Analyst Articles – Forex News 24

Canadian Dollar Technical Analysis Overview: USDCAD, CADJPY
USD/CHF Price Outlook – May Rally to the current trading range High
EURUSD Corrects Lower Ahead of the ECB Policy Meeting
EURUSD and USDCAD Reversal Days at Key Levels Shift Trading Bias’
EURUSD Rate Vulnerable to Dovish ECB Forward Guidance
S&P 500 Price at Reversal Point, Stocks in Limbo Before Trade Talks
Nikkei 225 Fightback Looks Short Of Steam Below Key Trendline
Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide
ECB Meeting Preview – Negative Rates and TLTROs
USDMXN Soars as US-Mexico Trade Deal Fails, Stock Volatility Ahead

Canadian Dollar Technical Analysis Overview: USDCAD, CADJPY

Posted: 06 Jun 2019 04:08 AM PDT

CAD Analysis and Talking Points

USDCAD | Key Support Holding for Now
CADJPY | Bearish Trend Remains

See the DailyFXQ2 FX forecast to learn what will drive the currency throughout the quarter.

USDCAD | Key Support Holding for Now

Despite last weeks topside breach of the 1.3520 level, failure to consolidate above has seen USDCAD return to its 2-month range with a test now on for a move below 1.34. Consequently, focus on the downside will be the 1.3350-70 zone in which the pare has previously found support. Momentum indicators have tilted to a bearish bias albeit modest so, which in turn could see any downside breaks meet strong support. As such, for a bearish momentum to build eyes will be on for a close below 1.3350, which in turn could open scope for a move towards the 200DMA situated at 1.3270.

USDCAD PRICE CHART: Daily Time Frame (Dec 2018 – June 2019)

Chart by IG

CADJPY | Bearish Trend Remains

As we have continued to highlight, the trend in CADJPY remains bearish with yesterday providing another example that upticks have been short-lived. Momentum indicators in the short- and long-term timeframes continue to tilt to the downside. Consequently, the cross is now testing key support stemming from the 2017 and 2018 lows (80.50-65) having broken back below the 23.6% Fib level (80.82). As such, a closing break below will raise the risk of another test of the 80.00 handle as CADJPY looks to make a return to flash crash lows. On the topside however, resistance sits at 81.00, while the bearish momentum could abate somewhat providing the cross breaks above 82.00.

CADJPY PRICE CHART: Daily Time Frame (Aug 2018 – June 2019)

Chart by IG

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

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2019-06-06 11:00:00

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USD/CHF Price Outlook – May Rally to the current trading range High

Posted: 06 Jun 2019 03:32 AM PDT

USD/CHF Price Forecast, Charts and Analysis

US Dollar looking ahead to important data release tomorrow, including NFP figures.
USD/CHF bears hesitation in sending the price lower.

Find out more about USD price outlook through mid-year, download for freeQ2 major currencies forecasts

To learn more about data releases for this week check outDailyFX Economic Calendar

USD/CHF – Bearish Trend Losing Momentum

On May 31, USD/CHF continued its bearish trend after testing the levels discussed in our previous article. At the same day, the monthly candlestick closed with 1.8% loss at 1.0008.

On Jun 3, USD/CHF opened the week's session with a downside measuring gap leading the pair to trade even lower. Yesterday, the price broke below the March 20 low printing 0.9854 its lowest level in nearly five months. However, it rallied after closing at 0.9940 highlighting the bears hesitation in sending the price lower.

Alongside this development, the relative strength index (RSI) failed to shift to the oversold territory below 30 and rose yesterday to 35 reflecting a slight weakness in the bearish momentum.

USD/CHF Daily Price Chart (Oct 15, 2018 – June 6, 2019) Zoomed in

USD/CHF Daily Price Chart (April 20, 2018 – June 6, 2019) Zoomed Out

Just getting started?See our Beginners' Guide for FX traders

Looking at the daily chart we notice yesterday that USD/CHF pulled back to the trading range (0.9881- 1.0008) after rebounding from 0.9854. Therefore, the pair might try to test the higher end of the mentioned range. However, both 0.9971 (61.8% Fibonacci retracement) and the weekly resistance at 0.9991 need to be watched closely.

Any close above 1.0008 would mean that USD/CHF may move to the higher trading range (1.0008- 1.0128) with more likelihood to see the higher end. Although, weekly resistances at 1.0042, 1.0068 and 1.0100 need to be in focus.

In turn, a close below 0.9881 could mean more bearishness towards 0.9786. Weekly support levels at 0.9866, 0.9840 and 0.9808 are worth monitoring.

Having trouble with your trading strategy?Here's the #1 Mistake That Traders Make

USD/CHF Four-HOUR PRICE CHART (May 16 –JUN 6, 2019)

Looking at the four-hour chart, we notice the price rebounded on Jun 4 at 0.9956 and since then failed to break above. This level meets today with the up-trend line originated from the Sep 21 low at 0.9542. Therefore, any break above this threshold could start up a bullish move towards 1.0008. However, resistance levels mentioned above need to be considered.

On the flipside any break below 50% Fibonacci retracement at 0.9923 could send the price to retest 0.9881. The weekly support at 0.9904 is worth monitoring.

Written By: Mahmoud Alkudsi

Please feel free to contact me on Twitter: @Malkudsi

2019-06-06 09:00:00

EURUSD Corrects Lower Ahead of the ECB Policy Meeting

Posted: 06 Jun 2019 02:54 AM PDT

Euro Talking Points:

The Eurozone managed to grow in the first quarter of 2019, but inflation remains low.
EURUSD pares some of yesterdays gains as investors await Mario Draghi's economic outlook.
EURGBP remains firm as Brexit concerns keep the Pound subdued

The Euro was mixed against other major currencies in the opening of the European session as investors digest the large number of data releases in the last 48 hours, ahead of the ECB rate meeting later today.

Join our analyst Nick Cawly as he follows the ECB rate release and its impact on the markets in our live webinar at 12.30pm BST.

DailyFX Economic Calendar

EURUSD was showing some volatility in the morning session on the back of the three-week highs recorded yesterday after ADP hugely missed expectations about private job creation in the US in the month of May. The pair passed the 1.1300 handle for the first time since April 18 but slipped back shortly after, settling around 1.1227 where it traded in a tight 12-pip range in the overnight session.

EURGBP showed some resilience to the anticipation of the ECB meeting in the morning session as Brexit and weakening UK macroeconomic data continue to dampen Sterling's ability to push higher. GBP failed to take advantage of EUR bears to bring the pair down from highs of 0.8900 recorded on Tuesday, last seen in the month of January at the height of Brexit deal voting turmoil. The pair is currently trading around 0.8860. The contraction experienced in the UK manufacturing industry kept the composites PMI below expectations for the month of May, despite a slight improvement in services PMI.

UK data released in the last few days: PMI figures are mostly below expectations

The Eurozone continues to grow and unemployment falls

Final GDP figures confirm that the Eurozone managed to grow 0.4% in the first quarter of the year, despite continuing political and economic uncertainty dampening growth prospects around the globe. On top of that, employment managed to stay strong as the first quarter of the year saw a growth in employment of 0.3% for the bloc, further supported by the fall in unemployment that was revealed on Tuesday, where the unemployment rate fell from 7.7% to 7.6% in the month of April. Household consumption for the first quarter of the year was 0.5% up from 0.3% in the previous quarter but missing expectations of 0.6%.

Services PMIs remained mostly above expectations for the month of May, keeping the Eurozone Composite PMI in expansion at 51.8 (Exp. 51.6) despite growing concerns about the manufacturing industry.

EURUSD Corrects Lower Ahead of the ECB Policy Meeting

Inflation continues to fall below the target

Despite a positive note from employment and growth, investors remain weary as inflation continues to fall despite the ECB's efforts to push prices higher by increasing the money supply in the market. Headline inflation in the Eurozone fell to 1.2% YoY in the month of May, down from 1.7% in the previous month and below expectations of 1.3%, with core inflation dropping to 0.8% YoY. The 5y5y inflation swap, a measure of euro-area inflation expectations, has fallen to its weakest level since 2016.

EURUSD rejected after trend-line breaks

The Euro was posting a solid day yesterday, trading above the trend-lines from February and September of last year as well as highs carved out last month, before turning lower to close near the lows of the session. This turnabout carved out a strong rejection candlestick, shifting focus lower.

Looking to the downside, with the way EURUSD has been trading for months now, a big down-move may not be in store but the near-term trading bias as long as yesterday's high at 11306 is not breached, is now negative. Range conditions could persist which means the area just above 11100 could once again act as a solid floor.

However, risk is still skewed in favor of a downside breakout developing at some point given broader trend forces in place since the 2018 high. A breakdown below 11000 is seen as needed to get the Euro rolling downhill towards an eventual target of 10724, the April 2017 gap from the French election.

Trading Forecasts and Educational Guides for traders of all experience levels can be found on the DailyFX Trading Guides page.

EURUSD Daily Chart (Big rejection at resistance)

USDCAD turns off 17-mo t-line, bottom of range

USDCAD has been no easy handle with it lacking direction for weeks on end, but that doesn't mean there aren't trading opportunities still out there in the pair. Yesterday, we saw price rejected at the bottom of the recent multi-week trading range, which is in confluence with the trend-line from the end of January 2018.

It wasn't a strong rejection like the one seen in EURUSD, but nevertheless it showed a willingness by buyers to show up at support. Barring a breakdown below 13362, yesterday's low, look for USDCAD to try and trade back to the high end of the recent trading range, Jan '16 trend-line, right around the 13500-mark.

Bigger picture forces still remain tentatively to the upside and as such an upside breakout could eventually develop, but traders will want to keep persistent range conditions in mind. On the flip-side, a breakdown below the 2018 trend-line would be considered a materially bearish event should such a break get separation. This will be discussed later should it become relevant.

USDCAD Daily Chart (rejected at support)

***Updates will be provided on these ideas and others in the trading/technical outlook webinars held at 9 GMT on Tuesday and Friday. If you are looking for ideas and feedback on how to improve your overall approach to trading, join me on Thursday each week for the Becoming a Better Trader webinar series.

Resources for Forex & CFD Traders

Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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2019-06-06 08:03:00

EURUSD Rate Vulnerable to Dovish ECB Forward Guidance

Posted: 05 Jun 2019 11:47 PM PDT

Trading the News: European Central Bank (ECB) Interest Rate Decision

The European Central Bank (ECB) interest rate decision may fuel the recent pullback in EURUSD as the Governing Council continues to pursue its monetary easing cycle.

Image of DailyFX economic calendar

The ECB meeting may influence the near-term outlook for EURUSD as there appears to be a growing discussion at the central bank to implement a negative interest rate policy (NIRP) on the Main Refinance Rate, its flagship benchmark for borrowing costs.

It seems as though the Governing Council will continue to rely on its non-standard measures to insulate the Euro-area as "slower growth momentum is expected to extend into the current year," and a dovish forward guidance for monetary policy is likely to weigh on the Euro Dollar exchange rate as it boosts speculation for a more accommodative stance.

However, the ECB may merely attempt to buy more as the central bank prepares to launch another round of Targeted Long-Term Refinance Operations (TLTRO), and a more bullish scenario may materialize for EUR/USD if President Mario Draghi and Co. stick to the same script.

Sign up and join DailyFX Currency Strategist David Song LIVE for an opportunity to discuss key themes and potential trade setups surrounding foreign exchange markets.

Impact that the ECB interest rate decision had on EUR/USD during the last meeting

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR

2019

04/10/2019 11:45:00 GMT

0.00%

-23

-5

April 2019European Central Bank (ECB) Interest Rate Decision

EUR/USD 15-Minute Chart

Image of eurusd 15-minute chart

As expected, the European Central Bank (ECB) stuck to the zero interest rate policy (ZIRP) in April, with the central bank largely endorsing a dovish forward guidance as "the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council's inflation aim in a sustained manner."

It seems as though the ECB will keep the door open to further support the monetary union as "the risks surrounding the euro area growth outlook remain tilted to the downside," and the Governing Council may continue to push monetary policy into uncharted territory as the central bank struggles to achieve its one and only mandate for price stability.

The Euro struggled to hold its ground following the dovish comments, but the market reaction was short-lived, with EURUSD bouncing back from a low of 1.1230 to close the day at 1.1274. Learn more with the DailyFX Advanced Guide for Trading the News.

EUR/USD Rate Daily Chart

Keep in mind, the broader outlook for EURUSD remains tilted to the downside as both price and the Relative Strength Index (RSI) continue to track the bearish formations from earlier this year.
Moreover, the near-term outlook mired by the failed attempt to hold above the Fibonacci overlap around 1.1270 (50% expansion) to 1.1290 (61.8% expansion), with EURUSD failing to extend the series of higher highs from the previous week.
In turn, a move below the 1.1190 (38.2% retracement) to 1.1220 (78.6% retracement) area raises the risk for a move towards 1.1140 (78.6% expansion), with the next downside region of interest coming in around the 1.1100 (78.6% expansion) handle.

Additional Trading Resources

New to the currency market? Want a better understanding of the different approaches for trading? Start by downloading and reviewing the DailyFX Beginners Guide.

Are you looking to improve your trading approach? Review the 'Traits of a Successful Trader' series on how to effectively use leverage along with other best practices that any trader can follow.

– Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.

2019-06-06 06:30:00

S&P 500 Price at Reversal Point, Stocks in Limbo Before Trade Talks

Posted: 05 Jun 2019 10:28 PM PDT

Asia Pacific Markets Talking Points

US-Mexico trade deal hopes left equities mixed in Asia Pacific markets
Market limbo may be ahead, ECB rate decision and trade talks in focus
S&P 500 sitting at resistance, offering fundamentals clear reversal point

Find out what retail traders' equities buy and sell decisions say about the coming price trend!

Markets in Limbo, Awaiting ECB and US-Mexico Trade Talks

Equities traded mixed in Asia Pacific trade, clinging on to hopes that the US and Mexico could reach a deal that avoids sparking another trade war front. After the two nations failed to reach an agreement earlier today, fueling a selloff in the Mexican Peso, they will be heading back for more talks in the coming 24 hours.

As such, the Nikkei 225 was only cautiously higher heading into Tokyo close, rising about 0.2%. In Australia, the ASX 200 was up higher, over 0.5%. However, materials underperformed with BHP shares sinking and inching closer to perhaps confirming a bearish candlestick pattern.

The anti-risk Japanese Yen was aiming narrowly higher against its major counterparts. S&P 500 futures are pointing cautiously lower, placing the focus for risk trends on the upcoming ECB rate decision and US-Mexico trade talks.

Until the outcome for the latter is clear, it may prove difficult for equities to sustain material gains, creating market limbo. This is because an escalation in trade wars, with US-China relations deteriorating and the USMCA in doubt, is clouding the fundamental outlook. Fed rate cut bets and US recession fears are on the rise.

S&P 500 Technical Analysis

Taking a closer look at S&P 500 futures to show afterhours trade and to see what may come, the index sits right on the near-term falling resistance line from May. Confirmation to the upside is needed to argue a breakout. Otherwise, resistance at 2824 may hold and send the index lower.

S&P 500 Futures Daily Chart

Chart Created in TradingView

FX Trading Resources

— Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

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2019-06-06 05:00:00

Nikkei 225 Fightback Looks Short Of Steam Below Key Trendline

Posted: 05 Jun 2019 09:16 PM PDT

Nikkei 225 Technical Analysis Talking Points:

The Nikkei has risen quite sharply from its recent lows
However, the bounce seems to be fading
Downtrend resistance remains comfortably in place

Get trading hints and join our analysts for interactive live coverage of all major economic data at the DailyFX Webinars.

The Nikkei 225 has staged a modest fightback from its recent lows but the fight seems to be fading short of the key resistance which will need to break to make it stick.

Fundamentally speaking the rally was rooted in the global stock bounce which followed the implication that US interest rates could go lower if needed to counter the gloomy effects of trade conflict on the indexes. Still, those effects are very much in play.

Technically speaking there's a clear short-term downtrend line on the daily chart, nicely confirmed by recent peaks. The bulls will need to break that convincingly and hold above it if the rally is to be anything more than a bump in the road a lower and, so far, that looks like being a tall order. That line currently provides resistance around 21,000. That's more than 200 points above the current market and the bulls will need to show some fight to even get there.

A good psychological start might be to top 20,952.6. That seems a more realistic target and getting there would mean that the Nikkei had clawed back all the losses incurred during the sharp falls of last Friday. A quick foray back up to this level might well indicate that there remains some near-term upside momentum.

However, while not impossible, such a move doesn't look likely from the chart and, indeed a test lower now seems more probable. That would put focus on support at the recent low of 20,287.5 and, probably reopen the broad support zone between that and January's cluster of trading action around the 19,985 region.

Momentum indicators don't suggest that that zone is in imminent danger of being broken anytime soon, but a retest of its upper regions seems the most likely prospect now, one which would incidentally confirm that another lower low had been made on the daily chart.

Resources for Traders

Whether you're new to trading or an old hand DailyFX has plenty of resources to help you. There's our trading sentiment indicator which shows you live how IG clients are positioned right now. We also hold educational and analytical webinars and offer trading guides, with one specifically aimed at those new to foreign exchange markets. There's also a Bitcoin guide. Be sure to make the most of them all. They were written by our seasoned trading experts and they're all free.

— Written by David Cottle, DailyFX Research

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2019-06-06 04:00:00

Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide

Posted: 05 Jun 2019 08:39 PM PDT

Fed Cut Talking Points:

The S&P 500 and Dow rallied back over their respective H&S ‘necklines’ but other risk assets were conspicuously divergent
A notable skew in favor of US equities may point to short-lived enthusiasm around rising probability for Fed rate cuts
With Trump unrelenting in trade wars with China and Mexico as the IMF downgrades growth forecasts after the WB, threats remain

Do you trade on fundamental themes or event risk? See what live events we will cover on DailyFX ahead (including the ECB rate decision and NFPs) as well as our regular webinar series meant to help you hone your trading.

The S&P 500 and Dow Negate their Reversal Patterns but Enthusiasm Isn’t Universal

The trouble with benchmarks is that they don’t always offer leading signals for the broader market – but many investors tend to assume they will. If we were to presume the normal leading influence from the key US indices this past session, there may be a systemic rise is risk assets – or it should already be under way in the strictest interpretation of the logic. Through Wednesday’s New York close, there was a notable charge from the likes of the S&P 500 and the Dow Jones Industrial Average. While those measures earned significantly smaller gains Wednesday than the previous session, the technical progress was far more substantial. With the additional reach, the Dow closed back above its 200-day moving average and both managed to overtake trendlines that counted as ‘neckline’ breaks on prominent head-and-shoulders patterns. That may not systemically reverse course in favor of a lasting bullish charge, but it nevertheless breaks the momentum in a progressive reversal pattern.

Chart of Dow with 200-day Moving Average and 1-Day Rate of Change (Daily)

Where enthusiasm deadens is with the search for confirmation in underlying sentiment trends through other assets that draw greater charge from basic sentiment – often referred to as ‘risk on’. There was a notably disparity in performance between the US equity market and most other risk leaning assets. Global equities were at best struggling while some region’s indices dropped. The German DAX, UK FTSE 100 and Japanese Nikkei 225 are good examples. And, showing it wasn’t just an afterhours US boost, the VEU ETF which is global equities excluding the US and trades during US market hours participated in the gap higher up but struggled thereafter. Outside the realm of stocks, there was a notable drop in junk bonds, emerging markets and latent carry trade interests. My ‘fundamental’ interests still rest with growth-dependent risk assets like commodities (the USCI index hit a new series low) and global government bond yields (which extended the slide to multi-year lows), which lead a very different charge.

Chart of Aggregate of 10-Year Global Yields and S&P 500 (Daily)

Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide

To determine whether the US indices are a leading measure or simply temporarily off the path, the most effective analysis we can do is to discover the ‘why’ to the disparity. From local data and most of the systemic fundamental themes we have been following these past weeks, there was little sign of improvement. There were, however, plenty of headline weighing in on the probability of Fed easing in the near future. The second day of the Fed’s policy framework conference drew different officials offering a mix of caution for projecting monetary policy and warning to slowly manage expectations towards the possibility of future rate cuts. Chairman Powell’s remarks that the Fed stood ready to act should the economy slow and necessitate support would only fuel the market’s heady anticipation for rate cuts. Rate cuts and more can offer a sudden infusion for markets, but it wouldn’t resolve the true problems that we could face. More importantly, if the Fed is put into the spotlight only to be deemed incapable of fighting the ailments of the global market, it could signal that there are no safety nets to an inevitable fall.

Chart of DXY Dollar Index and Implied Fed Funds Futures Yield through Dec 2019 (Daily)

Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide

Fear Over Trade Wars and Sputtering Growth Keep Yields, EM and Global Equities Under Pressure

Monetary policy’s ability to support or fail global risk trends is not a theme reserved to the influence of the Federal Reserve. It simply has the most ‘firepower’ left given its efforts to normalize policy from historical extremes these past three years. Today, we will see interest in central banks’ willingness and capacity to offer support spread to some of the other major players in the global spectrum. The European Central Bank (ECB) is due to update its policies Thursday, but the probability that they expand an already extreme position between a bloated balance sheet peaked, the revival of targeted-LTROs a few months ago and deposit rates in negative territory; there is very limited potential to do more. That said, the markets are building up their anticipation of a rate cut before year’s end. Add to this scheduled speeches by the heads of the Bank of England (Mark Carney) and Bank of Japan (Haruhiko Kuroda) are due to discuss monetary policy and/or economic activity.

Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide

While the backing of monetary policy is only reassuring so long as we don’t look too closely at its genuine capacity, there are other issues that are more firmly positioned as risks rather than potential boons. Trade wars remain one of the more headline friendly themes as of late. For the US-China standoff, the IMF warned that the countries’ course uncorrected would lead to further pain for the global economy. Treasury Secretary Steve Mnuchin said he would meet with his Chinese counterpart in Japan this weekend in advance of the G20 meeting, but there were few encouraging words about what was expected. We haven’t received any updates on when the White House intends to expand its tariff list from the present $200 billion in Chinese goods to encompass all of the country’s imports, but that threat remains. More pressing at the moment is the United States’ pressure on Mexico. President Trump reiterated his intent to place a 5 percent tax on all Mexican imports starting Monday if the country didn’t take meaningful steps towards curbing migration. That said, making for a new political front, Senate Republicans have suggested they would not support the economic barrier if the matter was put to them.

Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide

The result of unique pressures and the end game for fundamentals, growth concerns are another pull on investor confidence. Following up on the World Bank’s 0.3 percentage point downgrade on its global growth forecast, the IMF issued its own warning Wednesday. Reflecting on the intended and existing tariffs employed by the two countries, the supranational group said activity could cool by 0.5 percentage points next year if the policies are not quickly reversed. Between these groups’, central bank projections, PMIs and sentiment surveys; it is growing increasingly difficult to avoid darker turn for activity ahead.

Sorting What Matters to the Dollar, Euro, Oil and Gold

The implementation of fundamentals is all about first identifying what is most important for an asset, establishing options for different outcomes on that dynamic and then watching its development. That said, what is the principal driver for the US Dollar? There are definitely competing drivers for the benchmark currency. Its role as a safe haven has clearly been put on hold as there is an explicit deviation between its bearings and risk measures like the VIX. That said, a defacto carry currency performance isn’t exactly reliable as its progress has been frustrating. This past session, technical traders were relieved to find the DXY Index and EURUSD would abide by larger, favorable trends for the Greenback. The index bounced from its channel support and 200-day moving average leaving one of the biggest bullish tails we’ve seen all year. As dramatic as the intraday turn was, it still doesn’t alter the case for momentum. Attention for the Greenback moving forward will still be split between the pain of its major counterparts, evaluation of the Fed’s position and anticipation for the NFPs on Friday.

Chart of DXY Dollar Index and 200-Day Moving Average and 'Tails' (Daily)

Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide

The Euro will similarly be forced to prioritize its catalysts. On the systemic side, the Italy-EU standoff flared this past session. The European Commission was scheduled to release the evaluation of its most spendthrift member: Italy. According to the region’s policing authority, the country was on pace to breach the financial limits which opens it up to penalties. Italian Prime Minister Conte himself said the deficit would be 2.1 percent of GDP in 2019, but he went on to say they were working to change the EU’s fiscal rules. To bookend this contentious situation nicely, deputy Premier Salvini stated clearly that they would not back down from a planned tax cut, ensuring a confrontation and more strain on the perceived stability of the region and currency. This is a systemic risk whereas the ECB decision is more restricted even at the extremes of potential outcomes. Short of a surprise stimulus escalation or rate cut from the ECB, I will keep my focus on Italy.

Chart of EURUSD and 100-Day Moving Average (Daily)

Dow Overtakes 200 Day Average as Emerging Markets and Yields Extend Slide

In the commodity arena, there was particularly remarkable market movement that seemed to align to the underlying theme but which reflects on the unique aspects of these individual assets. Gold for instance would climb for a fifth consecutive session for the longest climb since December 2017. That stretched position happens to coincide with some serious technical levels in a multi-year resistance in the $1,360/80 area. To make things interesting, the metal would also put in for its biggest intraday reversal and bearish tail since April 2018. Crude oil on the other hand was not so clever with its intent. The commodity extended its slide to lows not seen since January. The growth-leaning risk asset felt the pressure of the demand side threats in tempered global growth and trade wars. Yet, there was also a supply-side consideration that would inevitably generate traction: the biggest jump in US inventories on records going back over three decades with a 22.4 million barrel infusion. We discuss all of this and more in today’s Trading Video.

If you want to download my Manic-Crisis calendar, you can find the updated file here.

2019-06-06 02:59:00

ECB Meeting Preview – Negative Rates and TLTROs

Posted: 05 Jun 2019 04:20 PM PDT

ECB Meeting Talking Points:

German bond yields have fallen to near-record lows as ongoing economic turmoil keeps investors worried about growth in the shorter-term
TLTRO III terms could be less favourable than previous rounds as the economy has recovered since the last time cheap funding was being considered
Negative interest rates could be in place for longer as the ECB looks at ways to mitigate the impact on banks

Thursday is expected to provide increased volatility EUR pairs as the European Central Bank (ECB) announces its interest rate decision. The last meeting in April saw key interest rates left unchanged and a continued dovish stance as its members repeated that they would continue to re-invest the principal payments from its bond-buying programme (QE) while keeping rates unchanged for the remainder of the year.

Economic data released in the last few weeks paints a grim picture for the Eurozone, with the latest hit coming from May's weaker-than-expected inflation figures. On top of the weakening data, there are ongoing trade tensions between the US and China which are dampening the global economic outlook, increased Brexit uncertainty and Italy's ongoing budget indiscipline. Considering all these factors there is no expectation of the ECB's easing monetary policy anytime soon; and bonds are pricing in just that, with yields falling to near-record lows across the globe.

A final reading of Q1 GDP is to be released on Thursday morning before the rate meeting, and although no significant change is expected, the updated growth forecasts for 2020 could provide some insight into how policymakers see growth prospects in the near future, with special focus on inflation given the disappointing figures released on Tuesday. Of key interest from this meeting is to see if the ECB members reveal any details about the new round of long-term cheap funding for Eurozone banks, TLTRO III.

What Will Influence the Terms of TLTRO III?

The last round of TLTRO financing which took place in 2016 was priced at the ECB's -0.4% deposit rate, meaning that lenders were being paid to borrow money to lend. But that was three years ago when the ECB was still trying to cope with the effects of the Eurozone debt crisis. A lot has changed since then, and although the last quarter of 2018 and the beginning of 2019 have seen economic growth struggles around the globe, the Eurozone's Q1 GDP growth of 0.4% shows that the economy is still managing to grow despite the troubles it faces.

Moreover, since the lows seen in 2013, the Eurozone lending growth rate has been steadily increasing in the last few years, with positive growth in place since the last time the ECB was deliberating on the terms and conditions of cheap lending to banks. Because of this, the terms of the new round of TLTROs may be less generous this time around.

Why the Need for Negative interest rates?

The intended purpose of negative interest rates is to push up inflation by increasing the amount of lending in the economy. A negative rate means that people could borrow at more favourable terms, but would in turn charge people for depositing money, thereby making saving less attractive.

In theory, lower interest rates allow banks to lend at more favourable rates without changing their interest margin – the difference between the rate at which they lend and the rate at which they fund their lending – which would lead to fewer credit losses and increased spending in the economy. An improvement in macroeconomic conditions would boost corporate profitability which would have a positive effect on jobs and wage growth. But most banks fear that charging a client for depositing their money would put people off saving and depositing money, which has led to banks not being able to pass on the full effect of negative rates on to clients. This can have a negative effect by squeezing bank's profitability.

It raises the question as to why a bank would lend money in a negative interest rate environment given that the lender is the one that bears the risk of default. But some central banks, like the ECB, are running out of ways to stimulate the economy and turn to the use of negative interest rates as a measure of last resort to avoid a deflationary spiral – where people hold on to cash as they wait for economic conditions to improve which leads to further weakening of the economic environment with a negative effect on jobs.

The ECB Could be Looking at Extending Negative Rates for Longer

Mario Draghi has previously mentioned that the ECB would be looking into whether measures are needed to mitigate the negative impact that negative rates can have on lenders. A possible way would be to introduce a tiering system that would only charge deposits over a certain threshold, a measure that has been used in other countries in the past. Such a move could open the possibility of a longer period of negative rates or even a cut in interest rates, which would raise the question if Eurozone banks are relying too much on cheap funding with no obvious positive effect on inflation.

ECB Meeting Preview - Negative Rates and TLTROs