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After a week in which a dozen central banks around the world either tightened policy or resorted to currency intervention, the focus is now on the economy. Just how much of the move was priced in, and how much will economic growth be impacted going forward. So far, tightening has contributed to a stronger dollar, on top of increased risk avoidance supporting safe havens. Purchasing managers are likely to see the first signs of the effects of monetary policy. Whether that's in lower prices implying potentially less inflation in the future, or lower orders implying less growth in the future. Weaker PMIs could start raising bets that monetary policy will start to level off in the near future. The surveys are still being conducted, so we won't see the full effect on manager's thinking until next month. But central bank action was pretty well telegraphed ahead of the start of the survey. What to look out for: Australia  Australia is expected to keep bucking the global trend, with manufacturing PMIs expected to be firmly in expansion, although stumbling a bit. The services sector is expected to remain under pressure through the winter, and slower tourism activity. Australian Manufacturing PMI expected… Read More »Global September Preliminary PMIs and Economic Outlook

The Bank of England rate decision sees UK avoid 75bp move seen elsewhere, with Truss energy policy expected to lessen inflationary pressures. Markets head lower, as geopolitical and monetary policy concerns hurt sentiment “Today has seen another bout of downside for stock markets throughout Europe and the US, with geopolitical and economic concerns providing a drag on risk assets once again. On a week dominated by central banks, it was always going to be difficult to envisage a scenario where traders emerge with a positive outlook. Volatility has come from a variety of sources, with the aftereffects of yesterday’s FOMC monetary policy meeting coming into play alongside a Russian nuclear war warning, BoJ JPY intervention, and a BoE rate decision. ” BoE take cautious approach in battle against inflation   “The Bank of England have taken a more cautious approach to monetary policy today, with the 50-basis point hike falling short of the 75bp move seen at the ECB and Fed. The spread of votes saw almost half of the nine members vote for either 75 or 25 basis point hikes, highlighting the significant degree of uncertainty over what needs to be done in the face of recessionary and inflationary… Read More »Stocks stumble as BoE continues tightening theme

GBP/USD dives to a fresh 37-year low on Thursday amid the post-FOMC USD rally. Expectations for more aggressive Fed rate hikes, the risk-off mood underpins the buck. Oversold conditions on short-term charts offer some support ahead of the BoE meeting. The GBP/USD pair falls to a fresh 37-year low during the Asian session on Thursday as the post-FOMC US dollar breakout momentum remains uninterrupted. The Federal Reserve raised interest rates by another 75 bps on Wednesday and struck a more hawkish tone, signalling more large rate increases at its upcoming policy meetings. The Fed's so-called dot plot revealed that policymakers expect the benchmark lending rate to top 4% by 2022. Central bank officials anticipate further hikes in 2023 and rate cuts beginning only in 2024. The Fed expects inflation to stay above the 2% target for at least the next two years. In the post-meeting press conference, Fed Chair Jerome Powell reiterated that the central bank would act aggressively to bring inflation down. Powell added that the historical record high inflation cautions strongly against prematurely loosening policy, suggesting that the Fed will not pivot as soon as the economy starts to slow. This, in turn, pushed the yield on the… Read More »GBP/USD Outlook: Oversold RSI warrants caution for bearish traders ahead of BoE meeting

With the rate differential widening, there is little room for USD/JPY slides. The Bank of Japan is widely anticipated to maintain its monetary policy unchanged. USD/JPY is in a consolidative phase near a two-decade high of 144.98. Following the US Federal Reserve’s policy announcement, it will be the turn of the Bank of Japan to decide on its monetary policy. Against the tide, the BOJ is widely anticipated to maintain the status quo, leaving rates at record lows of -0.1% and the yield curve control policy on hold. The latter means the central bank will continue unlimited bond purchases to keep the yield on the 10-year government bond around 0%. Finally, the central bank is expected to confirm the end of its special coronavirus financing program in September, as previously announced. The Japanese central bank´s strategy to maintain inflation at 2% stopped working five months ago. According to official figures, the annual inflation rate rose by 3% in August from 2.6% in the previous month. The Consumer Price Index rose for twelve consecutive months, and while it remains far below that of its major counterparts, the global pressure points to a further upside. As Japan is a net energy importer,… Read More »BOJ Preview: One day, it will surprise us all, but not today

EUR/USD came under renewed selling pressure on Tuesday amid resurgent USD demand. Bets for aggressive Fed rate hikes trigger a sharp spike in the US bond yields and the USD. Bearish traders turn cautious and await the crucial FOMC policy decision on Wednesday. The EUR/USD pair witnessed an intraday turnaround on Tuesday and retreated nearly 100 pips from a one-week high, reversing its modest gains recorded over the past four sessions. The US dollar caught aggressive bids as investors geared up for another supersized interest rate hike from the Fed and turned out to be a key factor exerting downward pressure on the major. The current market pricing suggests over 80% chances of a 75 bps increase and a small probability of a full 100 bps tightening. This, in turn, pushed the US bond yields higher across the curve and provided a goodish lift to the greenback. The two-year US government bond yield, which is highly correlated to rate expectations,  jumped to its highest level since October 2007. Furthermore, the benchmark 10-year US Treasury note reached a level not seen since April 2011. This, along with the risk-off impulse, acted as a tailwind for the safe-haven buck. The market sentiment… Read More »EUR/USD Outlook: Awaits hawkish Fed before the next leg down to a two-decade low

Dollar index and Euro may trade within 109-110.30 and 0.9940-1.006 respectively while EURJPY can trade below 145 to head towards 143. USDJPY is holding below 143.80 and can fall towards 142. USDCNY and USDRUB can remain in a range of 7.00-7.0250 and 62-59.20 respectively. Pound and Aussie can be bullish while above crucial supports of 1.14/1.1350 and 0.67-0.6670 respectively. USDINR can fall to 79.55/40 while below 79.80 today. EURINR can rise towards 81.50 The US Treasury yields are moving up ahead of the US Federal Reserve meeting outcome tomorrow. Key resistances are ahead, and the Fed meeting outcome would decide whether the yields can break above them or not. The German yields have risen across tenors and have come closer to their crucial resistances. The price action in the coming sessions will need a close watch to see if a reversal is happening or not. The 10Yr and 5Yr GoI sustain higher and are likely to move up from here. Supports can limit the downside for them. Dow and DAX have rebounded from 30500 and 12600 levels respectively. Nikkei and Shanghai have bounced back from the support at 27500 and 3100 respectively. Nifty has risen well above the support at… Read More »Morning Briefing: Dollar index and euro may trade within 109-110.30 and 0.9940-1.006 respectively

This week, central banks are in focus. Both the Federal Reserve and the Bank of England are expected to raise interest rates when they meet on Wednesday and Thursday, by 75 basis points and 50 basis points, respectively. Financial markets are rattled to say the least, Wall Street recorded the biggest weekly drop in months, the S&P 500 fell 4.8%, while the Nasdaq dropped more than 5%. The plethora of central banks announcing their rate decisions, the Bank of Japan will also join the chorus, could inject further volatility into financial markets.  Symbolic Fedex sends shiver down traders’ spines  Looking at last week’s stock market performance in more detail, the driver of the decline for US and global stocks was firstly, stronger than expected US headline CPI and secondly, a warning from Fedex, the shipping company, that it would close offices, freeze hiring and park aircraft due to a sharp drop in package shipping volumes, which saw the stock lose more than a fifth of its value. The company reported weaker than expected Q2 results and withdrew its full year guidance, after warning of a deteriorating macroeconomic backdrop. Fedex is symbolic of the wider economy, when transport companies start to… Read More »Multiple central bank decisions and a grim financial backdrop

Key highlights EUR/USD is attempting a recovery wave above 1.0000. A major bullish trend line is forming with support at 0.9995 on the 4-hours chart. EUR/USD technical analysis Looking at the 4-hours chart, the pair extended losses below the 1.0020 support, the 100 simple moving average (red, 4-hours), and the 200 simple moving average (green, 4-hours). It traded as low as 0.9945 before the bulls took a stand. It is now consolidating losses above the 0.9980 level. On the upside, the pair is facing a strong resistance near the 1.0060 zone and the 200 simple moving average (green, 4-hours). The 50% Fib retracement level of the key decline from the 1.0197 swing high to 0.9945 low is also near the 1.0070 level to act as a resistance. A clear move above the 1.0060 and 1.0070 levels could open the doors for a larger increase. In the stated case, the pair might rise towards the 1.0120 and 1.0130 levels. On the downside, an initial support is near the 0.9995 level. There is also a major bullish trend line forming with support at 0.9995 on the same chart. A downside break below the trend line support might spark a sharp decline towards… Read More »EUR/USD faces uphill task, USD/JPY signals correction

As rate hike fears drove heavy selling on Wall Street this week, precious metals investors are finding some silver lining amid the storm clouds. Worse than expected inflation data has put a 75 basis-point rate increase firmly back on the table. Futures markets are now pricing in the possibility that the Federal Reserve will move by a full percentage point, though a three-quarters of a percent move is currently viewed as more likely. Earlier in the month, investors had hoped that weakening economic data would cause central bankers to pivot away from their historically large interest rate hikes. But Tuesday’s Consumer Price Index report showed inflation is still raging. The CPI came in at an annualized rate of 8.3%.  Despite a drop in gas prices and weakness in most industrial commodities, retail costs for consumers continue to climb. Especially worrisome is persistently rising food costs.  Food prices have surged 11.4% over the past year, marking the biggest annual increase since 1979. A sub-index that measures price changes at the grocery store jumped by a whopping 13.5%. Meanwhile, according to the Bureau of Labor Statistics, the average American worker is seeing only a 5.2% annualized bump in earnings. The purchasing power… Read More »Fears over rising food costs, stagnant wages slam markets

USD/JPY hovers under 24-year high The Japanese yen steadies as the government signals a market intervention. A rapid rise in interest rates across the globe has cut investors’ appetite for Japanese assets. Japanese officials have expressed their concerns over the currency's steep decline lately. The Finance Minister remarked that options are open to stop the yen’s bleeding as imported inflation may dampen consumer and business sentiment. A recent rate check with dealers by the BoJ shows that policymakers are closely watching the market, fueling speculations of a potential intervention. The pair is closing in on the 24-year high at 147.50. 138.00 is a fresh support. GBP/USD slides on stagflation worries The pound weakens over the rising cost of debt. Markets are expecting the Bank of England to raise its interest rate by at least 50bps. The latest data showed consumer prices slowed down for the first time in a year. This may lead the central bank to double down on tightening to stifle inflation. However, even if the BoE joins the 75 basis point club, the currency may find little relief as the fear of stagflation gains ground. Debt burdens from the UK government’s energy support package could weigh on… Read More »No signs of bottom yet for risk assets