Profile cover photo
Profile photo
ActivTrades UK
836 followers -
ActivTrades is a leading award-winning broker specialised in Forex, CFds and Spread Betting.
ActivTrades is a leading award-winning broker specialised in Forex, CFds and Spread Betting.

836 followers
About
ActivTrades UK's posts

Friday's Japanese Inflation Data Is Worth Watching

It was the view of Barclays Bank on Sunday that the prior week's slide in dollar/yen (USDJPY) "was due to [Federal Reserve] recent dovish comments and heightening political uncertainty in the US rather than JPY strength itself." Traders will also recall that last Friday's CFTC data for the week ended July 18 had shown the existing of a very sizeable short yen position in the early part of last week. As Barclays noted "The [Bank of Japan] revised down its inflation forecast in the quarterly outlook report and pushed back its [estimated time] for reaching the price stability target to “around FY19” from “around FY18”, but its impact on markets were muted." Barclays conclude that "although US political developments could weigh further on USDJPY, solid global cyclical recovery and the monetary policy divergence story should support the pair to remain in its recent 110-115 range." But traders cannot ignore domestic Japanese data and this Friday sees the release of Japan's June CPI and July's Tokyo CPI figures. Barclays estimates "that the nationwide CPI ex-perishables (core) rose 0.4% y/y in June with the risks skewed somewhat to the upside (May: +0.4%, consensus: +0.4%)" while in Tokyo the British firm estimates "that the core CPI rose 0.1% y/y in July (June: +0.1%, consensus: +0.1%)." France's BNP Paribas also expects Japan's core CPI (ex-perishables) to come in at +0.4 per cent. Traders might wish to keep an eye out for this data. While dollar/yen may indeed have been primarily driven recently by dollar-related factors, the yen part of the equation will undoubtedly reassert itself one way or the other. Friday's Japanese inflation data might provide a signal.


Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

Wednesday's FOMC: The Devil May Be In The Detail

In terms of rate changes, Wednesday's Federal Open Market Committee (FOMC) meeting will be a non-event, after June's hike. Indeed France's BNP Paribas thinks "weakening inflation is likely to force the [FOMC] to wait for more evidence of it picking up before making another move on rates, and believe Chair Yellen’s possible departure at her term’s end in February 2018 may also be significant, reducing her inclination and ability to sway dissenters and perhaps encouraging her to leave the big decisions to her successor." The French firm actually now thinks the next Fed hike will not be until March 2018. But just because there won't be a Fed rate hike on Wednesday doesn't mean the FOMC is a riskless event. So what should traders look out for? Citibank feels "the two most important aspects of the July FOMC statement will be (1) if and how the characterization of inflation is revised and (2) whether officials use the meeting to signal that balance sheet reduction will be announced in September." The US bank adds that, in its opinion, "the statement may more firmly acknowledge that some of the slowing in [US] inflation is persistent, but the committee will continue to express confidence that the 2% target will be achieved. Some indication that balance sheet reduction is forthcoming (e.g. “in the near future” or “in the next few meetings” or “soon”) is likely." Bank of America Merrill Lynch also thinks the FOMC will tweak its statement to strengthen its commitment to balance sheet reduction while UK bank Barclays wonders if "the statement could point to an announcement of balance sheet run-off for September." For this FOMC statement, traders may find the devil is in the detail and not in the headlines.

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

Back To The Futures

Traders and analysts alike scrutinize data from the US' Commodities Futures Trading Commission (CFTC) as an indicator of broader market sentiment. And while it should always be noted that the data, released on a Friday, always refers to the state of play as at the close of business on the previous Tuesday, the numbers are closely followed. Data released on Friday for the week ending July 18 showed net positions held by International Monetary Market (IMM) participants in the yen (USDJPY), euro (EURUSD), sterling (GBPUSD), Swiss franc (USDCHF), and Australian and Canadian dollars (AUDUSD, USDCAD) produced an overall net short position in the US dollar of $1.91 billion. As Reuters noted that represents the largets net short US dollar position since May 2016. In fact, again as Reuters points out, "in a wider measure of US dollar positioning that includes net futures contracts in the New Zealand dollar (NZDUSD), the Mexican peso (USDMXN), the Brazilian real (USDBRL) and the Russian rouble (USDRUB), the US dollar posted a net short position valued at $7.67 billion, the largest since February 2013. And let's not forget that CFTC data precedes the upward move in the euro following last Thursday's ECB meeting. Traders should also note that if the yen position was backed out of the net figure, the net US dollar short would be even greater as IMM traders continue to run short yen. "Bearish positioning [in the yen] widened $1.9bn [week on week] to $14.1bn on the back of a sizeable build in gross [yen] shorts ($1.6bn) and modest covering of [yen] longs ($0.3bn)," Canada's Scotiabank wrote. The CFTC data shows the net yen short position at its largest since January 2014. But what can traders make of all this? It's a matter of opinion, of course. Some traders will conclude that the data shows that the momentum behind the lower US dollar, and the popularity of the yen short play, is sustained by the evidence of the CFTC data. Others might conclude that both trades have become inherently crowded. But traders can only make such calculations if they look at what the CFTC data shows. Keeping an eye on what the CFTC publishes each Friday can prove informative.

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

Sell Side Stories Begin To Focus On The Euro

"History doesn't repeat itself but it rhymes," a quote often attributed to US author Mark Twain, may be an aphorism euro bulls wish to bear in mind. Parts of the sell side of the market are beginning to articulate arguments for yet more euro appreciation. French bank Societe Generale feels "there are echoes of 2012-2014 in the way EUR/USD is trading, and they suggest it may be at $1.20 by the time the ECB meets again in September." In SocGen's view the "EUR/USD continues to move higher in tandem with narrowing yield differentials between the US and the euro area" but that the euro is now "moving ahead of the yield differential." But is that a concern? SocGen has also identified a "re-correlation between EUR/USD and peripheral yield spreads, the euro’s rally since European political risk depreciated being matched by a sharp tightening in the Bono/Bund spread." SocGen argues that "was the norm in 2011-14, before the ECB introduced QE/NIRP when the correlation between rates and currency was made complicated by a correlation with spreads." SocGen's view is that "Mr Draghi’s ‘Whatever it takes’ speech in 2012, in particular, reversed the widening we had seen in spreads, and that sent EUR/USD to 1.40." Cutting to the chase the French bank contends that "a return to a significant correlation between spreads and the currency would make sense once the QE era ends. If it has already happened, we shouldn’t expect this EUR rally to run out of steam very soon." Whether traders are convinced by SocGen's arguments will be a matter of personal choice, but there's arguably another issue at play here. As discussed in Friday's piece, and unlike what happened with the "Whatever it takes" speech in 2012, the euro's reaction to last Thursday's Draghi ECB press conference was arguably driven by what the ECB Chief did not say rather than what he did. If institutions, such as SocGen, now begin to articulate euro-bullish arguments that complement perceived market sentiment, euro bulls may become even more emboldened.

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

Draghi Omission May Guide Currency Market Psychology

European Central Bank Chief Mario Draghi knows full well the value of a soundbite. Draghi also knows that the markets pay enormous attention to everything he says, as was proven in June after markets interpreted his speech in Sintra as having a more hawkish tone. Equally, Draghi would have been acutely aware that, as US bank BNYMellon wrote on Thursday, as the ECB Chief "started his testimony [yesterday], EURUSD stood 2.8% higher than at the time of [the Sintra speech]." With that in mind, if Draghi has misgivings about the euro's post-Sintra rise, he could have chosen to make a comment alluding to that when he spoke yesterday. Merely saying that the repricing of the euro had received "some attention" didn't fit that bill. The failure of the ECB Chief to make any substantial effort to lean against recent euro gains when the currency's level suggested that on balance the market was long of euros into the press conference, and more particularly the currency market's understanding that he had failed to take the opportunity to do so, understandably re-energized demand for euro/dollar on the day. With EURUSD having cruised through the $1.1616 May 2016 high yesterday, traders may be reluctant to charge in and buy euros at what are already elevated levels, even if banks such as the Netherlands' ING are arguing that "there is more near-term EURUSD upside to come." But nor may traders be too inclined to lean against the move. And that arguably gets us to the nub of the issue. Having observed that Draghi signally failed to overtly push back against recent euro appreciation, traders may conclude that buying dips in euro/dollar makes more sense than selling rallies. Mario Draghi is a very experienced policymaker. If he had wanted to curb the animal spirits of euro bulls, he could easily have done so yesterday. He didn't. And the market is right to draw conclusions from that omission.

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

Is The CAD Over-inflated Ahead of Friday's Canadian Inflation Data?

Ahead of Friday's Canadian inflation data, Canada's TD Securities has been casting its eye over the dollar/Canada (USDCAD) noting that "the CAD is the best-performing G10 currency since the end of April." "Current market momentum suggests a good chance for some further extension of USDCAD lower over immediate horizons," TD believes and wouldn't be surprised if the pair didn't gravitate towards "major support in the form of the 3 May 2016 low at 1.2461 in the days or weeks ahead." So far, so good for those who see the CAD rising further. But it's very rare to see a one-way bet in the currency markets and traders always have to be conscious of the balance between momentum and positioning. Traders will have their own opinions but TD is looking for some stabilization in USDCAD later in the year and therefore wonders if "those looking to pursue CAD strength from here may find greater traction on certain key crosses." In TD's view "with [Canada/USA] rate spreads remaining the dominant driver for USDCAD, it is difficult to argue that spot has lagged these developments.. if anything, USDCAD may have already overshot to the downside levels easily supported by rate differentials" and that "it may become harder for investors to ignore the persistent weakness seen in energy markets." Additionally, "the technical landscape does not look very compelling to expect another large and sustained move down in USDCAD," TD feels. "Momentum has been powerful, but the daily RSI has spent most of the last several weeks in oversold territory. It is approaching the same threshold on the weekly variant."

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

It Might Take More Than Jane Austen To Bring Back The Sterling Bulls

"I declare after all there is no enjoyment like reading" may be the Jane Austen quote adorning the new ten pound note unveiled on Tuesday by Bank of England Governor Mark Carney, but there was precious little enjoyment for sterling bulls who read the day's UK inflation data. As US bank BNYMellon wrote, UK CPI had its biggest fall in two years, dropping to "2.6% y/y in June from 2.9%, where it [had been] expected to remain." But if the sterling bulls have been run for the moment will Sense and Sensibility prompt them to return, or will they need some Persuasion? Traders won't find the answer in either of those Austen novels but BNYMellon contends that "the summer of 2017 may yet end up resembling the market conditions from 12 months earlier when an unusual air of placidity settled over GBP once the initial fall-out from the EU referendum had subsided. Despite a 25bp rate cut by the BOE in August 2016 and talk of further easing if required, GBP remained remarkably stable through until September of last year. This might provide something of a clue as to how the currency could perform this summer." Of course the difference between now and last year, is that traders can have no certainty that domestic UK political infighting will cease. After all, after the initial shock of last summer's UK vote to leave the European Union and David Cameron's immediate resignation, it didn't take long for the governing Conservative Party to unite around Theresa May. May's authority was then unquestioned. but is now under scrutiny. But if traders cannot know how the politics will unfold through the UK's summer months, they can make a judgement on whether or not the prospect of a UK rate hike is closer or further away. Writing about recent commentary from Bank of England policymakers that has seemed more hawkish on a rate hike. and writing ahead of Tuesday's UK inflation data, Swiss bank UBS wrote "in our view, the timing of this sudden hawkish swing is distinctly puzzling, as it has coincided with a clear and widespread cooling of important activity indicators which strongly suggest the economy is continuing to lose momentum after its weak start to the year." There's arguably no reason to expect the pound to keep selling off following Tuesday's UK inflation data as short term positioning may already have been washed out. But neither does that mean sterling bulls will necessarily be charging back in, even if Jane Austen is on the new ten pound note. Those who wish to express a dollar short stance might see better opportunities elsewhere than in Cable (GBPUSD).

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

The Aussie dollar: Heading further into the Top End or Going Down Under?

Partly supported by decent economic data out of China suggesting a continued appetite for Australia's commodity exports, the Aussie dollar has forged higher. But Australia's NAB thinks that the "AUD/USD move above 2016 highs is mostly a USD thing" and that "the (real) AUD TWI is now as much as 10% overvalued." NAB believes this "should be troubling the RBA." It remains to be seen if Australia's central bank will make any public reference to the Aussie's climb but RBA policymakers will surely have taken note of comments on Monday from RBNZ Deputy Governor Geoff Bascand that a weaker kiwi (NZDUSD, EURNZD, AUDNZD) would help rebalance economic growth in New Zealand. RBA Deputy Governor Guy Debelle will be speaking this Friday at an economic conference in Adelaide. That said, NAB, which continues to hold a year-end forecast for AUDUSD at 0.7000, feels as "AUD/USD traded [Monday] through its April 2016 high of 0.7835 and on Friday to its highest closing level since mid- June 2015.... The obvious risk is that AUD/USD now appreciates to at least the 80 cent level in coming days or weeks, consistent with the various bullish technical set-ups implied by Friday’s close." Traders with existing positions might think that's perfectly reasonable but others, who thus far not become involved in the Aussie's rise, might be wary of leaping in at such elevated levels. US bank Morgan Stanley actually thinks that the robust Chinese data which, in part, has helped to buoy the Australian dollar might also give Beijing the confidence "to enter its next round of reducing leverage growth," with negative consequences for Australian exports and the AUD. It seems it's an open question whether the Australian dollar is heading further into The Top End or going Down Under.



Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

Previewing This Week's ECB Meeting

Thursday's European Central Bank (ECB) monetary policy meeting will be the key event for the euro (EURUSD, EURGBP, EURJPY). Japan's Nomura Bank is "not expecting the ECB to announce any major changes to its policy parameters at the next Governing Council meeting on 20 July. We are, however, expecting the easing bias on the asset purchase programme (APP) to be dropped via the removal of the phrase concerning the Bank’s readiness to increase its size and/or duration from the forward guidance. That, in turn, should pave the way for a more formal announcement about the tapering of the APP at the following meeting on 7 September." Traders may consider that last week's announcement that ECB Chief Mario Draghi will attend the August 24-26 Federal Reserve symposium in Jackson Hole gives Draghi the perfect platform to send a policy message ahead of that September meeting. As for the here and now, Nomura sees "a risk of a slowdown in EUR appreciation. Even though [Nomura] expect the ECB to change its forward guidance further, the change would not be a big positive surprise for the market. In contrast, no change in the forward guidance or negative comments on the recent market re-pricing from President Draghi could weaken EUR quickly." Germany's Deutsche Bank doesn't expect "any significant changes to the [ECB's] language on rates or asset purchases" at this week's meeting. The German firm expects "the ECB to maintain the current view on sequencing given the significant move in the euro exchange rate" while agreeing with Nomura that "on tapering... a decision will be taken at the September meeting." Deutsche's reference to the euro is arguably important. The ECB is walking something of a tightrope. It may not wish to precipitate a big sell-off in the euro, but nor will it want to set it running on the topside. France's Credit Agricole CIB takes the view that the ECB might decide it has reasons to be cautious lest it triggers "further aggressive tightening of Eurozone financial conditions... via stronger EUR and higher rates, and [European Government Bond] yields." The French bank argues that a further rise in the value of the euro "in conjunction with a still uncertain outlook for commodity prices should also pose downside risks to the Eurozone’s inflation outlook. In turn, slowing inflation could undermine the ECB credibility as it tries to normalise policy later in the year." Traders will need to bear in mind that while the euro will take its lead from what the ECB says on Thursday, what the ECB says will itself be partly based on where the euro already stands.

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader

Opinions Divide On Next Move For CAD's Next Move.

As France's BNP Paribas noted on Wednesday, Fed Chief Janet Yellen's "bi-annual testimony to the House Finance Committee... was more dovish than the mid-June FOMC press conference in emphasising slightly greater uncertainty over inflation." That's arguably a fair reflection of how the currency markets saw matters. But as Dutch Bank ING wrote yesterday "testimony from Yellen [on Wednesday] was perceived as slightly dovish ... largely on the view that the Fed was in no hurry to make further adjustments to policy. This has allowed investors to focus on recovery and normalisation stories elsewhere in the world." The Canadian dollar (USDCAD) fits that bill. Wednesday's Bank of Canada (BoC) hike, with an accompanying tone which the market perceived to be hawkish, certainly gave the Canadian dollar (USDCAD) a substantial boost. But Canadian dollar bulls need to be aware, as Germany's Deutsche Bank pointed out yesterday that "guidance for future [Bank of Canada] policy tightening appears to be firmly data dependent which was something also noted by Governor Poloz in his press conference." Yet US bank Morgan Stanley remains a Canadian dollar bull arguing that the Bank of Canada's hike and the prospect that the Canadian central bank sees "this rate hike as a first step of more to come" given that "Canada’s leverage is leading to overheating concerns as the economy shows increasing signs of life." means that "the CAD has further upside potential for now, especially within a globally yield curve flattening environment keeping funding costs muted." France's Credit Agricole CIB takes a different tack altogether. "Still, even after factoring in the BoC rhetoric, the 1.5% rally in the CAD after the announcement looks outsized relative to a 5bp move in Canadian 2Y rates (the prior 40bp move in rates was accompanied by a 4% gain in the CAD). This suggests that FX markets were caught positioned short CAD before the decision, which suggests scope for some USD/CAD recovery once positioning is more balanced." Traders might be interested to know that currently Credit Agricole retains a C$1.40 forecast for September 2017." Traders will have their own views on that. As for ING it now looks for "USDCAD to consolidate in the 1.2750-1.2950 range over the near-term" but feels there are "risks that the pair trades closer towards the top of this range. " Traders might also be interested to know that the Dutch firm now expects Canadian inflation data, due July 21, to now assume greater market importance and feels that if that data disappoints then USDCAD could "see a sharp correction towards C$1.30."

Written by Neal Kimberley, External Currency Analyst.
All financial products traded on margin carry a high degree of risk to your capital. Any forecasts given are not a reliable indicator of future performance and the decision to act on any ideas and suggestions presented is at the sole discretion of the reader
Wait while more posts are being loaded