate hike. This led to a temporary breakthrough of the EURUSD level of 1.12 and increased investor interest in short-term EU bonds at the start of the session, with 2-year German bond yields falling by approximately 12 basis points today:



Later on, the Euro and bond yields slightly recovered as the revised core inflation assessment for the EU in June showed a slight increase from 5.3% to 5.5%. Of course, compared to the US and UK data, the EU price data currently does not show any hint of disinflation. If this trend continues into July, the Euro would have a significant chance of strengthening its position against major rivals.

The retail sales data in the US for June added some intrigue to the upcoming Federal Reserve meeting in July. A consensus is rapidly forming that after the July rate hike, there will be an uncertain pause (or the end of the tightening cycle). The key indicator for the central bank's policy, the core retail sales, exceeded expectations, increasing by 0.3% month-on-month (forecast was 0%). However, the overall retail sales figure was below the forecast, but this was due to demand fluctuations that do not reflect the main trend (as seen from the behavior of the core retail sales indicator). The dollar responded positively overall yesterday, even attempting to test the 100 level on the DXY index, which it succeeded in achieving today after the release of British inflation data. The DXY dollar index is reaching towards 100.50 and briefly touched 100.30 at the start of the European session.

Market participants also paid attention to the US construction data today, but it did not show any significant deviations. The number of building permits issued in June almost matched the forecast (1.44 million vs. forecast of 1.49 million). The pace of new housing construction slowed by 8% month-on-month.

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.

[TickmillNews]

Why US Treasury Yields Are Rising at Different Rates Based on Maturity - Understanding the Reasons Behind This Trend



On Friday, major currency pairs experienced limited price movements, with slight gains observed in commodity dollars such as the Australian Dollar (AUD) and Canadian Dollar (CAD), owing to moderate positive developments in the commodity market. US equities showed signs of weakness yesterday, as the S&P 500 index drifted towards 4500 points. However, today, index futures are attempting to rise, albeit with modest growth not exceeding half a percent. In contrast, European markets are witnessing a purely technical bullish rebound following a decline in the first half of the week, and European stock indices continue to consolidate near historical highs:



The US Treasury market remains highly volatile, with yields rising across the entire maturity spectrum, frequently setting new local highs and approaching the peak levels recorded this year. Not since 2007 has the market witnessed such levels. Investors are selling bonds, though the intensity of selling varies depending on the maturity period. For instance, comparing the yields of 2-year and 10-year Treasury bonds:



Since the third week of July, when robust data on the American economy began to emerge, yields across all maturity periods have been on the rise. However, long-term bonds have experienced more significant selling pressure, leading to faster growth in yields. In other words, the attractiveness of short-term bonds has increased relative to long-term bonds. Most investors had anticipated that a strategy of sequentially investing in a series of short-term bonds (lending for short terms and continually rolling over the investment) would generate higher overall returns than a strategy of purchasing long-term bonds (borrowing for a single long-term period).

When investors believe that the Federal Reserve is planning to excessively tighten its monetary policy, they sell short-term bonds (expecting interest rate hikes) and instead buy long-term bonds, anticipating that the Fed's actions will prove to be a mistake and lead to an economic downturn or recession, along with corresponding fall in inflation rates. In such a scenario, buying long-term bonds becomes more advantageous compared to investing in a series of short-term bonds, as short-term interest rates are expected to decline in the future. Conversely, if investors believe that the Fed's will undershoot with policy tightening due to the strong economy's potential, they sell long-term bonds, expecting that the restrictive effect of high rates will be insufficient, leading to economy and inflation staying hot longer. In this scenario, a series of investments in short-term bonds appears more appealing, given the expectation that short-term rates will remain stable or potentially even increase.

In the first case, the spread between long and short-term bonds will go lower, while in the second case, it will increase. Currently, investors seem convinced that the Federal Reserve's current policy outlook is insufficient to push inflation to its target level.

Signs that inflation is likely to persist emerged yesterday after the release of ISM data in the services sector. Although the overall index roughly met expectations (52.7 points, with a forecast of 53 points), the input price index surged from 54.1 to 56.8 points (the first time in several months):



This is indeed a very concerning signal that the Federal Reserve may once again be underestimating the potential for inflation.

Today, the market braces for volatility related to the release of Nonfarm Payrolls (NFP) report, with expectations of modest job growth of around 200К and a 0.3% increase in wages on a monthly basis. In my opinion, the current rally in yields likely already factors in a strong NFP report, leading to a potential asymmetric reaction: a robust report may have minimal impact on the market, while weak job growth, especially with modest wage increases, could trigger a retracement in the recent bond market trend. Consequently, the U.S. dollar is also expected to experience a tangible downward correction in case of a dovish 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.

[TickmillNews]

NFP report Analysis: Job Growth and Fed Policy Outlook



The US unemployment report for August showed modest job growth, a slowdown in wage growth, and a relatively sharp jump in the unemployment rate, all clear signs that the US labor market is normalizing. It's challenging to expect inflation to accelerate in this context, so the likelihood of the Federal Reserve raising interest rates in September and possibly in November is diminishing.

Job growth in the US in August reached 187,000, slightly surpassing the modest forecast of 170,000. However, the previous two months were revised downward by a total of 110,000 jobs. The report adds weight to the argument that there is a sustained trend of weakening in hiring. In the private sector, the increase was 179,000, with 102,000 of those jobs coming from the private education and healthcare sector. A positive development in terms of its impact on inflation is the increase in the labor force participation rate – a measure calculated as the sum of unemployed and employed individuals as a percentage of the total working-age population. An increase in this rate means a "net" inflow into the category of those who are either employed or actively seeking employment, which should exert downward pressure on wages and, subsequently, consumer inflation in the US. The decline in this rate in 2020 led to the phenomenon of sustained inflation pressures, which the labor market continues to generate. With its return to normal levels, this effect is likely to be a deflationary factor:



Along with the rise in the labor force participation rate, wage growth is also starting to slow down, with August recording a 0.2% MoM increase compared to a forecast of 0.3%. This marks the first drop below 0.3% in over six months. The unemployment rate jumped from 3.5% to 3.8%, clearly indicating a slowdown in the pace of labor demand growth.

The probability of the Federal Reserve raising rates in September in the face of such soft figures is sharply decreasing, and the pause is likely to extend into November.

The markets did not see anything critical in the unemployment report in terms of recession risks in the US. Short-term Treasury yields returned to levels preceding the report release after a brief dip, and long-term bond yields even increased slightly, from 4.10% to 4.18% for 10-year Treasury bonds. Consequently, the report had no significant impact on the US dollar, which strengthened against major currencies after a brief bearish correction. The dollar index rose from 103.50 to 104 points, and the price formed a chart pattern rebounding from a support line, which previously acted as resistance, serving as a confirmation of bullish intentions:



This week, we can expect the release of the US ISM Services PMI on Wednesday, which will also include respondents' assessments of hiring conditions and price pressures and is expected to be closely watched by the market. In Europe, the third estimate of second-quarter GDP growth will be released on Thursday, and Germany's inflation report will be published on Friday.



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.

[TickmillNews]

Risk Appetite on the US Stock Market Wanes Amid Inflation Concerns


On Wednesday, appetite for risk in US equities decreased, with major stock indices finishing the session slightly in the red. The American market successfully passed the bearish baton to Asian and European markets as investors gradually sold off stocks amidst rising oil prices. US Treasury bond yields increased as traders apparently factor in the risks of a potential inflation resurgence due to anticipated cost-push inflation impulse, particularly due to rising fuel prices. Yields for two-year bonds crossed the 5% mark, while ten-year bonds reached 4.25%. The spread between long-term and short-term bonds changed recent direction and moved lower. This may indicate a resurgence of speculation in the market regarding a Federal Reserve interest rate hike.

A significant event from yesterday was the ISM report on US service sector activity. It provided another mixed signal: the overall index rose from 52.7 to 54.5 points, beating expectations of 52.5 points. The ISM Prices sub-index left the market bewildered, as instead of the expected decrease, it actually increased from 56.8 to 58.9 points. This suggests that, according to respondents, price pressures may have increased at increasing rate compared to the previous month. This contradicts recent CPI and PCE inflation and wage data from the NFP report. It's worth noting that the Federal Reserve's number one goal is to reduce inflation in the service sector since its price pressures largely shape the overall trend of consumer inflation in the US. Additionally, the labor-intensive nature of the industry (high labor-to-capital ratio in its output) creates a positive feedback loop of "prices-wage-prices" which largely explains inflation persistence.

Short-term bond yields increased following the report's publication, underscoring the market's surprise at the unexpected new information:



Consequently, the likelihood of a Fed rate hike in November has also increased. If a week ago it stood at 37.1%, it now sits at 43.5%:



The US dollar index halted its recent downward correction and rose to the 105 level on Thursday. EURUSD continues to consolidate around the 1.07 level, with minimal attempts to stage a rebound:



This behavior near the round figure increases the likelihood of a bearish breakthrough on new information towards the 1.06 area. However, the ECB is due to hold a meeting next week, and based on the rhetoric of ECB officials, the regulator is set to hike interest rate further. The potential for hawkish surprises likely rules out a significant decline and even if a downward market breakout occurs, it will likely be short-lived.



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.

[TickmillNews]

US Consumer Inflation Slightly Exceeds Expectations, ECB Prepares for Meeting: Market Overview


Consumer inflation in the United States in August came in slightly above expectations, as indicated by the report released on Wednesday. Core inflation, which excludes items or services with volatile prices, reached 0.3% for the month. While the deviation from the forecast (0.2% MoM) is not significant, it is likely enough to prompt the Federal Reserve (Fed) to maintain its projection of a single interest rate hike by year-end during the upcoming meeting.

Headline inflation deviated slightly more from the forecast due to a 10% increase in fuel prices in August, but the market had already priced in this development, reacting to the recent rally in the oil market.

The market reacted fairly indifferently to the acceleration in core inflation. This can be attributed to elevated market expectations, as the market had factored in the risk of fuel-related inflation driving up core inflation. Additionally, a slowdown in the growth of housing expenses (Shelter Inflation) from 0.4% in July to 0.3% in August played a role:



This component, which represents the most inert or "sticky" aspect of the Consumer Price Index (CPI) for services, closely reflects the underlying trend in consumer prices. The dynamics of this component could potentially offset the relatively minor acceleration in the overall core inflation figure, as it is clear that the trend is more important than month-to-month fluctuations driven by seasonal or transitory factors.

Today, the market is focused on the European Central Bank (ECB) meeting. According to interest rate derivatives pricing, the likelihood of a rate hike is estimated at around 65%. Therefore, an actual rate hike would come as somewhat of a surprise, potentially causing the European currency to strengthen and also lifting the British pound. The belief that the ECB will raise rates today gained momentum following a Reuters report suggesting that ECB economists are likely to revise their inflation forecast for the next year upward to 3%. However, it is worth considering that the cumulative tightening of policy expected by the market until the end of the year is only 23 basis points, which is roughly equivalent to a single rate hike. To drive sustainable euro appreciation, the ECB will likely need to convince the market that further tightening cannot be ruled out. The extent of dissent within the Governing Council regarding September's tightening will be crucial. If the decision is made with only a slight and minimal majority, then Lagarde's assurances that "there could be more" are unlikely to have much effect. Overall, the potential euro strength is likely to be short-lived and levels above current ones, say 1.08 for EUR/USD, could present an excellent opportunity to enter short positions ahead of the Fed's meeting next week, where the potential for hawkish surprises is much higher.

The market is not anticipating a Fed rate hike next week, but it will be looking for potential surprises in the Dot Plot, which represents the rate projections of top Fed officials collected on a single chart. Signs of disinflation are likely to leave rate projections unchanged compared to the previous Dot Plot version (one more rate hike till the end of the year):




However, the economic resilience of the United States, evident in recent incoming data, could compel officials to push back the potential rate cut in the following year to a later date. This particular development could significantly impact the market (especially long-dated fixed income assets like 10-Year Treasuries) and contribute to further strengthening of the US 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.

[TickmillNews]

Fed's Meeting Outlook: Dollar Stability Hangs in the Balance as All Eyes Turn to the Dot Plot



EURUSD has stabilized around the 1.07 level, while the dollar index hovers near the 105 mark ahead of the Federal Reserve's meeting scheduled for today. Markets are not anticipating a rate hike; however, the rhetoric regarding the November decision, which the market views as the most likely date for another, potentially final, rate increase this year, will have a significant impact on asset prices. A crucial piece of information regarding the November meeting will be the Dot Plot – the forecasts of top Fed officials regarding interest rates in 2023-2025 and the long-term period, all displayed on a single graph. Currently, it appears as follows:



The red dot on the chart represents the median forecast, indicating a rate of 5.50% for this year, which is 25 basis points above the current level.

Apart from the increase this year, there remains high uncertainty about the trajectory of rates next year. The market is concerned about when the Fed will start cutting rates next year, if at all. The Dot Plot will also clarify the Fed's stance on this issue, so any change in the median forecast for the next year will have a strong impact on market expectations today.

If the Fed excludes a rate hike this year or the Dot Plot points to a lower median rate forecast for the next year, it will send a strong bearish signal for the dollar. In general, the forecast for 2024 could be an interesting point, especially in terms of its impact on the currency market. The median forecast is likely to remain unchanged at 4.64%, indicating a potential 100 basis points cut next year. Given the resilience of the U.S. economic outlook and the reinforcement of the "higher rates for longer" concept, there is a nonzero risk that the median forecast for 2024 could be revised upward. In other aspects, only minor changes in the statement are expected, maintaining a reference to further rate increases that "may be appropriate." Additionally, Federal Reserve Chair Jerome Powell is likely to keep all options open during the press conference. Anticipate the usual resistance against rate cut expectations (which have recently been softened), especially if not signaled by a revision in the Dot Plot for 2024.

The overall message from the Federal Reserve should support the dollar: the Fed will hint at keeping the door open for further tightening if necessary and will do everything possible to undermine the idea that rate cuts are still a long way off. However, market expectations seem quite condensed around this scenario. As mentioned earlier, 2024 could be a point of greater uncertainty: leaving the Dot Plot for 2024 unchanged may not be enough to trigger a significant correction in the dollar's exchange rate, but higher 2024 forecasts could lead to another leg up for the dollar. Beyond the short-term impact, this meeting is unlikely to be a game-changer for the dollar, as the focus will remain on U.S. economic data.


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.

[TickmillNews]

Cautious Markets React to Disappointing Jobs Data and Oil Inventory Surge


Oil prices resumed their downward trend on Wednesday following the release of employment data from ADP:



Job growth was significantly lower than expected, with only 83K jobs added compared to the anticipated 156K. The accompanying commentary was equally disconcerting, highlighting a marked deceleration in job growth throughout September, primarily attributed to job reductions within large enterprises.

The market correction gained momentum after the weekly EIA data on oil reserves were made public. These figures revealed a substantial surge in gasoline inventories, registering a substantial increase of 6.4 million barrels, in stark contrast to the forecasted 0.1 million. An uptick in gasoline inventories often signals reduced demand for fuel, a clear economic activity indicator.

Within a span of just under two days, oil prices retreated by approximately 7%, breaching a critical upward trend:



The tepid yet concerning signal from ADP raised concerns about the recent frenzy within the US Treasury bond market. This frenzy was sparked by a sudden realization of market participants that it may take a long time for high interest rates to do their job in suppressing inflation. In addition to oil, yields on Treasury bonds have also reversed their course, with ten-year bond yields decreasing by roughly 9 basis points to 4.71%.

Nevertheless, other economic indicators released in the United States this week continue to point toward significant inflationary potential. The ISM report on service sector activity from yesterday met expectations, with headline remaining in expansion zone at 53.6 points. Initial claims for unemployment benefits, released on Thursday, saw an uptick of 207K, slightly surpassing the projected 210K. It is worth noting that the weekly increase in unemployment level, tracked by this measure, remains close to the lows of the current business cycle, suggesting that the labor market remains robust.

The US dollar has also weakened against its major counterparts, although the correction appears to have stalled around the 106.70 level on the dollar index (DXY). The market is likely awaiting the official labor market report, scheduled for release on Friday, to determine direction. However, given the lackluster ADP report, the risks associated with a negative deviation in job growth in the NFP report are increasing. Consequently, we may witness tentative efforts to sell the dollar in anticipation of this risk materializing. In the event of a weak NFP report, there is a strong possibility that the dollar index will continue its descent towards the 106 level on the DXY index, where the lower boundary of the ascending corridor is situated:





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.

[TickmillNews]

Middle East Crisis Spurs Market Volatility and Drives Oil Prices Higher



Stock markets in Asia and Europe experienced a decline on Monday, while gold prices rose, and the dollar resumed its upward movement towards local highs amid a sharp escalation of tensions in Israel. The markets also took into account past experiences of conflicts in the Middle East, which, in one instance, led to a recession due to OPEC's decision to sharply limit oil supplies. These concerns drove oil prices up by nearly 4%:



The focus of the markets this week will undoubtedly be on how events in the Middle East unfold. Investors will be monitoring the risk of a broader conflict involving primarily Arab nations, which could have serious consequences for destabilizing the oil market. Additionally, given Iran's open support for Palestine, markets are likely factoring in the potential risk of sanctions against Iranian oil, which could further exacerbate the market's supply shortage. Considering that developed countries are grappling with high inflation, a potential spike in oil prices could have a negative impact primarily on countries dependent on energy imports. The currency market, as we can see, is primarily factoring in this risk, with the European continent currencies and the Japanese yen being sold.

The yield on US debt has decreased slightly as inflation risks offset the recession risk associated with the escalation of tensions into a more serious conflict. The yield on short-term bonds has barely changed since the start of trading today, while the yield on long-term bonds has decreased from 4.79% to 4.71%.

The macroeconomic situation also favors the strength of the US dollar. A significant argument in favor of at least holding the dollar is the US unemployment report for September, released last Friday. Job growth totaled 336K, nearly double the forecast, and the figures for the previous two months were revised up by a total of 119K. The range of estimates for September's job growth had varied from 90K to 250K, so the surprise to expectations was significant. Furthermore, the official report's figures failed to predict both ADP and ISM hiring data, as well as NFIB small business data. However, it is worth noting that the JOLTS report on job openings and the series of data on initial claims for unemployment benefits surprised on the upside, steadily decreasing in September toward a cyclical minimum.

Speaking of key events on the economic calendar this week, the Federal Reserve's meeting minutes and the Producer Price Index on Wednesday, US CPI for September, and the European Central Bank's meeting minutes on Thursday, as well as the University of Michigan's consumer sentiment data on Friday, should be highlighted. The US CPI is of particular interest to the market as the inflation trajectory currently holds the greatest importance for the Federal Reserve's policy, which is exerting all efforts to return it to the target level. A slowdown in overall inflation from 3.7% to 3.6% is expected, but labor market conditions suggest there are good chances of deviations towards higher values. Both this circumstance and the technical outlook for the dollar indicate that the risks are tilted towards further strengthening:



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.

[TickmillNews]

Markets React to Middle East Crisis: Dollar's Dive, Bond Yields, and Gold Stability


The wave of risk aversion on Monday, following the tragic events in Israel, is gradually fading away. There appears to be a growing market consensus that the conflict will remain local, and third-party countries won't get involved. The market's reaction on Monday still lingers in the oil market; prices are hesitant to drop after surging by nearly 4%. Gold prices have also remained quite stable, consolidating near the $1950 level per ounce.

The dollar index has dipped to the 106 level and is trading near the lower boundary of the upward trading channel:



It's worth noting that along with the drop in the dollar, Treasury bond yields have also significantly retreated. This basically suggests that the reasons for the dollar's weakening can be attributed to a reassessment of market expectations, either related to inflation or the Federal Reserve's interest rate trajectory. Indeed, yesterday, we heard a rather unexpected comment from the head of the Dallas Fed, Logan, who mentioned that under certain conditions, the Fed's interest rate has varying effects on the economy, depending on the risk premium incorporated into long-term Treasury bond yields. This indirect change can be tracked through the yield spread between long-term and short-term bonds. For example, the spread between the yields of 10-year and 2-year Treasury bonds has increased by almost 50 basis points since the beginning of September:



This increase in the yield spread means that the risk premium associated with longer-term investments in the economy has also risen, which, according to Logan, strengthens the 'cooling' effect of policy tightening. Ultimately, this could imply that fewer rate hikes may be needed.

The markets have interpreted Logan's musings as a signal that the dynamics of yields are starting to concern the Fed and that Fed officials might lean towards eschewing further tightening. Long-term bond yields have dropped by nearly 15 basis points, from 4.80% to 4.65%:



Other Fed officials haven't expressed similar speculations yet, so it's premature to talk about a change in the Fed's narrative. Consequently, the stability of yield decreases, spurred by Logan's comments, is in question. There's also a chance that market participants are factoring in a dovish surprise in the upcoming U.S. CPI report to be published on Thursday. Notably, weak wage growth in the U.S. in September is one sign that inflationary pressures in the economy continue to ease.

Based on the expected bond market response to the Fed's comments, the downward correction of the dollar is likely nearing its end. The technical analysis presented at the beginning of the article on the dollar index also suggests that prices may have reached a zone where buyer interest will resurface. European currencies remain vulnerable to a decline, as markets, as we can see, are not rushing to price out the risks of negative consequences of the Middle East conflict on oil prices. Looking at the technical chart of EURUSD, a potential zone is evident where the upward correction could encounter seller resistance – 1.0630-1.0650:




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.

[TickmillNews]

Market Jitters, Surprising Retail Sales, and the Dollar's Rollercoaster Ride


Events in the Middle East are keeping the market on edge. Stock markets, if they go up at all, are doing so with caution. There's a little bit of growth followed by some corrections. Today, the main European exchanges and U.S. index futures are down by about half a percent. Gold is hanging onto its gains from last Friday, thanks to the geopolitical tension, making it a hot item.

The dollar is holding its ground.

The big deal today in terms of economic news is the report on U.S. retail sales. This report is probably the third most important after the NFP (non-farm payrolls) and the inflation report. Despite a negative sign from household credit card spending, the report surprised on the upside. Retail sales for the month increased by 0.7% compared to the previous month, and core sales, which give a better idea of consumption trends, rose by 0.6%. These numbers are much higher than the expected 0.3% and 0.2%. Notably, the previous figures were also revised significantly upward, to 0.8% and 0.9% respectively. This data pulled the dollar out of the red where it started the session and put it on an upward trend:



Yields on long-term bonds, like the 10-year Treasuries, shot up on the news, challenging recent highs around 4.90%. Verbal interventions from the central bank officials about high long-term bond yields having a tightening effect on the economy, reducing the need for tightening by the central bank, triggered a correction in Treasuries. This correction only lasted a week, and then rates started rising again, effectively ignoring the events in the Middle East:



This week, on Thursday, Federal Reserve Chairman Powell is speaking. In light of recent comments from several Fed top brass that recent yield curve behavior might reduce the need for a rate hike, Powell has a tough task ahead. He'll have to somehow comment on the incoming data to give the impression that the Fed has everything under control. It's known that the effectiveness of the Fed's policy depends heavily on whether it influences market expectations. If the Fed 'misses the mark' by suggesting one thing and the economy requires another, market participants may start making their own forecasts about what the Fed will do. That's why the Fed's influence on their expectations will diminish, and the efficiency of monetary policy will take a hit.

Also, today we'll get data on international capital flows into U.S. Treasury bonds (TIC Flow) for August. This publication updates us on what major foreign countries are doing with their U.S. debt. China's holdings of U.S. debt have fallen from $1.04 trillion at the beginning of 2022 to $821 billion. Further decreases could cause problems in the U.S. bond market and raise questions about whether rising U.S. bond yields due to an increase in the term premium are actually good news 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.

[TickmillNews]

Global Economic Snapshot: China's Resilience, Surprising US Data, and UK Inflation Shockwaves


Significant improvements were seen on the macroeconomic front on Wednesday following the release of data from China. The third-quarter GDP growth came in at 4.9% on an annual basis, surpassing expectations of 4.4%. Industrial production (4.5% versus a forecast of 4.3%) and even often-underperforming retail sales (5.5% versus 4.9%) also exceeded expectations. Official unemployment in China has dropped to 5%. Among the key implications for global markets, we can consider improved forecasts for energy consumption (China being the second-largest net oil exporter) and a revision of growth forecasts for all major economies. This is because the growth of the Chinese economy largely reflects external demand for Chinese goods and services. Following this news, oil prices rose by more than 1%, with Brent crude testing the $93 per barrel mark, its highest since early October. Since the escalation in the Middle East, prices have risen by nearly 10%, putting pressure on countries heavily dependent on energy imports:



In the United States, retail sales figures released yesterday also exceeded expectations. September's growth compared to the previous month more than doubled forecasts. US industrial production also surprised on the upside, with a month-on-month increase of 0.3%. The Federal Reserve is striving to keep its policy flexibility, stating that more time is needed to assess the possibility of another rate hike this year. Richmond Fed Chief Barkin made this announcement yesterday. Meanwhile, US Treasury yields reached local highs today, with the yield on the 10-year bond reaching 4.85% and the 2-year bond hitting 5.24%, its highest level since 2006:



Today's inflation data in the UK also surprised on the upside, increasing the likelihood of a tightening by the Bank of England in the upcoming meeting. Core inflation came in at 6.1% (forecast 6%), while headline inflation reached 6.7% against a forecast of 6.6%. The report prevented the British pound from falling, and GBPUSD is consolidating near the opening level (around 1.22). However, the price remains within a descending channel with attempts by buyers to take the initiative:



From the chart, it's evident that the short-term resistance level for the pair will be around 1.2250. If it breaks and holds above 1.225 for at least a few days, the pound is likely to attract more buyers. However, if sellers manage to defend this level, pound weakness from a technical perspective may intensify, and the pair could head toward the recent low at 1.20.

The dynamics of European currencies are now heavily influenced by the conflict in the Middle East. Markets vividly remember the recession in developed countries caused by the energy crisis of 1973 when Arab OPEC members sharply reduced production to influence global prices in their favor. The markets are likely to be inclined to consider this risk now, preparing for further rallies, and the likelihood of this scenario increases with each new escalation.



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.

[TickmillNews]

EURUSD at Crossroads Amid Economic Signals and Central Bank Developments


The EURUSD is approaching the 1.10 level, but a decisive upward breakthrough requires a change in the yield spread of short-term bonds between U.S. Treasuries and Eurozone securities. Despite the Euro strengthening against the dollar, the spread between 2-year Treasuries and German Bunds continues to consolidate within a range:



For the spread to start decreasing, incoming U.S. data must unequivocally indicate that the American economy is on a downward trajectory. So far, this hasn't happened; economic activity data has been mixed, despite signs of easing price pressures in the U.S.

Since the start of the week, the dollar has remained under pressure due to increased demand for U.S. bonds, increasing the supply of cash. Federal Reserve interest rate derivatives suggest the possibility of a rate cut in June 2024. Yesterday's U.S. home sales data allowed dollar sellers to focus their efforts, as the indicator fell short of forecasts, fueling concerns that high rates are starting to have a more noticeable restraining effect on economic activity in the U.S.

The dollar is likely to be sensitive to today's release of the Consumer Confidence Index from the Conference Board and the industrial index from the Richmond Fed. Several Fed officials, including Goolsbee, Waller, Bowman, and Barr, will also provide comments today. While the market has generally ruled out a rate hike in December, it's essential to note that the recent softening of the Fed's stance was aimed at dampening the rise in Treasury bond yields, which the Fed deemed excessive and tightening on the economy. As yields eventually pulled back (the 10-year bond yield dropped about 0.5% from its peak of 5% to 4.5%), the Fed's position must also "normalize" - officials will seek to maintain flexibility, resisting premature market expectations that the central bank will start tapering. This, in turn, could be a bullish factor for the dollar.

ECB President Christine Lagarde fueled expectations that the central bank would soon reconsider its bond reinvestment strategy during her speech to the European Parliament yesterday. Current hints from the ECB suggest that its pandemic bond-buying program (PEPP) will remain in the reinvestment phase until the end of 2024. However, there is a growing desire within the Governing Council to begin quantitative tightening, i.e., selling bonds from the balance sheet.

Tighter financial conditions usually have a positive impact on the currency, but this specific discussion about PEPP reinvestment may have an undesirable impact on the yield differential of Eurozone peripheral countries. The yield spread between Italian BTPs and 10-year German bonds is more than 25 basis points below the threshold of 200 basis points, but there are risks for Italian bonds in 2024 as fiscal austerity policies are reintroduced in the EU, slowing down the economy. The widening spread between "safe" German bonds and Italian bonds represents a key risk for the euro next year.

The Eurozone calendar is calm today, but there are several speeches by ECB representatives. Lagarde will present a pre-recorded message, and speeches by Pablo Hernandez de Cos, Joachim Nagel, and Philip Lane are also scheduled. The impact of ECB members' comments on the euro has been relatively weak, and the EURUSD exchange rate should remain almost exclusively dependent on the movements of the dollar and expectations of Federal Reserve interest rates. There aren't many catalysts for a break above the 1.10 level this week, and instead, the pair may dip to 1.09 before resuming its upward movement.


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.

[TickmillNews]

US Dollar Under Pressure: Analyzing the Impact of the Fed Statements



The statements made by the Fed officials on Tuesday prompted a mild sell-off of the dollar. At the beginning of Wednesday, the US Dollar Index (DXY) tested the 102.50 area, but during the day, it managed to recover from the decline, ending slightly positive. From a technical analysis standpoint, after breaking through the bearish channel, there could have been a speculative bearish momentum that is expected to dissipate near the 102 level:



Several Federal Reserve officials stated yesterday that there are signs of an economic slowdown, particularly in the deceleration of consumer spending growth. Indicators of activity in the US services and manufacturing sectors are also declining. Additionally, inflation is decreasing, but it's not enough to assert that the Fed has reached the peak of tightening. Clearly, past incidents of a resurgence in inflation after periods of slowdown compel officials to be more cautious in their statements and actions. However, these comments seem to have been sufficient to trigger another reassessment of inflation expectations and Fed rate expectations. From the second half of yesterday, the yield on the 2-year bond fell by about 20 basis points, and the 10-year bond by 15 basis points:



Powell's speech on Friday poses another bearish risk for the dollar and bond yields. Based on the tone of comments from other Fed representatives, it can be expected that Powell will also emphasize the need for a rate hike pause in December.

Against the backdrop of falling bond yields, gold gained further, aiming to test the next round level of $2050 per troy ounce. The S&P 500 futures also rose on Wednesday, approaching the 4600 level, the highest since August. Lower bond rates force investors to accept a lower expected return on stocks, leading to an increase in market capitalization.

The economic calendar on Thursday will be quite interesting: data on US inflation (Core PCE), Eurozone inflation for November, and Chinese PMI in the manufacturing sector will be released. The market will also pay attention to US unemployment claims data.

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.

[TickmillNews]

Eurozone Inflation Plummets: Euro and Pound Drop Amid Elevated ECB Rate Cut Expectations



The Dollar Index rose at the beginning of the European session, gaining about 0.3% in a short period, attempting to consolidate above the 103 level. The primary surge was driven by a decline in the Euro – EURUSD depreciated by approximately 0.5%. The pair is approaching the 1.09 level, having tested the 1.10 level yesterday but failed to hold. In the short term, the downward momentum is likely nearing exhaustion, as the price approached the lower boundary of a recently formed channel. Additionally, the RSI momentum indicator dipped into oversold territory:



However, upcoming reports from the U.S., particularly Core PCE and initial unemployment claims, could bring surprises given the recent increased volatility. It's advisable to await their release before relying solely on the technical picture.

On Thursday, data on China's manufacturing sector activity was released. The PMI indicator fell, contrary to expectations, with a slight worsening in industrial conditions – the corresponding indicator dropped from 49.5 to 49.4 points against a forecast of 49.7 points.

Data from the Eurozone on Thursday was mixed. Preliminary estimates for November showed a slowdown in inflation in France to 3.8%, below the forecast of 4.1%. However, October consumption dropped by 0.9%, contrary to the expected -0.2%. Unemployment in Germany increased by 0.1% to 5.9%, against an expected 5.8%. Headline inflation in the Eurozone slowed from 4.2% to 3.6%, and the core price growth decelerated from 2.9% to 2.4%, surprising the market with a lower-than-expected figure than 2.7% forecast. These inflation figures prompted a reassessment of expectations for the timing of the ECB's interest rate cuts, with the possibility of an earlier policy easing cycle. This, in turn, increased the attractiveness of the Euro against the Dollar, as expectations on Fed policy are a little bit less dovish. Some U.S. central bank officials even hinted yesterday at the possibility of another rate hike if incoming data necessitates it.

The weakened Euro also affected the British pound, as expectations for the British economy shifted towards a faster slowdown in inflation. The pound fell against the dollar by approximately 0.5%.

Later today, the Core PCE indicator will be released, and it could influence the position of European currencies if it indicates a faster-than-expected decline in inflation. The expected baseline is 3.5%, which is 0.2% lower than the previous value.

The market should also pay attention to initial unemployment claims, a key U.S. labor market indicator at the moment. An increase from 209K to 220K is expected. Last week, this indicator sharply declined against expectations of further growth, supporting the dollar as markets factored in inflationary consequences and a slower shift in the hawkish stance of the Fed towards a more dovish one. This week's figure will show whether the surprise of the previous week was significant or if the trend of rising unemployment in the U.S. is gradually gaining momentum.



During the New York session, Federal Reserve official Williams will attempt to influence the market, and increased volatility may be observed during the release of U.S. Pending Home Sales data, with an expected 2% decline in monthly terms.



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.

[TickmillNews]

NFP preview: US employment resilience persists amid mixed labor market signals


In the latter half of the week, bearish pressure on European currencies has somewhat eased, with EURUSD consolidating in the range of 1.0750-1.08 and GBPUSD at 1.25-1.26. This hints that the upcoming direction may be influenced, to some extent, by the Non-Farm Payrolls, and the upcoming Federal Reserve meeting next week. Recent economic activity indicators in the EU have convinced the European Central Bank to signal that the tightening cycle is nearing its end.

Several officials from the Governing Council made unequivocal comments this week, stating that "further rate hikes are unlikely." However, market expectations for the ECB to shift towards rate cuts in March are deemed somewhat fantastical by one official. The market anticipates a 125 basis point reduction in the ECB interest rate by the end of next year, suggesting a relatively aggressive pace of rate cuts. From this perspective, the potential for further weakening of the European currency is limited, as incorporating anything more aggressive seems challenging.

The third GDP estimate for the Eurozone in the third quarter was revised downward again to 0%, contrary to the forecast of 0.1%. Weak growth was corroborated by EU retail sales for October, showing a year-on-year decrease of 1.2%, below the projected -1.1%. A surprising figure was Germany's factory orders, contracting by 3.7% on a monthly basis against the expected 0.2% increase. German economic exports also decreased by -0.2% in October, while a growth of 1.1% was anticipated for the month.

Shifting focus to the U.S. economy, all eyes are currently on the labor market as employment indicators are the only ones preventing markets to forget completely about the threat of inflation comeback. Alongside signs of weakening, some indicators are surprising on the upward side. One such indicator is initial claims for unemployment benefits, which, despite a gradual increase since mid-October, showed improvement in the latest report:



The extended claims for unemployment benefits, indicating the average duration of unemployment, sharply declined after a significant increase in the preceding week, from 1925 to 1861K against a forecast of 1910K. Earlier this week, market reactions were notable due to JOLTS job openings and ISM's services PMI data. While JOLTS indicated labor market weakness with a sharp decline in job openings (well below expectations), the services PMI surprised on the upside, with respondents noting an increase in hiring compared to the previous month.

Wednesday's ADP report showed modest job growth of only 103K, below the slightly higher forecast of 130K. Wage growth slowed, and weak job growth was observed in both manufacturing and services. Although the connection between ADP surprises and deviations from the unemployment forecast is weak, considering other indicators, risks for today's report lean towards a negative surprise.

What will happen to the dollar and risk assets if NFP job growth disappoints? A moderately lower-than-expected outcome will reduce divergence in the short-term policy stance between the ECB and the Fed, lessening the expected gap in the pace of monetary policy easing, providing clear support to European currencies. On the other hand, very weak or strong job figures may lead to dollar strengthening – the former due to risk aversion, where the dollar's role as a safe haven increases, and the latter due to an expected divergence in the pace of monetary policy easing between the ECB and the Fed.


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.

[TickmillNews]

Central Bank Meetings Overview: Igniting the Chase for Yield


This week saw a series of central bank meetings that delivered a plethora of surprises. In particular, the communication from both the Federal Reserve and the European Central Bank diverged from market consensus expectations. Strong data on the U.S. economy, including service activity indices (PMI), employment and wage growth in November, and changes in unemployment benefit claims in recent weeks, shaped expectations that the Fed would maintain a pause at its Wednesday meeting and initiate a discussion on monetary policy easing only in the first quarter of 2024. Additionally, there were hypotheses that the sharp decline in bond yields (risk-free rates, benchmarks for all other rates in the economy) in October-November would have a "heating" effect on the economy, delaying the onset of central bank rate cuts. However, the Fed didn't hold back; Powell, during the press conference, clearly stated that FOMC members had already begun contemplating and discussing how the rate would decrease in 2024. This became the first major surprise for the market. The updated central bank economic forecasts also worked against the dollar: Core PCE for 2023 and 2024 were revised downward compared to September, while real output increased for 2024. This provided an additional stimulus for market participants to increase demand for risk assets.



The second surprise was the signal of resistance from the ECB to market expectations of aggressive easing of credit conditions in 2024. Although the European Central Bank left the main policy parameters unchanged yesterday, Lagarde's statement at the press conference that the members of the Governing Council had not discussed rate cuts at all was a surprise. The element of surprise here was that incoming data on the European economy for October-November seemed to indicate a much more significant slowing impulse than in the U.S. For example, core inflation sharply slowed from 4.2% in October to 3.6% in November (forecast 3.9%), and GDP contracted by 0.1% in the third quarter. Considering that the ECB's sole mandate is to maintain price stability (inflation targeting), the fact that the sharp decline in inflation in November did not prompt a change in rhetoric became an additional argument in favor of the strengthening of the Euro yesterday.

One tangible result of the sharp shift in market expectations after the meetings of the two leading central banks was the decline in the spread in short-term bond yields between the U.S. and the EU, by more than 20 basis points over the last two days:



The pound sterling strengthened on Wednesday and Thursday by more than two percent after the Fed signaled a softer stance on rates ahead, while the Bank of England, at Thursday's meeting, emphasized that inflation risks persisted, so ruling out further rate hikes was not possible. Three officials out of nine advocated for a rate hike on Thursday, which was also a rather hawkish signal for the market (especially against the backdrop of the Fed decision). Both the bond market and interest rate derivatives revised their expectations for central bank policy easing in 2024 by approximately 7-10 basis points. This was enough to attract investors to British fixed-income assets, triggering an upward movement in GBP:




A highly successful combination for risk assets, particularly the U.S. stock market, was the combination of the Fed’s dovish signal and strong U.S. reports on Thursday. Retail sales in October grew by 0.3% for the month, beating the forecast of -0.1%, and initial jobless claims sharply fell again – to 202K against a forecast of 220K. The data unequivocally increase risk appetite in the market, and the prospect that this will be compounded by a chase for yield (i.e., speculative momentum) shifts short-term risks for the U.S. market towards further growth, at least until the end of the year.


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.

[TickmillNews]

Mixed Signals in the Markets: US Employment and PMI Reports Shake Things Up


The job report and Services PMI in the US gave the market a bit of a rollercoaster ride last Friday. The dollar flexed its muscles after the employment stats revealed the US added 216K jobs in December, beating the expected 170K. However, the November job figure got a downgrade to 173K. Unemployment held steady at 3.7%, defying expectations of a slight increase to 3.8%. The real surprise came with wage growth, shooting up by 0.4% for the month, outpacing the expected 0.3%. As we know, wage growth is a leading indicator for inflation, making the future outlook and the possibility of a Fed rate cut in March less clear-cut. Over the year, average wages in the US grew by 4.1%, beating the expected 3.9%.

But the dollar rally on the report was short-lived. EURUSD briefly dipped to 1.0880, but within an hour not only recovered but also trended upward. The US Services PMI report played a part in this turnaround. Service sector activity is a key leading indicator for economic expansion, responsible for about 70% of the US GDP and employing around 70% of the workforce. The overall Services PMI dropped from 52.7 to 50.6 points, but the hiring sub-index plummeted from 50.7 to 43.3. In other words, a significant number of respondents reported sharp hiring cuts in December compared to the previous month.



The component of new orders in the report also declined in December compared to November but remained in the expansion zone, i.e., above 50 points.

Analyzing the overall market reaction to Friday's stats, it seems the market put more weight on the PMI report. This isn't surprising, considering labor market indicators are lagging indicators – they reflect peaks and troughs later than business cycle indicators. On the contrary, survey indicators like PMI can preemptively signal a shift in a business cycle.

The mixed US stats were offset by Eurozone data. European inflation in December accelerated but less than expected – 2.9% against a forecast of 3.0%. Signs of slowing inflation increased the likelihood of the ECB adopting a softer policy earlier than anticipated, weakening the upward momentum of the euro. As a result, EURUSD continues to stabilize in the 1.09-1.10 range it occupied before the release of fundamental data.

An important event this week will be the release of the US inflation report on Thursday. The consensus forecast anticipates a slowdown in core inflation from 4 to 3.8% and an acceleration in overall inflation from 3.1% to 3.2%. Also, on this day, we'll get a batch of labor market data – initial claims for unemployment benefits. In recent weeks, their behavior has become ambiguous again – the weekly increase has started to decline and is nearing the minimum of the current business cycle:



As seen, US statistics remain quite contradictory, possibly because the disparity is evident when comparing leading indicators (survey data) and lagging indicators (such as labor market data). Therefore, markets are not rushing to reassess the chances of a Fed policy easing, which remains the main driver for all asset classes.

The dynamics of the dollar this week will likely hinge on the inflation report. Until Thursday, we can expect stabilization in current ranges. The EURUSD retest of the 1.10 level and the subsequent pullback vividly show that the market is not ready to determine the trend for the main currency pair just yet.


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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AUDUSD: Potential U-Turn at the Start of the New Year Fueled by Continued CPI Slowdown


The EURUSD's mid-term uptrend has hit the pause button, chilling in a tight range of 1.09-1.10 for the sixth day straight, hugging the lower edge of the trend channel:




Last Friday's dollar-buying signal, triggered by a robust NFP report that outperformed expectations in job growth, unemployment, and wage increase, got dampened by a pretty weak US Services PMI, especially the hiring component. It plummeted below 50 to 43.7 points, raising concerns that official labor market stats in the early months of the new year might take a hit (as PMI indicators are forward-looking). This, in turn, cranks up the pressure on the Fed to ease policy in March. So, last Friday, EURUSD reacted with a 'sawtooth' pattern, dropping to 1.0880 and later bouncing back to 1.10. This week's consolidation likely stems from uncertainty ahead of Thursday's US inflation report (CPI), which could set the forex trend for several days or even a week.

Technically speaking, the current EURUSD pattern – consolidation near the lower edge of a fairly lengthy uptrend (over two months) – often precedes a breakthrough below the lower boundary.

A slightly wider range is still forming for GBPUSD – the price has been waltzing between 1.26 and 1.28 for almost a month. The preceding trend to this range, like with EURUSD, popped up in mid-November when the market started to factor in a change in the Fed's QE stance in Q1 2024:



Today, the head of the Bank of England, Bailey, will speak, and the market will be watching to see if he leans towards taming inflation or preventing further economic slowdown. Recent economic output data showed that the UK teetered on the edge of a recession in Q3 2023 – GDP shrank by 0.1%. The BoE's latest communication expressed uncertainty about growth prospects in Q4, indicating rising pressure to shift the tone towards a more market-friendly monetary policy that boosts credit growth. However, compared to the EU and the US, inflation in the UK is higher, making the dilemma sharper for the BoE than for counterparts in other leading countries. Friday's data on monthly GDP changes, construction volumes, and trade balances in the UK should shed light on which alternative the BoE will ultimately lean towards.

A more intriguing situation is unfolding on the AUDUSD chart – since the new year kicked in, the price has switched to a downtrend, bouncing off a long-term resistance line:




Today, Australia's monthly CPI indicator was released – inflation continued to slow down in November, beating expectations at 4.3% on an annual basis against the forecasted 4.4%. In the recent RBA meeting, rate hikes were put on hold, citing the need to assess the effectiveness of the previous series of increases. The new price data increases the likelihood that the tightening pause will be extended, which should negatively impact the attractiveness of the AUD. Considering the technical aspect of the AUDUSD chart, the risks of further decline are growing.

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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US CPI: analysis of preliminary data points to potential upside surprise


The currency market and the US bond market are in a bit of a pickle, prices moving in tight ranges or resembling fading oscillations. It seems like all the hot info that came out recently is already baked into the prices:



Hopes for figuring out the next trend are pinned on today's US inflation report. Overall inflation is expected to pick up slightly, going from 3.1% in November to 3.2% in December. At the same time, core inflation (excluding food, fuel, and other volatile components), according to the consensus forecast, will continue to slow down, hitting 3.8% versus 4% last month. Markets are more sensitive to surprises in core inflation, as its changes have a stronger impact on the Fed's policy - central bank folks, including Powell, have pointed this out multiple times. The deal is, if you base monetary policy on highly volatile data, it's clear that the volatility of interest rates and other Fed policy parameters will increase. Clearly, this volatility will spill over into the economy and financial markets, which is definitely not in the interest of the central bank, whose task is to smooth out fluctuations. Check out the graph below showing overall and core inflation: the first one resembles swings around the trend, which is represented by core inflation.



To understand what to expect from today's report, consider the following points:

- The NFP report showed that wage growth exceeded expectations in December, coming in at 0.4% MoM compared to the forecast of 0.3%. Wage growth correlates with changes in consumer inflation.
- The New York Fed, which weekly forecasts the quarterly GDP growth of the US based on incoming stats, raised the forecast for the fourth quarter from 2.26% in early December 2023 to 2.54% at the beginning of January 2024.



Overall improvements in December data may indirectly suggest that inflationary pressure in the economy may have increased in December.

- Initial claims for unemployment benefits in December (an employment indicator) again fell in December.
- Consumer credit sharply increased in November - $23.75 billion (forecast $5.13 billion). This can be seen as a leading indicator of increased consumer spending in December.
- The University of Michigan Consumer Confidence Index jumped to 69.7 points in December - the second-highest reading for 2023.



Among the reports that could indicate a negative surprise in December inflation, only the US Services PMI stands out. The overall index dropped to 50.6 points, but a significant contribution to the decline came from the employment component, which plummeted to 43.7 points.

In general, preliminary data and the seasonal surge in consumer spending at the end of November and in December tilt the risks for the CPI report towards a positive surprise. However, in my view, this won't significantly and for long change the market expectations for the March easing of the Fed's policy: the market will prefer to wait for data for January and February. If the report disappoints, an asymmetric reaction is likely: the market will be much more willing to factor in a Fed rate cut in March. In this case, the dollar could start to decline intensively along with bond yields, and the search for yield will sharply intensify, allowing the US stock market to refresh recent highs: the S&P could head towards 5000 points.


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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Global Markets React to Economic Data and Central Bank Actions: EUR/USD, GBP, AUD in Focus


The EUR/USD pair faced slight downward pressure during the European session, however later recovered to the equilibrium rate of 1.0950 which has been sustained by the market from the last week amid of lack of conclusive signals from the Fed or the ECB:




Dollar index (DXY) rose amidst a thin-volume trading session marked by elevated volatility due to the extended weekend in the United States for Martin Luther King Birthday. US equity futures trade slightly in the red, signaling a risk-averse market sentiment. Investors remain wary about the risk that recent improvement in the US data (CPI, labor market indicators) will translate into inflation persistence in other economies, hence steering clear from aggressive dollar bids.

The focus now shifts to the eagerly anticipated US monthly Retail Sales data for December, scheduled for Thursday. Analysts expect a 0.4% growth, surpassing the 0.3% increase recorded in November. The trajectory of the USD Index remains closely tied to market perceptions of March rate cut by the Federal Reserve. According to the CME Fedwatch tool, traders are currently assigning a 70% probability of a rate cut by the Fed in March.

On the Eurozone front, Germany's preliminary GDP for the fourth quarter of 2023 contracted by 0.3%, in line with expectations. This comes after a notable 1.8% growth in the previous period. While market participants foresee the European Central Bank contemplating interest rate cuts, ECB Chief Economist Philip Lane downplayed the possibility, citing recent inflation data.

Turning to the Pound Sterling, it faces a sell-off ahead of the United Kingdom labor market data for the three months ending November due on Tuesday. Soft wage growth data could potentially contribute to a decline in households' spending power, aiding in the gradual return of inflation towards the 2% target. The demand for labor remains vulnerable, with job postings in the UK declining by 32% in December compared to a year ago, according to the Recruitment and Employment Confederation (REC).



Down under in Australia, higher TD Securities Inflation data indicates mounting price pressures in the coming months. Additionally, job advertisements increased in December after three consecutive declines. However, these positive figures failed to offer significant support to the Australian Dollar. The People's Bank of China's decision to leave its benchmark rate unchanged disappointed investors who were expecting a rate cut to bolster the country's economic recovery. Consequently, the China-proxy Australian Dollar is under increasing bearish pressure, with key supports at 0.6620 (50-day SMA) and 0.6580 (100-day SMA). The pair witnessed reversal of the bullish trend at the start of new year which adds to the view that pair might have entered medium-term downward 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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EURUSD and USJDPY analysis: strong dollar caps any upside but situation could quickly change


The Bank of Japan left the parameters of monetary policy unchanged at today's meeting. BOJ Governor Ueda adopted an ambiguous position regarding withdrawal from QE policy and interest rate hikes, even though in the last quarter of last year, the Japanese yen significantly strengthened on expectations that the BOJ would begin tapering its accommodative policy and 'catch up' with its counterparts in monetary tightening. Trying to explain the indecision, the BOJ chief referred to the uncertainty associated with negotiations on wage hikes by major Japanese companies. Without wage hikes, raising interest rates would be risky, as the BOJ could inadvertently trigger deflationary pressure in the economy and undermine all progress on inflation. Fragility of the situation is underscored by the fact that wage growth in Japan slowed to just 0.2% in November of last year after decent figures in several previous months:



Societe Generale believes that, at the moment, USDJPY is overvalued, and alignment with current yield spreads between Japanese and American bonds (one of the main factors driving yen demand) would be achieved at a cheaper USDJPY rate. However, it is worth noting that current rates in the U.S. reflect the shift in market expectations that the first rate cut in the U.S. is being pushed from March to May, following a series of strong reports on the American economy in January. If the positive series of fundamental data on the U.S. is interrupted, USDJPY should move lower, aligning with the yield differentials.

From a technical analysis perspective, the upward trend in USDJPY that started early last year was disrupted at the end of October when speculation arose that the Bank of Japan would begin unwinding its ultra-accommodative policy. The price broke the ascending channel, declined until the end of the year, but turned around at the beginning of the new year. The reversal zone was around 140 yen per dollar, where a long-term support line also passed (orange line on the chart):



The fact that the price held above the long-term uptrend line and energetically began to rise after the New Year indicates that there are long-term investors in the market expecting the overall trend of yen depreciation to continue. Short-term and medium-term resistance levels for the pair will be 148 (where the price is currently) and the area of 152 yen per dollar. In case of a breakthrough and consolidation, the rally may only accelerate.

The EURUSD pair continues to fluctuate in a narrow range of 1.085-1.09 on Tuesday, to which it shifted after the release of the U.S. inflation report and strong labor market data (initial unemployment claims) last week. The earlier range was 1.09-1.10. Interestingly, the pair still cannot determine its direction and simply moves from range to range. This indicates that both the ECB and the Fed have not formed a market consensus that they are transitioning to a policy easing cycle. This week, clarity is expected to come from the ECB on Thursday, as well as EU services and manufacturing PMI on Wednesday. These will be preliminary PMI readings from HCOB for the first month of this year. A slight improvement is expected for the EU and Germany (more precisely, the pace of activity deterioration will slow down slightly). As for the ECB meeting, the market will assess whose side Lagarde will ultimately take – the hawks or doves of the Governing Council. Unlike the Fed, where there is a relative consensus, ECB officials are divided – some are eager to cut rates, while others prefer to wait for more convincing signals from the inflation front before changing rates.

From a technical point of view, short-term risks for EURUSD are tilted towards the downside, albeit slightly. Attempting to go long on the pair can be considered in the area of 1.08 (the December low of last year):




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.

[TickmillNews]

Selling risks persist for EURUSD as key bearish targets are yet to be met


The EUR/USD pair isn't catching a break, heading south for the second day straight and hovering around 1.0790 during the European session on Thursday. The mighty US Dollar is gaining traction against the Euro, riding high on the words of Federal Reserve Chair Jerome Powell, who slammed the door on a rate cut in the upcoming March meeting. Powell's skepticism that the committee will be ready to slash rates by March is also giving a boost to US Treasury yields. However, the Euro attempts to make a comeback attempt following the release of mixed Eurozone inflation data.

In the technical realm of EUR/USD, the setup signals that the selling pressure might stick around until the price hits the support area near December 2023's lowest point at 1.0740. Brace for a potential rebound from there, pushing the price towards the upper boundary of the current bearish channel:



The Euro faced challenges after softer preliminary CPI data from Germany hit the wires on Wednesday. This has raised expectations of a potential interest rate cut by the ECB in June. However, ECB member Mario Centeno suggested that if inflation keeps heading in its current direction in the upcoming months, the ECB's next move might involve cutting rates, potentially marking the beginning of a cycle aimed at normalizing interest rates. ECB Vice President Luis de Guindos hinted that interest rate cuts would only be on the table when there's confidence that inflation aligns with the central bank's 2% goal.

In terms of economic indicators, the Eurozone HICP showed a 3.3% increase in January, surpassing consensus estimate of 3.2%. The annual CPI met expectations at 2.8%, in line with the previous reading of 2.9%. The month-over-month report displayed a 0.4% decline, reversing the 0.2% rise observed in December:



In Germany, the CPI for January showed a year-on-year increase of 2.9%, falling short of the anticipated 3.0% and marking a substantial drop from December’s 3.7%. Monthly consumer inflation, however, met expectations, rising to 0.2% from the previous 0.1%. The German HICP increased by 3.1%, lower than the previous figure of 3.8%.

The US Dollar continues to flex its muscles amid a growing consensus that the Federal Reserve's policy easing action might not happen until May. Fed funds futures indicate an increased likelihood that the Fed will maintain its stance in March, with odds jumping from 45.5% before the FOMC meeting to over 65% on Thursday. Furthermore, the probability of a quarter-point rate cut in May exceeds 60%:



Thursday's spotlight is expected to be on significant economic indicators such as US Initial Jobless Claims, Nonfarm Productivity, and ISM Manufacturing PMI. The recent report of a 107K jobs increase for January in the ADP Employment Change fell short of the expected 145K and marked a decrease from the previous reading of 158K in December.

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.

[TickmillNews]

Resilient US Inflation Presents Growing Dilemma for the Fed



The latest report from the US Bureau of Labor Statistics (BLS) revealed a slight softening in inflationary pressures in the United States, with the Consumer Price Index (CPI) showing a year-on-year increase of 3.1% in January, down from 3.4% in December. However, this figure surpassed market expectations, which had anticipated a lower reading of 2.9%. The Core CPI, which excludes volatile food and energy prices, remained resilient, matching December's increase at 3.9% and surpassing analysts' estimates of 3.7%.

On a monthly basis, both the CPI and the Core CPI rose, albeit moderately, by 0.3% and 0.4%, respectively. This modest increase suggests a continued but tempered upward pressure on prices.

The immediate market reaction was a strengthening of the US Dollar (USD) against its rivals, as evidenced by the US Dollar Index climbing 0.45% to 104.60. This rally was underpinned by the data exceeding market expectations and affirming the resilience of the US economy against inflationary pressures.

The BLS also announced revisions to previous CPI data, lowering December's CPI increase to 0.2% from 0.3%, while leaving the Core CPI unrevised at 0.3%. November's CPI increase was revised higher to 0.2% from 0.1%, with October's growth remaining unchanged. These revisions were attributed to adjustments in seasonal factors, indicating the importance of considering the broader economic context beyond monthly fluctuations.

In parallel, the global oil market experienced a surge, with prices rising more than 6% in January due to concerns over a potential supply shock stemming from the ongoing crisis in the Red Sea. However, the Manheim Used Vehicle Index remained unchanged during the same period, suggesting stability in a key sector of consumer spending.

Market sentiment regarding Federal Reserve (Fed) policy underwent a notable shift following robust labor market data for January. This has led to a reassessment of the timing of the Fed's policy pivot, with markets refraining from pricing in a rate cut in March. The release of January's CPI data further solidified these expectations, with federal funds rate futures now indicating expectations of less than 100 basis points (bp) cumulative easing from the Fed this year, down from 175 bp just a month ago:



Looking ahead, the possibility of a rate reduction in May hinges on the trajectory of upcoming Core CPI data for March and April. A significant downward surprise in these figures could prompt a reconsideration of rate cut expectations, potentially leading to a downturn in US Treasury Bond yields and weighing on the US Dollar. Conversely, a stronger-than-forecast increase in Core CPI could bolster the USD in the short term, highlighting the sensitivity of currency markets to inflation dynamics and central bank policy expectations.

The key takeaway from the January CPI report underscores the enduring presence of inflationary pressures in the US, urging the Federal Reserve to tread with increased caution when considering policy adjustments. Against the backdrop of a nuanced economic environment, it is evident that market participants will maintain a vigilant watch over forthcoming data releases and Federal Reserve communications, seeking insights into future policy trajectories and their potential ramifications for currency markets.

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.

[TickmillNews]

EURUSD remains range-bound as markets look for fresh upside catalysts


EUR/USD advanced slightly on Friday following strong bearish backlash after the pair tested horizontal resistance level on Thursday. Despite the intensive pullback, managed to sustain pricing above 1.08, with technical indicators signaling a lack of significant bearish momentum. The reversal was instigated by a weakening US Dollar fueled by improved risk appetite in the market. However, the US Treasury bond yields' upward trajectory, supported by favorable US data, limited bearish momentum in the greenback, restraining EUR/USD's bullish aspirations.



Meanwhile, GBP/USD demonstrated resilience as it surged above 1.2700, marking its highest level in three weeks. The momentum, propelled by robust UK private sector activity, encountered headwinds in the American session on Thursday, leading to a partial retracement. Despite early stability above 1.2650, GBP/USD remains vulnerable to fluctuations, especially in the absence of significant data releases from both the UK and the US.



Key economic data releases played a pivotal role in shaping market sentiments. Notably, the decline in first-time jobless claims in the US to its lowest level since early January, coupled with the S&P Global Composite PMI maintaining expansion territory, underscored the resilience of the US economy. Similarly, upbeat PMI data from the UK fueled optimism surrounding the Pound Sterling. However, the surge in the benchmark 10-year US Treasury bond yield to its highest level since late November acted as a catalyst for the US Dollar's resurgence, exerting pressure on GBP/USD's upward trajectory.

Gold prices experienced a retreat from weekly highs, hovering around $2,025 during Friday's London session. The downward pressure stemmed from tempered expectations of imminent rate cuts by the Fed. As Fed policymakers express reservations regarding inflation reaching the coveted 2% target, gold struggles to significantly extend its upside momentum.

The Fed's stance on interest rates, characterized by a preference for maintaining rates within the 5.25%-5.50% range for some time in order to properly assess monetary policy transmission, reflects a cautious approach towards monetary policy. Amidst January's persistent inflation figures, policymakers exhibit a reluctance to hastily implement rate cuts, fearing potential repercussions on consumer price inflation. This cautious demeanor underscores the Fed's commitment to a balanced approach in navigating economic uncertainties.

Gold, often viewed as a safe-haven asset, faces headwinds as the opportunity cost of holding non-yielding assets escalates amidst the Fed's inclination towards prolonging higher interest rates. The diminished prospects of rate cuts diminish the attractiveness of gold as an investment avenue, prompting investors to reassess their portfolios. Consequently, gold prices experience downward pressure amidst the prevailing market sentiment favoring the US 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.

[TickmillNews]

EUR/USD Sees Modest Rise Amidst Dollar Weakness



At the dawn of the trading week, the EUR/USD pair has started on a modestly positive note, edging higher by 0.2%, however remaining below the intraday resistance level at 1.0850. This upward movement comes against the backdrop of a weakened US Dollar, driven primarily by the surprising move from the Chinese central bank, which fixed the Renminbi higher on Monday morning, sparking broad-based USD selling.

While today's uptick suggests a slight recovery, the pair remains ensnared within a new short-term downtrend, trying to regain ground above the critical 200-day SMA line. This downtrend was further exacerbated by last week's decline following the release of Eurozone and US flash PMI data, which underscored the resilience of the US economy, contrasting with Eurozone performance.

The resilience of the US economy has reignited discussions regarding the Federal Reserve's monetary policy trajectory. Despite earlier expectations of three interest rate cuts this year, recent data indicating US economic strength has prompted reassessment. If the Fed opts for a slower rate-cutting pace, it could buoy the US Dollar, drawing increased foreign capital inflows seeking higher returns.

Short-term technical analysis of the Dollar index (DXY) shows that the FOMC-induced decline towards 103 was followed by sharp rebound to 104 and breakout of the medium-term resistance line. This recovery occurred after Friday encouraging PMI data which could be a sign that the market cast doubts on the dovish Fed signals made during the FOMC meeting. In turn, this increases risk that the rally will continue after retest of the line which flipped into support level:



Adding to the market's speculation, the surprise decision by the Swiss National Bank to cut interest rates has raised concerns that the European Central Bank might follow suit. Historically, the ECB and SNB have mirrored each other's policy moves, albeit with the SNB typically following the ECB. However, the recent SNB decision has flipped this narrative, prompting investors to anticipate potential ECB rate adjustments on signs of easing inflation pressures on the European continent, as indicated by the SNB move.

The statements from ECB Chief Economist Philip Lane affirming confidence in wage inflation converging towards the 2% inflation target further underscore the likelihood of impending rate cuts, adding another layer of complexity to the currency markets. Wage pressures have often been cited by the ECB officials as the key variable that explains persistence of inflation due to the self-reinforcing “wage-consumption-inflation” cycle.

Further complicating the currency landscape is the intervention talk emanating from Japan, with Masato Kanda, Japan’s currency chief, hinting at potential market operations to support the Yen. USD/JPY has dipped, hovering in the 151.300s, spurred by the historical precedent of Bank of Japan (BoJ) intervention when the pair breaches the 150.000 mark. This sentiment is bolstered by data from the currency futures market, revealing an increase in bearish bets on the Yen during the BoJ's March meeting week, despite rumors of a rate hike.

The vicinity around the 150 level on USDJPY has consistently posed a formidable obstacle for buyers, with the pair failing to maintain any substantial upward momentum amid concerns of currency interventions. It seems probable that this scenario will persist, and any data indicating weakness in the USD is likely to trigger a surge in bearish momentum, pushing the pair towards levels more favorable for the Japanese government. From a technical standpoint, it appears that the near-term selling target for the pair could lie within the range of 148-148.50:




In the realm of upcoming events, attention turns to the Federal Reserve Bank of Atlanta President Raphael Bostic's scheduled speech, which could offer insights into the Fed's policy stance. Additionally, US New Home Sales and the Chicago Fed National Activity Index releases are poised to influence market sentiment.
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.

[TickmillNews]

Dollar rally stalls as market participants wait for more signals of the strength of the US economy


The EUR/USD pair is showing resilience, defending its near-term support level at 1.08. Broad, albeit slight dollar weakness contributed to the strength of the pair. However, recent economic data releases from both the United States and Europe have injected fresh dynamics into the forex landscape, influencing market sentiment and shaping expectations regarding central bank policies.

The release of US Durable Goods Orders for February presented a positive surprise, with headline figures surpassing expectations. Headline Durable Goods Orders rose by 1.4%, exceeding the forecast of 1.3%. Moreover, various components, including Durable Goods Orders ex Defense and Nondefense Capital Goods ex Aircraft, outperformed market estimates.

Furthermore, commentary from Federal Reserve officials, particularly from Raphael Bostic, President of the Federal Reserve Bank of Atlanta, has been notably hawkish. Bostic's assertion that the Fed is likely to cut interest rates only once in 2024 contrasts with the market's expectation of three cuts. Such comments temper the extent of dollar sell-offs and contribute positively to the upside potential of the currency.

Conversely, European Central Bank officials have adopted a more dovish tone, signaling a potential shift towards earlier interest rate cuts. ECB Member Fabio Panetta's remarks regarding the emerging consensus for a rate cut, possibly as early as June, have weighed on the Euro's outlook. Additionally, ECB Chief Economist Philip Lane's confidence in wage inflation reaching levels consistent with the ECB's target suggests a forthcoming start of a policy easing cycle.

The prospect of lower interest rates in Europe, coupled with the likelihood of a dovish stance from the ECB, rein in upward momentum in the pair. A rate cut in April, as hinted by Panetta, could further undermine the Euro's attractiveness, potentially leading to decreased inflows of foreign capital.

Short-term technical analysis suggests that the resurgence of buying pressure, signaling a potential pullback, may occur specifically around the medium-support line, aligning with the 1.0750 level:



Meanwhile, the Pound Sterling has exhibited strength against the US Dollar, extending its gains above 1.2650. Despite concerns regarding the Bank of England's (BoE) dovish stance, driven by lower-than-anticipated inflation data, the GBP/USD pair has shown resilience. The BoE's recent monetary policy statement indicated a reluctance to reduce interest rates immediately, although market expectations of rate cuts persist.

Technically speaking, the recent price action has seen a breakdown below both the resistance line and the ascending support line, leaving the pair with limited prospects for an immediate recovery. Sellers are likely to target the 1.25 level before considering their triumph, potentially paving the way for bullish momentum thereafter:





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.

[TickmillNews]

EUR/USD Dips as Diverging Central Bank Policies Drive Market Sentiment


In the ever-volatile currency markets, the EUR/USD pair demonstrated a downward trajectory on Wednesday, eventually stabilizing in a narrow band between 1.082 and 1.084. Despite Spanish inflation data for March meeting economists' expectations at 3.2% for the headline reading, the pair struggles to meaningfully extend it upsides. In this scenario, Tuesday's bearish reversal can be interpreted as a mere technical retreat from the psychological barrier of the 1.08 level, which swiftly lost momentum, reinstating the pair on its downward trajectory:



EURUSD’s bearish trend underscores the contrasting stances of two major central banks: the US Federal Reserve and the European Central Bank, shaping investor sentiment and currency flows.

The recent discourse among ECB officials suggests a growing likelihood of interest rate cuts in June. ECB Governing Council members, including Madis Muller and Fabio Panetta, hinted at an impending shift in monetary policy, emphasizing the emergence of a consensus favoring rate reductions. Moreover, ECB Chief Economist Philip Lane underscored that wage inflation is steadily converging towards normal levels, signaling a significant step toward removing the primary obstacle to ECB interest rate cuts in the near future.

Conversely, the Federal Reserve's stance appears more divided. While Chairman Jerome Powell advocates for a June rate cut, dissenting voices within the Fed, such as Raphael Bostic and Lisa Cook, advocate for a cautious approach, emphasizing the need for sustainable inflation returns. The variance in viewpoints within the Federal Reserve underscores a heightened level of uncertainty regarding both the pace and magnitude of future interest rate adjustments, surpassing the level of uncertainty observed within the ECB's discussions.

Looking ahead, market participants eagerly anticipate Friday's release of the Core Personal Consumption Expenditures Price Index, considered the Fed's preferred gauge of inflation. The result of this event is positioned to significantly impact the Fed's decision-making process regarding interest rates, as it will complement CPI data by offering a comprehensive view of inflation from the perspective of demand side (compared to supply side as in the case with CPI).

In parallel, the gold market remains in a consolidative phase below the $2,200 mark, as traders await further clarity on the Fed's policy trajectory. The upcoming PCE release on Friday is expected to provide meaningful insights into USD demand dynamics, thereby impacting gold prices. Moreover, upbeat US economic indicators, such as Tuesday's Durable Goods Orders, coupled with persistent inflationary pressures, may prolong the Fed's stance on maintaining higher interest rates, bolstering US Treasury bond yields and the USD.

Short-term price analysis in Gold reveals an initial failure to sustain a breakout above the $2200 level on March 21. Nevertheless, the price swiftly regained its upward momentum, positioning itself for a second attempt at testing this critical level. This resilience suggests robust demand near the all-time high, heightening the likelihood of a new record being established in the near future. A potential bullish target could reside in the mid-$2250 range, reflecting the market's underlying strength and upward trajectory:



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.

[TickmillNews]

EUR/USD Steadies Near 1.0850 Amid ECB and Fed Speculations



In Tuesday's European session, the EUR/USD remains tethered near the 1.0850 mark, indicating a lull in market volatility. This stasis reflects the greenback's stabilization as traders anticipate pivotal data releases later this week, notably the FOMC Minutes and the preliminary S&P Global PMI data for May.

On the technical side, pair recently broke out of a descending channel, signifying a potential shift in trend. However, the pair is currently experiencing a brief consolidation phase just below the 1.0900 level, as indicated by the recent price action. The Relative Strength Index is hovering near the 60 mark, suggesting that there is still some bullish momentum left in the market. If the pair manages to break above the immediate resistance around 1.0935, it could target higher levels. Conversely, a failure to maintain this breakout could see the pair retreating back towards the 1.0723 support level:



The Euro is holding its ground against the Dollar despite brewing uncertainties around the ECB potential rate cuts post-June. ECB policymakers exhibit a cautious stance, leaning towards initiating a rate reduction next month while refraining from committing to further cuts. They emphasize a data-dependent approach moving forward.

However, some ECB officials have voiced concerns that additional rate cuts in July could reignite price pressures, undermining efforts to control inflation. The ECB's cautious optimism is juxtaposed against the backdrop of US inflation, which showed a predictable decline in April. Nonetheless, the Federal Reserve remains unconvinced that inflation is steadily retreating towards its 2% target.

Michael Barr, the Fed's Vice Chair for Supervision, underscored on Monday that the first quarter's inflation data was disheartening, lacking the reassurance needed to relax monetary policy. Barr's remarks highlight the Fed's commitment to a stringent policy stance until further evidence of disinflation emerges. Complementing this, Atlanta Fed President Raphael Bostic told Bloomberg TV that the Fed requires additional time to ascertain a consistent downtrend in inflation.

Investors are now keenly awaiting the FOMC minutes from May's policy meeting, due Wednesday. These minutes are expected to convey a hawkish sentiment, driven by the stubborn inflation seen in early 2023, which suggests a stalled disinflationary trend.

Across the channel, the Pound Sterling is maintaining a solid position, trading slightly above 1.2700 in the European session. The trajectory of GBP/USD will likely be influenced by the upcoming UK CPI data for April and the FOMC minutes.

Should the anticipated decline in UK inflation materialize, it would bolster investor confidence that inflationary pressures are easing back towards the 2% target. This would fuel expectations for the Bank of England to initiate rate cuts sooner, with the debate centered around whether the first cut will occur in June or August.

The GBP/USD pair is currently trading within a short-term ascending channel, suggesting a bullish outlook in the near term. The pair is approaching the long-term key resistance around 1.2795, which, if breached, could open the door for further gains towards the 1.3000 level. The RSI is hovering near the 60 mark, indicating there is room for additional upward momentum. Immediate support is found at 1.2634, and a drop below this level could see the pair testing the lower boundary of the ascending channel around 1.2516. Overall, the bias remains slightly bullish as long as the pair stays above the 1.2634 support:



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.

[TickmillNews]

EUR/USD Rebounds from Key Support; GBP/USD Defies Weak UK GDP


The EUR/USD pair staged a recovery on Friday, rebounding from the critical technical support level of 1.0500 reached the previous day. The Euro managed to erase Thursday's losses, climbing back to the 1.0600 range after enduring a five-day losing streak against the Dollar. As anticipated in our earlier discussion, this pullback was a plausible scenario.

The recovery seems to be fueled primarily by profit-taking, as traders lock in gains following the Euro’s recent slide. Additionally, the market appears to have fully digested and priced in the key developments of recent weeks, including President-elect Trump’s victory, the "Red Wave" in U.S. politics, the CPI report, and Powell’s comments. This confluence of factors has contributed to a temporary stabilization in the pair:



Economic data from France contributed modestly to the Euro's recovery. The Harmonized Consumer Price Index rose to 1.6% year-over-year in October, slightly higher than both the preliminary reading and market expectations. Despite this uptick, the increase is unlikely to prompt a shift in the ECB dovish monetary policy stance. The ECB is expected to proceed with a policy rate cut at its upcoming meeting in December, a move that could limit potential of Euro recovery in the medium-term.

In the United States, Federal Reserve Chairman Jerome Powell indicated a cautious approach toward additional rate cuts. While acknowledging the continued strength of the US economy and labor markets, he suggested that another rate cut in December is not a certainty. This tempered expectation has bolstered the US Dollar recently. However, markets are concerned about potential inflationary pressures resulting from President-elect Trump's proposed fiscal stimulus measures and possible tariffs on China and Europe. Such policies could lead to higher inflation rates, which might compel the Fed to adjust its monetary policy outlook.

Interestingly, Powell's comments triggered a notable drop in the implied odds of a December rate cut. Fed funds futures now reflect a 58.4% probability of a cut, down sharply from 72.2%. Despite this shift, the Dollar's reaction has been surprisingly muted, or even contradictory, as its major peers gained ground today. This suggests that traders may have already factored in a recalibrated Fed rate path, influenced by the inflationary implications of President-elect Trump's policy agenda:



The GBP/USD pair has defied expectations of a decline following disappointing economic data, trading in positive territory instead. This unexpected recovery comes despite weaker-than-anticipated UK GDP figures, which would typically weigh on the Pound. The UK economy contracted by 0.1% in September, while preliminary GDP growth for the third quarter was a subdued 0.1% quarter-over-quarter, falling short of the 0.2% forecast and marking a slowdown from the 0.5% expansion seen in the second quarter.

Under normal circumstances, such figures would prompt a sell-off in the Pound Sterling. However, the currency's resilience suggests that market participants are shifting their focus toward evaluating the sustainability of the recent sharp rise in the US Dollar. This recalibration may reflect a reassessment of whether the Dollar's bullish trend has become overheated, prompting traders to unwind positions and temper expectations for further parabolic gains in the Greenback.

Technically speaking, GBP/USD pair has reached a key support trendline, a level that's likely to catch the attention of many traders given its prominence on the daily chart. The timing of this touch, right before the weekend close, could amplify the potential for a rebound as market participants prepare for the upcoming week. Despite weak UK GDP data, the Pound has shown resilience, suggesting that selling momentum may be waning. This setup increases the likelihood of a technical pullback toward the 1.28 level 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.

[TickmillNews]

USD Rally Stalls; EUR/USD Holds Firm Above 1.05



The U.S. Dollar's recent rally has hit a pause, with the EUR/USD pair trading sideways just above the 1.0550 intraday support level. The Dollar Index hovers around the 106.50 support, searching for fresh catalysts to resume its upward momentum. Markets appear to be in a holding pattern, having already priced in significant risks and implications of expected Trump administration policies—particularly around US protectionism, tariffs, and trade deals. Investors now await further clarity to either validate these expectations or expose them as an overreaction to Trump’s reelection.

On the one hand, there are signals urging markets not to rush to conclusions and to wait for actual actions. For example, Fed officials are exercising caution in projecting the implications of President Trump's policies on monetary strategy for the upcoming December meeting and into 2025. Fed Chair Jerome Powell emphasized the premature nature of making policy judgments at a recent Dallas event, noting, "It's too early to reach conclusions."

On the other hand, there is information fueling those concerns, suggesting that the risks priced in by the market are, on the whole, justified. For instance, Stephen Moore a senior economic advisor to President Trump, hinted at potential escalation of trade tensions between the Eurozone and the United States. Moore indicated that the US might deprioritize a free trade deal with Britain if it favors EU relations over American ties.

The EUR/USD pair is currently trading within a narrow range of 1.05 to 1.06, reflecting a market in a holding pattern. Last Friday's attempt to rebound faced strong resistance around the 1.06 level, resulting in a daily candlestick that closed near its opening price, indicating the market's reluctance to move higher. Today, upward pressure is building again. Given that a bearish breakout would require significant triggers, which are not anticipated this week, the market may be inclined to engage in a technical upward correction targeting the 1.0650 area:



The British Pound is edging higher, attempting to claw back losses from Friday's sharp sell-off triggered by dismal economic data. The UK's economy unexpectedly contracted by 0.1% in September, with minimal growth in the third quarter. This unexpected downturn could prompt the Bank of England to consider more aggressive rate cuts to stimulate growth. Such a policy pivot could significantly impact interest rate differentials and, consequently, GBP valuations against its peers.

From a technical analysis perspective, GBP/USD is trading near a key ascending support line, which intersects with the horizontal level at 1.26. Technical buy signals seem sufficient; however, the market is waiting for signs of a broader dollar pullback to increase long positions on the pair. Overall, the risks are tilted to the upside, and short-term downward movements are highly likely to be met with active buying:




The Canadian Dollar remains on the back foot as market participants anticipate a 50 basis point rate cut from the Bank of Canada in December. Investors are closely watching the upcoming Canadian CPI data, expected to show a month-on-month increase of 0.3% in October after a 0.4% deflation in September. A year-on-year inflation uptick to 1.9% from 1.6% could influence the BoC's policy trajectory, forcing the central bank to slow down the pace of rate cuts or issue less dovish guidance.

The next significant move for the Australian Dollar is likely to be influenced by the release of the RBA minutes from its November 5 meeting. The RBA held its Official Cash Rate steady at 4.35%, with Governor Michelle Bullock delivering a hawkish outlook amid concerns over upside risks to inflationary pressures. The minutes could provide deeper insights into the central bank's thinking, affecting interest rate expectations and currency valuations.


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.

[TickmillNews]

USD Edges Higher Amid French Political Uncertainty; Markets Eye Powell's Remarks


The US Dollar made modest gains on Wednesday, buoyed by political turbulence in Europe and cautious positioning ahead of key US economic indicators. As traders digest the potential fallout from France's looming no-confidence vote, the greenback is finding support amid a recalibration of risk appetites.

The latest ADP figures showed that private sector employment climbed by 146K in November, just shy of the 150K. The muted reaction in currency pairs suggests that the data hasn't thrown a wrench in traders' expectations. The DXY index remains perched above a key bullish trendline that's been in play since early November, indicating the rally hasn't run out of steam and a retest of recent peaks could be on the horizon:



On the economic docket, attention turns to the ISM’s upcoming release, which will shed light on the health of the US services sector. Market consensus anticipates a slight dip in the headline PMI to 55.5 from 56. Meanwhile, S&P Global is set to unveil its final November readings for the PMI. Expectations are for the services index to hold steady at 57, with the composite PMI anchoring at 55.3.

Investors are also zeroing in on Federal Reserve Chair Jerome Powell's speech at the New York Times DealBook Summit. His comments could offer fresh clues on the trajectory of interest rates. According to the interest rate futures, there's a 74% probability that the Fed will cut rates by 25 basis points to a range of 4.25%-4.50%, while the remaining odds favor leaving rates untouched. Recent Fed minutes and dovish remarks from several officials have tilted the scales toward easing, influencing yield curves and correlation dynamics across asset classes.

Technical picture of EURUSD on daily timeframe suggests that price continues to gravitate towards the horizontal support at 1.0450 (October 2023 low) after several recovery attempts with a possible breakout especially if the NFP data surprises on the upside:



The Pound Sterling has given up some ground after Bank of England Governor Andrew Bailey signaled the possibility of four interest-rate cuts in 2025 during an interview with the Financial Times. Bailey emphasized the need for a gradual approach to lowering rates and stressed that more work is needed to bring inflation to heel, even though the "disinflation process is well embedded." Market expectations for the BoE to stand pat are being propped up by persistent inflation concerns. October's inflation report revealed that the annual core Consumer Price Index—which strips out volatile items—accelerated to 3.3%, while services inflation ticked up to 5%.

GBPUSD daily chart also indicates growing weakness as rebound above the key trendline failed to gain traction and the price keeps pressing the trendline increasing chances that market will revisit recent lows at 1.25:



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.