ATF Trading Room

Dec. 9, 2016 (Allthingsforex.com) – The initial results from the Italian referendum may have failed to add additional pressure on the EUR but the European Central Bank’s decision to expand its QE program until December 2017, did the job later in the week.

In the trading session today, the EUR continued its decline spurred by the ECB announcement. The single currency re-tested support at 1.0516 and once again bounced higher. This is the fourth unsuccessful attempt to break the 1.05 mark since November 2015, with the big long-term support level to watch still standing at 1.0469.

Will the Fed’s December 14 monetary policy announcement provide the catalyst for a bearish breakout below 1.0469, which could open the door to further EUR weakness?

For the last few weeks, Fed fund futures have been showing nearly 100% probability of a 0.25% rate hike next Wednesday, which means that such expectations may be already fully priced into the EUR/USD exchange rate.

However, should the Fed hint of a faster pace of rate increases throughout 2017, the market could consider it as a sufficient enough reason to send the EUR one step closer to parity with the USD.

The ball is now in the Fed’s court…

 

 


USA 

Nov. 10, 2016 (Tempus Inc.) – The U.S. Dollar is up against commodity-based currencies while staying relatively quiet against its major peers. Markets are acting in odds with what was predicted if Trump triumphed, but historically the business world prefers the prospect of Republicans who’ll likely come into power seeking less regulation and fomenting less intervention in the free market.

Trump’s trade, or rather anti-trade rhetoric, during his campaign has economists concerned, but thus far markets are rebounding, big league, after dropping for eight consecutive days. The greenback’s strength is due to data releases that satisfy the Fed’s requirements ahead of a gradual hike.

Jobless Claims were slightly lower than expected; helping to solidify the labor market’s strong run. Commodity prices are rising, stocks are thriving, and USD is appreciating. How long this will keep up is hard to tell, but the “buck” is holding steady for now. Populism succeeding is morphing how we gauge economic performance, so things could change quickly.

JPY

The Yen fell by over 5.2% in value since the U.S. election results showed Trump succeeding. The move was a surprise because Yen forecasters estimated the currency propelling as a safe-haven to a Trump win that would dismantle global markets. This didn’t happen.

Equities flourished and thus Yen declined as it usually does when risk-appetite grows. Japan’s economic situation is not great as deflationary pressures remain and wages remain stagnant, but experts foresee Yen rising by 17.0% by the end of Q1 2017 if Trump delivers on his message of upending globalization and outsourcing.

EUR

The Euro kept trending downward yesterday, losing ground in the midst of a shocking result in America and poor data out of the EU’s second largest economy. France produced some underwhelming figures as Industrial Production revealed contraction of 1.1% and payrolls grew at a measly 0.3% pace.

Now that the campaign in the U.S. is over, the spotlight may be on the Italian referendum coming in December in which the people will decide changes to the constitution and balance of power between executive and legislative branches. The political red-tape in Italy played a role in preventing much-needed bank and fiscal reform after the 2008 crisis negatively impacting the “old boot’s” ability to recover since then.

Nov. 4, 2016 (Tempus Inc.) – The U.S. Dollar stayed quiet overnight, but found some strength following the release of upwardly revised and steady employment data. October saw an actual increase of 161K jobs to the economy, coming in slightly under the expected 173K, but the previous month’s figures had an additional 35K.

Average Hourly Earnings also improved with year-on-year growth of 2.8% over the forecast 2.6% plus a revision of the month prior also registering higher. Unemployment stayed at 4.9%. The surging labor market has been a pillar of strength for the greenback this year and these numbers certainly help the odds of a hike in December when the Fed last meets.

Election woes are the main headline as we go into the last weekend before the year’s biggest risk event. Global indexes are still on the red and the streak of losses in equities is now eight days old. Mexican Peso and CAD remain on the decline as oil prices finish their worst week in 10 months. The positive indicators shall keep the dollar afloat, but the gains may be limited considering the risk-averse approach investors and traders are taking at the moment.

GBP

The Pound is closing the week about 2.0% stronger as it recovered with the help of a less dovish Bank of England. Pro-Brexit parliamentary lawmakers had accused BOE Governor Mark Carney of spreading too much pessimism post-Brexit referendum, but his confirmation as governor for the next 2 years calmed market fears as Carney holds a reputation for keeping things in order and being right about Brexit effects on the global economy.

More importantly, the official Brexit process is under threat as the UK’s High Court decided that an approving parliament vote will be needed prior to invoking Article 50 to start the British departure from the EU. The UK’s economy is keeping it together thus far, but we feel the pressure is still on and a determined EU will make the divorce very difficult to send a message to other potential dissenters.

EUR

The Euro lost ground this morning after U.S. NFP and wage prints boosted the chances of a Fed hike in December. The shared currency started November with a bang, appreciating by over 1.0% during the week. Euro-zone troubles are dissipating with economic data demonstrating that European Central Bank measures have worked, although slowly, to bolster growth.

Spain, the fourth largest economy of the EU, seems to be getting its act right by finally forming a coalition government that will enable it to push for further fiscal reforms. Unemployment going down is a big deal and the uncertainty holding markets down is likely going to keep EUR/USD pair in tight ranges.

Oct. 21, 2016 (Tempus Inc.) – The U.S. Dollar is closing the week almost 1.0% stronger after data and commentary helped fuel chances of a hike by end of the year. According to the tracking by the Bloomberg Dollar Spot Index, the greenback improved primarily mid-week as other major central bank decisions in Canada and Europe highlighted current policy divergence in comparison with the Fed. If anything, monetary action may be reaching its limits in impacting economic growth and forecasts cannot be upgraded unless government spending increases.

We expect more economic indicators next week to continue to paint a steady picture for the U.S. and aid the dollar sustain its gains, if not solidify its strengthening. Markit Manufacturing PMI will be released at 9:45AM today and it’s expected to show a 51.5 reading, signifying the same pace of expansion as the month prior. Equity markets are in the red, showing losses globally, and depreciating currencies against USD all across the board.

GBP

The havoc of political infighting in the U.K. continues to inflict pain on a currency now down by over 22.0% since the infamous June 23rd referendum. Lawmakers continue to criticize the Bank of England’s handling of monetary policy ever since the Brexit and a wider deficit in Britain’s budget leaves few options for the Chancellor of the Exchequer Phil Hammond to cope with the separation’s woes.

The month of September proved to be disastrous for the U.K. economy and October has charged a heavy toll on GBP. These are historically low levels with potential for further losses if there is no resolution for Britain to have any part of Europe’s single market prior to invoking Article 50 of the European Union agreement. The divorce will be so tough; it’ll make ya head spin.

EUR

The Euro continues to dwindle as markets price-in little chance of changes to the European Central Bank’s accommodative policies. Officially, the ECB announced that it will maintain its current quantitative easing program intact and plans to execute in full as planned until March 2017. No extension was discussed, but also no tapering.

We are now experiencing the downfall of the shared currency as everything from Brexit to banking crises finally caused downward pressure. There is uncertainty over the future of the EU and its members’ ability to keep selling open markets and borders to their constituents. We foresee these ranges to stick around, if not get better for purchasers of Euros.

Oct. 7, 2016 (Tempus Inc.) – The U.S. dollar continued its bullish run overnight, with the Bloomberg Spot Index rising for the fifth consecutive day as improved interest rate expectations have buoyed the greenback.  As of 8:00 a.m., chances the Fed would raise interest rates later this year stood at 64.0%, up 5% this week.

The greenback also benefited from a wild sell-off of the British pound, putting downward pressure on all European currencies.

This morning’s economic docket should allow the greenback to hold onto its gains. The U.S. economy added only 156K jobs in the month of September, according to the Labor Department. The print failed to meet expectations of a 167K rise.

However, August’s numbers were upwardly revised by 16K, making the two prints essentially a push. The greenback initially weakened following the headline reading, but has settled in to pre-data ranges as market participants realized today’s employment data should not negatively affect interest rate expectations.

All US markets will be closed on Monday for the Columbus Day.

EUR

The Euro traded in a mixed direction overnight, rallying to its strongest level since 2011 against the Euro but falling against the U.S. dollar. Overnight, French President Francois Holland had some harsh words about the Brexit negotiations, joining Angela Merkel. The common currency has ceded ground against the U.S. dollar as diverging interest rate policies have driven trade. The Euro was unable to benefit from strong data that showed industrial production in France and Germany beat expectations.

GBP

The British pound had a wild night, falling as much as 6.1% in a two minute span against the U.S. dollar.  The move marked the second largest intra-day move in the currencies.

The day following the Brexit vote was the record. Analysts, including this one, are struggling to explain the move. A break of technical levels, computer algorithms that triggered sell orders, low sterling liquidity during the Asian session and a “fat finger” or human error are all possibilities.

Others point to tough comments from European leaders on their stance on Brexit negotiations and the possibility of Britain remaining in the EU’s single market. In truth, the cause for the sell-off could be a combination of all of the above.

The Sterling was able to recoup some of its losses, but remains more than 2.0% weaker against the U.S. dollar from yesterdays close. The current level represents the weakest sterling level during an American trading session in 31 years.

Sept. 23, 2016 (Tempus Inc.) – The U.S. Dollar stayed mostly quiet overnight after a day of losses caused by the Fed’s decision to maintain its wait-and-see approach to hiking rates. Commodity and equity markets rallied yesterday, but their gains are starting to dwindle as uncertainty over economic growth in other regions takes hold of investors.

Brexit effects on European trade balances are concerning long-term growth forecasts and oil’s inconsistency is once again pulling down the prices of raw materials. The dollar lost about 1.0% of its overall value this week, but struggles elsewhere may turn things around.

Purchasing Managers Index will be out later at 9:45AM with an expected expansion reading of 52.0. If the figure meets the estimate or exceeds it, we could be in for a USD rally later on since those figures were poor on the other side of the pond.

GBP

Political back-and-forth may be the Pound’s kryptonite once more after statements from British Foreign Secretary Boris Johnson of a swift Brexit. To the surprise of many, Johnson announced that Article 50 of the European Union Agreement would be invoked early in 2017. This is the official initiation of the arduous process for the UK to be completely out of the EU. The separation is predicted to be very difficult as it an unprecedented occurrence.

Even worse, a spokesperson for the Prime Minister denied that is the course of action Theresa May is planning. Turmoil before Brexit and after the June 23rd referendum result turned market participants sour on GBP. The pain of separation, the reality of voting yourself out of a major continental agreement, may weigh heavily on Sterling moving forward. Divorce is never fun, easy, or predictable.

EUR

The euro is stubbornly trading around familiar ranges after gaining thus far this week on the Fed’s inability to increase borrowing costs. In earlier sessions, which negatively affected most European stock indexes, PMI figures were released for Euro-region nations with underwhelming results. IHS Markit’s PMI readings for Germany, France, and the Euro-zone as a whole fell in September.

Gross Domestic Product numbers for France during Q2 also revealed a contraction. Indeed, the shared currency is surviving, but political opposition to the status quo combined with slow growth will likely bring Euro down as we enter the last quarter of the year.

September 9, 2016 (Tempus, Inc.) – The U.S. Dollar improved this morning countering a week of underwhelming data in the services sector and speculation increasing that the Fed would be unwilling to hike rats by the end of this year. Boston Federal Reserve President Eric Rosengren joined in the hawkish sentiment of other Fed members recently by stating this morning that “a failure to continue on the path of gradual removal of accommodation could shorten, rather than lengthen, the duration of this recovery.”

The labor market has improved to a satisfactory level after years of low interest rates and wages are steadily increasing, said the official. Chances of a hike for the September 21st meeting are up to 34.0% after being in the 22-25% range throughout the week.

Commodity markets were mostly in the red overnight, aiding the greenback recoup earlier losses against MXN, CAD, and Aussie. It is also worth noting that North Korea tested a nuclear bomb and the state-controlled media is claiming the authoritarian regime has capability to mount it on warheads. This type of global threat scenario tends to boost the USD as a safe-haven and we are witnessing that in today’s session.

EUR

The Euro is on the decline in the North American trading session following market reaction to ECB President Mario Draghi’s commentary after their monetary policy meeting. As expected, the ECB held back from expanding quantitative easing and kept its benchmark and deposit rates unchanged.

Although the shared currency initially gained to its strongest levels since the end of June, it is currently trading by over half a percent weaker. As economic growth came into question, Draghi’s statements felt pessimistic and seemed to reveal a frustration with the lack of positive impact his policies have had on anemic recovery.

Euro-zone members have seen some improvement in unemployment, especially Spain which reached its lowest level recently in over six years. However, central bank action seems to be running out of steam, with deposit rates already in the negative to incentivize banks and QE purchases at EUR80.00 billion per month. A European Union meeting next Friday in Bratislava, Slovakia hopes to revive countries’ commitment to the principles of the continental agreement, but will be the very first time since 1973 without featuring the United Kingdom.

JPY

The Yen weakened overnight following North Korea’s nuclear test and a surge in its domestic stock markets. JPY is 1.5% weaker from its weekly high reached on Tuesday. Doubts over the ability to couple monetary policy with fiscal spending is also weighing on the Yen.

The Bank of Japan will meet on September 21st and it must be noted that the currency has improved after every meeting thus far this year. Based on its account surplus and the tumultuous global economic situation, JPY has thrived as a safe-haven to gain 17.0% of value since the start of 2016.

August 26, 2016 (Tempus Inc.) – As expected, volatility jumped sharply this morning as a plethora of risk events were on today’s schedule.

The U.S. GDP data showed the economy expanded at a 1.1% rate in the second quarter, right in line with expectations. The print was a slight decline from an initial reading of 1.2%, according to the Commerce Department. Personal consumption rose 4.4%, beating expectations of a 4.2% jump but has done little to spark a dollar rally.

But the Federal Reserve Chair Janet Yellen’s remark in Jackson Hole, WY gave the USD a major boost as she said that “the latest economic data strengthens the case for rate hikes”.  Her speech was titled “The Federal Reserve’s Monetary Policy Toolkit.”  Traders saw this as an opportunity for the central bank head to provide guidance on the Fed’s monetary policy plan moving into the final months of the year. Odds that the Fed will raise rates this year have risen to 57% from below 50% early last week as other monetary policy officials have signaled the economy is strong enough to withstand higher borrowing costs.  However, some have warned that Yellen may just be discussing the arrows still in her quiver, and not necessarily that she has decided to use them.

EUR

The Euro fell against the U.S. dollar but remains withing recent range. The EUR/USD pair has been sluggish over the month as much of Europe is closed for the summer holiday season. Some have pointed to today’s speech by Janet Yellen as the end of the summer season and we did see volatility picking up. The European economic docket showed that consumer confidence in Germany and France registered slightly better than expected and Spanish retail sales ticked higher.

GBP

The British pound did not manage to finish off the week strong. The currency has gained against all of its 31 major peers this week and is set for its biggest weekly gain in a month versus the Euro. The sterling has benefited from a long string of strong economic data, beating expectations of a Brexit slump. Today’s data adds to the narrative. U.K. consumer confidence rose the month in more than three years this month.  The index of consumer sentiment by YouGov jumped to 109.8 from 106.6 in July, which was a three year low.  The impressive print follows strong retail sales and unemployment benefit claims last week.

However, today’s Fed Chair comments could cause more traders to start pricing in a wider monetary policy divergence between the Fed and the Bank of England, weighing on the GBP going forward.

Aug. 5, 2016 (Tempus Inc.) – After gaining yesterday on the back of the Bank of England’s decision to ramp up stimulus, the U.S. dollar ceded some of those gains overnight. Traders have been anxiously awaiting today’s release of Non-Farm payrolls, the largest risk event on this week’s docket.

The economic docket did not disappoint as the payroll report smashed expectations.  Payrolls climbed 255K in July, besting all of the forecasts collected by Bloomberg. The median estimate was for a 180K increase.  Last month’s impressive 287K reading was upwardly revised to 292K. The unemployment rate held at 4.9%.

A deeper look at the report showed promising signs for wage growth as well.  Average hourly earnings rose more than forecast (0.3% v. 0.2% expected) on a month over month basis.  The year over year increase was 2.6% in July, the same as June.

The glowing jobs report comes a week after Gross Domestic product disappointed and caused the U.S. dollar to sell-off.  Today’s print is likely to allow the greenback to claw back  those losses and cause traders to slightly increase future interest rate hike bets for early 2017.

GBP

The British pound retraced some of its steep losses from yesterday overnight, causing market participants to ponder if the GBP/USD has carved out a bottom.  The sterling is over 12.0% weaker against its American rival since the end of June, when British voters decided to leave the European Union.

The Bank of England yesterday utilized a number of monetary tools to help stimulate the economy and reduce the negative effects of the “Brexit” vote.  In all, the Bank of England added 170 billion pounds to its balance sheet, including 70 billion in new quantitative easing.  The central bank also lowered its main interest rate to an all-time low of 0.25%.
In a press release following the decision, BoE Governor Mark Carney stressed that the Bank alone could not buoy the economy.  He called for the government to increase fiscal stimulus to stave off a deep recession.

Recent economic data has backed-up the fear that the Brexit vote is starting to affect the real economy.  U.K. house prices fell 1.0% in the month of July, well below expectation of a small 0.2% drop.

AUD

The Australian dollar has gained over a half a percent against the U.S. dollar in early trading as traders being to pare back bets that the Reserve Bank of Australia will cut rates again later this year.  In its quarterly statement released today, the RBA left its growth and inflation forecasts little changed and gave little insight on future interest-rate guidance.

The RBA cut interest rates to a record low on Tuesday.  But the Australian dollar is not at a three-week high against the U.S. dollar as traders have reduced bets below 50.0% that the central bank will cut again this year.  The Aussie also found support as iron ore prices climbed.

Aug. 2, 2016 (Tempus Inc.) – The Australian dollar has rallied nearly a percent against its American rival, reversing earlier declines. The Aussie initially traded lower after the Reserve Bank of Australia cut interest rates to a record low 1.5%. The move was predicted by 20 of 25 economists surveyed by Bloomberg.

The Aussie quickly turned around and is strengthening across the board, despite the dovish move by the central bank.  A number of news sources have quoted traders saying they believe the Aussie is gaining because there was lack of evidence that the RBA will ease further. However, swaps show that traders show a 50% chance that the RBA will cut rates again in November, suggesting that today’s move may be temporary.

USD

The U.S. Dollar continues to lose ground against the majority of its counterparts, a move that was exacerbated by disappointing growth data released Friday.  Indeed, the Bloomberg Dollar Spot Index, a gauge of the greenback against 10 peers, is lower for the fifth time in six days.

This morning’s economic docket is unlikely to change the dollar’s fortune.  Consumer purchases climbed a bit more than anticipated in June.  The 0.4% advance in spending followed a similar gain the month prior, according to the Commerce Department.  Economists had projected a 0.3% gain.  Personal income rose less than projected, counteracting the gains in spending.  Incomes rose 0.2%, failing to meet expectations of a 0.3% rise.

The greenback has had a muted reaction to the data. The biggest risk event for the week is Friday’s Non-Farm Payrolls print. Expectations are for 180K jobs created in July, down from an impressive 287K in June.

JPY

The safe-haven Japanese yen pushed towards a three-week high against the U.S. dollar after Prime Minister Shinzo Abe announced an underwhelming fiscal stimulus package. The Japanese Nikkei is 1.5% lower at the time of writing, boosting demand for safe-haven assets. Japan’s government announced 4.6 trillion yen (45 billion USD) in extra spending for the current fiscal year in an attempt to boost the economy. However, the amount pales in comparison to the 28 trillion yen stimulus package Abe referred to in a speech last week.

The yen gained last week as well after the Bank of Japan enlarged a program of buying exchange-traded funds, while keeping its negative interest rate unchanged.