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Fed Delivers Dovish Taper, All Eyes on BoE Now

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Wednesday’s trading was dominated by U.S. dollar weakness as the Federal Reserve delivered a dovish tapering. The market’s rate hike bets remained virtually unchanged after Fed Chair Jerome Powell said officials can be patient on raising interest rates. “We don’t think it is a good time to raise interest rates because we want to see the labor market heal further,” he said. Investors continue to see two quarter-point hikes in 2022 starting around mid-year. Attention will now be paid to Friday’s NFP report which could bolster rate hike bets if the headline figure impresses.

The taper announcement was delivered as expected with the committee saying it would scale back by $15 billion a month starting in November. In terms of the pace of tapering Powell said that officials are on track to wrap the process up by mid-2022 but can speed it up or slow it down depending on the economic outlook.

As for the inflation outlook, Fed officials retained their ‘dovish’ inflation-rhetoric. “Inflation is elevated, largely reflecting factors that are expected to be transitory,” officials said in the statement. “Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors.” Also here, we got a dovish statement.

With the FOMC decision behind us, the focus now turns to the Bank of England decision today at 12:00 UTC noon.

A rate rise in the U.K. would be the first since the pandemic from a central bank in the world’s leading economies. It would mark a far quicker move toward normalization than in the aftermath of the global financial crisis more than a decade ago. Economists see today’s decision as a very close call, with a Bloomberg survey showing 51% forecast a hold and 49% a hike. In case a lift-off will be delayed to December, investors could question the BoE’s credibility. Thus, the central bank will struggle to meet the already very hawkish market expectations.

GBP/USD technical view: Chances are in favor of the bulls. A higher resistance comes in around 1.3750 but a rise above 1.3780 could encourage sterling bulls for a test of 1.3820. Bears on the other side will wait for a significant break below 1.3550 in order to anticipate steeper losses.

DAX – Test of 16000 done

As expected in previous analysis the DAX hit a fresh high above 16000. We now see higher price targets around 16300. A current support zone is seen at 15700.

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Pivotal Week

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It will be a big week for traders with crucial central bank meetings in the U.S. and U.K. on tab as well as the U.S. Nonfarm payrolls report at the end of this pivotal week.

The market’s expectations of the FOMC decision on Wednesday are clear. Fed policy makers are expected to decide to scale back their massive bond-purchase program while this expectation is fully priced in into the U.S. dollar’s steadiness. When it comes to interest rate hikes, Fed Chair Jerome Powell told a virtual panel discussion on Oct. 22 that policy makers “can be patient” and “allow the labor market to heal”. Powell expects that jobs growth moves back up closer to the high levels seen last summer.

A first test of Powell’s expectations will come on Friday with the October jobs numbers due for release. Economists forecast that payrolls show a bigger jobs gain than the report in September but numbers are expected to be below the 1.03 million monthly average in June and July.

The crux

It is a very tricky job for monetary policy makers since the labor market has changed following the Covid-19 shock. Many jobs are not going to come back while millions of Americans were prompted to permanently leave the workforce or have retired early because of the crisis. The changes to the jobs market could thus be more lasting than Powell apparently believes, making it difficult to return to pre-pandemic levels without spurring inflation.

The hawkish surprise

Most attention will be paid to the Bank of England interest rate decision on Thursday. The expectation is that the BoE will deliver a 15bps rate rise given the heightened concerns over inflation. If BoE policy makers however choose not to raise rates, the pound will experience its most negative scenario with potential price dips. In the GBP/USD we currently see a potential trading range between 1.40 and 1.3330 and prepare for high volatility in the coming days.

EUR/USD

Last week, the euro was temporally boosted by the ECB’s reluctance to push back against market rate hike bets but the single currency has returned to its support levels and ended last week lower. If the euro falls below 1.1520 and further 1.15, we will shift our focus to a lower target at 1.1450. Falling below 1.14 could spur a bearish follow-through until 1.12. For bullish momentum to accelerate we would need to see a renewed break above 1.16 and 1.1630.

Conclusion

The market is pricing in two Fed rate hike by the end of 2022. Any shift away from these hawkish expectations will hurt the dollar. If Powell acknowledges however upside risks to inflation at the Fed press conference, the dollar could further strengthen.

The BoE will be tightening nonetheless, regardless of whether policy makers decide to raise rates this Thursday or months later. This expectation could buoy the pound in the medium-term.

 

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Traders See British Pound to Fall to 1.30 By Year-end

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The British pound wasn’t able to stabilize above 1.3660 and fell back below 1.36 amid speculation that the prospect of several Bank of England rate hikes would darken the outlook for growth and consumer sentiment. Consumers are already grappling with soaring energy prices and supply chain disruptions and a BoE tightening within that slowdown is by many strategists seen as a mistake. Some traders brace for the pound to fall toward 1.30 by year-end.

In short, a wave of bets against sterling is starting to build and we are curious to see where the pound is headed for in the next weeks and months.

Currently we see the 1.34-1.3370 area as a support zone in the GBP/USD while a break below 1.3370 could lead to further losses toward 1.32.

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A profitable Trading Week

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Signal performance in September: +479 pips so far.

A profitable trading week is drawing to a close. As for our daily signals this week’s best performer was the GBP/USD, that provided a net gain of +115 pips in only two days of trading. The largest profit was generated by yesterday’s buy position which was opened at 1.3660 and closed at 1.3745.

The reason for the pound rally was the Bank of England which raised the prospect of hiking interest rates as soon as November to contain a surge in inflation. Yesterday’s decision puts the BoE in the more hawkish camp of global central banks, which is now expected being first for a hike, well ahead of the Federal Reserve.

GBP/USD: Remaining above 1.3620, we expect the pair to test the 1.3880-level.

EUR/USD: Chances are currently in favor of the bulls. We pencil in higher targets at 1.1770 and 1.1820.

DAX: If 15800 remains unbroken to the upside, we expect the index to drop back towards 15500. Above 15820, we will shift our focus again to the 16000-level.

Today we will save our weekly profits and wish everyone a beautiful weekend!

We wish you good trades!

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GBP/USD: What To Expect Today

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The GBP/USD has staged a notable rebound from its post FOMC low around 1.38 to a test of 1.40 yesterday. Sterling bulls now wonder whether there could be a run back towards 1.41 and possibly even 1.42 but today’s price action will mainly hinge on the Bank of England rate decision.

The BoE is expected to leave its monetary policy unchanged while there is no updated monetary policy report. The focus will be instead on the guidance for QE and there are rising expectations for a relatively more hawkish Bank of England, signaling a shift in policy. If this is confirmed the pound could extend its recent rebound towards higher targets.

It will be the last rate decision for BoE’s Chief Economists Andy Haldane who steps down this month. Haldane is the BoE’s most outspoken contrarian and inflation hawk and his removal could see a more dovish tone at future BoE meetings. Even if Haldane votes in favour of a reduction in asset purchases, his vote could be dismissed by the market while more attention will be placed on whether other MPC members vote to curb the scale of the central bank’s asset purchase program. However, while risks are more skewed to the hawkish side, there is also danger of disappointment for bulls. Traders should brace for higher volatility around the decision at 11:00 UTC but should not expect too much from today’s meeting as the BoE is likely to wait until August for changes in its guidance and further tapering.

GBP/USD

Given the more optimistic outlook in the U.K. traders brace for an extension of pound gains but given the Federal Reserve’s hawkish pivot gains might be limited in this pair. We see a next higher target at 1.4090. On the downside, the 1.38-handle has proved to hold. In case of a disappointment from the BoE, the pound could extend losses towards 1.3750 and 1.3650.

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British Pound Rises Amid Economic Optimism

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The market mood was positive Monday amid economic optimism.

The best performer was the British pound which broke out of its consolidation range, heading for a test of the 1.4250-level. The U.K. plans to fully reopen the economy on June 21 and the pound’s strength reflects the nation’s relative success in containing the pandemic. The U.K.’s economic recovery is also fueling speculation the Bank of England could start to raise interest rates by August 2022.

GBP/USD: Technically, the 1.42-level could now serve as a short-term support while the next target for sterling bulls is 1.43. Above 1.4320 bulls may try to extend the rally towards 1.4376, the April 2018-high.

DAX: It seems as if the index is taking a breather given its recent lackluster performance. We see a next bullish target at around 15680 whereas on the downside, the 15200-area could serve as a support.

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BoE Decision: Is August Rate Hike Still In The Cards?

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Dear Traders,

The British pound ended the trading day little changed against the U.S. dollar after compromise has been reached between the U.K. government and Parliament on the progress of the EU Brexit bill. The pound’s rise to a high of 1.3217 proved short-lived and traders now wonder whether the 1.3140-level could give way to further bearish momentum. A lower target could be at 1.3080.

Today, all eyes will turn to the Bank of England rate decision at 11:00 UTC but there aren’t any actual expectations for a move at this meeting. The big question is rather whether the BoE begins to lay the groundwork for a possible rate hike in August. This is, however, not the most likely scenario.

After that rate decision, BoE Governor Mark Carney is due for his annual Mansion House speech and this may actually turn out to be a more proactive driver for the pound. Carney’s speech will be widely-watched for clues or hints around his expectations for the UK economy.

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GBP/USD: Preparing For Potential Short Squeeze Scenario

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Dear Traders,

After the absence of a major driver or catalyst in the markets, today is loaded with market-worthy data and thus, traders are bracing for higher volatility in most major currency pairs. Top event risk will be the Bank of England rate decision with the BoE’s Quarterly Inflation Report. While the BoE is unlikely to raise interest rates at this meeting, it is the inflation report and the press conference with BoE Governor Carney that garner most attention.

The Bank of England will announce its rate decision alongside the release of the central bank’s inflation report at 11:00 UTC. The press conference will follow 30 minutes later.

Following the complete U-turn in rate hike expectations out of the BoE, the central bank has little choice but to signal a rate hike in August to maintain the bank’s credibility. The risk is therefore tilted to the upside with a potential short squeeze scenario in the GBP/USD. If the BoE, however, disappoint in terms of rate hike speculation deviating from their hawkish bias, the pound will further fall.

Another, no less important, report will be the April Consumer Inflation Report (CPI) from the U.S., which is due shortly after the BoE’s decision at 12:30 UTC. The Federal Reserve debate over a fourth rate hike in 2018 is still ongoing, which is why inflation figures could affect current rate hike speculation. Thus, a surprise in CPI data could have a major impact on the dollar, paving the way for some profit-taking or maybe an extension of the dollar rally.

Let’s take a look at the technical picture:

GBP/USD

The cable traded consolidated between roughly 1.36 and 1.35. The short-term bias is slightly bullish, with the focus now being on an uptrend channel between 1.3615 and 1.3515.  A break above 1.3810 could open the door for accelerated bullish momentum towards 1.40. On the bottom side, the 1.35-support remains a crucial price barrier. If the pound drops below 1.3480 we may see a drift towards 1.3330.

EUR/USD: The euro still trades around the falling trendline of its recent downtrend channel. As mentioned in yesterday’s analysis, the 1.19-barrier could prove an important hurdle for euro bulls now. A break above 1.1910 may encourage bulls for a test of 1.1950. Today’s price action will, however, hinge on the appetite for USD, which is why we focus on U.S. CPI data.

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We wish you good trades and many pips!

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British Pound Continues Decline On Carney Comments

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Dear Traders,

The pound sterling continued its decline on Thursday with the cable dropping below 1.4145 and easily breaking through the 1.4090-support. Whether the pound’s sharp trend reversal will be sustained within the near-term remains to be seen but short traders in the GBP/USD should be rather cautious, at least for now.

Another reason for accelerated bearish momentum in the cable was an interview with Bank of England Governor Mark Carney who downplayed expectations of a rate hike at the BoE’s next meeting in May. He said that one rate hike is likely in 2018 but there are other meetings over the course of this year. However, if the BoE chooses to raise rates next month, despite recent data disappointments, sterling bulls may take over control ahead of the monetary policy decision on May 10.

GBP/USD: A crucial support is now seen at 1.4010/1.40 but with no important economic reports or fundamental events scheduled for release today it is unlikely that the pound is vulnerable to a downside break of that important barrier. A current resistance, on the other hand, is seen between 1.4150-1.4180.

The euro’s second attempt to break above 1.24 ended in failure, which is why the risk remains tilted to the downside. As mentioned in previous analysis, short traders in the EUR/USD should keep tabs on a break of the 1.23-barrier. Lower targets could be at 1.2265 and 1.2230. Euro bulls, on the other hand, should wait for an upside break above 1.2430.

We wish you good trades and a beautiful weekend.

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We wish you good trades and many pips!

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Pound Slumps On Disappointing Inflation Data

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Dear Traders,

The biggest story in the Forex market on Wednesday was the sharp drop of the British pound. The pound extended its losses towards 1.4170 following the release of disappointing U.K. inflation data. Inflation fell to 2.5 percent, the lowest level in a year and investors fear that the lower reading could encourage Bank of England policy makers to postpone an imminent rate hike in May. Consequently, expectations for a rate hike next month dropped to a 65 percent probability, down from 87 percent.

GBP/USD

From a technical perspective, we saw the pound rushing through a previous support-area between 1.4250 and 1.4220 which turned into a current resistance now. A lower support now comes in at around 1.4145. However, traders should bear in mind that the overall uptrend is still intact and with the next BoE meeting (and a potential rate hike) still three weeks away, buyers may take the opportunity to buy pounds at lower levels.

We will keep tabs on a price range between 1.4250 and 1.4140 now. If the pound breaks out of that range we might see momentum accelerating to the respective direction. A lower support is seen at 1.4090, whereas for the bullish bias to resume it would need a renewed break above 1.4315.

The U.K. Retail Sales report is due for release today at 8:30 UTC.

In contrast to the high volatility in the GBP/USD, we have seen a lackluster price development in the EUR/USD. The pair is still range-bound and this long period of range (three months already) has discouraged many traders from trading the EUR/USD. However, there have been some profitable trading opportunities but larger swings tend to be rare at the moment.

We are still looking for an upside break of the 1.24-barrier and if that breakout happens our patience could pay off. Based on the recent uptrend channel we expect a higher bullish target to come in at around 1.2470. Bears in the EUR/USD should, however, wait for a significant break below 1.23.

Daily Forex Signals:

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We wish you good trades and many pips!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2018 Maimar-FX.

www.maimar.co