Bank of Japan will continue large-scale incentives

Trading 23 jan 2019 Commentaire »

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The Bank of Japan has reduced its inflation forecasts and retained a large-scale incentive program amid growing risks for the economy in the form of trade protectionism and weakening global demand. The trade war between the United States and China, Japan's largest trading partners, is increasing pressure on the third largest economy in the world and undermining politicians' many years of efforts to promote sustainable growth.

As expected, the Bank of Japan has cut its inflation forecasts, reinforcing the view that it will have to continue unprecedented economic support for some time. The regulator noted that despite growing risks such as trade disputes and Brexit, Japan's economy will continue to grow at a moderate pace. However, a recent survey of economists has shown that external factors have increased Japan's chances for a downturn in the fiscal year starting in April, making it harder for the Bank of Japan to achieve a 2 percent inflation target.

The Bank of Japan confirmed its intention to continue buying Japanese government bonds and left the short-term interest rate unchanged at minus 0.1 percent. Many economists believe that the next step of the Bank of Japan will be the normalization of policy. Most expect it to happen in 2020 or later.

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On the eve of the ECB meeting, euro sales will be relevant

Trading 23 jan 2019 Commentaire »

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It seems that investors have decided to sit aside until the announcement of the meeting of the European Central Bank. The EUR / USD pair is almost immobilized. Meanwhile, the completion of QE in the old world and the reduction of political risks around Italy contribute to an increase in non-resident demand for bonds issued in Europe. This is an important growth driver for the main currency pair. The "bulls" apparently need evidence of an improvement in the macroeconomic situation in the form of positive statistics and signals about the normalization of monetary policy. But here, it is worth declaring about the deficit.

Although the economic sentiment from ZEW in Germany has improved somewhat, the assessment of the current state of the economy by investors has collapsed to a minimum of 4 years. The European bulls are worried about the possible easing of the rhetoric by ECB officials at a meeting on January 24; they are also afraid of hints of a resumption of QE against the background of a serious economic slowdown in the second half of last year.

The expected breakthrough was not brought by trade negotiations between Washington and Beijing. According to Larry Kudlow, chief economic adviser to the US president, their scale was deeper and wider than ever. However, the effectiveness of the dialogue will depend on the fulfillment of the commitments made by China, the official stressed. He also made it clear that Donald Trump, while striving to make a deal, will continue to stand his ground.

It should be noted that the meeting between Vice Premier of China Liu He and US Trade Representative Robert Lightheiser, scheduled for January 30-31, should be an important event in the talks.

The EURUSD pair for five of the six previous trading sessions closed in negative territory. However, the "bears" cannot yet link their success with the strength of the US economy. Everything is exactly the opposite: housing sales fell to a 3-year low, and price increases slowed sharply.

Apparently, the pair until the ECB meeting will continue to consolidate within 1.13-1.145.

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Strategists at Citigroup believe that on the eve of the ECB meeting, traders can make a profit from the "short position" on the EUR / USD pair. According to their estimates, announced on Wednesday, the rate may fall on Thursday by 0.3%, to 1.1360.

The bank does not expect any changes in the interest rate policy or in the text of the final statement. According to analysts, it is not worth waiting for the announcement of new measures or policy instruments. Most likely, regulator officials will recognize the weakening of economic growth in the eurozone, point out the risks for forecasting inflation, and reduce the risk assessment to "distorted downward".

A hawkish scenario that will not contain changes to the text of the final statement may lead to an increase in the EUR / USD pair by 0.3%, to 1.1390. The least likely "pigeon" scenario can significantly change the rate of EUR / USD, they write in Citi. In this case, a fall of 1.3% is possible, to 1.1220.

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The dollar has slacked along with the rest of the assets, but there are hopes for recovery

Trading 23 jan 2019 Commentaire »

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Investors are cautiously returning to riskier assets, even though concerns about corporate income and global economic growth persist. In addition, hopes for a boost in stimulating the economy by the Chinese authorities offset the concerns about progress in the negotiations between Washington and Beijing.

Futures on the US currency again point to a positive start for Wall Street after the most serious losses in nearly three weeks. The main driving force behind the fall was the Financial Times report that Washington rejected Beijing's proposal to hold preparatory trade talks this week in anticipation of the summit talks scheduled for next week. Despite the fact that the Trump administration later denied this message, the markets suffered serious damage.

In general, the situation remains tense. The weakening of incentives from a number of central banks, the slowdown in China, the wider effects of trade wars and populist rhetoric from politicians keep markets on the edge. The latest figures indicate that 2019 will be difficult for the global economy.

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GBP and JPY: Pound is rising on Brexit statements. Bank of Japan is waiting for inflation growth

Trading 23 jan 2019 Commentaire »

While the European currency is trapped in a narrow side channel paired with the US dollar, the British pound finds the strength to overcome more and more resistance levels amid the appearance of at least some information regarding Brexit.

Let me remind you that the pound was supported by the statements of the British Prime Minister Theresa May at the beginning of this week, while today's representatives of the British political elite also spoke on the current agreement.

The pound made its way through the annual maximums and continued its upward correction after the statements made by the Minister of Commerce of Great Britain Liam Fox, who noted that it is likely to have time to work out a deal and implement it by March 29, since the biggest risk for the country is when politicians fail to cope with challenge. According to him, Brexit without an agreement is possible, but unlikely.

Today, the head of the IMF, Christine Lagarde, spoke on Brexit, saying that Brexit creates additional tension for both the EU and the UK.

The likelihood of a softer Brexit, or the extension of the UK exit from the EU, which traders and experts are now focusing on, will make it possible to count on further purchases of the British pound under current conditions. The breakthrough of this year's high maximum around 1.3000 triggered a series of stop orders, which made it possible to continue the upward correction in the trading instrument, whose immediate target would be the levels of 1.3065 and 1.3130.

The Canadian dollar continued to decline today in tandem with the US dollar after a weak report on retail sales in Canada, which sharply declined amid falling sales at gas stations.

According to a report by the National Bureau of Statistics of Canada, retail sales in Canada in November 2018 fell by 0.9% compared with October and amounted to 50.39 Canadian dollars. Economists had expected sales to fall by 0.6% in November. Compared to the same period of the previous year, retail sales in November increased by only 0.5%.

The Japanese yen also continued to decline against the US dollar, after it became known that the Bank of Japan left interest rates on deposits at a negative level in the region of -0.1%, and the target level of yield on 10-year bonds was in the region of 0%. The bank said that they will continue to make the purchase of government bonds in the amount of 80 trillion yen per year. The statement also noted that current interest rates will persist for a long period.

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Core CPI is expected to grow by 0.8% in the current fiscal year versus a previous forecast of 0.9%. As for economic growth, the economists of the Bank of Japan forecast real GDP growth of 0.9% in the current fiscal year against a previous estimate of 1.4%.

The head of the Bank of Japan has repeatedly noted that it will only be possible to talk about an increase in interest rates after inflation reaches a target value of 2.0%.

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The Brexit delay is real, pound bulls in the game

Trading 23 jan 2019 Commentaire »

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The British pound rose against the backdrop of strong data on the labor market and in spite of the existing problems around Brexit. It's not entirely clear why traders did not disappoint Theresa May's backup plan, which is practically a copy of the original plan. In addition, "Plan B" does not include the much-needed request for an extension of Article 50 of the Lisbon Treaty. Currently, sterling continues to focus on negotiations on Brexit. They were so disastrous that the market began to put on a second referendum.

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Investors do not take into account the prospects of "hard" Brexit, although the political risk has not gone away, and volatility will certainly increase if market participants do not see a clear way out of the crisis.

Since the exit without a deal can hurt the UK economy, the parliament is now close to postponing the date. Increasingly, this proposal is supported by Labor, who form the basis of the opposition. One of the leading representatives of the party, John McDonnell, calls the idea of changing the release date (from March 29 to a later date) "reasonable", as this method will avoid shocks.

"I really think that we are faced with potentially quite catastrophic consequences for people's living standards, and therefore we said that we should avoid this," the politician said in an interview with the BBC.

If this proposal is supported by the Labor Party, including former Minister Yvette Cooper, then, in all likelihood, the plan will be approved. Such a turn of events could lead May to guarantee that she would not withdraw the UK from the EU without a deal in nine weeks.

It is clear that the situation is a dead end. Most parliamentarians opposed the withdrawal agreement, which the British Prime Minister so long agreed with EU officials, but there was no time left for new negotiations and a revision of its provisions.

Just in case, the "hard" Brexit script is still worth considering. The financial authorities of the country believe that this alignment will lead to a collapse of the pound by 25%.

Meanwhile, since the beginning of the year, the "Briton" has risen in price by 1.2%, paired with the dollar by 2.1% against the euro.

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Euro can cover economic winter

Trading 23 jan 2019 Commentaire »

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Many predicted the euro growth for the foreseeable future last year, relying on the rise in German government bonds yields, a pause in the Fed's monetary tightening cycle and a possible increase in interest rates from the ECB.

However, data published in January showed that production orders and industrial production in the largest country in the region declined, and the yield on government bonds was stuck near two-year lows.

The ECB promised to keep the rate unchanged at least until the end of the summer of 2019, but the money market does not expect an increase in the cost of lending before the second quarter of 2020.

Societe Generale experts believe that the region's grim economic prospects will put pressure on the euro.

"If the American economy did not slow down, the single European currency could have already been trading near the $ 1.10 mark. We are leaning towards short positions in the euro versus the pound, the yen, and the Australian dollar," they noted.

"The slowdown in the eurozone's GDP growth rate suggests a drop in the business activity indicator in the industrial sector to 48 points in the next four to five months," said Citigroup experts.

"If this recession is accompanied by a decrease in inflation to the levels of 2016, then investors will again have to face zero or lower returns," they added.

Meanwhile, Goldman Sachs analysts believe that the euro can benefit from the fact that the US economy slows down faster than the European one.

"Despite the fact that in both economies there are signs of a slowdown, the euro has room for growth as the negative dynamics develop in the USA. The weakness of the statistics in the eurozone is caused by temporary factors. We expect that in three months the EUR / USD pair will rise to the level of 1.17," they said.

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Intraday technical levels and trading recommendations for GBP/USD for January 23, 2019

Trading 23 jan 2019 Commentaire »

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On December 12, the previously-dominating bearish momentum came to an end when the GBP/USD pair visited the price levels of 1.2500 where the backside of the broken daily uptrend was located.

Since then, the current bullish swing has been taking place until January 17 when significant bearish rejection was demonstrated around 1.2999 (Bearish Engulfing candlestick around the downtrend line).

This paused the bullish scenario for a while, allowing sometime for bearish correction towards 1.2830 where another bullish swing was initiated. The GBP/USD pair is currently approaching the price level of 1.3040.

For the bullish scenario to remain valid, bullish persistence above the price level of 1.3000 (The previous Weekly High) should be maintained on a daily basis.

Bullish persistence above 1.3000 enhances a further bullish advance initially towards 1.3155 (Depicted Supply level).

Otherwise, any decline below 1.3000 invalidates the bullish scenario for the short term.

This may bring the GBP/USD pair again into bearish correction that may extend down towards 1.2800 (Nearest Demand Level).

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GBP / USD pair: plan for the American session on January 23. Great Britain risks remain without Brexit deal

Trading 23 jan 2019 Commentaire »

To open long positions on the GBP / USD pair, you need:

Statements by the Minister of Commerce of Great Britain saying that it was impossible to work out and implement the deal by March 29 led to the strengthening of the pound in the first half of the day, as many traders expect to extend the exit from the EU. Fixation above the level of 1.3006 with testing from top to bottom in the afternoon will be a good signal to continue buying of the pound to a maximum of 1.3064 and 1.3127, where I recommend taking profits. In the case of a return below the level of 1.3006, long positions can return immediately to the rebound from the support of 1.2944.

To open short positions on the GBP / USD pair, you need:

The growth of the pound continued and the breakthrough of resistance 1.3006 led only to the removal of a number of stop orders. At the moment, it is best to return to short positions after updating the highs around 1.3064 and immediately to the rebound from 1.3127. The main task of sellers in the afternoon will be the return of GBP / USD to the support level 1.3006, which will lead to the closure of a number of long positions and the correction of the pound to the support area of 1.2944.

More in the video forecast for January 23

Indicator signals:

Moving averages

Trading takes place above the 30-day and 50-day moving, indicating the bullish nature of the market.

Bollinger bands

A break of the upper limit of the Bollinger Bands indicator signifies the presence of pound buyers in the market and as long as trade is above the middle of the channel at 1.2965, the demand will remain.

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Description of indicators

MA (moving average) 50 days - yellow

MA (moving average) 30 days - green

MACD: fast EMA 12, slow EMA 26, SMA 9

Bollinger Bands 20

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Intraday technical levels and trading recommendations for EUR/USD for January 23, 2019

Trading 23 jan 2019 Commentaire »

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Since June 2018, the EUR/USD pair has been moving sideways with a slight bearish tendency. Narrow sideway consolidations have been maintained within the depicted Flag Channel (In red).

On November 13, the EUR/USD pair demonstrated recent bullish recovery around 1.1220-1.1250 where the current bullish movement above the depicted short-term uptrend (In blue) was initiated.

Bullish fixation above 1.1420 was needed to enhance further bullish movement towards 1.1520. However, the market demonstrated significant bearish rejection around 1.1420 a few times.

This renders the recent bullish breakout above 1.1420 and 1.1520 as a false breakout. Hence, any bullish pullback towards 1.1420 can be considered as a valid SELL entry for intraday traders.

The current bearish consolidation below the key level of 1.1400 encourages more bearish decline down to 1.1250 as Initial target provided that the minor uptrend line located around 1.1350 is broken towards the downside.

Trade Recommendations:

Conservative traders can wait for a bearish breakout below 1.1350 (short-term uptrend in BLUE) as a valid SELL entry.

T/P levels should be located around 1.1310, 1.1270, and 1.1225. S/L should be located above 1.1420.

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EUR / USD pair: plan for the American session on January 23. Lack of news leaves the euro in the side channel

Trading 23 jan 2019 Commentaire »

To open long positions on EUR / USD pair, you need:

The situation did not change compared to the morning forecast. The first signal to buy EUR / USD will be the breakdown and consolidation above the resistance level of 1.1376, which will lead to a stronger upward correction in the area of the maximum of 1.1411 and 1.1451, where I recommend taking profits. The formation of a false breakdown in the support area of 1.1339 will also be the reason for buying the European currency. Otherwise, it is best to open long positions to rebound from this year's low around 1.1307.

To open short positions on EUR / USD pair, you need:

Only the formation of a false breakdown in the support area of 1.1376 will be the first signal to open short positions with the main goal of returning and fixing below yesterday's minimum in the area of 1.1339, which will lead to a larger sale of EUR / USD with an exit to the level of 1.1307, where I recommend to take profits. In the case of the euro growth scenario, it is best to return to short positions to rebound from a maximum of 1.1411.

More in the video forecast for January 23

Indicator signals:

Moving averages

Trade is conducted in the area of 30- and 50-medium moving, which indicates the lateral nature of the market.

Bollinger bands

The volatility of the Bollinger Bands indicator is low, which does not give signals to enter the market.

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Description of indicators

MA (moving average) 50 days - yellow

MA (moving average) 30 days - green

MACD: fast EMA 12, slow EMA 26, SMA 9

Bollinger Bands 20

The material has been provided by InstaForex Company - www.instaforex.com