Wednesday, 28 June 2017

IS IT TIME FOR THE ECB TO TIGHTEN MONETARY POLICY?

No comments : Posted by Valentine at 02:47 Labels:

It is of common knowledge that the European Central Bank President Mario Draghi is a strong defender of monetary policy stimulus. In his opinion, the recent spike in inflation is only a result of temporary oil price dynamics, which doesn’t justify a rate move at this stage.

“Nothing substantial has happened to inflation other than [changes in] the oil price and the food price, [...] It’s because of quantitative easing. We are here because of that. Quantitative easing has supported the economy throughout.”

However, Draghi surprised markets with an unexpected hawkish rhetoric on Tuesday. In his opening statement at the European Central Bank Forum in Sintra, Portugal, he hinted that the regulator might be considering scaling down its stimulus in the near term.

While the word “gradual” played a key role in his statement, market participants were shocked by the sudden change in his approach to the matter, which sent key European stock indexes to the downside and support demand for safe-haven assets such as gold.

Draghi stated: "The current context where global uncertainties remain elevated, there are strong grounds for prudence in the adjustment of monetary policy parameters, even when accompanying the recovery. Any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them appear sufficiently secure."

He also reiterated that confidence in the current quantitative easing program is very high and its positive effects on the economy are evident.

"We can be confident that our policy is working and its full effects on inflation will gradually materialize. [...] All the signs now point to a strengthening and broadening recovery in the euro area," the ECB president said in the event.

But… is it really the time to start tightening its policy? Don’t know what you think but key analysts from the banking sector believe so.

"Right now consumers are confused, they don't understand negative interest rates, they don't understand a zero interest rate and the system becomes volatile as a result. We shouldn't have that," said Wiebe Draijer, chairman at Rabobank, in an interview with CNBC on Monday.

The news network also interview Carlos Torres Vila, chief executive of Spanish bank BBVA. In his view: "It should be a progressive unwinding… definitely not to spook markets too much but as (the regulator) sees inflation coming back with stronger growth rates then they should progressively start cutting back on their purchases and then raise rates."

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What’s next? – USDJPY 28.06.17

No comments : Posted by Valentine at 00:24 Labels:

USDJPY

The dollar/yen traded 0.19 percent lower at 112.13 as of 04:55 GMT, giving up some gains from the previous session as traders looked ahead of fresh remarks from central bank leaders.

Bank of England Governor Mark Carney, Bank of Japan Governor Kuroda and ECB President Mario Draghi are all due to speak as of 13:30 GMT.

On Tuesday, the pair settled in green territory, adding 0.43 percent by the end of the session at 112.34. The upside movement was triggered by comments from the European Central Bank President Mario Draghi and Federal Open Market Committee Member Patrick Harker.

The ECB leader opted for a softer rhetoric on the possibility of monetary policy adjustments, explaining that an eventual reduction of quantitative stimulus would have to be gradual.

Draghi is a strong defender of the bank’s bond buying program and low interest rates. In the last few months, he’s been reluctant to the idea of start tightening as he explained that the recent upbeat inflation data in the European Union was the result of a temporary spike in crude prices.

Philadelphia Fed President Patrick Harker provided support for the American currency as he expressed his support to rising interest rates once again later this year.

Another factor weighing on the pair was the rate differential between Treasuries and JGBs. 10Y-Treasury bonds yield was at 2.2 percent and 30Y-Treasury notes stood at 2.745 percent.

While most investors were focused on Fed Chair Janet Yellen’s speech, there were little elements to be excited about. Yellen reiterated that the Fed’s normalization process would have to be slow and be supported by economic conditions.

To extend gains on Wednesday, the USDJPY would have to count on better-than-expected economic data in the United States. As for today, the data front includes goods balance trade and pending home sales. Downbeat data would increase demand of safe-havens.

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What’s next? – DAX 28.06.17

No comments : Posted by Valentine at 00:22 Labels:

DAX

The DAX index futures were 1.39 percent down by 05:25 GMT to trade at 12,592 points. Investors shifted their focus into a fresh batch of speeches from central bank leaders.

Ahead in the session, Bank of England Governor Mark Carney, Bank of Japan Governor Haruhiko Kuroda and European Central Bank President Mario Draghi are all scheduled to speak at 13:30 GMT. Their remarks could weigh heavily on the index and create strong volatility.

Before these announcements, we could see a moderate downward extension as some traders sell off their long positions and opt for a more cautious stand.

On Tuesday, the German index was mainly hit by remarks from ECB’s Draghi, who took markets by surprise with a hawkish rhetoric on monetary policy tightening.

“As the economy continues to recover, a constant policy stance will become more accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments,” said Draghi in his opening statement at the Sintra Forum in Portugal.

While his comments are still far from turning into real policy changes, it certainty differed of his usual approach. Europe’s first economy is (of course) widely affected by policy changes, although not long ago Draghi warned German investors about an eventual reduction of the bank’s Quantitative Easing program.

As we predicted at the beginning of this week, the index remains inside a range between 12,550 and 12,950 points. At the time, the next support is found at the lower band of the channel at 12,550 and depending on today’s events, the index could gain back some positions.

There is, however, a general risk of extending to the downside in case market sentiment in Europe continues to deteriorate in the session. Nevertheless, buying support is likely to help the index move back to the center of the range.

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What’s next? – GOLD, OIL 28.06.17

No comments : Posted by Valentine at 00:15 Labels:

GOLD

Gold prices edged higher in Asian hours on Wednesday, as markets prepared for fresh comments from central bank leaders and economic reports in the United States.

Traders are opting for a wait-and-see positioning ahead of today’s economic events, especially looking at ECB President Mario Draghi speech at 13:30 GMT. Bank of Japan and Bank of England Governors Kuroda and Carney are also expected to talk by that time.

On the Comex division of the New York Mercantile Exchange, gold futures for August delivery were trading up by 0.38 percent at $1,251.60 a troy ounce as of 06:50 GMT.

The US dollar index, which tracks the greenback against a basket of rivals, was at 96.03, down by 0.07 percent by the time of this writing.

On Tuesday, the yellow metal rebounded from six-week lows following hawkish remarks from ECB’s Draghi, who explained that an eventual tightening of the regulator’s monetary policy would be very gradual.

Traders also paid attention to Fed Chair Janet Yellen, although she provided with no news at all, reiterating the normalization process would have to be slow and rates would need to stay low by historical standards for quite some time.

Bullion prices rallied on the back of these comments. According to CME Group’s FedWatch tool, investors are pricing in more than a 40 percent chance of a rate move in December.
OIL

Oil futures were slightly down in early trading on Wednesday as market participants digested an industry report showing a new increase in crude and gasoline supplies and as players awaited official data from the US Energy Department later in the session.

The US benchmark West Texas Intermediate oil futures traded at $44.03 a barrel, down 0.47 percent from its prior close. Meanwhile, the London-based Brent crude oil futures fell 0.24 percent to trade at $46.54 a barrel as of 06:40 GMT.

The American Petroleum Institute said crude inventories added 851,000 barrels in the week ended June 23, leaving the total count at 509.5 million barrels. Analysts had estimated a 2.6 million barrels decline.

The report also showed gasoline stockpiles moving up by 1.4 million barrels, once again ignoring the start of the US summer driving season.

These figures increased concerns about OPEC’s ability to fight the ongoing supply overhang that’s been weighing on quotes in the last three years. Investors are losing faith that the oil cartel output reduction plan can actually turn around the worsening price scenario.

OPEC and non-OPEC producers committed to extend the output cuts of 1.8 million barrels per day from January 2017 to March 2018. However, there hasn’t been so far any signs that the deal actually made an impact on crude prices.

In this context, big banks are scaling down their projections for both the WTI and the Brent crude contracts. If to look at how traders have positioned themselves in the last few months, we clearly see that they were hoping for a price rally, which never really came into action.

The US Energy Information Administration will release its weekly inventory report on crude and refined products as of 14:30 GMT. Expectations are pointing to a 2.585 million barrels decline.

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Tuesday, 27 June 2017

What’s next? – GBPUSD 27.06.17

No comments : Posted by Valentine at 05:48 Labels:

GBPUSD

The pound/dollar was trading at 1.2747 as of 10:30 GMT, rising by 0.21 percent following the release of Bank of England’s Financial Stability Report and remarks from Gov. Mark Carney.

According to the document, the BoE intends to raise capital requirements for banks by 11.4 billion pounds as it expects a noticeable increase in consumer credits and as the country looks ahead of a tough Brexit negotiation process in the upcoming months.

“Fragmentation of market-based finance could result in higher costs and greater risks for both EU and UK companies and households,” the Bank of England stated.

The pair has been affected by heavy pressure in the last session as the dollar extended gains across the board despite downbeat economic data published on Monday.

Durable goods orders came in at 0.1 percent, and while they missed expectations for a 0.5 percent increase, they displayed a positive correction from previous month losses. With an optimistic eye, this factor contributes to the case of a third rate hike later this year.

According to Fed funds tracked by CME Group’s FedWatch tool, chances for a rate move in December are currently standing above 43 percent.

The GBPUSD is experiencing difficult times from any perspective. There are now so many factors weighing on the pair that it’s getting trickier to identify a clear direction. From a technical perspective, the pair is looking at the 1.28 resistance, which could be broken on the way to 1.30.

In the long-term, the pair could extend gains even above the mentioned mark, but choppy trade is likely to continue until bullish momentum builds up. Therefore, there would be plenty of opportunities to take advantage of short-term corrections and sudden spikes.

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Central Bank Leaders Talk; EURUSD In Focus

No comments : Posted by Valentine at 02:50 Labels:

The EURUSD was up 1.1225 as of 08:15 GMT on Tuesday, climbing 0.39 percent after long hours around the 1.1180-1.1190 area, as traders eyed ECB President Mario Draghi and Fed Chair Janet Yellen speeches later in the session.

In his opening speech of ECB Forum on monetary policy in Sintra, Portugal, Draghi stated the regional regulator would have to be “prudent” when adjusting their monetary parameters.

The comment comes in at key moment for the central bank, when discussions on the reduction of the 2.3 million euro bond-buying program and possible rate moves are being prepared.

"We can be confident that our policy is working and its full effects on inflation will gradually materialize. But for that, our policy needs to be persistent, and we need to be prudent in how we adjust its parameters to improving economic conditions," explained Draghi earlier today.

The fact that Draghi is suddenly talking about “adjustment” is quite surprising as he’s a strong protector of the bank’s stimulus, arguing recent inflation peaks were a mere result of higher oil prices. Plus, he believes QE is still needed to promote job creation and support business.

Meanwhile, the dollar edged down against major currencies as traders awaited comments from Yellen and other members of the Federal Open Market Committee on economic conditions and the future of monetary policy for the world’s first economy.

The US dollar index, which tracks the greenback against a basket of major rivals, was 0.41 percent lower to trade at 96.72.

Last week, Fed officials have been divided on whether the regulator should move forward with rate hikes later this year. Some believe the normalization process can’t be stopped at this stage, while others signaled economic data is not supporting further adjustments.

According to the CME Group’s FedWatch tool, traders are currently pricing a 43.6 percent probability of a 25 basis points rate hike by December, which would be the third of 2017.

Fed Chairwoman Janet Yellen is set to address the British Academy in London as of 17:00 GMT. Philadelphia Fed President Patrick Harker is speaking at the same city at 15:15 GMT.

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What’s next? – DAX 27.06.17

No comments : Posted by Valentine at 02:46 Labels:

DAX

The DAX index futures edged lower on Tuesday to 12,703.00 points by 07:30 GMT as traders awaited remarks from ECB President Mario Draghi and Fed Chairwoman Janet Yellen.

Today, Draghi is set to speak as of 08:00 GMT, Bank of England Mark Carney is due as of 10:00 GMT and Fed’s Yellen is scheduled at 17:00 GMT. A batch of FOMC representatives are also set to speak later in the session, with investors looking into hints on the timing of a next hike.

No relevant data is programmed for release in Germany. Yesterday, business expectations for June came in at 106.8, above an initially forecasted 106.4. Current assessment was at 124.1, with a 123.3 seen, and lfo business climate index also outperformed expectations at 115.1.

Despite upbeat data, the German index notched down by 0.38 percent or 48.35 points at the closing bell to end at 12,722.48 points. Technology, Food & Beverages and Retail stocks were pushing the index down, while Transportation, Industrials and Consumer sectors were higher.

Top three best performers of the session were Lufthansa AG, rising 3.06 percent to 19.200, Commerzbank AG with 2.16 percent to 9.477 and Deutsche Post AG up 2.12 percent to 33.185.

On the downside, RWE AG easing 1.13 percent at 18.855, Fresenius Medical Care KGAA falling 0.31 percent to 87.370 and Infineon Technologies AG NA down 0.31 percent to 19.600.

From a technical standpoint, we insist on the fact that the 12,550 - 12,950 range remains in place for this week. Depending on the comments from Yellen and other FOMC speakers, the DAX could experience some extra volatility but consolidation so far holds.

Technical indicators balance for the 30-min, 1-hour , 4-hour timeframes present strong sell signals. Fibonacci points at the time: S1 12756.91 / P 12767.61 /  R1 12778.31

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