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Eventful Week Gives Hope For New Momentum

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After several weeks of lackluster momentum, market participants are now bracing for a heavy loaded week of event risk with not only three crucial Central Bank meetings on tap but also the U.S. nonfarm payrolls at the end of this week.

The first risk event will be Wednesday’s FOMC rate decision. The Federal Reserve is expected to slow the pace of tightening to 25 basis points. The problem is that the markets are ahead of themselves, appearing more dovish than the Fed. Rate cuts are already priced in looking two years out while inflation is still far above target. In other words, while the Fed may keep the focus on near-term tightening, the market is already speculating on an end of the tightening cycle instead of the possibility of keeping rates restrictive for some time. This sets the stage for disappointment rather than for confirmation of the speculation.

On Thursday, the Bank of England and European Central Bank rate decisions are due.

The BoE has hinted at yet another 50bp rate hike which is largely priced into GBP crosses. What could be bearish for the pound would be an additional vote split between 50bp and 25bp among BoE policy makers.

GBP/USD: The current bias is still bullish, provided the pair remains above 1.2250. A break below 1.2240 would possibly result in a quick sell-off towards 1.2170/1.21 and possibly even 1.20. On the top side, sterling bulls were still unable to push through the resistance zone at 1.2450 but this week’s fundamental drivers could provide a catalyst for a leg higher – or lower.

EUR/USD: The euro’s uptrend is still intact even though overbought conditions and the solid resistance around 1.09 raise the odds for a correction. If the ECB hints at a more aggressive approach in hiking rates to fight inflation while the Fed remains comfortable with slowing the pace of hikes, we could see a test of 1.10 and possibly even 1.11. On the downside, we keep tabs on the 1.0650-area as a potential support zone.

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Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

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Pivotal Week

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Welcome to a new and pivotal trading week. After smaller market movements on the back of a low liquidity backdrop the past week, the fundamental docket will get far busier this week. We get the last run of major data before the Christmas holidays with several high-profile event risk coming up within the next days.

The Federal Reserve is getting close to pivoting to easier policy and is thus expected to announce a 50bp rate hike on Wednesday, while the Bank of England and the European Central Bank are expected to follow suit on Thursday.

In terms of volatility, the Fed will carry the greatest weight this week and since much of the central bank’s less-hawkish stance is already priced in into the market’s recent risk appetite and subsequent upward momentum, the greatest risk of volatility would be a sharp move to the downside.

The U.S. dollar started this week with an uptick against other peers and traders now turn their eyes to Tuesday’s U.S. consumer inflation data ahead of the Fed meeting. For the dollar to rally we would need to see core CPI above 6.3 percent whereas a reading below 6 percent could ignite another sell-off in the greenback.

Technical view

EUR/USD: Looking at larger time frames the euro has been in a downtrend since May 2021. The only driving force behind the euro’s recent ascendency has been a softer U.S. dollar which traded lower on signs of easing U.S. inflation. In other words, the fundamental picture and developments in the US the next days will dictate the euro’s price action.

From a purely technical view, the currency pair remains stretched to the upside with a need for correction. Below 1.0340, chances increase in favor of the bears with a lower target seen at 1.01. Bulls on the other side will have to overcome the resistance zone between 1.06 and 1.08 in order to change the sentiment in favor of further bullish action.

GBP/USD: Like in the euro, the U.S. data and Fed decision will dictate the cable’s direction in the next days. It seems as if bullish momentum is waning and if the pound breaks below 1.21, we may see a steeper correction towards 1.18. Above 1.2350, however, bulls may push for a test of 1.25.

Our trading ideas for today 12/12/22:

EUR/USD

Long @ 1.0540

Short @ 1.0490

GBP/USD

Long @ 1.2265

Short @ 1.2190

DAX® (GER40)

Long @ 14330

Short @ 14270

Settings for all trades today: Entries from 8:00 am UTC, SL 25, TP 40

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

We wish you good trades!

Any and all liability of the author is excluded.

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www.maimar.co

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ECB To Pave The Way For Rate Hikes

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It’s decision day at the European central bank. In the wake of rising inflation at a record pace, ECB President Christine Lagarde and her colleagues will end asset purchases and pave the way for exiting eight years of negative interest rates. Traders expect a first ECB rate hike to come as soon as July. Normally rate hike projections are positive for the respective currency, so the euro would rise. The problem is that the market has already priced in an aggressive hawkish outlook, which is why less-hawkish rate hike expectations could even send the euro lower.

The key issue is: Is the ECB pressured to hike 50bp even sooner rather than later? Market speculations have often gone too far too fast which is why we see potential for disappointment and thus, a falling euro.

Traders have priced in 37.5 basis points of tightening by next month, implying a 50 percent chance of a 50bp rate hike.

The most likely scenario however, is a cautious exit strategy and smaller rate increases in July and September.

The ECB rate decision is due at 11:45 GMT followed by the press conference 45 minutes later.

EUR/USD

Bullish breakout: Bulls will wait for prices above 1.0760 in order to buy euros towards 1.08. A sustained break above 1.0810 could see further gains toward 1.09.

Bearish breakout: A break below 1.0670 and further 1.0640 could ignite bearish momentum towards 1.06. Below 1.0580, the euro could even fall towards 1.05.

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Will The ECB Deliver A Historic Rate Hike In October?

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The U.S. dollar soared after Friday’s non-farm payrolls report came in better-than-expected with 390k jobs in May. Strong hiring suggests that the Federal Reserve will continue the pace of steep interest rate hikes to combat price pressures. As for U.S. inflation, the next focus is May consumer prices due for release on Friday.

The European central bank is next in turning the tide from an accommodative monetary policy to a tight monetary policy. The ECB will this Thursday announce an end to bond purchases and will formally begin the countdown to interest rate increases.

Historic ECB rate hike in October? The pressure on the ECB is rising

Traders have increased their bets that the European Central Bank will deliver the biggest interest rate increase in two decades at their December or even sooner at their October meeting. What has been elusive just a few months ago will now become a reality. Soaring inflation exerts pressure on policy makers to act sooner rather than later. High inflation, that has surprised even policy makers, is proving more persistent than earlier thought.

While the door is not totally shut for a 50bp move in July, it would be quite surprising for the ECB to start its hiking cycle with such a big step. Market participants expect quarter-point hikes in July, September and December, but chances of an earlier half-point rate hike in September or October have grown.

According to ECB President Christine Lagarde, the central bank will end bond purchases in June, and hike once in July and once in September, lifting the deposit rate from minus 0.5% up to zero.

However, apart from rate hike cycles, the decisive aspect is whether rising inflation can be brought under control by central banks without generating a recession at the end.

We expect higher volatility in the EUR/USD around the risk event on Thursday. For the next days it will be interesting whether the euro remains trading between 1.08 and 1.06. If speculations on bigger ECB rate hikes increase, euro bulls may try to test a break above 1.0810 with a next target at 1.09. If 1.06 breaks however to the downside, we expect the pair to drop toward 1.05 in a next move.

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EUR/USD Forecast: Bullish

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In a world where most central banks have turned aggressively hawkish to fight high inflation, China indicated looser monetary policy. China is expected to cut its key interest rate for the second time this year on Friday as Covid lockdowns sap the economy. China’s dovish approach has caused bond traders to dial back aggressive bets on Federal Reserve rate hikes. The U.S. dollar depreciated against other peers.

Today we will pay most attention to the European Central Bank decision at 13:45 Frankfurt time and the press conference 45 minutes later. The euro rose ahead of today’s decision as markets see two-quarter point interest hikes by October. The even traditionally dovish ECB sees the need for policy normalization in the face of surging price pressures. Even though no major decisions are expected at today’s meeting, the focus will be on hints about the pace of exiting the central bank’s ultra-loose policy.

EUR/USD – Short-term outlook: Bullish

Technically, the short-term outlook is bullish until approximately 1.10. Whether we could even see a further leg-up towards 1.11 will hinge on the ECB’s hawkishness. The less-likely bearish scenario eyes a downside break of 1.0790 with a lower target at 1.0650.

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We wish you good trades!

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ECB 2022 Rate Hike Off The Table?

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The anti-risk U.S. dollar weakened while we saw rebounds across the board Wednesday. The sentiment was lifted yesterday following a report that Ukraine is open to discussing Russia’s demand of neutrality as long as it’s given security guarantees. Volatility is however not over and the outcome of the war in Ukraine is still a big unknown.

Today traders will turn their eyes to the European Central Bank decision and ECB press conference at 12:30 UTC. At the same time, we will have U.S. inflation data due for release.

What to expect from the ECB?

While the ECB was already attempting to suppress the market’s rate hike speculation in 2022 before the threat to economic growth from Russia’s invasion began to rise, the new situation will possibly only harden their position. With the implications of the war in Ukraine still uncertain, it will be too early to send a hawkish message this month. While even higher inflationary pressure pushes policy makers toward policy normalization, the duration of the war could delay the exit from the ECB’s expansionary monetary policy.

In short, with chances of a 2022 rate hike tending towards zero, further gains in the EUR/USD pair might be limited.

EUR/USD – Strong rebound

Following yesterday’s incredible ‘risk on’ day with the euro’s rise towards 1.11, we may see some bullish extension until approximately 1.1170 before selling pressure accelerates again. Bears will watch out for a fresh decline below 1.0940 in order to sell euros towards 1.07.

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2022 MaiMarFX.

www.maimar.co

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Could ECB Decision Offer Some Breathing Space For The Euro?

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It’s Tuesday and we are back at our trading desks.

Markets have been in a tailspin since Russia’s attack on Ukraine. And the war continues.

While the invasion of Ukraine remains a source of fundamental volatility for the euro and other assets, traders look to the European Central bank decision this Thursday that may offer the euro some breathing space – at least in short-term time frames.

EUR/USD – Going Downhill

The euro slid toward a low of nearly 1.08 on fundamental risk stemming from the war in Ukraine and the collateral damage. If the euro holds, however, above 1.0770 we will shift our focus to a short-term resistance zone between 1.10-1.1050. Falling below 1.0770 could see lower targets at 1.0740 and 1.0650.

GBP/USD – On the way towards 1.30?

The cable’s slide below 1.3150 opens the door for a potential leg down towards 1.30 but the downward move is unlikely to be straight-lined given the oversold situation. We expect that the pair will correct some of its losses towards at least 1.32 before falling further down.

DAX – Sell-Off

The index slid even below 12600 but could stop its fall slightly before 12400. If the index is unable to stabilize above 13800, we could see a dive towards 11300.

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2022 MaiMarFX.

www.maimar.co

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Fasten Your Seat-belt For a Volatile Week

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The U.S. dollar broadly outperformed its major peers in recent days as the market started to price in five Federal Reserve rate hikes this year. This week we will get more central bank monetary policy announcements from the European Central Bank and the Bank of England (both decisions are due on Thursday) that will help shape the market mood in the days ahead.

If the ECB and BoE follow in the footsteps of the Fed, offering increasingly hawkish shifts, we could see the euro and British pound strengthening. Traders will brace for elevated volatility in both EUR/USD and GBP/USD in the coming days.

Last but not least, traders’ eyes will be on the non-farm payrolls report on Friday. Here, most attention will be paid to average hourly earnings which are anticipated at 5.2 percent y/y from 4.7 percent prior. A solid earnings reading could boost the U.S. dollar.

ECB decision – “Very different situations”

Following the Fed’s fast tightening path on the one hand and the Bank of England that is gearing up for its second consecutive rate increase this week on the other hand, investors have pulled forward bets for an ECB rate hike as early as this year. ECB President Christine Lagarde, however, has pushed back against those hawkish expectations, highlighting the “very different situations” the three economies face. The ECB will try to reach a reasonable balance between its readiness to change course if inflation pressures prove more persistent and its prudence not to tighten prematurely. Economic growth slowed sharply at the end of last year, and the International Monetary Fund already slashed its 2022 outlook for the euro zone while intensifying tensions at the Russia-Ukraine border have emerged as a new risk.

The ECB is thus expected to maintain its dovish stance over the medium term. Lagarde will probably reiterate that the central bank is unlikely to hike in 2022, but refrain from pushing back on market expectations for tightening in 2023. A failure to push back on market pricing for 2022 would be a sign that the ECB is shifting to a more hawkish stance.

Our technical forecast for EUR/USD ahead of the ECB decision: Slightly bullish with a next target seen at 1.1220-30.

BoE decision – More aggressive path of interest rate hikes?

The Bank of England is expected to raise interest rates to 0.5 percent on Thursday. This move could also open the door for the BoE to start shrinking its balance sheet by stopping the reinvestment of expired bonds. After this February meeting traders bet the BoE will raise rates to 1 percent in June. However, with traders calling the central bank increasingly unpredictable, anything can happen and traders will prepare for both hawkish and less hawkish outcomes.

Our technical forecast for GBP/USD ahead of the BoE decision: Bullish above 1.3450, next target then seen at 1.35.

 

Disclaimer: All trading ideas and expressions of opinion made in the articles are the personal opinion and assumption of MaiMarFX traders. They are not meant to be a solicitation or recommendation to buy or sell a specific financial instrument.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2022 MaiMarFX.

www.maimar.co

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ECB To Remain Dovish?

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Market participants seems to be having enough of the U.S. dollar rally while the greenback may have reached the peak of its rally.

The Federal Reserve announced that it will double the pace of its taper to $30 billion a month and projected three quarter-point interest rate increases in 2022, another three in 2023 and two more in 2024.  The updated dot plot shows a much more aggressive tightening cycle than envisioned in September when Fed policy makers saw only half a hike.

Despite the Fed’s hawkish turn, the market’s reaction was muted since much of the move was already priced in. We bear in mind that if the demand for dollars is fading, it could mean that a reversal is just around the corner.

Having the Fed behind us, the Bank of England and the European Central Bank will release their respective policy statements today.

The Bank of England surprised markets at its last policy meeting by electing not to raise interest rates despite rampant inflation. The central bank may choose to hold off on a rate hike yet again, as the country struggles with the spread of the Omicron variant. However, rate hikes are just around the corner while the BoE is expected to hike next year.

The European Central Bank was sounding more dovish of late than other central banks. While the ECB may announce an alteration to its pandemic emergency purchase program (PEPP), policymakers may choose to remain dovish as the continent struggles with Omicron. The reemergence of lockdowns and rising infection rates could hamper Eurozone growth, which could force the ECB to remain dovish for the near-term. Economists don’t expect the first rate increase until 2023 at the earliest. Any hawkish surprise today will let the euro fly.

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ECB Decision Proved To Be Another Non-Event For Traders

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The euro’s weak performance following the European Central Bank decision illustrates what the market thinks about the ECB’s decision: There is nothing particularly new but empty rhetoric.

“The lady isn’t tapering” ECB President Christine Lagarde told reporters in Frankfurt, describing yesterday’s central bank decision “a recalibration of the pandemic emergency purchase program for the next three months.” The ECB will slow the pace of its pandemic bond-buying program in the final quarter 2021 but signaled policymakers are not yet ready to discuss ending the measure.

The next crucial ECB meeting for future guidance will be on December 16.

For traders yesterdays’ ECB meeting turned out to be once again a non-event with the EUR/USD swinging directionless between 1.1850 and 1.18.

As long as the pair remains between 1.19 and 1.1750 there is nothing new to report.

The GBP/USD looks set to continue its bullish move towards 1.3950. Only a renewed break below 1.3730 would change the picture in favor of the bears.

Have a good weekend everyone.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2021 MaiMarFX.

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