Czech CB Lowers Rate For Third Time, Unveils More Stimulus

Trading 07 mai 2020 Commentaire »

The Czech Republic's central bank cut its key interest rate in May for a third policy session in a row and unveiled additional measures to provide more liquidity to the financial market after the coronavirus, or Covid-19, pandemic hurt economy severely. The Bank Board of the Czech National Bank voted 5-2 to cut the two-week repo rate by 75 basis points to 0.25 percent, while economists had expected a 50 basis points reduction. The key interest rate was lowered by 75 basis points on March 26 and by 50 basis points on March 16, after it was hiked by a quarter-point in February. The Lombard rate was cut to 1 percent, while the discount rate was left unchanged at 0.05 percent. Two members who voted against the latest rate cut sought a 50 basis points reduction. The central bank also presented the latest set of macroeconomic forecasts for the Czech economy that projected a severe contraction this year. Gross domestic product is forecast to fall 8 percent this year and recover with 4 percent growth next year. The monetary-policy relevant inflation is forecast at 1.8 percent in the second quarter of 2021 and at 2 percent in the third quarter. The CNB targets 2 percent inflation.

"The Bank Board assessed the risks to the forecast in the current extraordinary situation as being unprecedentedly high and requiring an even greater easing of the monetary conditions compared with the baseline scenario of the forecast," the bank said in a statement. "In the current situation, the risks are naturally connected with the course of the pandemic and especially with the duration and size of the impacts of the quarantine measures on the global and Czech economy."

"Economic activity will not return to the pre-pandemic level before the end of next year" mainly due to weak fixed investment, the bank added. Though the CNB does not see an immediate need to intervene in the financial market, the central bank announced two liquidity- providing measures as precautionary efforts. The central bank unveiled a liquidity-providing instrument for some non-bank entities who will newly be able to obtain liquid funds in the form of short-term secured loans from the CNB. The CNB said it is also working on a liquidity-providing instrument for credit institutions - banks, foreign bank branches and credit unions. The bank said it plans to broaden the range of collateral used in existing liquidity-providing operations to include mortgage bonds. Further, the bank will launch liquidity-providing operations with three-month maturity for credit institutions.


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ECB Policymakers Say 'More Determined' To Support Eurozone

Trading 07 mai 2020 Commentaire »

European Central Bank Vice-President Luis de Guindos and Governing Council member Gabriel Makhlouf said separately on Thursday that the central bank was more determined to support the euro area economy during crisis periods and the bank stands ready to adjust all tools at its disposal, just days after the top German court ruled that the bank's government debt purchases were in violation of its mandate. "We remain more determined than ever to ensure supportive financial conditions across all sectors and countries to allow this unprecedented shock to be absorbed," de Guindos said in his introductory statement, while presenting the Annual Report in the European Parliament. "We continue to stand ready to make further adjustments to our monetary policy measures should we see that the scale of the stimulus is falling short of what is needed."

ECB policymaker and governor of the Irish central bank, Makhlouf said in an interview to Radio One that the German court ruling was not going to have any effect on the ECB's actions. "We are determined to respond forcefully to the challenges and to do whatever it takes to deliver our mandate," he said. "It [German court ruling] looks as if it runs counter to what the European Court of Justice indicated just over a year ago but the ECB itself acts very transparently," the policymaker said. Their remarks come just days after the German Constitutional Court ruled that the ECB acted beyond its power when it bought government debt worth more than EUR 2.1 trillion under its Public Sector Purchase Programme that ran from 2015 to 2018. The court gave the ECB three-months time to explain why such a stimulus measure was necessary and to assess if it was proportional. If the ECB fails to give a satisfactory response in the given time, the court asked Bundesbank and the German government to withdraw from asset purchases under ECB scheme. The latest flash estimate from Eurostat showed that the euro area economy contracted by 3.8 percent quarterly in the first quarter of 2020 that only partially reflected the impact of the lockdowns imposed to slow the coronavirus, or Covid-19, pandemic. Citing consumer and business sentiment indicators for April, de Guindos said their sharp decline suggest an even larger contraction in the second quarter.

The ECB Staff has projected that Eurozone GDP could fall this year between 5 percent in a mild scenario and 12 percent in a severe scenario. Makhlouf said the worst case scenario of 12 percent contraction in the euro area GDP seemed more "realistic". Inflation is expected to fall much further in the coming months, given the current oil price expectations. "In this unprecedented environment, the decisive and targeted policy measures the ECB has taken since early March have provided crucial support to the euro area economy, notably to those sectors most exposed to the crisis," de Guindos said. "They support ample liquidity conditions, protect the smooth flow of credit to households and businesses, and preserve favorable financing conditions for all sectors and countries."

De Guindos also stressed that it was important that fiscal policy played its role in supporting the economy and thus, complement monetary policy.


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EUR/USD and GBP/USD. Results of May 7. Bank of England: The British economy will contract by 14% in 2020, the highest for

Trading 07 mai 2020 Commentaire »

4-hour timeframe

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Average volatility over the past five days: 94p (high).

The EUR/USD pair spent the fourth trading day of the week in absolutely calm trading. The volatility of the day at the time of writing is not more than 40 points. Thus, traders continue to ignore the entire macroeconomic background, fundamental background, and even the general predisposition of traders and investors to purchases of the US dollar during the crisis does not really help the US currency. In the past few days, the US currency has been growing and one day (today) is not an indication that traders do not want to buy the dollar. However, we have repeatedly said in all previous articles that a fall to the 1.0740-1.0750 region is almost guaranteed, despite the absence or presence of a fundamental background. Just because it's the lower border of the side channel. The lowest day of the day is 1.0777. The pair can move up, without even waiting for the development of the designated area. It can still work out one of the levels of 1.0740 and 1.0750, or even both. However, the main strategy now is to consolidate the euro in a fairly wide side channel (about 250 points). Actually, this is exactly what we are observing now. We do not expect a trend to form until the quotes leave this channel.

Today, all the attention of the market was directed to the meeting of the Bank of England and its results. However, the European Union and the United States also had something to pay attention to. Early in the morning, Germany published a report on industrial production for March, which is expected to drop. It fell as well as almost all other indices and indicators in the EU and the US. In annual terms, industrial production decreased by 11.6%, and in monthly terms - by 9.2%. The situation is no better in other countries of the bloc. For example, in France, industrial production fell by 16.2% on a monthly basis. So in Germany, the situation is not as bad as in the countries that have been most severely affected by the coronavirus pandemic.

The next report on applications for US unemployment benefits for the week of May 1 was published. The total number of initial applications has increased again, this time by 3.2 million and is now almost 33 million. However, a more significant indicator in the current environment - the number of secondary applications for benefits - rose to 22.65 million applications in the week of April 24. Recall that this indicator lags behind the initial applications for the week. Thus, in a week the number of secondary applications for benefits could grow to 25 or 26 million. We add several million Americans who were unemployed before the pandemic and the crisis, and we get the figure of about 30 million unemployed from the total economically active population of about 160 million. Using simple mathematical calculations, we obtain an unemployment rate of about 18-19%. This is absolutely disappointing, however, as we see, traders are not particularly saddened by such a high level of unemployment. There have been no hints of a decline in the US currency today. The pair will continue to move slowly towards the lower border of the side channel. Thus, the fact that traders continue to ignore any data coming into their possession is obvious.

4-hour timeframe

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Average volatility over the past five days: 118p (high).

The GBP/USD pair is also continuing its downward movement on May 7. The bulls tried to seize the initiative and jumped at the very beginning of the European trading session, during the publication of the results of the meeting of the Bank of England. However, buyers lost all advantage over the next few hours, and the downward movement resumed. The pound/dollar was trading more actively today than the euro/dollar, however, in general, trading was also quite calm. As in the case of the euro, quotes move to the lower border of the 400-point side channel, which runs near the price level of 1.2250. Thus, no more than 60 points remain to pass to this level, which is not an impossible task for the pound.

Today was quite an important event in the UK. The meeting of the Bank of England and, looking a little ahead, we finally state the fact that market participants reacted to this event. Nothing else can explain the sharp rise in the pound this morning. However, the fact that there was a market reaction does not mean that this reaction was logical. As we already know, the pound rose in the morning. But on what basis? The key parameters of monetary policy remained unchanged. The British regulator left unchanged the key rate (0.1%), as well as the volume of the asset purchase program (645 billion pounds). The only thing that could be noticed was that two members of the monetary committee voted in favor of expanding the asset purchase program. However, seven voted for its volume to remain unchanged, so nothing has changed. The head of the Bank of England Andrew Bailey made a speech much later on. The regulator's final communique says: "The spread of COVID-19 and the measures taken to combat it have a significant impact on the UK. Economic activity has declined sharply since the beginning of the year, and unemployment has increased significantly." In other words, the BoE limited itself to general phrases and did not share information with market participants about its possible actions in the future and plans to change monetary policy.

For example, many traders were interested in whether the British regulator can withdraw its key rate below zero? Instead of orienting the markets, the BoE announced its forecasts on the main indicators of the state of the economy. In accordance with these forecasts, the UK's GDP will decline by 25% in the second quarter of 2020, the unemployment rate will rise to 9%, and by the end of 2020, and a contraction in the economy by a record 14%. This is reported to be the largest decline in GDP over the past 311 years, from 1709. Such a serious decline in the economy, noted in the communique, is inevitable, despite large-scale stimulus programs. In 2021, recovery is expected, with which immediately by 15%. However, firstly, such an option will only be possible if, during 2020, it is possible to defeat the coronavirus or find a vaccine against it, put it into mass production and provide vaccinations to a large part of the world's population. If the pandemic persists, certain restrictions related to quarantine measures will remain. Accordingly, the economy will not be able to earn at full power. Experts also note that the British after the next crisis may start less willing to spend money, which will also negatively affect the prospects for economic recovery. Not to mention the fact that the new trade war between the US and China will affect the entire world economy, respectively, and the British. In general, if a decline of at least 14% is almost inevitable, then the subsequent growth of 15% is a big question. Not a single positive news for the British pound, which grew in the European session. Thus, we do not think that the reaction of the traders was logical. But the subsequent drop in British quotes is more justified.

Recommendations for EUR/USD:

For short positions:

The EUR/USD pair continues to move down on the 4-hour timeframe. Thus, you are advised to sell the euro with targets in the range of 1.0750 - 1.0740, near which a reversal may occur. At the same time, overcoming this range will keep the shorts open with the target of 1.0717.

For long positions:

Long positions will become relevant with the target resistance level of 1.1063, when 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 pound with targets at 1.2244 and 1.2215 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 goals of 1.2480 and 1.2637 not before consolidating the price above the Kijun-sen critical line.

Explanations for 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 - yellow solid line.

Volatility levels are red solid lines.

Possible price movement options:

Red and green arrows.

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Loonie Little Changed After Canada Ivey PMI

Trading 07 mai 2020 Commentaire »

Following the release of Canada Ivey PMI for April at 10:00 am ET Thursday, the loonie changed little against its major counterparts.

The loonie was trading at 1.4061 against the greenback, 75.79 against the yen, 0.9070 against the aussie and 1.5149 against the euro around 10:05 am ET.


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Loonie Advances Ahead Of Canada Ivey PMI

Trading 07 mai 2020 Commentaire »

At 10:00 am ET Thursday, Canada Ivey PMI for April is due out. Ahead of the data, the loonie climbed against its major rivals.

The loonie was worth 1.4052 against the greenback, 75.87 against the yen, 0.9074 against the aussie and 1.5153 against the euro at 9:55 am ET.


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U.S. Labor Productivity Slumps 2.5% In Q1, Much Less Than Expected

Trading 07 mai 2020 Commentaire »

A report released by the Labor Department on Thursday showed U.S. labor productivity pulled back by much less than expected in the first quarter.

The Labor Department said labor productivity slumped by 2.5 percent in the first quarter after jumping by 1.2 percent in the fourth quarter of 2019. Economists had expected productivity to plunge by 5.5 percent.

The decrease in productivity, a measure of output per hour came as output plummeted by 6.2 percent compared to a 3.8 percent slump in hours worked.

Paul Ashworth, Chief U.S. Economist at Capital Economics, noted the steeper drop in output was partly because the employment numbers for March are based on the monthly survey taken around the 12th of the month, whereas the output numbers include all of March.

"That makes a big difference when most lockdowns only began around the middle of that month," Ashworth said.

He added, "We might even see a rise in the average level of productivity during this recession, because the job losses have been concentrated in low-productivity sectors like retail and food services, which account for much bigger shares of total employment than GDP."

Meanwhile, the report said unit labor costs skyrocketed by 4.8 percent in the first quarter after climbing by 0.9 percent in the fourth quarter. Labor costs had been expected to surge up by 4.0 percent.

The spike in labor costs in the first quarter reflected the pullback in productivity as well as a 2.2 percent jump in hourly compensation.

Real hourly compensation, which takes into account changes in consumer prices, climbed by 0.9 percent in the first quarter.


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U.S. Jobless Claims Since Shutdown Reach 33.5 Million

Trading 07 mai 2020 Commentaire »

First-time claims for U.S. unemployment benefits pulled back further off their recent record high in the week ended May 2nd, according to a report released by the Labor Department on Thursday, although claims remain at an elevated level and came in above economist estimates.

The report said initial jobless claims dropped to 3.169 million, a decrease of 677,000 from the previous week's revised level of 3.846 million.

Economists had expected jobless claims to tumble to 3.000 million from the 3.839 million originally reported for the previous week.

While jobless claims have declined steadily since hitting a record high of 6.867 million in the week ended March 28th, the total number of new claims since the coronavirus-induced shutdown has now reached 33.5 million.

The Labor Department said the less volatile four-week moving average slumped to 4,173,500, a decrease of 861,500 from the previous week's revised average of 5,035,000.

Meanwhile, the report said continuing claims, a reading on the number of people receiving ongoing unemployment assistance, jumped by 4.636 million to 22.647 million in the week ended April 25th.

The four-week moving average of continuing claims also surged up to 17,097,750, an increase of 3,800,250 from the previous week's revised average of 13,297,500.

On Friday, the Labor Department is scheduled to release its more closely watched report on the employment situation in the month of April.

Employment is expected to plunge by approximately 22 million jobs in April, driving the unemployment rate up to 14.0 percent.


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*Czech CB Adopts Additional Measures

Trading 07 mai 2020 Commentaire »

Czech CB Adopts Additional Measures


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*Czech CB Cuts Key Interest Rate By 75 Bps To 0.25%; Consensus 0.50%

Trading 07 mai 2020 Commentaire »

Czech CB Cuts Key Interest Rate By 75 Bps To 0.25%; Consensus 0.50%


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Austria Wholesale Prices Decline Most Since September 2009

Trading 07 mai 2020 Commentaire »

Austria's wholesale prices fell at the fastest pace in over ten-and-a-half years in April, data from Statistics Austria showed on Thursday.

The wholesale price index declined 6.9 percent year-on-year in April, following a 4.7 percent fall in March.

The latest decline was the worst since September 2009, when prices fell 8.2 percent.

The decline in prices was mainly complicated due to the falling demand for petroleum products and fuels in the amid the coronavirus crisis, the agency said.

Prices for other petroleum products declined 42.9 percent annually in April. Prices for waste and residual materials fell 25.3 percent and iron and steel decreased by and 7.3 percent.

On a month-on-month basis, the wholesale prices decreased 1.7 percent in April, following a 3.2 percent rise in the prior month.


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