Forex Week Ahead [2016-09-18]

Forex Week Ahead [2016-09-18]

Whilst so far most of the currency pair moves in September have been taken up with speculation as to whether the Fed will raise interest rates this month next week it will reach a crescendo with the FOCM meeting. Despite the higher than expected inflation figures released on Friday market analysts don not expect a September rise putting the chance of a rate increase at around 15%.

As for the Fed, the market’s view of the probability of a Fed rate hike next week continues to be exceptionally low at around 15%. However, key Fed speakers in recent weeks have given mixed messages with respect to the Fed’s position and perspective. Some have argued for a sooner rate hike, even citing the distinct possibility of one occurring in September, while others have been more dovish. The latter includes the last speaker before next week’s FOMC meeting, the characteristically dovish Fed Governor Lael Brainard. who cautioned on Monday against raising interest rates too quickly.

Additionally, September has thus far seen a general deterioration of US economic data in the form of substantially worse-than-expected releases regarding employment (NFP) and both the manufacturing and services industries (PMI), that have significantly lowered the market’s expectations for a September rate hike. Most recently, a plethora of US economic data was just released on Thursday, mostly worse than expected, which generally did not bode well for the prospects of a US rate hike by an already skittish Fed. Most notably, retail sales, core retail sales, the Producer Price Index, and industrial production were all significantly lower than expected.

Full article can be viewed here

Next week is not solely about the fed though and there will also be some of the focus should to the Bank of Japan as it issues its latest monetary policy statement and the market looks for further easing. Many such move is likely to significantly move the market.

The Bank of Japan convenes on the same day as the Fed. With the Fed not expected to change policy, will the BOJ create its fireworks? Credit Suisse has its doubts:

The BoJ meeting on 20-21 September appears to be attracting more market attention than the Fed meeting also taking place on 21 September. Option markets show a clear premium in USDJPY vol vs. the rest of G10 vol around the two-week tenor coinciding with the BoJ meeting

Indications of strong market interest in JPY abound across the vol space. The divergence in implied correlations, with JPY correlation drifting higher suggests markets, are looking at the JPY as a potential driver for FX volatility (Figure 6). At the same time, the front-end tenor USDJPY risk reversal skew has moved close to zero over the course of the past few weeks; pricing USDJPY calls at a near flat premium to USDJPY puts

This sharp increase in demand for optionality around the BoJ meeting and the shift in relative pricing for USDJPY calls vs. puts to the highest point in almost a year suggests the market is approaching the upcoming BoJ meeting with high expectations for a dovish outcome, one that would likely drive spot USDJPY higher. We think these expectations will once again be disappointed.

Full article can be viewed here

Forex Week Ahead [2016-08-15]

This week the focus returns to Sterling with a busy week of news ahead for the GBP. It could be volatile as we are about to get the first official batch of post Brexit data.

Tuesday sees the CPI (Inflation) figures released followed on Wednesday by Jobless, Thursday Retal Sales and Friday Public Finances.

Elsewhere we have the RBA Meeting’s Minutes released on Tuesday and FOMC minutes on Wednesday.

A full economic calendar for the coming week can be found here

Forex Week Ahead | [2016-08-08]

As we enter the second week of August, after a worldwind end last week in the Forex market, what with the Bank of England’s dramatic action to boost the UK economy and the better than expected Non Farm Pay Roll, we are barely catching our breath. The figure however are going to come thick and fast with this week the focus moves to the US consumer.

New week also sees UK output data, but this is unlikely to have the same impact on the FX market as last weeks PMI’s and BoE rate decision.

In the world of central banks it is the turn of the RBNZ turn. It is widely expected that they will deliver a 0.25% bps cut to its interest rate, More widely anticipated is its forward guidance.

A full economic calender for the coming week can be found here

Forex Market Week Begining [2016-03-14]

As we head into another trading week the in main news over the weekend that is likely to affect the currency markets.
Merkel position has been undermined by the poor performance in regional elections.
Chinese data came in weaker than expected on Saturday
Finland being downgraded from its AAA status

Early Market Moves

There were no real gaps to speak of on the majors but in the early market Aussie has moved up and is currently setting at 0.7575, pushing toward the 0.7600 level, the highest it has been since July last year.

AUDUSDH1

Not much happening so far on Euro or Cable but most experts are suggesting that they are likely to continue their bullish end to last week.

The counter intuitive reaction sends a bullish signal for the outlook for the euro in the near-term. EUR/USD may now attempt to retest the top of its rough trading range over the last year moving closer to the 1.1500-level.

Bank of Tokyo-Mitsubishi UFJ

We look for further strength towards gap and 78.6% retracement resistance spanning from 1.1230 to 1.1256/59…Above here can then target the February high at 1.1376 where we would expect fresh selling to show. Immediate support moves towards 1.1136, with the top of the base at 1.1068/58 ideally holding,

Credit Swiss

Before the weekend it was trading at its best level since February 19. It broke the downtrend drawn off the February 4 high with two successive closes above it to end the week. The technical indicators are constructive. Sterling can test $1.4500-$1.4540 in the days ahead. Support is seen ahead of $1.4250.

Brown Brothers Harriman

Current Market Sentiment Poll

fxstreet-sentiment

Week Ahead

Major events this week include the BOJ, FOMC and BoE meeting all have the potential of moving the markets but obviously FOMC is the big one. What can we expect?

First, there is a likely to still be a sense of caution hanging over the meeting, helping to justify why the Fed did not hike. The sharp tightening of financial conditions has started to ease and market nervousness over the global growth backdrop has abated, but we expect the FOMC statement will continue to state that the Committee is still closely monitoring global developments and will not reintroduce a balance of risks assessment. Similarly, uncertainty about the near-term inflation outlook – notably a drop in oil prices and inflation expectations, but a strong set of inflation data prints for February – also is likely to keep the Fed cautiously on hold for now.

Second, we look for some signs of optimism in the discussion of the outlook going forward, supporting additional hikes later this year. We expect the updated dot plot will show a median three hikes for this year (with a number at two hikes) and four for 2017. In this sense, not hiking in March is similar to last September’s “tactical delay” of liftoff. The opening paragraph of the statement and Yellen’s subsequent comments should note that the US data recently have shown improvement on net. April should remain a “live” meeting – likely noted by Yellen in her press conference.

Third, we do not expect significant changes to the Summary of Economic Projections (SEP), in line with a “tactical delay.” There may be some tweaking of the near-term forecasts: we see some chance of slightly lower 2016 GDP growth; a smaller chance of a slight upward revision to 2016 inflation rates. However, we see a high likelihood that the median long-run dot will decline to 3.25% and a good chance that the central tendency for the longer-run GDP growth rate will come down modestly, reflecting disappointing productivity growth over the past few years. We also see some chance that the longer-run unemployment rate projection could move slightly lower.

For full assessment read forexcrunch.com

Risk Off in The Forex Market

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The turmoil in the markets since the new year shows little signs of abating in the short term. With added fears of Brexit and the continuing rout in the price of oil, Chinese turmoil risk is off signalled by the rapid appreciation of yen. Below is an interesting article looking dollar decoupling in this scenario.

The Return Of The USD-Decoupling Trade? – Credit Agricole

Risk sentiment worsened overnight as oil remained under pressure on the back of oversupply concerns and Fed Vice Chair Fisher reiterated his view that the bout of market uncertainty could be temporary and thus need not derail the economic recovery or hold the Fed’s tightening cycle in its tracks.

All this is seemingly supporting USD against most G10 currency with the greenback coming back from what some called the death of the policy divergence trade. To be sure, the USD-divergence trade took a heavy blow recently as investors pared back Fed tightening bets against the backdrop of global growth and inflation slowdown.

In the midst of all the risk aversion, however, the apparent improvement in the US data of late barely registered with the markets participants. Until now, that is. Indeed, recent discussions with clients have suggested that investors are noticing the improvement and warming up towards the USD yet again. In particular, recent data releases suggest that the tightening labour market conditions have helped boost wage growth, which, together with continuing gains in the house prices, helped fuel the core inflation in the US.

In addition, and potentially more importantly, accelerating wage growth and improving housing sector will make the US domestic demand-driven recovery more resilient to persistent global headwinds. This is because the US consumer spending (and by implication business capex) is propped up by three key pillars of household wealth: real wage income growth, house price and equity price gains. Immediately after Lehman, the US wage growth was negative and the housing sector was in the doldrums.

The Fed QE-fuelled rally in the US stock markets thus proved instrumenting in supporting the consumers’ purchasing power and spending. As the recovery in the US broadened and deepened, the slack in the US labour market and the overhang of unsold homes started disappearing and this helped boost both wage growth and house prices. Importantly, these developments are less correlated to the swings in global risk appetite than the US equity market. In turn, the US consumers could continue to spend even in the face of continuing stock market underperformance. By implication, the Fed is more likely to look through any bout of market volatility and focus instead on the continuing improvement in the labour markets and housing.

All of the above suggests that the USD-decoupling trade could recover some more in the near term especially if market risk sentiment improves on the back of a more constructive outcome of the G20 meeting. In addition, we expect the upcoming Fed speakers (Lacker and Kaplan today and Bullard, Lockhart and Williams tomorrow), to reiterate the view that the Fed is still on course to deliver further cautious tightening. So far, it seems that the USD is able to regain ground mainly against the risk correlated currencies as well as EUR and GBP. In the case of the EUR, positioning ahead of the ECB March 10 meeting seem to be weighing on EUR/USD as well. In the case of the latter, Brexit fears are likely keeping GBP/USD under pressure.

Copyright © 2016 Credit Agricole CIB, eFXnews™

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