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BoE to hold rates steady ahead of UK elections

    By
    ActionForex.com
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    BoE is widely expected to maintain interest rate at 5.25%, to avoid any perception of political interference ahead of the general election in the UK on July 4. Prime Minister Rishi Sunak’s unexpected call for an early election are seen by some as indirectly giving BoE additional time to monitor inflation trends and reassess the economic outlook. A more comprehensive decision is anticipated in August, when updated economic forecasts will be available.

    Inflation data for May reinforces the case for a cautious, wait-and-see approach. Headline inflation has finally returned to BoE’s 2% target for the first time in almost three years, a positive development. However, services inflation remains stubbornly high at 5.7%, indicating underlying inflationary pressures that still need to be addressed.

    Reflecting this development, money markets have adjusted their expectations, now pricing in only a 30% chance of a rate cut in August, down from 45% earlier in the week. There is still one quarter-point cut fully priced in for this year, likely by November, with a 60% chance of a second reduction, down from 80% earlier in the week.

    In the currency markets, EUR/GBP’s declined stalled after hitting 0.8396 last week. But near term outlook will stay bearish as long as 0.8482 support turned resistance holds. Any hawkish hints from BoE today could resume the down trend through 100% projection of 0.8764 to 0.8497 from 0.8643 at 0.8376.

    BoJ stands pat, to take 1-1.5 yrs to review monetary policy

      By
      ActionForex.com
      -

      BoJ keeps monetary policy unchanged as widely expected, by unanimous vote. Under the yield curve control, short-term policy interest rate is held at -0.10%. 10-year JGB yield will be kept at around 0% with bond purchases without upper limit. 10-year JGB yield will continue to be allowed to fluctuate in range of around plus and minus 0.50% from 0% level.

      The central bank maintained the pledge to continue with Quantitative and Qualitative Monetary Easing with Yield Curve Control for “as long as it is necessary” for meeting inflation target in a “stable manner”. It “will not hesitate to take additional easing measures if necessary”. BoJ will conduct a “broad-perspective review of monetary policy”, with a planned time frame of around 12 to 18 months.

      In the new economic projections, while core inflation forecasts were upgraded, it’s not expected to sustain at the 2% level throughout the horizon.

      • Real GDP forecasts (versus January estimates):
        • Fiscal 2023 at 1.4% (down from 1.7%).
        • Fiscal 2024 at 1.2% (up from 1.1%).
        • Fiscal 2025 at 1.0% (new)
      • CPI Core forecasts (versus January estimates):
        • Fiscal 2023 at 1.8% (up from 1.6%).
        • Fiscal 2024 at 2.0% (up from 1.8%).
        • Fiscal 2025 at 1.6% (new).
      • CPI Core-Core forecasts (versus January estimates):
        • Fiscal 2023 at 2.5% (up from 1.8%).
        • Fiscal 2024 at 1.7% (up from 1.6%).
        • Fiscal 2025 at 1.8% (new).

      Full BoJ statement here.

      Full Outlook for Economic Activity and Prices here.

      IMF projects US inflation to slow to 1.9% by end of 2023

        By
        ActionForex.com
        -

        IMF cut US 2022 GDP growth forecasts from 2.9% to 2.3% in the latest report. For 2023, GDP growth was was also lowered from 1.7% to 1.0%. Inflation is forecast to come down to 6.6% in Q4 2022, then slow further to 1.9% by Q4 2023. .

        IMF Managing Director Kristalina Georgieva said: “In sum, we are confident the Fed will be effective in bringing inflation down, will remain data dependent and, as conditions change, will telegraph clearly where policy is likely to go. This is important not just for the U.S. but also for the global economy.

        Full release here.

        UK GDP grew 0.5% qoq in Q1, but March contracted -0.1% mom

          By
          ActionForex.com
          -

          UK GDP grew 0.5% qoq in Q1, up from Q4’s 0.2% qoq and matched expectations. Annually, GDP grew 1.8% yoy, up from Q4’s 1.4%.

          Looking at the details, production had a noticeable pickup by 1.4. But services growth slowed to just 0.3%. Construction growth increased to 1.0%. Output of agriculture, forestry and fishing sector fell by 1.8%.

          In March GDP contracted -0.1% mom, below expectation of 0.0% mom. Index of services dropped -0.1% mom. Index of production rose 0.7% mom. Manufacturing rose 0.9% mom. Construction dropped -1.9% mom. Agriculture dropped -0.1% mom.

          In March, UK industrial production rose 0.7% mom, 1.3% yoy, versus expectation of 0.1% mom, 0.4% yoy. Manufacturing production rose 0.9% mom, 2.6% yoy, versus expectation of 0.0% mom, 1.1% yoy. Visible trade deficit narrowed to GBP -13.65B, slightly smaller than expectation of -13.7B. Construction output dropped -1.9% mom, versus expectation of -0.9% mom.

          Germany Gfk consumer sentiment rose slightly to -40.2, but situation remains tense

            By
            ActionForex.com
            -

            Germany Gfk Consumer Sentiment for December rose slightly from -41.9 to -40.2, better than expectation of -45.3. In November, economic expectations rose from -22.2 to -17.9. Income expectations rose from -60.5 to -54.3. Propensity to buy dropped from -17.5 to -18.6.

            “Consumers’ long-standing fear of skyrocketing energy prices has currently eased somewhat, which is having a slightly positive impact on consumer sentiment. On the one hand, some energy prices have recently recovered a bit, and on the other hand, consumers apparently assume that the measures adopted to cap energy prices can help curb inflation, even if this may turn out to be rather modest,” explains Rolf Bürkl, GfK consumer expert. “Despite the slight improvements, however, the situation remains tense.”

            Full release here.

            Bundesbank upgrades German GDP forecast, at beginning of strong upswing

              By
              ActionForex.com
              -

              Bundesbank upgraded Germany GDP growth forecast to 3.7% (from 3.0%) in 2021, 5.2% in 2022 (from 4.5%). Growth is expected to slow to 1.7% in 2023. It said that “the German economy is overcoming the pandemic-related crisis and is at the beginning of a strong upswing”. The economy is expected to reach pre crisis level again “this summer”.

              Inflation to also projected to accelerate to 2.6% yoy this year (upgraded from 1.8%). For 2022, inflation forecast is upgraded to 1.8% (from 1.3%), and for 2023 at 1.7% (from 1.6%). It added, “the exceptionally high inflation rates, by German standards, projected for the second half of 2021 could ultimately shift economic agents’ inflation perceptions and expectations,”

              “As a result, wage and price-setting behavior could change and exert further inflationary pressure. This would especially be the case if headline price inflation in the near future were to be even higher than estimated here”, the report added.

              Full release here.

              NZD/USD pressing channel support, could it bounce from here?

                By
                ActionForex.com
                -

                In recent weeks, the antipodean currencies have encountered turbulent waters, contending for the title of the month’s poorest performers. Reserve Banks of both Australia and New Zealand are widely perceived to have reached the peaks of their ongoing tightening cycles. In contrast, ECB and BoE (and less certaintly Fed) seem poised for further rate hikes. Also, the broader sentiment, underpinned by belief that global interest rates may remain elevated longer than previously anticipated, has notably dampened risk appetites.

                However, recent economic concerns stemming from China have played a pivotal role in the accelerated depreciation of these currencies in the last fortnight. China’s less-than-stellar economic recovery post its stringent Covid lockdowns, coupled with looming deflation risks and challenges in its property and finance sectors, have further intensified the pressure on the antipodean currencies. Additionally, PBoC milder than anticipated rate cut today further dampened sentiments towards these currencies.

                Technically speaking, however, there is prospect of a near term bounce in NZD/USD, given that it’s now pressing a medium term channel support on oversold condition. Break above 0.5995 resistance will trigger a rebound to 55 D EMA (now at 0.6117). However, deeper decline and firm break of 100% projection of 0.6537 to 0.5984 from 0.6410 at 0.5857 could prompt downside acceleration to 161.8% projection at 0.5515, which is close to 0.5511 long term support (2022 low).

                EU Juncker welcomed UK Johnson’s Brexit proposal as positive advances

                  By
                  ActionForex.com
                  -

                  UK Prime Minister Boris Johnson’s new Brexit proposal was welcomed by European Commission President Jean-Claude Juncker welcomed as “positive advances”. But the Commission noted in a statement that “there are still some problematic points that will need further work in the coming days, notably with regards to the governance of the backstop.” it added “the EU wants a deal. We remain united and ready to work 24/7 to make this happen – as we have been for over three years now.”

                  However, Guy Verhofstadt, European Parliament’s Brexit coordinator, said “the first reaction of the Brexit Steering Group was not positive, not positive in the sense that we don’t think that this is really the safeguards that Ireland needs”. The group will set out a more detailed response on Thursday.

                  On the other hand, UK Chancellor of the Duchy of Lancaster Michael Gove noted that some lawmakers from the most pro-Brexit wing of the ruling Conservatives and some opposition Labour lawmakers have signaled their backing for Johnson’s new proposal. Northern Ireland’s DUP also welcomed the plan. Gove said, “That seems to me to be a pretty solid majority.”

                  UK retail sales dropped -3.7% mom in Dec, well below expectations

                    By
                    ActionForex.com
                    -

                    UK retail sales dropped sharply by -3.7% mom in December, much worse than expectation of -0.6% mom decline. Overall retail sales volume was still 2.6% higher than their pre-coronavirus February 2020 levels. For the year, sales volume dropped -0.9% yoy, below expectation of 4.2% yoy. Between 2020 and 2021, volume of retail sales rose by 5.1%, which is the strongest since 2004.

                    Full release here.

                    Fed Bostic: A pause in September might make sense

                      By
                      ActionForex.com
                      -

                      Atlanta Fed President Raphael Bostic said yesterday that he backed the plan of raising interest rate by 50bps in June and July. But a “pause” in September is also in his baseline view.

                      “I’m at 50 basis points as long as the economy proceeds as I think it’s going to,” Bostic said. “If inflation starts moving in a different direction than it is right now, I’d have to be open to us moving more aggressively. I do want to make it clear that nothing is off the table. As we go through the months, we will see how it plays out.”

                      “I have got a baseline view where for me I think a pause in September might make sense,” Bostic told reporters Monday following a speech to the Rotary Club of Atlanta. “After we get through the summer and we think about where we are in terms of policy, I think a lot of it will depend on the on-the-ground dynamics that we are starting to see. My motto is observe and adapt.”

                      China Caixin PMI services recovered to 43, situation requires policymakers to cut GDP growth target

                        By
                        ActionForex.com
                        -

                        China Caixin PMI Services recovered to 43.0 in March, up from 26.5. PMI Composite rose from 27.5 to 46.7, second lowest reading in 11 years. Caixin said that business activity and new work both declined at slower rates, but employment fell at quickest pace on record. Output charges also cut at fastest rate since April 2009.

                        Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said: “The recovery of economic activity remained limited in March, although the domestic epidemic was contained. In the first two months this year, China’s value-added industrial output and services output dropped 13.5% and 13% year-on-year, respectively.

                        “Estimates suggest their declines haven’t been as steep in March and the country’s first-quarter GDP is likely to have dropped significantly. Such a situation requires policymakers to cut this year’s GDP growth target and step up countercyclical efforts to support areas like consumption and infrastructure, particularly given the accelerated contraction in the service sector job market.”

                        Full release here.

                        US ISM manufacturing falls to 48.5, prices down to 52.1

                          By
                          ActionForex.com
                          -

                          US ISM Manufacturing PMI fell from 48.7 to 48.5 in June, missed expectation of 49.3. That’s the third month of contraction reading.

                          Looking at some details, new orders rose from 45.4 to 49.3. Production fell from 50.2 to 48.5. Employment fell from 51.1. to 49.3. Prices tumbled sharply from 57.0 to 52.1.

                          ISM said: “The past relationship between the Manufacturing PMI and the overall economy indicates that the June reading (48.5 percent) corresponds to a change of plus-1.7 percent in real gross domestic product (GDP) on an annualized basis.”

                          Full US ISM manufacturing release here.

                          BoC hikes 25bps, raises 2023 GDP and CPI forecasts

                            By
                            ActionForex.com
                            -

                            BoC raises overnight rate by 25bps to 5.00% as widely expected. Correspondingly, the Bank Rate and deposit rate are increased to 5.25% and 5.00% respectively. In the new economic projections, both GDP and CPI forecasts for 2023 are upgraded.

                            Nevertheless, the central bank didn’t explicitly state a tightening bias in the statement. But the Governing Council will “continue to assess the dynamics of core inflation and the outlook for CPI inflation”, and ” remains resolute in its commitment to restoring price stability”.

                            BoC said that “Canada’s economy has been stronger than expected, with more momentum in demand”. In the new economic projections, GDP is forecast to grow 1.8% in 2023 (raised from 1.4%), 1.2% in 2024 (lowered form 1.3%0, and then 2.4% in 2025 (lowered from 2.5%).

                            CPI is projected to have a “slower return to target than was forecast in the January and April projections”. CPI is projected to slow to 3.7% in 2023 (raised from 3.5%), then 2.5% in 2024 (raised from 2.3%), and then 2.1% in 2025 (unchanged).

                            Full BoC statement here.

                            EU Barnier: More than 11 month needed for comprehensive agreement with UK

                              By
                              ActionForex.com
                              -

                              EU chief Brexit negotiator Michel Barnier warned that more time than 11 months is needed to complete a comprehensive agreement with UK. He said in a speech that “we simply cannot expect to agree on every single aspect of this new partnership in under one year.”

                              “We are ready to do our best and to do the maximum in the 11 months to secure a basic agreement with the UK, but we will need more time to agree on each and every point of this political declaration,” he added.

                              Gold to break 1810 to resume near term decline

                                By
                                ActionForex.com
                                -

                                Current decline in gold suggests that corrective recovery from 1810.07 has completed at 1875.59 already. Focus is back on 1810.07 support. Break will resume the decline form 1959.16 for 1764.31 low and below. Though above 1844.72 minor resistance will delay the bearish case and bring more consolidations first.

                                Overall, Gold is still extending the correction from 2075.18 high. Break of 1764.31 should be seen. But we’d expect strong support from 38.2% retracement of 1160.17 to 2075.18 at 1725.64 to contain downside to bring rebound.

                                US holds off tariff hike on EU, to start new negotiations instead

                                  By
                                  ActionForex.com
                                  -

                                  The US held off from a threatened tariff hike on EU products regarding the 16-year Airbus subsidies dispute, and signal its willingness to go back to negotiation table. The amount of products subject to the tariffs are kept unchanged at USD 7.5B, with 15% rate for aircraft and 25% on for other products.

                                  “The EU and member states have not taken the actions necessary to come into compliance with WTO decisions,” Trade Representative Robert Lighthizer stated. “The United States, however, is committed to obtaining a long-term resolution to this dispute. Accordingly, the United States will begin a new process with the EU in an effort to reach an agreement that will remedy the conduct that harmed the U.S. aviation industry and workers and will ensure a level playing field for U.S. companies. ”

                                  “The Commission acknowledges the decision of the U.S. not to exacerbate the ongoing aircraft dispute by increasing tariffs on European products,” an EU official said in response. “The EU believes that both sides should now build on this decision and intensify their efforts to find a negotiated solution to the ongoing trade irritants.”

                                  ECB de Guindos: Net interest margins are indeed under pressure

                                    By
                                    ActionForex.com
                                    -

                                    ECB Vice President Luis de Guindos said that ” recent softening of the macroeconomic growth outlook” and the “associated low-for-longer interest rate environment” are likely to weigh further on banks’s profitability prospects.

                                    He noted “many market analysts are concerned about the drag on bank profitability that could result from the negative impact of monetary policy accommodation on net interest margins”. And, “net interest margins are indeed under pressure”.

                                    He also said that recession in Eurozone is a very unlikely event. Meanwhile, the central banks won’t reach the limits on the QE program shortly.

                                    Eurozone CPI finalized at 0.3% in April, core CPI at 0.9%

                                      By
                                      ActionForex.com
                                      -

                                      Eurozone CPI was finalized at 0.3% yoy in April, down from 0.7% yoy in March. Core CPI was finalized at 0.9% yoy, down from March’s 1.0% yoy. In April, the highest contribution to the annual Eurozone inflation rate came from food, alcohol & tobacco (+0.67%), followed by services (+0.52%), non-energy industrial goods (+0.09%) and energy (-0.97%)

                                      EU CPI was finalized at 0.7% yoy, down from March’s 1.2% yoy. The lowest annual rates were registered in Slovenia (-1.3%), Cyprus (-1.2%), Estonia and Greece (both -0.9%). The highest annual rates were recorded in Czechia (3.3%), Poland (2.9%) and Hungary (2.5%).

                                      Full release here.

                                      US Mnuchin expects Q3 rebound, NY Cuomo outlined phase-in reopening

                                        By
                                        ActionForex.com
                                        -

                                        US Treasury Secretary Steven Mnuchin tried to sound optimistic in a Fox New Sunday interview, and predicted a rebound in the economy is Q3. He said, “I think as we begin to reopen the economy in May and June, you’re going to see the economy really bounce back in July, August, September.”

                                        “And we are putting in an unprecedented amount of fiscal relief into the economy,” he added. “You’re seeing trillions of dollars that’s making its way into the economy and I think this is going to have a significant impact.” “As businesses begin to open, you’re going to see demand side of the economy rebound.”

                                        Separately, New York Governor Andrew Cuomo outlined the phased-in reopening plan of the state in details on Sunday. Construction and manufacturing upstate, which are seen as being low risk, will begin reopening in the first phase starting may 15. After at least two weeks, phase two could begin involving evaluation businesses on a case-by-case basis, on how essential they are. The reopening of the more “problematic” downstate New York City, Nassau, Suffolk, Westchester, “they all have to be coordinated”, Cuomo said.

                                        An update of AUD/JPY short, lower stop to breakeven

                                          By
                                          ActionForex.com
                                          -

                                          Here is an update on our AUD/JPY short (sold at 80.25), as entered here.

                                          The cross finally resumes recent down trend today by breaking 79.51 to as low as 79.05 so far. 79.16/22 cluster is already breached (61.8% projection of 83.92 to 79.69 from 81.78 at 79.16, 61.8% retracement of 72.39 to 90.29 at 79.22). But as noted before, we’d expect this cluster to be taken out with relative ease on current down side momentum, as seen in daily MACD.

                                          The real test lies in 77.55/85 (61.8% projection of 90.29 to 80.48 from 83.92 at 77.85, 100% projection of 83.92 to 79.69 from 81.78 at 77.55). A way to trade this is to take profit at 78.00, slightly above this cluster. But we’d prefer not to rigidly do that but assess the downside momentum further.

                                          We’re indeed looking at the prospect of deeper fall towards 72.39 low, as the rejection from falling 55 week EMA was rather bearish in medium term. The whole up trend from 72.39 (2016 low) should have completed at 90.29 (2017 high). Sustained break of 61.8% retracement of 72.39 to 90.29 at 79.22, which we anticipate, could pave the way to retest 72.39 low.

                                          So now, we’ll hold AUD/JPY short (sold at 80.25). Stop is lowered to breakeven at 80.25, to give it a little breathing room, yet guard against a strong rebound from 79.16/22 in case we’re wrong. We won’t put a target yet, but will assess downside momentum of the current decline.

                                           

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