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Policymakers Find Themselves In A Dilemma

Yesterday we saw how the market reacts when panic sets in. Panic about a new banking crisis, panic about deposits at Europe’s largest banks. After the collapse of Silicon Valley and Signature Bank in the USA, Credit Suisse is also in a fragile position. Investors fear a domino effect on other banks and fled into reserve currencies such as the U.S. dollar. Nevertheless, even the greenback will not be safe in the event of a system crash.
Policymakers are in a dilemma. Inflation is not abating because there has been too much fiat money in circulation in recent years, provided by governments to support struggling economies. This money is not tied to the price of a commodity, so there is too much money on too few goods. Thus, years of ultra-loose monetary policy are inevitably the cause of inflation. Monetary authorities are now trying to curb the rate of inflation with restrictive measures such as interest rate hikes, but in the process, they are adding fuel to the fire.  Higher interest rates mean that companies are having difficulty borrowing money from banks or servicing loans. This in turn forces companies to cut jobs because they are no longer solvent. And there we have stagflation, a stagnation of the economy with simultaneous demonetization. In the worst-case scenario, this will lead to a recession and a liquidity crisis for the banks and thus, as with the SVB, to a collapse.

In short, the only solution would be a return to an accommodative monetary policy, the price of which would be inflation that no one would be able to contain. In the worst case, which no one wants to talk about, the Western financial system could come to an end.

It remains to be seen whether policymakers will pull another wild card for their battered system.
At 13:15 p.m. today, we will learn from the European Central Bank by how many basis points the key interest rate will be raised again. Expectations tended to a hike of 50 basis points, but after all the turmoil of recent days traders are now betting on a smaller 25bp increase. A smaller rate hike would be neutral to bearish for the euro.
EUR/USD: We will pay attention to price breakouts either above 1.0810 or below 1.0480.

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!

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Price Action Leaves Much To Be Desired

This was definitely not the volatility what would be expected from the last large risk event of the year. The price action in the U.S. dollar was noticeably more constrained and there was no traction following the event.

Overall, yesterday’s outcome was in-line with expectations, even though Fed chair Jerome Powell warned the Fed is not close to ending its anti-inflation campaign of rate hikes while saying “we still have some ways o go”. In terms of terminal rates, policymakers projected rates would end next year at 5.1 percent before being cut to 4.1 percent in 2024 (see dot plot). Even though these are higher levels than previously indicated, the market didn’t see reason for a repricing.

The focus now shifts to the Bank of England and European Central bank decisions.

Both central banks are expected to announce a 50bp rate hike today. The BoE is expected to have further to run before hitting its own terminal in 2023 compared to its US counterpart while as for the ECB, there seems more potential for further tightening into 2023. with recession risks remarkably high for Europe and the rest of the world combatting inflation more aggressively, the Eurozone’s policy authority may find it reasonable to tapering its efforts with a lower terminal rate.

EUR/USD: The euro finds itself within the resistance zone between 1.06 and 1.08. The technical outlook has not noticeably changed which is why we still focus on price breakouts either above 1.08 or below 1.0350.

GBP/USD: The cable’s recent upward channel is still intact, showing a price range between 1.25 and 1.2150.

Given the December liquidity drain around the holiday, we do not expect to see larger movements after traction was all but absent even yesterday.

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Surprise Means Profits

Surprise, surprise. The Bank of England raised interest rates by 15 basis points for the first time since the beginning of the crisis. The hike came as a surprise for many market participants and has thus sent the pound surging against other peers. As traders, we were able to catch the big fish in the GBP/USD with our long entry at 1.3270 hitting precisely its profit target at 1.3370 before price reversed.

The European Central Bank will wind down its emergency stimulus as planned in March. As for rate hikes, ECB President Christine Lagarde said that a rate increase in the euro zone isn’t going to happen any time soon. The EUR/USD hit a two-week high at 1.1360 but remained below crucial resistance levels. We profited with our long entry at 1.1310.

We will save our weekly profits and wish everyone a good weekend.

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No Liquidity – No Profits

No liquidity – no follow through – no profits. That is how one could describe the summer markets.

It was not a good day for traders in the EUR/USD as the pair traded choppily between 1.1830 and 1.1750 without any signs of a new trend or a revival of bearish momentum. While it was always a struggle to generate fresh trends in the summer markets when market conditions are historically restricted, these extreme thin liquidity conditions are a torment for day traders and breakout traders. While we have set some entries in the EUR/USD in the hope of some market moves, all of yesterday’s efforts did not pay off.

The European Central Bank marked a shift toward more dovishness and said it won’t derail the current economic recovery by withdrawing stimulus too early. The new guidance means that even if inflation is at the higher 2 percent target for as much as three years, the ECB won’t be forced to respond with tighter monetary policy. A rate hike is thus years away. While this is considered a very dovish scenario for the euro, the single currency did not respond to the news as one would expect.

The main drivers in the market are not monetary policy decisions right now but economic health, risk trends and the rise in coronavirus cases. Traders should keep an eye on that development.

 

Summer is in the markets and given a lower-liquidity backdrop across many markets during the summer months the potential for range-bound conditions is high. We therefore recommend traders staying on the sidelines during these low-liquidity periods, taking a break from the markets and adjusting risk exposure. The next major risk event will be later in the summer with the Jackson Hole Economic Symposium August 26-28.

We will take our annual summer trading break from August 2 to August 20 but we adjusted risk exposure even in the month of July.

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Euro Gains Despite Dovish ECB

While the GBP/USD ended yesterday’s trading day virtually unchanged, leaving us without any sustained profit, the EUR/USD climbed towards 1.1870 and provided some profit for euro bulls.

The European Central Bank’s new strategy of allowing inflation to overshoot the ECB’s  2 percent target for a while points to a more expansionary bias for monetary policy. The new formulation of “2 percent inflation target is not a ceiling” gives the central bank room to run accommodative monetary policy for longer. While the new symmetric inflation target can be perceived as a dovish disposition, the euro gained after the announcement.

Elsewhere, the DAX experienced a sharp drop towards 15300. We saw the index breaking below the ascending trendline at 15450, as well as below the recent sideways trading range.

The next support is seen at 15280 and if the DAX is unable to overcome the 15500-Level, we may see a drop below that support with a next lower target at 15100.

Beautiful weekend everyone.

 

Summer is in the markets and given a lower-liquidity backdrop across many markets during the summer months the potential for range-bound conditions is high. We therefore recommend traders staying on the sidelines during these low-liquidity periods, taking a break from the markets and adjusting risk exposure. The next major risk event will be later in the summer with the Jackson Hole Economic Symposium August 26-28.

We will take our annual summer trading break from August 2 to August 20 but will adjust risk exposure even in the month of July.

We wish you good trades!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2021 MaiMarFX.

www.maimar.co

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No Major Movements Following The ECB Statement

And in the end, there was nothing to gain for traders on Thursday amid relatively lower readings of volatility in the market. While we had hoped for larger market movements, the ECB statement failed to trigger a major market response, dashing traders’ hopes for larger profits.

The statement was slightly more dovish than expected with the ECB coming up with a pledge to step up the pace of their PEPP bond purchases over the next quarter to keep rising yields from derailing the region’s economic recovery. As for inflation, President Christine Lagarde added that while inflation could hit 2 percent by the end of the year, the ECB will look through this.

The DAX briefly jumped to the upper bound of its recent consolidation range between 14600 and 14500 but no crucial price breakout followed.

The EUR/USD broke above 1.1960 but came under pressure following the ECB’s decision to step up the pace of its PEPP purchases. At the end of the day however, euro bulls cheered the slight upgrade in the near-term growth expectations with ECB officials agreeing that risks to the outlook have become more balanced. Bullish momentum was however not enough to push the pair above 1.1990 in the aftermath of the ECB decision day.

However, today is a new trading with new opportunities and next week we will have the Federal Reserve meeting with an update of its economic projections. So, we might get some interesting trading chances in the coming days.

We wish everyone good trades and a peaceful weekend!

 

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Daily Forex Signals

Dear traders,

The euro did not surprise traders and rallied after the European Central Bank decided to keep interest rates and stimulus efforts unchanged. However, the 1.2170-mark proved to be challenging – as expected – and the euro bounced off that short-term resistance level.

As we wrote in yesterday’s post, chances are still in favor of the bulls but be careful – gains could be limited.

While maintaining the ECB’s stimulus after the December boost is good news, ECB President Christine Lagarde warned that the euro-area economy is headed for a double-dip recession.

The resilient euro doesn’t seem to confirm these warnings.

Have a beautiful and healthy weekend everyone!

Daily Forex Signals:

If you are keen to know where we put Take-Profit and Stop-Loss, if we trade on a specific day or not and how we manage open positions, subscribe to our signals

EUR/USD

Long @ 1.2180

Short @ 1.2135

GBP/USD

Long @ 1.3715

Short @ 1.3665

DAX® (GER30)

Long @ 13920

Short @ 13840

 

Results 2020:

December 2020: +318 pips

November 2020: +75 pips

October 2020: +432 pips

 

We wish you good trades!

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ECB Pushes Euro Higher While Pound Traders Prepare For No Brexit Deal

And finally, the European Central Bank has helped push the euro to an intraday high at 1.2159. Although the upward move failed to be as big as we had hoped for when we set our profit targets, euro bulls were able to take some smaller profits at the end of the trading day.

The ECB added, as expected, 500 billion euros and nine months to its bond-buying program but said that additional stimulus may not be needed in full. The relatively restrained comments on how much stimulus will ultimately be deployed have been the trigger for the upward move.

As for the appreciation of the euro, ECB President Christine Lagarde stated that the central bank will carefully monitor the euro’s exchange rate.

The EUR/USD broke above the upper border of the bull flag at 1.2130 and we prepare for a continuation of the euro’s rally – provided that the euro takes out the recent high at 1.2177. A next target could be at 1.2250, whereas the 1.2120-00 area could serve as a short-term support.

Elsewhere, the British pound fell to a low of 1.3245 as Brexit negotiations are on course to end without a trade deal. While market participants prepare for no trade deal after Brexit, it is possible that the two sides could agree on a “friendly no-deal”, allowing talks to resume later in 2021.

We now focus on a trading range in the GBP/USD between 1.3420 and 1.3130.

We wish everyone a beautiful weekend.

 

We wish you good trades!

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U.S. Dollar Takes A Breather While Euro And Pound Recover Slightly

Dear Traders,

We got what we have been looking for: A breakout of the cable’s narrow trading range. While an initial attempt to buy sterling above 1.2235 proved unsuccessful, breakout traders were later able to profit from the pound’s sharp drop towards 1.2080. Sterling tumbled before BoE Governor Carney’s testimony to the House of Lords Tuesday but bounced back from its fresh low of 1.2082 as Carney said there were limits to the Monetary Policy Committee’s (MPC) willingness to look beyond an overshoot of their inflation target. In other words, his comments on inflation mean that further easing is unlikely in the near term, highlighting policy makers’ concerns about the risk of stagflation, which arises from the depreciation of the pound.

Carney’s recent comments suggest the MPC will stick to the sidelines at the next ‘super Thursday’ event on November 3.

Technically the pound remains confined to a recent 100-pips trading range between 1.2250 and 1.2150. Above 1.2250 it could head for a test of 1.2320 whereas a break below 1.2130 may drive the GBP/USD to fresh lows around 1.2050.

The EUR/USD however, failed to show larger movements yesterday and remained stuck between 1.09 and 1.0850. It was the second consecutive trading day on which none of our signal entries was triggered. European Central Bank President Mario Draghi defended the ECB’s easy monetary policy but conceded that low interest rates are not ‘costless’ for the eurozone and policy makers “certainly prefer not to have to keep interest rates at such low levels for an excessively long time”. Draghi’s ‘neutral position’ drove the euro higher but gains were capped at 1.09 for the time being. We are still looking for a significant break above 1.09 but any upward movements could be on a shaky footing as a next resistance is seen at 1.0950.

There are no major economic reports scheduled for release today. The only reports come from the U.S. and will be Advance Goods Trade Balance at 12:30 UTC, Services PMI at 13:45 UTC and New Home Sales at 16:00 but none of these reports is expected to have a major impact on the greenback.

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 2016 Maimar-FX.

www.maimar.co

 

 

 

No Clarity On The ECB’s QE Program, Next Decision To Be Made In December

Dear Traders,

Mario Draghi refused to provide any clear information on what the ECB plans to do in the coming months, leaving investors suitably disappointed. Neither did he refer to tapering nor to extending the ECB’s QE program. The only takeaway that we got from yesterday’s ECB meeting is to wait and to come back in December and see what the central bank thinks then. Nonetheless, Draghi’s stance could be described as somewhat more “dovish”, noting that there is no “convincing upward trend” in underlying inflation, suggesting that the ECB might announce an extension of its bond buying program, rather than a taper at their policy meeting December 8.

Market participants sent the euro on a roller coaster ride before it ended the trading day significantly lower against the greenback. During the Asian session the euro slightly broke below 1.09 and we now wait for a significant break below 1.0880 in order to sell euros towards the next support level at 1.0820/1.08. Current resistance levels are seen at 1.10 and 1.1050.

There was little consistency in the performance of the British pound yesterday. While the currency remains vulnerable to further losses given the troubled picture of the eventual Brexit negotiations at the EU summit, it remains a sell on rallies. We now focus on a downside break below 1.22 or on the other hand, an upside break above 1.23.

Apart from the EU summit there are no major economic reports scheduled for release today. We recommend not investing your weekly profits today and wish you a wonderful weekend.

Daily Forex signals:

Additional daily and long-term entries are available for subscribers.

View our daily signal alerts http://www.maimar.co/category/daily-signals/

Subscribe to our daily signal service http://www.maimar.co/signals/

We wish you good trades and many pips!

Any and all liability of the author is excluded.

Copyright © All Rights Reserved 2016 Maimar-FX.

www.maimar.co