Euro next week?

source: tradingeconomics

Here is what Kathy lien from BK asset management has to say about Euro:

Meanwhile the euro will finally get some love next week. Compared to many of other major currencies, the decline in EUR/USD was restrained this week by the lack of key economic data and comments from European policymakers. That changes completely next week with May PMIs, ZEW, IFO and German first quarter GDP numbers scheduled for release. The ECB is in wait and see mode and the PMIs will go a long way in telling us how quickly they will ease again. The currency pair has found support at 1.12 this week and stronger numbers will confirm a bottom while a soft report could drive the pair to fresh 1 month lows.

 

A Round Up

Market has been ranging quite tightly today since there are not any significant events on the calendar. For the time being at least, it is safe to say the market is moderately bullish on USD.

To round up for this week:

EUR/USD –  Started off this week at 1.13 region but only to tumble down more than 1% after the relaease of the FOMC minutes. Their data has not been very helpful either. Euro’s strength was mainly due to USD’s weakness. Now that USD got its groove on, euro/usd is expected to slide further. For the time being, it has been hovering around 50% Fib level  – 1.1214. The next support is at 60 – day MA 1.15, which was last hit on 28th March. I believe this would provide a strong support unless a significant event influences to break through.

USD/JPY – While Kuroda and Aso been taking turns to warn about their ability to ease further, USD has also finally chimed in with its hawkish FOMC minutes. Market has been really skeptical if BOJ can really do anything further but now with the prospect of  FED’s interest rate hike, it has provided the market finally some incentive to sell yen. I believe this has eased some pressure from BOJ which has been criticized for its negative rate policy.

Yen has been depreciating throughout the week albeit gradually. Today is the start of the G7 meeting in Japan and yen should have been one of the crucial topic of conversation.I guess we would know further about it in Kuroda and Aso’s  speech later in the afternoon today. It has steadily climbed from 108.5 to 110.5. The next resistance is at 111. Each time, it breaks a resistance figure, it retraces quite a bit before continuing its ascend so place take profits accordingly.

GBP/USD – Nowadays data of any sorts, save one or two crucial ones, does not seem to influence GBP at all. Its all about BREXIT. In the latest poll, there are more people wanting to remain in EU. That has skyrocketed GBP this week. Nevertheless, trading GBP is still risky amidst its weak data and looming brexit. Anything could go wrong from today till the referendum and thus, staying out of it is best.

USD/AUD – Remember the time when forecasts were coming out saying AUD could,would, should reach 0.80. And maybe, thats when RBA would ease.

Despite me having the benefit of the hindight, from the mid – March onwards, I believed the easing would have to come around May. And I took a long position in Aud/Usd but god, just my luck, Yellen had to come out and give the most dovish speech of all time. Aud climbed on the the back of a weak USD and rising oil prices. I was stuck in a dilemma for almost 2 months whether to stick with it or average it out. But when finally MAS, citing China, eased its monetary policy, I got the feeling RBA would follow suit and it did.  But would RBA ease again. I highly doubt so. If US stays on track to hike twice this year, RBA may not move.

XAU/USD – Is the gold rally over? I dont think so. It might weaken substantially for the upcoming weeks till the rate hike but it would eventually appreciate during US elections, especially with Trump being a highly likely dude to become the next president.

To conclude, this week has been a pivotal one in FX market with USD appreciating against most currencies. Weakness in USD has caused a lot of volatility for the past few weeks, catching many of them off guard. Let’s see what happens next week!

That’s all for today and thank you.

 

 

Soaring USD!

The April FOMC minutes  just came out and it has sent USD soaring, breaking from its fetters of pessimism. Please refer to the full minutes here.

In short, more fed members are supportive of a rate hike in June, citing the global risks have faded since the march meeting. The probability of a hike just went from 15% in the morning to 33% now according to the Fed Watch tool. USD has appreciated considerably against most currencies.

EUR/USD

USD/AUD

USD/SGD

But as of now, USD/JPY has hit 110 a few times and has been hovering around that region to break out. It could very well happen during the Asian market. But it also bound to have huge retracements.

But nevertheless, their decision has to be also supported by the future economic data and global conditions!

Awaiting FOMC Minutes

Apart from  Japan’s GDP report, there is nothing major in the calendar for today till 2am tomorrow (GMT +8) when the FOMC minutes are being released.

Everyone is hoping it would shed some light to the next possible rate hike. Would it be in June or July?

As of just now, the probability of rate hike has increased to 15% whereas same time last week, it was only at 3.8%.

Would the minutes be the catalyst to break through the consolidation? Any such hint might provide the much awaited rally for USD.

Let’s see what others have to say:

Kathy Lian: “Tomorrow’s FOMC minutes will also affect USD/JPY. Better than expected U.S. data helped the dollar hold onto its recent gains but they failed to take the greenback to fresh highs. The sharp increase in housing starts, stronger rise in consumer prices and jump in industrial production tell a similar story as Friday’s retail sales report –one of continued recovery in the U.S. economy. The last time the Fed met was in late April and even though U.S. policymakers expressed less concern about global troubles, the dollar peaked as investors realize that there was nothing in the statement to suggest they would raise interest rates in June. The overall tone of the FOMC statement was subdued with the Fed noting that inflation remains low and inflation expectations were little changed. While they liked how the labor market had been performing, they no longer saw economic activity expanding at a moderate pace. The balance of risks statement was also missing from the report. Tomorrow’s FOMC minutes is expected to confirm the division in views within the central bank and validate the market’s expectations for steady rates next month.”

From Bloomberg: ” “The April FOMC statement was an attempt by the committee to balance out the odds of a June move a little bit,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York. “They weren’t ready to say they wanted to go in June, but they felt like the odds priced in June were too low.”

Michael Gapen, Barclays chief U.S. economist, previews the release of the minutes from the April meeting of the Fed’s policy-setting Federal Open Market Committee.

Who Is The Hawk? Who Is The Dove?

There is a slew of fed speakers taking the podium today? Wondering what might happen to your positions? Refer to this guide below.

Source: http://graphics.thomsonreuters.com/F/10/scale.swf

This is their general stance. So if they speak accordingly, usually there is not much volatility. But if instead they changed their views and speak rather the opposite, expect for big movements.

Battered USD and the Rate Hike!

source: tradingview

For the past few months, USD has been battered left and right. It weakened against almost all currencies. Well, mostly it was due to the FED. Nobody asked them to come out and gave a super optimistic rate hike forecast in 2016. They predicted they could do it 4 times. Well, obviously the markets did not take that well, sending the markets spiraling.

Then they got a little dovish in January. They said “they were weighing  how the global economy and financial markets could affect the outlook”. But there was still hope for a March rate hike.

Then March came. They was a bunch of fed speak. Most of them seemed in favor of hiking the rates sooner than later. USD strengthened. But who would have thought it was being propped up for a bloody descent?   The fed not only did not do any rate hike but instead they got so dovish that they could be fed sunflower seeds and kept in a cage. Ms. Yellen cut the forecast to two rate hikes and announced future rate hikes will be done gradually. She kept reiterating that term more than it was necessary. Naturally everyone got spooked and sold the USD like there was no tomorrow. But here was the twist. April meeting was apparently still “live”.

The whole world knew nothing was gonna happen in April as a strew of soft data came in, dousing any remaining flicker of hopes. The rate was unchanged in April as expected but the policy at least sounded more neutral. We are anticipating for the minutes of that meeting this Thursday at 2am. We are almost certain there would no rate hike in June with the impending Brexit referendum.

source: http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

But would there be one in July? If there were any hints of such rate hike, USD will strengthen significantly against most currencies especially against Yen, given that Mr. Kuroda and Mr. Aso has been repeatedly warning to intervene or ease as soon as this June 16. This would be just few hours after the fed rate decision. Imagine if fed hint at hiking and Boj eased, the divergence itself could bring yen to 115 to 118 range.