Bank of England meeting: pound may go below support $1.22

Trading 06 mai 2020 Commentaire »

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Gloomy economic data has become the new norm. The value of the British currency fell after a survey showed a record drop in construction volumes in the country. Due to the pandemic, the April index of procurement managers in the construction sector IHS Markit/CIPS UK fell to 8.2 from March 39.3.

"The April figures brought more troubling news to fragile construction companies as coronavirus exposure continued to spread throughout the supply chain, undermining production," said CIPS Director Duncan Brook.

GBP/USD fell 0.7% to a 12-day low of 1.2356 from 1.2374 before the release of the data.

GBP/USD

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Experts still see bearish risks for the pound, given that the severity of coronavirus exposure in Britain looks higher than in other countries.

"On Sunday, Prime Minister Boris Johnson is likely to extend the quarantine for another three weeks. This once again underscores the fact that England lags behind the rest of Europe in this crisis," analysts write.

The problem of negotiations on trade deals with the US and the EU is still acute. Dialogue with the Americans began on Tuesday. The parties supported the accelerated pace of solving the trade problem. Meanwhile, negotiations between the UK and the EU could reach a critical point if progress is not made in the coming weeks.

Investors also assess the risks of a pound decline ahead of the Bank of England meeting on Thursday, which is expected to leave the key rate unchanged until the next meeting in June. Consequently, market attention will be focused on the monetary policy report. Bank management should provide a detailed assessment of the impact of the pandemic on the economy.

According to economists, UK GDP growth will fall by 7.4% this year, which is at best. The worst-case scenario is that the economy will fall by 9.2%. If the reports of the Bank of England appear even more negative forecasts, then sterling risks sharply falling paired with the dollar. The GBP/USD pair may be heading to the nearest support level, located at 1.2265.

Be that as it may, we should expect a sharp increase in volatility in pound quotes on Thursday, as well as in the dynamics of the FTSE index of the London Stock Exchange.

It is worth noting that over the past month and a half, as a result of corrective growth, the GBP/USD rate has come close to an important resistance level of 1.2620. The pound in conjunction with the dollar tested this mark twice in April, but there was no breakthrough, and growth stalled.

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EUR/USD and GBP/USD. Results of May 6. The European Commission upset traders, but did not disappoint nor surprise them. The

Trading 06 mai 2020 Commentaire »

4-hour timeframe

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Average volatility over the past five days: 95p (high).

The EUR/USD pair continued to trade lower on the third trading day of the week. Despite the fact that the fundamental background has been present in recent days and is quite interesting (but not significant for currency traders), nor the fact that macroeconomic reports are published both in the United States and in the European Union, nevertheless, the euro/dollar continues to trade exclusively in accordance with the technical scenario . We said that in the event of a price rebound from the psychological level of 1.1000, which is also the previous local high, the pair could rush to the bottom line of the side channel of consolidation, which lies at a price value of about 1.0750. At the moment, the quotes fell to the 1.0800 level, so we can say that our scenario has already been worked out by 80%. In principle, we can work with the 1.0750 level by today or tomorrow, next to it is the volatility level of May 6, 1.0744, as well as the Murray level "0/8" at 1.0740, according to the Linear Regression Channels . Thus, it is very likely that the price will rebound from this level and turn up with a further upward movement to the upper border of the side channel - 1.1000. But overcoming the 1.0740-1.0750 area could trigger forming a new downward trend.

As we said above, the fundamental background is quite interesting now, but it does not have any effect on the movement of the pair. For example, the economic forecast of the European Commission was announced today. The European Commissioner for Economy Paolo Gentiloni said: "Europe is experiencing an economic shock such as has not been seen since the Great Depression," and this phrase says it all. According to the forecasts of the European Commission, the EU economy may lose 7.7% in 2020, but in 2021 the recovery will begin and GDP will grow by 6%. The forecasts are not the worst they could have been. No one has any illusions that the GDP will sink and the figure will be high for a long time. In the United States, it is generally expected to be -20 percent in the second quarter. Thus, -7.7% is not a lot in the conditions of total quarantine and a worldwide pandemic. But the forecast for 2021, from our point of view, is quite optimistic. After all, it depends, in fact, on whether the coronavirus epidemic ends in 2020. If the European Commission believes that the recovery will begin in 2021, then it expects the end of the pandemic this year. However, who said that the pandemic will be curbed, that the second and third waves will not start, that the COVID-2019 virus will not become seasonal, and that they will invent a vaccine next year? In this case, the economy may continue to decline during 2021.

The unemployment rate, according to forecasts of the European Commission, will increase to 9% this year, and could reach 8% next year. Also quite a bit compared to the United States, where unemployment is projected at 25%. The European Commission also expects an increase in budget deficits of all EU countries to a total of 8.5% of GDP. Next year, the deficit will decrease to 3.5% of GDP. The largest losses in the economy are expected in the countries that have suffered the most from the coronavirus, and even before the epidemic had budget deficits and debt problems that have plagued them since the time of the debt crisis. It is about Italy, Spain, Greece. The GDP of these countries may fall by more than 9% this year. "The depth of the recession and the timing of recovery are unknown. They will depend on how quickly countries quarantine, on how much each country depends on industries such as tourism, as well as on the financial resources at their disposal," Gentiloni said.

Macroeconomic statistics from the EU today, as expected, turned out to be a failure. However, this fact did not upset market participants at all. It was difficult to expect anything else, which means the reports were not unexpected. Production orders in Germany fell by 15.6% in March, with a forecast of -10% in monthly terms. The index of business activity in the service sector fell to 16.2 in Germany and to 12 in the European Union as a whole. Retail sales in the European Union decreased in volume in March by 9.2% year-on-year and by 11.2% month-on-month. In the US, the statistics were no better, but traders were absolutely ready for it. Data on the change in the number of employed Americans from ADP, and it turned out that their number fell by 20.236 million at the end of April. In fact, this is the same level of unemployment in absolute terms. This is exactly the figure indicated in the report on secondary applications for unemployment benefits. So no surprise. Objectively, both in the United States and in the EU, the statistics turned out to be a failure, but the euro still continued to lose positions against the dollar for most of the day. Thus, we still believe that if the impact of the macroeconomic background on the pair's movement is present, it is minimal.

And finally, the news from the White House, because not a single article can do without them. This time, Donald Trump said that if he had not been elected president in 2016, then his country was already in a state of military conflict with the DPRK. "Remember how everyone claimed that I would start a war within 24 hours (after assuming the presidency) because of my character? Those people did not understand me. If you weren't elected, you would be at war with North Korea right now," Trump said.

4 hour timeframe

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Average volatility over the past five days: 115p (high).

The GBP/USD pair also continued to decline on May 6. The UK released a report on the index of business activity in the construction sector, which broke the records of all other indices and amounted to 8.2 points. Again, you can hardly associate this indicator with the pound's fall today. Otherwise, the US dollar would also be cheaper in the US session as it also received a weak report from ADP. But no, this did not happen. It should also be noted that the British pound is not pressured by uncertainty over the central bank's capabilities, as the euro has. That is why we believe that the decision of the German court, which everyone talks about the second day, has no effect on the market. From a technical point of view, the GBP/USD pair is also moving towards the lower border of the side channel - near the 1.2267 level. Thus, about 100 points remain to this goal. Both major pairs can reach their target levels in the coming days.

Recommendations for EUR/USD:

For short positions:

The EUR/USD pair moved down and overcame the Ichimoku cloud today on the 4-hour timeframe. Thus, you are advised to consider selling the euro with targets in the range of 1.0750–1.0740, near which the downward movement may stop. At the same time, overcoming this range will keep the shorts open.

For long positions:

Long positions will become relevant with the targets of 1.0935 and 1.1063 if the price consolidates above the Kijun-sen line.

Recommendations for GBP/USD:

For short positions:

The pound/dollar also continues to move down. Thus, traders are advised to continue selling the British currency with targets at 1.2315 and 1.2267 until the price rebounds from any target or the MACD indicator turns up.

For long positions:

Purchases of the GBP/USD pair will again become relevant with the objectives of 1.2565 and 1.2637 not before consolidating the price above the critical line.

Explanation of illustrations:

Ichimoku indicator:

Tenkan-sen is the red line.

Kijun-sen is the blue line.

Senkou Span A - light brown dotted line.

Senkou Span B - light purple dashed line.

Chikou Span - green line.

Bollinger Bands Indicator - 3 yellow lines.

The MACD indicator is a red line and a histogram with white bars in the indicators window.

Classic support / resistance levels - red and gray dashed lines with price symbols.

Pivot level is a yellow solid line.

Volatility levels are red solid lines.

Possible price movements:

Red and green arrows.

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Pound on the eve of Super Thursday: coronavirus anti-records and disappointing PMI indices

Trading 06 mai 2020 Commentaire »

Tomorrow is an important day for the pound - the so-called "Super Thursday", when within a single day, a large amount of information enters the market regarding the monetary policy prospects of the Bank of England and the British economy. Firstly, the May meeting of the English regulator will be held tomorrow, after which a summary of monetary policy and a report on the financial stability of the central bank will be announced. Secondly, there will be a press conference of the new BoE Chief Andrew Bailey. We will also be able to familiarize ourselves with the minutes of the above meeting (it was previously published with a two-week delay). And as a small bonus, we find out the value of GfK's British consumer confidence indicator. Such a news jackpot is relatively rare, therefore GBP/USD traders play out tomorrow's pessimism of the regulator's members.

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However, the pound is getting cheaper not only in anticipation of tomorrow's events. Today's news feed also leaves much to be desired. It became known that the death toll from COVID-19 in the UK exceeded mortality in Italy. At the moment, Britain is leading in the anti-rating of European countries in the number of deaths from coronavirus. Among all countries of the world, the British are second only to the United States - nearly 70,000 people became victims of the fatal illness in America. Let me remind you that Prime Minister Boris Johnson once put off the introduction of strict quarantine, while hospitals in Italy were already crowded.

And now, apparently, Britain is reaping the fruits of its slowness. Johnson is forced to quarantine the country later than anyone else. Today, he said that his ministers have developed a three-stage plan to ease restrictive measures: the first stage will begin only on May 11 and will include the opening of small shops and jobs in the open. At the second stage, large shopping centers will open. Among the latter, pubs, restaurants, hotels and entertainment centers will be open. What time range will be between the first and second, as well as the second and third stages is unknown. Moreover, if the situation with morbidity and mortality from COVID-19 worsens before Sunday, then Johnson can move the date of introduction and the first stage of quarantine exit.

Meanwhile, the macroeconomic data of Britain continues to set anti-records. In particular, the April index of procurement managers in the construction sector collapsed to 8.2 points, while back it was at 39.3 in March. The PMI for the service sector came out at 13.4 points in April, continuing the downward trend (in February this indicator was at 53.2 points, in March - 34.5 points).

Against the backdrop of such a fundamental picture, the BoE does not have any reasons for optimism. Therefore, according to general market expectations, rather gloomy prospects may be reflected in the updated economic forecasts of the regulator. In particular, according to some experts, the central bank will declare a drop in GDP in the second quarter by 30–35%. In this case, the British currency will collapse throughout the market, while a more optimistic forecast can help the GBP/USD bulls to stay afloat.

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In addition, the BoE could announce that it will redeem more bonds to prevent the growth of borrowing costs. Let me remind you that back in March, the BoE lowered the rate to 0.10%, and also expanded the asset repurchase program by 200 billion pounds (that is, the program currently stands at 645 billion). Andrew Bailey can either expand the program tomorrow or hint that such decisions will be made at the June meeting. It should be noted here that, as a rule, the expansion of QE negatively affects the currency - but in this case, such a decision may provide support to the pound. Such decisions of regulators are considered by traders in the context of combating the consequences of the coronavirus, and therefore are positively perceived by market participants.

Thus, if the results of tomorrow's Super Thursday are not in favor of the British currency, the GBP/USD pair could demonstrate another downward track - this time to the 1.2270 level (the lower line of the Bollinger Bands indicator, coinciding with the upper border of the Kumo cloud on the daily chart). If the bears overcome this support level, they will open their way to the lower border of the cloud, that is, to the 1.2125 level. This is the main scenario. An alternative is less likely - but if members of the English regulator nevertheless take an optimistic position and increase QE, the GBP/USD pair will return to the middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line, that is, to the middle of the 24th figure.

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GBP/USD: Super Thursday for the pound

Trading 06 mai 2020 Commentaire »

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An increase in the pound's sensitivity to global risk appetite enabled it to temporarily forget about unresolved issues related to Brexit, terrible macro statistics in the UK and expectations of monetary expansion by the Bank of England. However, these bearish advantages will be back on the game in May.

Because of London's demands for full control over coastal waters, as well as because of its rejection of EU restrictions on environmental, labor law and state aid, Brussels believes that negotiations regarding the future relations of the parties have reached an impasse. If they fail to agree before June, this will essentially mean the release of Great Britain from the EU without a deal.

Meanwhile, British PMI indices released on the eve of April indicate that in the second quarter of 2020, the country's economic downturn will be much stronger than ever.

In this regard, additional measures to support the national economy can be expected from the Bank of England and the UK government.

The UK cabinet is expected to expand fiscal stimulus and the BoE to absorb the growing volume of bond issues, will be forced to increase QE.

In March, the regulator announced the launch of a quantitative easing program of £200 billion and since then has purchased assets worth £70 billion. Keeping the same pace of debt acquisitions, the central bank runs the risk of ending QE in June. If the BoE does not increase purchases now, or at least does not hint at such a step in the near future, then the flight of investors from the local bond market will lead to an increase in yield, and an increase in the cost of borrowing will delay the process of recovery of national GDP. Apparently, the BoE will have to go on expanding the program by at least another £200 billion.

A regular meeting of the Bank of England will be held on Thursday, May 7.

In addition to the announcement of the decision on the rate and size of QE, the central bank will publish a report on monetary policy. This document includes various information, including the forecast for national GDP.

The British economy is expected to contract by 7.4% in 2020. In this case, the worst-case scenario assumes a fall of 9.2%. If the BoE report contains even more negative forecasts, then the pound could drop sharply.

"The GBP/USD pair cannot absorb the April high and the 200-day moving average in the area of 1.2643–1.2657. We are still waiting for a top to form. This fact will be confirmed by a decline to the level of 1.2248. Further support is noted at 1.2176, 1.1934 and 1.1884. In the event of a close above 1.2657, the trend will turn bullish again and resistance at 1.2726 will come into play. In the meantime, a breakout of the 1.1884 level and the bears will aim for a long-term upward trend from 1985 to the March low in the 1.1412 level," said Credit Suisse strategists.

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Bank Indonesia Pledges Liquidity Support, Sees 2020 Growth Below Forecast

Trading 06 mai 2020 Commentaire »

Indonesia's central bank governor Perry Warjiyo on Wednesday promised more liquidity support for the economy, which is expected grow less than forecast this year. During an online press conference, the Bank Indonesia governor said the full year growth is likely to come in below the bank's forecast of 2.3 percent due to the impact from the coronavirus, or Covid-19. Official data released on Tuesday showed that the Indonesian economy grew 2.97 percent in the first quarter, which was weaker than the 4.4 percent the bank had projected. The central bank expects the economy to grow 0.4 percent in the second quarter, 1.2 percent in the third and 3.1 percent in the final three months of this year, the BI governor said. Data released by the central bank of Wednesday showed that the consumer confidence index dropped to 84.8 in April from 113.8 in March. The latest reading was reportedly the lowest in 12 years.

Households' perception of current economic conditions, current income and job availability deteriorated, but they remained relatively upbeat regarding the economic situation in the next six months on hopes of higher incomes and business recovery once the coronavirus pandemic impact eases.


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Swiss Real Estate Market In Risk Zone: UBS

Trading 06 mai 2020 Commentaire »

A measure of the risk of a real estate bubble in Switzerland's market for owner-occupied homes rose to its highest level in just over two years in the three months to March, signalling that the market is in the risk zone, investment bank UBS said in a report on Wednesday.

The UBS Swiss Real Estate Bubble Index climbed to 1.30 in the first quarter from a revised 1.26 in the previous three months. The reading was the highest since the fourth quarter of 2017, when it was at the same level. "This puts the Swiss real estate market in the risk zone," UBS said. "The coronavirus effect should only become visible in the current quarter."

UBS attributed the increase in the index to three reasons, first of which is the 1 percent rise in prices in the first quarter, the fastest increase since 2014. This acceleration in the prices of owner-occupied market was link with a smaller rise in household incomes and stagnation in consumer prices. "The fall in incomes since March, as a result of the corona crisis, isn't yet included in these calculations", UBS said. Further, the applications for buy-to-let investments grew to a slightly higher level than in the previous quarters, while the trends in construction activity and mortgage lending, and the price-to-rent ratio were largely unchanged.


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Hungary Retail Sales Growth Slowest In 11 Months

Trading 06 mai 2020 Commentaire »

Hungary's retail sales grew at softest pace in eleven months in March, figures from the Hungarian Central Statistical Office showed on Wednesday.

Retail sales rose by a calendar-adjusted 3.5 percent year-on-year in March, after a 11.2 percent increase in February.

The latest growth in sales was the lowest since May last year, when sales rose 2.6 percent.

Sales of non-food products grew 12.7 percent annually in March and sales of food, drinks and tobacco rose 0.5 percent.

Meanwhile, sales of automotive fuel decreased by 16.7 percent.

On a non-adjusted basis, retail sales rose 7.5 percent annually in March, following a 4.4 percent increase in the previous month.


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Czech Retail Sales Drop In March

Trading 06 mai 2020 Commentaire »

The Czech Republic's retail sales dropped in March, data from the Czech Statistical Office showed on Wednesday.

Retail sales fell by working-day adjusted 9.3 percent annually in March, after a 3.5 percent rise in February. In January, retail sales grew 4.9 percent.

On an unadjusted basis, retail sales fell 8.9 percent year-on-year in March. Economists had expected a 9.0 percent fall.

On a month-on-month basis, retail sales fell 12.2 percent in March.

Sales of automotive fuel dropped by 15.8 percent and those of non-food goods declined by 22.7 percent.

Meanwhile, sales of food increased by 3.2 percent.

Sales were influenced by measures taken to prevent the spread of COVID-19 which led many stores with mostly non-food goods to close or limit their operation, the agency said.

The most significant annual decrease in sales occurred in stores with clothing, footwear and leather goods by 64.9 percent and in stores with cultural and recreation goods by 47.1 percent, the statistical office added.

Sales also decreased in specialized stores with information and communication equipment and other household equipment in specialized stores.


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Romania Retail Sales Growth Slows In March

Trading 06 mai 2020 Commentaire »

Romania retail sales grew at the softer pace in March, figures from the National Institute of Statistics showed on Wednesday.

Retail sales rose a working-day adjusted 4.1 percent year-on-year in March, following an 8.1 percent increase in February.

Sale of food, beverages and tobacco grew 15.1 percent annually in March.

Sales of non-food products remained unchanged, while hose of motor vehicles in specialized stores fell 8.8 percent.

On a month-on-month basis, retail sales fell 3.6 percent in March, following a 0.9 percent decrease in the preceding month.

On an unadjusted basis, retail sales gained 3.9 percent annually in March and rose 5.0 percent from the prior month.


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U.S. Private Sector Employment Plunges By More Than 20 Million Jobs In April

Trading 06 mai 2020 Commentaire »

Private sector employment nosedived in the month of April, according to a report released by payroll processor ADP on Wednesday.

The report said private sector employment plunged by 20.236 million jobs in April after slumping by a revised 149,000 jobs in May.

Economists had expected employment to tumble by 20.050 million jobs compared to the loss of 27,000 jobs originally reported for the previous month.

ADP noted the report utilizes data through the 12th of the month, the same as the Labor Department's monthly jobs survey, and does not reflect the full impact of COVID-19 on the overall employment situation.

"Job losses of this scale are unprecedented. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession," said Ahu Yildirmaz, co-head of the ADP Research Institute.

The nosedive in private sector employment reflected job losses throughout the economy, with employment in the service-providing sector plummeting by more than 16 million jobs and employment in the goods-producing sector plunging more than 4 million jobs.

Job losses were also seen at businesses of all sizes, as employment at large businesses tumbled by nearly 9 million jobs, while employment at small at midsized businesses slumped by more than 6 million and 5 million jobs, respectively.

On Friday, the Labor Department is scheduled to release its more closely watched monthly jobs report, which includes both public and private sector jobs.

Economists expect the report to show a loss of nearly 22 million jobs, driving the unemployment rate up to approximately 16.3 percent.


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