Daily Trading Insights & Tips

tickmill-analytics · October 26, 2021

Stagflation may be soon become the biggest worry for financial markets

Worries about so-called stagflation - a combination of low growth and high inflation - continue to mount among asset managers, the latest BofA report shows. In the last survey, the share of respondents who believe that both inflation and economic growth will be above the long-term trend for some time has decreased, but the share of managers who believe that the global economy will face a combination of high inflation and weak growth rates rose:

In financial markets, these fears are mainly reflected by the flight from longer maturity bonds, which are more sensitive to changes in inflation rates. If, until recently, the United States stood out among the leading economies with this trend, which incidentally supported the dollar, then the rate of sell-off has recently increased as well in the sovereign debt markets of the Eurozone, Great Britain, Switzerland, Japan and other countries with low interest rates.

The source of inflation remains the slow adjustment of supply, coupled with fiscally stimulated demand, as evidenced by the decline in delivery times index and the jump in the indexes of input prices and new orders in the global PMI:

Signs of bond sell-offs extended this week, and the upcoming meetings of the Bank of Canada, the ECB and the Bank of Japan will be viewed in the context of central banks' responses to inflation challenges. Rate hikes are not on the agenda, however, central banks' expectations regarding persistence of inflation and its forecast for the next year are likely to cause volatility in EUR, JPY, CAD.

The ECB seems to be reluctant to make or communicate about any possible tweaks in policy in the near-term. As chief economist Lane recently stated, despite rising price pressures, service sector price increases and wage growth remain weak, so raising rates could simply disrupt economic growth. Christine Lagarde has about the same opinion. Despite this, the bond market prices in one 10bp rate hike by the end of 2022. If the ECB insists on a cautious approach, these expectations are subject to correction, which will have a negative impact on the euro.

At its meeting on Wednesday, the Bank of Canada may announce a new cut in the quantitative easing program. The September employment dynamics allowed the latter to reach the pre-crisis level. The forecast for further cuts in stimulus by the central bank will have an impact on the CAD, however, given the monthly weakening of inflation in August and September, the central bank may prefer to refrain from hawkish comments. The net effect for CAD can also be negative with the following technical scenario for the USDCAD pair:

In turn, the Bank of Japan is even further away from the inflation target. In September, it hit only 0.2% YoY and is far from the 2% target. Therefore, the Bank of Japan has the least incentive to do anything in the policy. Considering the technical picture of USDJPY, it can be noted that the correction, after reaching the maximums since 2018 (level 114.50), may come to an end, as the price approached the lower border of the trend channel, from where support is expected:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · October 26, 2021

Bearish signals mount for the European currency

The S&P 500 hit a fresh high on Monday, despite the growing chances of policy tightening by the Fed as investors focus on surprises in US corporate reports and sliding Treasury yields. Tesla's capitalization has exceeded $ 1trillion on the back of the news that car-sharing company Hertz ordered 100K Teslas. Despite incriminating investigations, Facebook has delighted investors with solid user growth and an intention to buy back $50 billion in shares. The momentum may push the US market to a new high, as earnings surprises from Twitter, Alphabet and Microsoft, which are reporting today, are likely to be positive as well.
As of October 20, of the 500 companies included in the S&P 500, 67 companies reported. Earnings of 86.6% of them beat expectations, 11.9% disappointed, indicating potential presence of bullish bias in the US stock market.

In the FX, the dollar is trying to develop an upward movement after breakout of a two-week bearish channel. In the last few sessions, the dollar index consolidated close to the upper border of the channel, in addition, three tests of the support zone 93.50 lacked meaningful continuation:

A potential surge of optimism amid positive reporting by large US companies this week may nevertheless exert short-term pressure on the dollar.

The weakening of the euro amid a price shock in the commodity market will likely force the ECB to revise its short-term inflation forecast, which may become known at tomorrow's meeting. If the ECB does not clarify the timing of the curtailment of the main asset purchase program, in combination with the economic forecast, this could be a blow to the real yields of European bonds and lead to an additional Euro downside.

Yesterday's data showed that Germany's leading indicator of economic activity, the IFO index, declined for the fourth straight month in October

The indices of both the current situation and expectations deteriorated, which increases the risk of stagnation of the German economy in the fourth quarter. Given the slowdown in the bloc's leading economy, the ECB's bias to cut stimulus measures or report upcoming cuts may be small right now, which is definitely a bearish Euro signal.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · October 30, 2021

Key USD bearish threshold remains intact

Eurozone inflation was materially higher than the consensus forecast in October, making it slightly difficult for the ECB to maintain a huge stimulus bias in the monetary policy. The data on Friday showed that the broad rise in prices in October amounted to 4.1% (forecast 3.7%). At the same time, core inflation, which doesn’t include fuel and other goods with volatile prices, also beat the forecast - 2.1% versus the expected 1.7%:

At a meeting on Thursday, the ECB gave a signal that officials are closely monitoring inflation, but still expect it to decay sooner than markets fear. Some officials, though, see a second round of inflationary effects, primarily caused by wage inflation, so they do not exclude that consumer inflation will remain above the target level of the ECB in 2023. In general, we can say that the European Central Bank signaled a reduction in asset purchases in December, which caused widening spreads between sovereign bonds of Eurozone countries and a positive reaction from the euro. The spread between the 10-year bonds of Italy and Germany jumped by 7 bp on Thursday as market participants became more confident that the ECB's artificial support for "second tier" EU sovereign bonds will soon begin to decline. Today this spread has added another 10 bp:

In addition to the factor of December tapering, Eurozone sovereign bonds are declining in price due to the risks of an early start of the ECB tightening cycle. Although Lagarde said it was important not to overreact to temporary supply shocks, the effects of which would soon wear off, market participants shifted their expectations of the ECB's first rate hike to October 2022, i.e. even earlier than previously expected. It is clear that the opinion of market participants regarding persistence of inflation is now very different from the opinion of the ECB, and if inflation risks do not materialize, battered bond prices may quickly recover, since the inflation premium will ultimately unwind. The euro will definitely benefit from this trend.

Today, the data is due on US inflation and consumer sentiment from U. Michigan for October, key for the Fed's policy. A higher-than-expected rate of inflation, measured in terms of percentage growth of consumer spending, could mean a more aggressive pace of phasing out the Fed's asset purchases, which it is likely to announce in November. Next week, market participants will focus on the October Non-Farm Payrolls report, which will additionally help to improve expectations about the Fed’s policy move in the near future. Risks for the dollar are biased towards further growth next week as this week's correction appears to have been run out of steam. If DXY manages to close above 93.50 mark, this should be another strong technical signal for recovery next week, since a key bullish trendline will remain intact:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 2, 2021

USD may extend the rally on the FOMC hawkish surprise

The dollar rose sharply on Friday, breaking through a corrective channel and bouncing off a key bullish support line (scenario discussed on Friday):

One of the key drivers of the rally was US inflation report. Despite the fact that consumer inflation (Core PCE) rose by 3.6%, falling short of the forecast of 3.7%, the market was more concerned about dynamics of the labor cost index in the US - in the third quarter it rose by 1.3% against the forecast of 0.9%. Recall that both the Fed and the ECB have repeatedly said that a "second round" of inflationary effects may occur if inflation seeps into wages, since in this case further growth in consumer demand and accompanying inflation can be expected. By the way, the annual growth rate of labor costs in the United States is now at its highest level in more than 15 years:

Today, the US Dollar index is consolidating around 94 points ahead of the release of two important news this week - the decisions of the Fed and the NFP. After the latest update on labor costs data, chances are high that the Fed will announce the start of QE rollback on Wednesday. Further dollar upside will undoubtedly depend on pace of bond purchase tapering. The closest target for USD index is the previous resistance at 94.50-94.75, which the dollar is likely to test on Wednesday before the Fed decision.
It should also be noted that along with increased chances of imminent tightening of the Fed's policy, long-dated US Treasury bonds are beginning to price in future slowdown in inflation, possibly pricing in Fed policy error (i.e., that Fed starts to tighten too early, harming growth and inflation). This translates into decline of the spread between 10 and 2-year US Treasury bond yields:

Nevertheless, USD retains its short-term bullish prospects.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 9, 2021

Dollar consolidates after a pullback, traders eye US CPI report

High inflation and central banks’ reaction function to it continue to remain the major trading themes this week. On Wednesday, bond and FX USD markets will zero in on October US CPI report, where an upside surprise (inflation of 6% or higher), may add bearish pressure to Treasury market and lift greenback. Today, Richard Clarida will comment economic expansion and possibly express some views on current and near-term Fed policy, which will be scrutinized for hints about what the Fed will do after it completes QE next year. Rising oil prices favor resumption of USD and commodity currencies rally.

The relatively strong US labor market report for October helped greenback to flirt again with the highs of this year (94.50) on Friday, however conclusive breakout didn’t follow. It’s worth to note that November looks to be a better month for an upside breakout as seasonal headwinds increase for USD in December.

Nevertheless, greenback may breach the key resistance area as early as this week. The move may be triggered with the release of US October CPI report. Consumer Prices are expected to rise by 5.8-5.9% YoY in October, however preliminary data such as PMI in services and manufacturing, data from the US labor market showed that input prices, wages rose in October at a faster pace compared to September. It means that slow supply adjustment to demand continues and likely exerted more pressure on consumer prices.

The Atlanta Fed, which calculates its own estimate of US GDP growth based on high-frequency data, has updated its forecast and assumes growth at solid 8.5% in the fourth quarter:

With such prospects for GDP growth and the Fed's shift to asset purchase tapering, the fixed income market, especially Treasuries with longer maturity could be hit again. Earlier, some Fed officials said about the risks of a slow unwinding of QE and comments of today's centrist Clarida in a similar vein may further put pressure on short-term bonds and support the dollar.

The technical picture for the dollar index (DXY) indicates high breakout potential:

OPEC's decision to gradually increase production helped oil prices rise a little more. Bullish momentum is gas prices in Europe is also gaining attention given the impact of this trend on oil prices. The upward movement of oil heats up the topic of the impact of commodity inflation on consumer prices and, accordingly, pressure on central banks to move to a tougher policy.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 9, 2021

Three key inflation factors in the US to watch for according to Goldman

The dollar came under pressure on Tuesday, as bond yields of longer maturity fell in the US and risk assets, in particular US stock indices, find little resistance near recently set new ATH. The SPX managed to closed above 4700 again on Monday while Nasdaq extended winning streak to 11th session (the longest streak since July 2009). SPX futures are slightly down today.

Treasuries rose yesterday on speculation that Powell's successor as head of the Central Bank could be another Fed official, Layle Brainard, a well-known advocate of low rates and soft monetary policy.

Speaking yesterday, Fed official Richard Clarida said the Fed expected supply shocks but their depth was unexpected. A statement of this kind can be regarded as an attempt to leave room for the Fed's hawkish maneuver if inflation turns out to be higher and more persistent than expected.

Meanwhile, Goldman has significantly revised inflation forecast for December 2021 for the sixth time in a row since April, which speaks of underestimation of inflation and supply-demand imbalances not only by the Fed, but also by market forecasters. According to the latest forecast, CPI will exceed 6% (headline inflation), and PCE - 5% in annual terms:

Back in April, the CPI forecast was 2.77%, PCE - 2.37%.

Inflation will remain high until relatively low inventory levels begin to recover and competition drives prices down. Indeed, new car inventories and retail stock-to-sales ratios are unusually low in the United States:

Apart from robust recovery of consumer demand, ubiquitous supply disruptions and rising input prices serve as additional headwind to replenishment of low inventories.

According to Goldman, two other key inflation factors that need to be monitored are wages and shelter rent. Employment costs remain in the rising path (QoQ), while shelter inflation after posting the highest growth rate in a decade in June 2021, somewhat subsided in the second half:

In the near term, the latest US PMI data for services and manufacturing indicated that inflation-propelling data persisted in October - entry prices rose and new orders increased from the previous month.

On Wednesday, the US inflation report for October is due to release and given preliminary data, a hawkish surprise looks likely (headline inflation 6% and above). Yesterday's comments from Fed officials, in particular Clarida and Evans, showed that some Fed officials allow for the possibility of a rate hike during QE tapering. Therefore, there is a clear bias in market rumors that the trajectory of tightening the Fed's policy may be revised upwards which undoubtedly lends heft to bullish dollar case in the medium-term.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 15, 2021

GBP, EUR may soon find support thanks to strong technical levels

Much of the fall in EURUSD this week was due to the widening of the rate differential between short-term EU and US bonds. Following the CPI release on Wednesday, the yield gap rose 4 bps. and then added another 6 bp over the next two days. reaching 1.267% (maximum since the beginning of the pandemic):

The potential for further decline in the pair next week remains due to the prospects of the Fed to announce more aggressive measures compared with the relatively dovish position of the ECB. The dollar index feels quite comfortable above 95 points and is holding close to the opening point on Friday. EURUSD could be pressed down to 1.14 - 1.138, from where a corrective wave of purchases is expected, which looks very attractive, given that a rebound will occur from the lower border of the medium-term descending channel:

It should also be remembered that price pressures haven’t likely topped out in the US yet, because the shopping season is ahead, which is a powerful seasonal driver of price increases. This year, the full-fledged season of Christmas discounts in the US will likely be missed, as we discussed earlier, inventories in the US (especially of durable goods like cars) are at a relatively low level and making discounts, knocking down inflation, is not a particularly attractive idea for retailers right now.

The British economy data on Thursday was disappointing. Manufacturing and industrial output growth missed estimates, with the impact of Brexit being felt, creating additional disruption to supply chains, in addition to the global trend. GDP in September grew less than forecast, so the recent unexpected twist at the meeting of the Bank of England, which was that the Central Bank refused to raise the rate, looks quite justified. The market may start to price in the outcome in which the Bank of England will disappoint in December as well, announcing that it extends the pause in tightening till the next meeting. In this situation, there is a risk of further expansion of the yield differential between UK and US assets and, accordingly, an increase in pressure on GPBUSD.

As in the case of EURUSD, a bearish channel can be seen in the technical picture of the pair, and GBPUSD is also apparently preparing to test its lower border. At the same time, given the presence of a clear steep downtrend line, a short-term rally to 1.3460 is possible and then a sharp movement down to the lower border of the channel (1.3270):

The focus today is a report from U. Michigan on consumer sentiment, as well as a speech by Fed rep Williams. A rebound in the consumer sentiment index, and in particular the expectations index, after several months of rather weak readings will reinforce the argument that the US Christmas season may further accelerate inflation, so a moderately positive dollar reaction to the strong data can be expected. In turn, Williams' comments will be examined for concerns about entrenched inflation and the Fed's potential reaction to it.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 16, 2021

The Dollar still has chances to rise this week

The week began with a broad greenback retreat, but with varying intensity, from weak to moderate. Industrial output and retail sales in China slowed less than expected, dampening risk aversion somewhat on fears of a slowdown in the Chinese economy.

Despite the weak dollar at the beginning of the week, there is potential for strengthening, especially in light of the Fed's as yet unclear reaction to the strong positive inflation shock in October. There is a risk that the Fed may respond by accelerating the pace of the QE rollback or bringing the rate hike closer. Among the reports for the United States, it is worth paying attention to October retail sales and industrial output.

The Fed's speech calendar this week includes Williams, Evans, Bostic and Clarida. Investors are waiting for their reaction to the controversial inflation report, which may well lead to a rise in the US currency, as inflation becomes more difficult to deny.

The cost of living in the United States is growing rapidly, so consumer confidence is showing an increasingly depressing trend. The consumer confidence index from W. Michigan fell to 66.8 points, data showed on Friday. This is the minimum since 2011:

However, the relationship between consumer sentiment and spending has been weak over the past few years, and the fall in the index primarily reflects concerns about inflation.
The details of the report showed that only 36% of the surveyed households believe that income will grow faster than inflation over the next 5 years. This share has been steadily declining over the past few months. Most of them felt that now was not the time for high-value purchases such as a home, car, and real estate.

With regard to the JOLTS report on the US labor market, it showed that the share of layoffs rose to 3.4% of the workforce in the private sector, while in the hospitality and entertainment sector it was 6.4%, 4.4% in retail and 3.6% in trade and the sector of passenger transportation. In fact, this is further evidence that companies have to fight for workers by raising wages. This trend is reflected in the Labor Cost Index - which rose to a multi-year high in the third quarter:

At the same time, the NFIB in its latest report pointed to a record number of companies that are going to raise salaries in the coming months.

The number of job openings remains very high at 10.4 million and based on the job growth we saw in October, it will take 20 months to fill these vacancies. Particular attention should be paid to labor “reserves” - if the level of labor force participation continues to recover as slowly as now, the pressure on wages will persist, and therefore the risks of inflation will also remain high.

The third quarter of the Japanese economy was very disappointing, which leaves no chance at all that the Bank of Japan will switch to hawkish rhetoric. GDP contracted by 3% in the third quarter, with a forecast of -0.8%, and investments in fixed assets also suffered a lot, declining by 3.8% (forecast -0.6%). It is clear that firms are reluctant to increase production volumes, or they cannot do so due to shortages of components, supply chain disruptions, high prices for raw materials and labor, etc. USDJPY reacted mildly positively to the data, as with such data it is increasingly difficult for the Bank of Japan to move to lower monetary stimulus level.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 19, 2021

Gold heads for a test of $1900

For the first time in a while, a threat of covid restrictions becomes an overriding market theme again. Austria has announced a new lockdown, Germany could follow suit. The Swiss franc, dollar, yen led the growth in FX on Friday. At the same time, the yen, traditional safe-haven asset, rallies against USD which adds to the case that risk-off becomes again the key driver of market moves. Risk assets are under pressure, while still minor, European indices lost about half a percent. Oil prices are pulling back on rising energy consumption risks. Money markets are cutting rates on tightening the ECB's policy in 2022, which is not surprising, because the risks of new restrictions are now primarily concentrated in the Eurozone. Gold is at its highs since June and after the key trendline has been broken, it consolidates in the wedge pattern, likely indicating preparations for a new rally targeting next resistance at $1900- $1910:

The strengthening of the dollar this week proved to be more or less stable, as data on the US economy continues to stand out. Of course, we are talking about the data on retail sales, which significantly exceeded the forecast. In particular, core retail sales jumped 1.7% MoM against the 1.0% forecast. The indicator shows positive growth rates for the third month in a row, pointing to an impulse in consumer spending, which forces investors to think about the growth of inflation risks in the American economy:

A $1.4 trillion fiscal spending package over the next 10 years, which may soon be passed by the US Congress, should have reflationary consequences for the economy, so the dollar is now following the news from Congress. If the spending package is approved, market participants may reconsider the pace of the Fed's QE curtailment and rate hikes, since the task of economic stimulus (at least part of the task) will be taken over by fiscal policy.
The UK retail sales data also exceeded expectations, but the GBP hardly got any relief from that. Nonetheless, the GBP is holding better than the EUR this week as the chances of a rate hike by the Bank of England increase in December. Excluding fuel, monthly sales growth was 1.6%, exceeding the forecast by as much as 1%.
Given that European countries have not been able to dodge the new wave of covid despite the high rates of vaccination, the main risk for this situation is an increase in covid hospitalization rates in the United States. If the country is swept by a new covid wave, a full-fledged risk-off will most likely begin in the markets and it will be possible to forget about policy tightening from major central banks next year.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 24, 2021

Technical pullback looms in EURUSD

The dollar rises a new high of this year (96.50 on DXY) amid Biden’s decision to extend the term of the current Fed Chairman Powell. Considering that Powell's main rival, Lael Brainard, is a champion of soft credit policy, the news had a positive effect on the dollar and a negative effect on the US sovereign debt, since fixed income definitely priced in the risk of the Fed changing its monetary policy to softer one under the new head so there was a retreat of those expectations. The yield on 2-year bonds increased by 6 bp, on 5-year bonds - by 7 bp. (new highs since the beginning of the pandemic), 10-year bond yields also rose, but local high of 1.70% hasn’t been challenged yet. Yields at the near end of the yield curve are predominantly responsive to news related to the Fed, while those at the far end to the news related to inflation.

In the Eurozone, consumer confidence fell by 2 points to -6.8 points in November. Historically, a value of -5 points characterizes a fairly high level of consumer confidence, so we can talk about a possible tipping point in the positive trend:

Covid and new lockdowns in the EU are hitting consumer confidence, and market participants are likely to revise their forecasts for consumer spending growth this quarter. Accordingly, this will affect expectations related to when the ECB will phase out PEPP and start raising rates. Angela Merkel said yesterday that the current wave of covid is worse than previous ones and urged local authorities to impose tougher social restrictions. There is a risk that the rest of the EU will also be forced to return some of the restrictions by Christmas, despite the fact that their vaccination rates is higher than in Germany and Austria. Naturally, the current forecasts for the growth of the Eurozone are under threat, and the Euro is looking towards new lows.

Nevertheless, from a technical point of view, EURUSD is overbought, the RSI on the daily timeframe has dropped to 26 points. The last time such an intensity of decline was observed in February 2020 and a pullback is probably not far off:

Consolidation prevails in the foreign exchange market today. The wait-and-see attitude may remain in place until the release of minutes of the Fed's November meeting on Wednesday. The US economic calendar includes Markit reports and the Richmond Fed survey.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · November 30, 2021

Too early to bet on rebound

On Monday, risk assets rebounded as reports over the weekend suggest that the bout of covid hysteria on Friday could be an overreaction. Air travel halts have apparently eased off over the weekend, while the WHO and South African researchers alleviated concerns with a statement that there are no evidences yet that the new covid strain is more dangerous than dominating delta strain. In this regard, the flow of negative news for the market, mainly related to new shocks in air transportation, is likely to slow down this week.

Nevertheless, it is too early to say that correction is over - the lack of reliable data on the new strain should keep risk appetite largely subdued this week. According to the WHO, it will take from several days to several weeks to understand whether a new variant of the virus is more aggressive and resistant to vaccines.

With regard to contagiousness, there is a reason for concern. South Africa saw a jump in reported cases of covid in November before the news about the new strain hit the wires, which may be indirect evidence that the virus is more easily transmitted from person to person:

New updates on covid, important for the markets, will appear today - Britain will gather ministers of the Ministry of Health of the G7 countries to discuss options for response, in the evening Biden will deliver a message. It should help to understand the readiness of the governments to take painful preventive decisions.

A barometer of expectations for a tightening of the Fed's policy - long-term rates, halved declines on Monday thanks to the relief rally. The yield on 10-year Treasury bonds rose 7 basis points to 1.54%, and the yield on 2-year bonds also gained about the same amount. European markets rose cautiously – gains do not exceed 1%, and it’s difficult to expect more. The optimism of buyers in the oil market is now mainly based on rumors that OPEC will postpone the planned hike in production by 400K barrels in January, but if we see more reports more countries opted to close borders, a larger drop cannot be avoided.

Noteworthy reports this week are Germany's CPI in November (slated for release today), ADP and NFP US November report. In addition, the first two days of the week are full of speeches from Fed representatives (Powell, Williams). Markets are unlikely to be able to react in cold blood to the comments which may touch on the topic of the new strain, as this will call into question the Fed's intentions to accelerate the phasing out of stimulus measures (QE). In general, one way or another, trading in the market this week should be reduced to reactions to news associated with covid, and should be characterized by more or less homogeneous risk-off/risk-on.

There is a risk of further decline in EURUSD, since Europe’s bullish rate expectations are under pressure due to recent trend to reinstate lockdowns, besides, it is geographically closer to South Africa and, if the new virus is indeed infectious, a new wave may hit it earlier than the United States. Considering the dollar index (DXY), the pullback after strong growth sets the stage for a further rally towards 97.70, where the next key resistance may reside:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · December 7, 2021

EURUSD looks vulnerable on dampening covid risk, aggressive Fed

Markets continue to price in a positive view on how the story with the new covid strain will unfold. In addition to the positive statements of influential health officials in leading countries such as the US, it is also useful to look at the daily cases data in the country where the strain was originally identified in order to see the dynamics of the spread of a strain that is supposedly “resistant to existing vaccines”. We are talking about South Africa, and the curve of daily cases there looks like this:

Actually, it is clear that after the surge in the incidence against the background of news about the new strain, there wasn’t any concerning development of the growth trend. The incidence rates remain high, but keep within 15 thousand cases per day.

Zerohedge provides the following interesting chart that shows how the markets are quickly discounting the threat posed by the new strain. This is the ratio of the recovery stocks index to the index of stocks that rallied during social restraints (the so-called stay at home stocks). In about two weeks, the decline in this ratio was fully recouped:

The VIX opened with a gap down more than four points in premarket, indicating strong bullish momentum confirmed in the US index futures which are currently gaining strength.

Given the growing speculation that the Fed will step up with withdrawal of stimulus in the near future due to strong pro-inflationary factors (mainly wage pressures), the balance of risks for EURUSD is increasingly shifting downward. The differential of rates on short-term bonds of the US and Germany has turned to growth again and is approaching a local recent maximum and is likely to break through it soon. The growing differential factor is the main bearish driver for EURUSD now. From a technical point of view, the vulnerable level is the lower border of the trend channel - the level 1.111, the rebound from the previous point of contact with the channel has already been completed, the risks associated with the new strain are mitigated, and the increasingly aggressive position of the Fed against the background of the moderate position of the ECB will most likely continue to provide downward pressure on the pair:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · December 9, 2021

EURUSD May Continue Decline Ahead of ECB And Fed Meetings Next Week

Unfavorable widening of the short-term rate differential has recently acted as the main driver of EURUSD weakness. The pressure on the common currency also stems from increasing carry-trade activity of European investors corresponding with fading pandemic risk. The ECB should deliver an unlikely hawkish surprise at the meeting next week to tip the balance in favor of a strong euro. So far, Euro does not look overbought despite the strong downtrend and fresh lows are possible.

The news about the omicron initially supported the euro due to the flight of carry-trade European investors from risk assets abroad. Now the bears are gradually withdrawing the bet that the omicron risks will materialize, the yield hunting is gaining momentum again, along with this, the downward risks for EURUSD starts to mount again.

There is one more factor of the Euro shorts and it is the recent revision of growth forecasts for the Eurozone due to restrictions in Germany and other European countries. Markets may be pricing European assets with a higher likelihood of restrictions than in the US due to higher covid risks, which ensures upward pressure in yield differential. Recently, the correlation of the latter with the EURUSD has risen, which suggests that sovereign bond capital flows may be playing the main role in driving Euro downtrend against the US currency.

Due to many dovish risks priced in the Euro the sensitivity of EURUSD to the statements of the ECB may turn out to be asymmetric - statements that the bank will not rush to raise rates will be largely ignored, but an unexpected signal that the ECB is going to catch up with the Fed in plans to curtail stimulus measures, on the contrary, may create the ground for a EURUSD reversal. Next week, meetings of both central banks will take place and a surprise is expected from the Fed in the direction of a greater tightening of policy, at the same time, there are no such expectations for the ECB meeting. Consequently, the markets will most likely now begin to factor in an even greater widening of the bond yield differential following the meetings, therefore, despite attempts to gain a foothold above 1.13, EURUSD is vulnerable to further decline in the first half of next week.

From a technical point of view, the latest COT data shows that the aggregate net short position of the Euro against the G10 currencies is still far from extreme values and there is room to sell. In turn, the technical analysis for the pair indicates the persistence of strong short-term resistance at 1.137 (two previous peaks on November 18 and 30), potential selling target is the lower border of the current downtrend (1.113 mark):

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · December 13, 2021

Fed’s bullish surprise this week may pave the way for new highs in USD

This week is full of event risks thanks to a number of central banks in developed and EM economies holding their policy meetings, suggesting a high chance of significant market shifts in FX. Key among them is undoubtedly the FOMC policy decision. Broad-based greenback rally on Monday suggests expectations are building up that the Fed will most likely capitulate due to persistently high inflation and accelerate bond purchase tapering. There is a growing risk of policy lag this week between the Fed and central banks with low propensity to hike rates (CHF, EUR) which may have profound FX implications. It will also be interesting to look at the updated Fed dot plot as the shifts in FOMC outlook regarding rates are often strong catalysts of USD trends (recall USD bullish reversal in June). Assuming that the dot plot will indicate the median forecast of two rate hikes (instead of one), money market rates in the US will be forced to adjust upward again, which could pull the dollar along with it.

It is also worth noting an interesting technical trend continuation pattern, which is formed by the dollar index - the "triangle":

If we assume that the uptrend will continue, the nearest target where resistance can be expected is the level of 97.70.

As for the Bank of England meeting this week, the risk of disappointment is high. In November markets priced in a December rate hike due to inflation threat similar to the one in the US, however closer to the meeting the chances of such an outcome began to dwindle. Particularly discouraging was the PM Johnson's warning that Britain could face a wave of new cases due to the spread of Omicron in the country while the head of the Ministry of Health said that there is no certainty that the government will keep schools open. It is clear that the central bank cannot but take these concerns into account.

If the British Central Bank disappoints this week, postponing the rate hike until better times, in combination with the aggressive Fed, this could mean that the GBPUSD fall may accelerate and bears may start to target the next important support at 1.30. Buyers weren't particularly resisting when GBPUSD tested the lower bound of the main downtrend, the 1.3150-1.32 zone, last week:

At the ECB meeting, rather moderate expectations are formed: the regulator seems adamant in its view that inflation peaks by the end of 2021 (albeit higher than expected) and starts to decline in 2022. Accordingly, there is no outlook about early rate hikes. It is worth noting that the market as a whole agrees with the ECB in its opinion on inflation: Bloomberg experts polled in December also that suggest inflation might have peaked in the Eurozone that’s why there is no need to rush for the ECB.

Accordingly, the fate of EURUSD is likely to be decided by the Fed this week, since no surprises are expected from the European Central Bank. EURUSD looks set to resume downtrend targeting 1.10:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · December 14, 2021

Surging US inflation expectations suggest the Fed may act big in December

The Fed’s decision time looms and markets appear to be increasingly sensitive to inflation reports from the US, the predictive power of which, regarding the policy of the Central Bank, is increasing. Suffice it to recall that the moderate CPI report for November (no surprise on the side of acceleration) disappointed buyers of the dollar, causing a decline in the US currency index from 96.40 to 96.20 and a positive reaction of stock indexes. At the same time, yesterday's NY Fed report on consumer expectations raised the stakes on the hawkish decision again, disappointing equity markets. The report showed that inflationary expectations of US households rose to shockingly high levels in November. Household inflation expectations for the year ahead jumped even higher, to 6%:

Inflation expectations affect future actual inflation, so it is important for the Fed to keep them under control - not to let them fall or soar too much. As we can see, so far it is not quite successful and the risk of an abrupt shift in the Fed’s policy grows. The report made a negative impression on markets, the major US stock indexes closed in the red yesterday, index futures again tend to decline today due to concerns about tougher restrictive measures in the monetary policy.

Employment growth in the UK fell short of expectations, amounting to only 149K instead of 228K. At the same time, wage growth beat forecasts - 4.9% YoY against 4.6%. The British economy, it seems, is facing the same problem in its recovery as, for example, the United States - a labor shortage due to the effect of hysteresis (long “idle” of the labor force). Consequently, firms are now spending more on wages, which poses the risk of higher end prices in the future, a strong if not key argument in favor of the Bank of England's unexpected rate hike this week. However, fragility of the recovery, increased risk of a surge in new infections due to the new strain speaks in favor of maintaining the stimulus bias in monetary policy, at least for several more months. In addition, considering employment in dynamics, it can be seen that the momentum in employment seems to be dying out, and with it, the pressure in wages may begin to subside:

The pound, as we can see, wavers in anticipation of the BoE decision, GBPUSD is consolidating near the 1.32 mark, bracing for an aggressive Fed maneuver on Wednesday. Against the euro, the pound is building up its advantage in a moderate way, the pair is “moving” in the channel with a downward slope, the focus is on a repeated test towards the lower parallel to the 0.8450 area, and then potentially to the 0.8350 area:

The rapid decline to the 0.8350 area is likely to require the Bank of England to unanimously vote for a rate hike and play down the risks of the Omicron strain on activity and, in addition, hint at a rate hike in February. Nevertheless, the base scenario remains the option where the Central Bank does not touch the rate at the next meeting, but hints at a February increase. In this case, the decline in EURGBP is likely to be moderate.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · December 15, 2021

Strong US PPI rise calls for decisive Fed response

The cable rallied against the dollar on Wednesday thanks to release of a bullish inflation report which showed that the rise in consumer prices accelerated in November, beating forecasts. The headline inflation rate reached 4% against the forecast of 3.7%, while in the previous month inflation averaged to 3.4%. The BoE has a difficult choice: to agree to a greater inflation risk, leaving the policy soft to smooth out the risks of a new wave of a pandemic, or to raise the rate now by limiting the risk of inflation, but making the economy less resilient in the face of possible new restrictions, which the government seems to be mulling over. In any case, GBPUSD strengthened on the data release, which means that some market participants are betting on a hawkish outcome of the Bank of England meeting this week.

Release of US PPI report on Tuesday shows that inflation pressures rise in unabated fashion
despite the Fed assurance made earlier that the upside momentum should soon start to fade. The monthly growth in production prices exceeded the forecast and amounted to 0.8% against the forecast of 0.5%. At the same time, the core PPI rose almost double the forecast, and this is no less important, because this inflation gauge excludes goods whose prices are subject to strong monthly fluctuations. In annual terms, PPI shows extremely strong growth, of course, some can be attributed to the low base last year, but what is important to note, after some short stabilization in August-September, the indicator turned to growth again, which should probably worry the Fed, because in the end, this growth will seep into the consumer prices:

The data formed the basis for yesterday's rally in greenback index (DXY) to the level of 96.50, as now the perception of inflation threat by the Fed and its response, which we will learn about at today's meeting, is the key driver in FX.

Meanwhile, the dollar is trying to get out of the triangle pattern and resume the upward movement, anticipating a hawkish outcome of the Fed meeting:

It is possible that this is a trap, as it often happens, and the markets may be disappointed by the Fed's response to inflation challenges, which will cause dollar sell-off, as recent USD gains were fueled by expectations that the Fed will pull decisively ahead in the tightening race today. However, taking into account the latest data on inflation, namely, inflation expectations of US households, which jumped to 6% and PPI, which growth is beating expectations, the Fed does not have much room for maneuver. Inflation in the US needs to be contained, the question is how decisive the answer should be.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · January 25, 2022

USD benefits a surge in risk-off, bonds point to a possible Fed overreaction

Asian and European markets are in the red on Monday with the weakness of US equities on past Friday being key catalyst of downward momentum. Investors increased demand for cash amid growing risk-off mood helping USD to stand out among G10 peers. Interestingly, 10-year bond yields extended decline after hitting 1.90% peak in the last week as market participants appear to be pricing in an excessive and actually belated Fed response to inflation, which could lead to a slowdown in the economy in inflation in the long term. The yield decline factor has a negative effect on the dollar. Sovereign debt of other advanced economies is also in demand today, which, coupled with the decline in risk assets, is a signal that economic growth forecasts may be being revised lower by the market.

In turn, short-term US bond yield resists decline reflecting expectations of an aggressive Fed tightening move at the upcoming meeting. The spread between 10-year and 2-year bonds is spiraling down, which often constitutes expectations of economic stagnation or a policy error by the Fed:

Escalating tensions between Russia and NATO is another source of bearish concerns. Oil shows uncharacteristic resistance to risk-off, remaining at a multi-year peak due to fears that sanctions pressure on Russia will exacerbate present supply issues in the energy market. Accordingly, any signs of a de-escalation of tension may open the way down for oil as the risk-off factor can be countered only by the factor of OPEC persisting short-term undersupply, which, in principle, have been priced in by the market. The ruble is the worst in the EM currency sector, braces for breakout of 79 mark, the highest level since 2020.

Regarding the Fed meeting, the key point will be the weight of the balance sheet offloading in the normalization of policy. If the Fed puts more weight on QT, the forecast of four rate hikes this year could be in jeopardy, leading to a rollback of expectations, taking away support from USD.

EU and UK Services and Manufacturing PMI data showed that the impact of the Omicron outbreak on economic activity was moderate, with price pressures building again in the services sector. The Bank of England will hold a meeting on the fourth of February and the chances of a rate hike are growing especially in light of inflation signals.

The Bank of Canada meeting will take place on Wednesday and we should expect a 25 bp rate hike thanks to progress in employment and clear signs that inflation needs to be contained. The case of USDCAD revisiting 1.25 could mean the risk of breaking the key trend line and moving to a protracted downward movement:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · January 29, 2022

EURUSD aims at 1.10 as the ECB will likely disappoint again next week

There was a sign of relief on geopolitical front, welcomed by asset markets, after the Russian Foreign Ministry said that a war with Ukraine was “unthinkable”, hinting that diplomatic resolution of the conflict may be in cards. The market focus today is on a portion of US price and employment data, namely PCE and employment cost indexes, which should help to calibrate better the chances of the Fed rate hike in March by 50 bp.

The dollar broke yesterday to a new high on the back of quickening divergence of the Fed’s policy with its major peers and Powell’s signal that the economy should be able to digest the rapid pace of rate hikes. Powell’s remark, that there is enough room to raise rates without the risk of disrupting the recovery of the labor market, thrown at a press conference, signaled that the Fed could go all out with the terminal interest rate being higher than expected in the end of tightening cycle. The US yield curve is flattening, which is the classic bond market fear that the Fed's policy will choke growth, which in turn leads to conclusion that inflation premium embedded in long-term yield becomes excessive and should be corrected lower.

Futures markets priced in 31 bp rate hike in March which means the dollar still has room to rise if incoming data points to strong economic activity early in the year warranting more aggressive Fed move. At the same time, ceteris paribus, weak US data in February may shift the market consensus back towards 25 bp, causing USD to fall out of favor and pull back a bit.

Q4 Labor Cost Growth in US is expected to be at 1.2%, despite a rather strong growth of 1.3% in the third quarter of 2021. The dollar is likely to react positively to higher-than-expected print, as wage dynamics are now under close attention of central banks due to running imbalances in supply and demand of labor which work as a good predictor of how long high inflation will persist and will there be a second and even third-round inflation effects.

Currencies that depend on the cycle and correlated with risk assets are likely to be able to go into an upward correction against the dollar next week, which cannot be said, for example, about EUR or JPY. German GDP data disappointed today (1.4% vs. 1.8% forecast), which was another reminder that the ECB is unlikely to rush to catch up with the Fed at the upcoming meeting. EURUSD may be looking for support somewhere near 1.10:

Looking at the second group of currencies, there is an interesting opportunity to buy the dip in AUDUSD after a strong fall in the area of 0.69-0.6950 before the RBA meeting next week. A set of strong Australian inflation data could form a solid foundation for a hawkish CB decision next week:

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Vaabum · February 3, 2022

And what can you advise to do with cryptocurrency now?

tickmill-analytics · February 7, 2022

Dollar is back on growth track thanks to hawkish NFP, possible upside surprise in January CPI

The surprisingly strong NFP report for January markedly eased pressure on the dollar as it reminded that the Fed is likely to lead a hawkish policy reassessment by the central banks of major economies. After release of the report, the two-year US bond yield surged by 9 bp to 1.3%, indicating that the report made a strong impression on the market, in particular due to low expectations after gloomy ADP print:

The strong labor market report also lifted the chances of a 50bp rate hike by the Fed from 8.5% to 32.7%:

Speaking about which currencies are more vulnerable to declines against the dollar than the rest in the current central bank tightening environment, it’s reasonable to focus on JPY and CHF. Central banks here are the least likely to react to inflation-related developments due to the long period of deflation and the fear of reacting too soon, breaking off the desired trend. The euro suddenly gained more resilience as the ECB took a big step towards tightening policy last week, after which short-term rates shot up (yield on 2-year German Bunds from 0.05% to 0.25%) due to which demand for cash rose. Over the weekend, the comments of the ECB official Knot turned out to be interesting, as they can shed light on the fate of EURUSD in the medium term. He said that it is possible to see ECB rate hike by 25 bp in October followed by increment hikes of 25 bp. The underlying market expectation after the ECB meeting is now the outcome, where the central bank will be raising rates by 10 bp starting from July. In addition, Knot said that inflation in the Eurozone is mainly generated by fuel prices, while in the US it is the result of rising consumption; it follows that the tightening cycle in the US may be more pronounced than in Europe. Therefore, we can assume that the breakdown of EURUSD towards 1.15 most likely will fizzle out soon and the price may soon look for reversal points. Sell-off in USD pairs, including EURUSD, may resume this week, in particular after the release of CPI in the US for January. Strong growth should increase the chances of a 50 bp Fed rate hike in March, which, in fact, is now the main potential driver for the recovery of the dollar. EURUSD is likely to test support at 1.1380 ahead of the CPI report, as the chances of a positive surprise in the data are high, especially in light of January's wage growth picking up to 0.7%, as shown in the NFP report.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · February 10, 2022

US CPI will likely surprise on the upside due to labor market imbalances

On Wednesday, sellers in the sovereign debt markets take profits before release of the key inflation data point for the market (US CPI), yields pulled back from key resistance levels (2% on 10-year Treasuries, 0.25% on German Bunds). Another driver of the rally could be acknowledgment, that there was an overreaction to the ECB and Fed meetings and actual pace of policy tightening could be slower. At the same time, demand for risk appears to be on the mend, European indices and futures for US indices rose, yield search puts constraint on early dollar rally, DXY continues to consolidate around 95.50 ahead of CPI print tomorrow:

Tomorrow's US CPI for January will decide the fate of the Fed's March rate hike by 50 bp (either make it a baseline scenario, or lower the chances). The report will be critical to answering the question of whether the Treasury sell-off continues and whether the 10-year rate goes beyond 2%, which could trigger a breakout move, as there was initial test of 2% key resistance zone yesterday.

Even with consensus of 7.3% in headline inflation and 5.9% in core inflation, there is some room for a surprise on the upside, primarily due to strong wage growth due to ongoing labor market imbalances (0.7% MoM in January vs. 0.5% expected). The jobs quit rate in the United States remains at an all-time high together with a significant increase in wages, they fell into a positive feedback loop - the negotiating power is now on the side of workers which is quite unusual:

Today, representatives of the Fed Bowman and Mester will have their say, the focus is on assessing the persistence of pro-inflationary factors in the economy. Fed rate hike by 25 bp already priced in, the chance of 50 bp outcome is approximately 25%. The ECB releases winter forecasts for growth and inflation today, markets are focused on inflation estimates in 2023, since the ECB is expected lift-off the rate next year. The euro is likely to react positively to the report if the inflation estimate will be above 2%. Also, today there will be a QA session with ECB official Schnabel, who was one of the first to start sounding the alarm about inflation and will probably try to draw attention to this issue again.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · February 28, 2022

Despite major escalation markets are still reluctant to price in major spillover effects from Ukraine conflict

As geopolitical tensions increased sharply on Monday, policy tightening cycles of central banks and inflation challenges have been pushed deeper on the sidelines. The focus remains entirely on military operations in Ukraine, as well as the sanctions war between the West and Russia. The third package of EU sanctions, including financial, transport, technological, export and other restrictions, caused panic in the Russian currency market on Monday, which led to collapse of the ruble by more than 20% in the first two hours of the trading session. The Russian Central Bank raised interest rate to 20%, effectively limiting speculative pressure on the currency, carried out currency interventions for $1 billion, temporarily banned brokers from executing orders to sell securities from foreign investors, which caused the latter to panic. ADRs of Russian companies traded on the London Stock Exchange plunged 50-60%. Russian currency devaluation was apparently brought under control later in the session, at least partially. The stock market section of the Moscow Exchange is closed today.

Representatives of the Russian Federation and Ukraine sat down at the negotiating table in Belarus, but the chances of a peace agreement that would suit both sides are small. The Ukrainian authorities probably believe that the growing support of the West, primarily in the form of arms supplies, sanctions pressure, as well as reception of refugees, has significantly improved their negotiating position (than, for example, at the beginning of last week), due to the fact that Moscow receives a signal that Kyiv may be ready for a protracted conflict, while at the same time the original goals of the Russian intervention, steep price of the military campaign (primarily large economic costs), makes serious concessions for Russia unlikely.

However, de-risking in global asset markets, despite the risks of an even more escalation, remains quite contained. Greenback rose as US investors flew European asset markets and safe heaven demand increased in general. European stock indices traded moderately in red. Sovereign debt yields rebounded after falling early in the session. This suggests that there is no panic that the local risk will become a trigger for global recession, at least for now:

Gold posted moderate gains as well, which once again underscores the fact that investors are in no hurry to take Ukraine conflict beyond the scope of local risk:

Oil quotes showed mixed performance, financial sanctions against the Russian Federation have led to the fact that the price differential between Russian Urals with world oil benchmarks has widened, which indicates less market appetite for Russian grade of oil. An important event for the market will be OPEC+ meeting on March 2, where output policy for April will be discussed. The key uncertainty is whether OPEC+ will increase production faster, trying to avail of higher prices, or stick to the schedule. For Russia, it should be tempting to continue pushing oil prices up, urging OPEC to gradually hike output, as this will in some way act as a response to Western sanctions in the form of higher risks of cost-push inflation for Western economies. Therefore, the risks for oil prices, without taking into account possible de-escalation of the conflict in Ukraine, appears to be skewed towards further rally.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · March 7, 2022

Market Watch March 7th: All eyes on commodity markets

FX developments are now entirely subject to the buying frenzy in commodity markets as severe disruptions in supply chains become increasingly evident. Prices for certain commodities are updating highs at an unprecedented pace, rumors about embargo of Russian exports and threat of stagflation in Europe are becoming key trading themes in major asset markets. In the current juncture, pressure on European currencies and currencies of emerging markets is unlikely to ease soon.

Dollar: risk aversion adds hefty premium

The dollar continues to outperform the G10 currencies as flight from risk intensifies. Option premiums in FX surged while sell-off in European equities gathered pace. US statements that embargo could be imposed on Russian oil exports (which is about 5 million b/d) led to a surge in oil to $139 and ruble depreciation to 140 per USD.

Other signs of stress in the market include continued widening of the FRA-OIS spread (an indicator of credit risk in the interbank market). Despite the fact that the Fed has a sufficient set of tools to provide liquidity and a generally high level of liquidity in banks after the pandemic, high uncertainty forces banks to cut lending. More information on this issue will appear on Wednesday, when data on the demand for 7-day USD swap lines from the Fed will be released. Last week, the ECB's auction on 7-day USD swap lines indicated rather high demand - $272.5 million from European banks.

The cutoff of 7 Russian banks from SWIFT on March 12th could also hide many black swan risks. The freezing of Russian assets is already affecting European fixed income market - the German Finance Ministry was forced to issue additional bonds maturing in 2024, as some of them were included in the frozen Russian assets. At the same time, ETFs to emerging markets are now facing capital outflows and, due to the fact that exit from Russian assets is not available, other emerging markets are under pressure. The most vulnerable among them are Brazil, Mexico and Poland.

Euro: Conflict in Ukraine causes more pain

EURUSD continues to decline against the backdrop of a lack of prospects for an early resolution of the conflict in Europe, and so far, the balance of risks is skewed towards further decline. This is also indicated by huge demand for insurance against the fall of EURUSD in options, even exceeding the demand that was at the beginning of the pandemic in 2020. Some resistance to the current decline in EURUSD can be expected at 1.0760-1.0770, stronger at 1.0640, this is the low of March 2020:

Pound: better than euro, but not very good either

At the same time, the pressure on the pound is less strong, as a high percentage of extractive enterprises included in the FTSE 100 index and which are now doing better, reduces capital outflows. In addition, the Bank of England looks more determined to respond by raising interest rate to fight excessive GBP decline. From the technical point of view, EURGBP has broken through the important support level of 0.8270, which in itself is a signal for further downside.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · March 15, 2022

USD poised to renew highs on China Covid issues, FOMC expectations

The dollar has got another growth driver. The PBOC unexpectedly lowered reference rate of CNY/USD, which may indicate its willingness to weaken yuan against US currency. This is usually seen as downside factor for Asian currencies which ultimately may also support USD demand.

Markets’ risk-on/risk-off swings continue to depend on the progress of peace talks between Ukraine and the Russian Federation as this determines expectations of sustainability of current trend in commodity inflation which hinders growth of a large number of companies, especially in those countries that are dependent on commodities imports. There is also some attention to the situation in China, where the outbreak of covid forced authorities to reinstate covid restrictions in large industrial and commercial centers - Shanghai and Shenzhen. This bodes ill for production and could create ripple waves in supply chains, which also have implications for inflation. China, judging by their stance, are not much willing to deviate from the policy of “zero covid cases”.

The role of renminbi in global FX have increased recently as since the start of the Russian special operation in Ukraine, CNY/USD has risen by several percent, which could look like the yuan is taking on part of the task of being a safe haven currency, like the dollar. However, the PBOC’s actions show that it may be willing to boost activity through exports growth and sees weakening of the yuan as a solution. USDCNY came out of a tight range gaining 0.7% in a few days:

Coupled with covid measures, this maybe be regarded as a signal of some slack in China economy or at least concerns about a slack, which may lend more heft to the current story of safe heaven USD.

If this interpretation of the yuan's weakness is correct, Asian currencies, as well as ZAR and BRL, commodity currencies from the EM sector, could come under pressure as well.

In this week, market movements will be also determined by the expectations regarding upcoming FOMC meeting, which will be held on Wednesday. The Fed is apparently forced to deliver a vigorous response to inflation shock, especially in the very sensitive (both politically and economically) spending item both US households and government – gas. Barring significant de-escalation in Ukraine (which could quickly unwind a large part of geopolitical premium in the dollar), USD looks poised to extend rally past recent highs.

In terms of technical analysis, USD overbought conditions have eased after the currency index soared to almost 99.50 in a very short period of time (two weeks), pulled back, and retested the resistance zone. Now there is a correction as part of the zone retest, there is no more flight into the USD based on surge of market risk-aversion, however rally looks persistent:

Also, as it became clear from the last meeting of the ECB, the potential of the US Central Bank and the ECB to respond to inflation by tightening policies is now significantly different. The ECB gave a signal that it is extremely constrained in actions, since other indicators of the economy and the degree of involvement in the trade war with the Russian Federation do not yet allow moving the rate, while the US economy, at least judging by the trend in employment, is in much better shape for these actions. Hence the formation of corresponding expectations for the dollar.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

tickmill-analytics · March 15, 2022

Greenback unwinds safe-haven premium, China Covid efforts in focus

Economic news from China today beat expectations in a positive way, especially surprising was the growth of retail sales as market set quite low expectations on the figure. Restrictions on mobility inside the country during the Lunar New Year, which were supposed to contain growth in retail consumption and social distancing measures introduced to combat Covid outbreak, unexpectedly had less effect on retail consumption. Positive news should help the PBOC to slow down or pause easing of monetary policy.

Retail sales grew by 6.7% in February against the forecast of 3%. Industrial production rose by 7.5%, almost doubling the forecast. Investments in fixed assets more than doubled the forecast and amounted to 12.5%. The yuan strengthened slightly against the dollar.

Global markets seem to be pricing in reduced level of risks of further escalation of the Ukraine conflict, oil has collapsed (down by 8% on the main benchmarks), gold declined 1.33%. Over the week, gold prices fell by 6%, oil by 23%.

The geopolitical premium in dollar is correspondingly reduced, EUR and GBP win back losses. Looking ahead to the end of the week, the main focus is tomorrow's Fed meeting. A 25 bp rate move seems to be warranted, shifts in expectations will primarily depend on hints about May decision (25 or 50 bp rate hike).

There is some positive momentum in the Russian ruble, however, due to capital controls and trade blockades, even a normally liquid market such as the foreign exchange market is now extremely illiquid in Russia. The market is trying to take into account the optimism before the upcoming talks between Ukraine and Russia, which are expected to take place today.

The leading indicator of risk aversion/risk-taking right now may be evolution of the covid situation in China. Major cities such as Shanghai and Shenzhen are experiencing a partial lockdown. It should be noted that the outbreak occurred in the northern part of China, where more heavy industry is concentrated. The measures introduced lead to suspension of production and shipment of goods. Attention is also drawn to the news about the new strain VA.2, which, according to preliminary data, is more severe than Omicron. Examples from the recent past show that when news about a new strain reaches critical mass (detection in several countries), markets lose their temper, so to speak, and go into risk-off.

This is how the dynamics of reported cases of Covid in China looks now:

The release of PPI in the US is scheduled for today, which will provide more information about price pressures in production chains and may also slightly correct expectations for tomorrow's Fed meeting. The indicator is expected to print at 0.9%. Later, ECB President Christine Lagarde will speak, who may give more information about how the ECB is going to deal with the consequences of the impact of trade sanctions on the Russian Federation.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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