New York Forex Report: Pound Under Pressure

New York Forex Report: Pound Under Pressure

New York Forex Report: While the BoE’s Monetary Policy Committee left policy unchanged last week, the decision of three members to vote for an immediate hike was a big surprise. Even if the probability of a near-term UK interest rate hike remains low, the unexpected closeness of the vote points to a growing division on the MPC. The lengthy pre-election purdah period means that it has been some weeks since we have heard from BoE officials. So today’s speech from Governor Carney was a shock to markets to hear his more dovish overtones with respect to rates and inflation/income prospects for the UK. His remarks sent cable sharply lower as it sits just above post election lows and feels offered. Today’s current account data for Q1 showed that the Eurozone posted a surplus decline which weighed on the EUR, while the US will probably show a very sizeable deficit. This is a position that continues to vex US President Trump, although it should be noted that the US’s deficit has on some measures fallen sharply over the past decade.

USD Following the Fed’s decision to raise rates last week, New York Fed President William Dudley said that sustained job gains will eventually trigger higher price growth. His hawkish comments revived optimism that another round of monetary policy tightening may materialise before the end of the year, in line with policy makers’ expectation for three rate hikes this year.

EUR With energy prices falling back over the past few weeks, inflation expectations have taken a step back to 2017 lows. The corresponding decline of inflation expectations may be holding back the EUR in a way directly related to the European Central Bank (ECB). The ECB and President Mario Draghi have taken careful, measured steps at recent policy meetings in order to signal that their accommodative policy will be around through at least 2018. The market’s collective response may be part of the reason the Q2’17 EUR rally has faded: the odds of a rate hike by the end of 2017 have dipped to 10.7%.

GBP Report by Rightmove showed that UK’s house prices increased 1.80% YoY to average price of £316.11k in June (May: +3.00% YoY). That was the slowest gain since June 2013 as demand was dampened by slower rise in wage gain and intensifying risks from Brexit negotiation. Results matched softer increase in house prices from Nationwide’s report. Bank of England Governor Mark Carney said that it is not yet time to begin tightening monetary policy, and that he wanted to wait and see whether wage growth picks-up and how the economy responds to the reality of negotiations to leave the European Union. In a speech delivered at the Mansion House Carney highlighted the feebleness of UK wage growth and made the case for extending the wait-and-see approach to rate setting. At the June MPC meeting three members voted for a 25 basis point hike, but Carney made the case for maintaining the status quo

JPY Japan’s exports rose 14.90% YoY to 5.851 trillion in May after an increase of 7.50% YoY in April. On the other hand, imports grew 17.80% YoY in May (April: +15.20% YoY). Trade balance unexpectedly slipped to a deficit of 203.4 billion yen in May due to the 7.5% MoM decline in exports and 3.5% increase in imports.

Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Neutral

Technical: 1-3 Day View – Breach of 1.12 from above reaffirms range trade delaying attempts at equidistant swing objective of 1.1291 en-route to a test of broader symmetry swing objective at 114.30. As 1.1210 caps upside the near term downside objective is sited at 1.1125 symmetry swing support.

1-3 Week View – While 1.0830 supports 114.30 becomes the primary upside objective. A weekly close over 1.1450 sets upside focus on 1.1876. Weekly close below 1.08 neutralises bullish objectives
Retail Sentiment: Neutral
Trading Take-away: Neutral

Outlook: Short Term (1-3 Days): Bearish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – Retest of 1.2639 post election low survives and the subsequent short squeeze is testing pivotal resistance at 1.2785 ahead of symmetry swing resistance sited at 1.2842, price action appears corrective for now, leaving 1.2639 vulnerable to another test.

1-3 Week View – The weekly failure to close above 1.3045 ahead of the broader symmetry swing objective sited at 1.3238 suggest underlying weakness persists 1.2450 becomes pivotal for the medium term perspective
Retail Sentiment: Neutral
Trading Take-away: Neutral

Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bearish

Technical: 1-3 Day View – A daily closing breach of 111.80 level would reset focus on upside objectives principally 113.78, near term support is sited at 111.40, only below 110.30 would arrest the advance.

1-3 Week View – As 108.40 equidistant swing support survives on a weekly closing basis bulls will look for a grind higher to retest 115, a close below 108 negates the broader bullish theme and opens the psychological 100 magnet
Retail Sentiment: Neutral
Trading Take-away: Neutral

Outlook: Short Term (1-3 Days): Bullish – Medium Term (1-3 Weeks): Bullish

Technical: 1-3 Day View – Bullish consolidation targets 129.44 as the medium term upside objective, near term upside objective of 126.84 as 123.90 supports, only below 122 concerns near term bullish bias, opening a move to test 121.36.

1-3 Week View – The weekly close above 118.50 arrested the immediate downside risk, resetting focus on pivotal 124.40 a weekly breach of this level opens 129.44 as the broader upside objective
Retail Sentiment: Bearish
Trading Take-away: Long

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