Bailey Says Bank Of England Not Ruling Out Negative Interest Rates

Trading 20 mai 2020 Commentaire »

Bank of England Governor Andrew Bailey said the UK central bank is currently reviewing all its tools and it would be foolish to rule out any one of them, including negative interest rates. "We do not rule things out as a matter of principle," Bailey told lawmakers at a Treasury committee hearing on Wednesday.

Specifically on negative interest rates, the BoE Chief said, "We're not ruling it in, and we're not ruling it out."

UK interest rates are now at a record low 0.1 percent. Bailey said policymakers are studying the experience of other central banks with negative rates. The Bank of Japan and the European Central Bank have negative interest rates. BoE Deputy Governor Ben Broadbent, who was also present at the hearing, hinted that the recovery could be shaped like a a 'lopsided' V. The policymaker said that the recovery is unlikely to be immediate, but a longer term process.

Official data released last week showed that that GDP dropped 2 percent in the first quarter of 2020, which was the worst fall since the global financial crisis of 2008.

The think tank NIESR has predicted that UK GDP is set to fall 25-30 percent in the second quarter, due to the impact of the coronavirus, or Covid-19, and the lockdown imposed to curb the pandemic. Elsewhere on Wednesday, the UK government sold a long-term bond at negative yield for the first time. The government reportedly auctioned off GBP 3.75 billion of three-year bonds at an average yield of -0.003 percent. Britain had sold short-term debt at negative yield in 2016.


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Eurozone Consumer Confidence Recovers Slightly In May

Trading 20 mai 2020 Commentaire »

Eurozone consumer confidence recovered slightly in May as several countries in the single-currency bloc started easing restrictions placed during the lockdown to slow the spread of the coronavirus, or Covid-19, flash estimates from the European Union showed on Wednesday. The flash consumer confidence index for euro area climbed to -18.8 from -22.7 in April. Economists had expected a further weakening to -24. The corresponding index for the EU rose to -19.5 from -22 in the previous month. However, both indicators remained far below their long-term averages of ?11.1 and ?10.4, respectively. The European Commission is set to publish the detail data along with the full business and consumer survey results on May 28.


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EUR/USD and GBP/USD. Andrew Bailey’s speech unlikely to stir markets. UK, EU Inflation were ignored

Trading 20 mai 2020 Commentaire »

4-hour timeframe

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Average volatility over the past five days: 80p (average).

Following a slight correction, the EUR/USD pair resumed the upward movement within the framework of the side channel, limited by the levels of 1.0750 and 1.0990 on Wednesday, May 20. Thus, as we expected this morning, the pair will try to clearly work out the upper border of the channel and it will decide the future of the euro currency in the coming days and weeks. With a high degree of probability, a rebound will occur from the $1.10 level, which will leave the pair inside the side channel. In this case, a new round of downward movement will begin with the target of 1.0750. However, in case of overcoming the upper boundary of the side channel, the continuation of the upward movement is expected. From a fundamental point of view, it is difficult to say something specific now. On the one hand, there is a proposal to create a Recovery Fund in Europe, from which they want to help the countries and segments of the economy that are most affected by the coronavirus. On the other hand, this is not a reason for joy and purchases of the European currency. Earlier, ideas about crown bonds and a 2-trillion stimulus package failed miserably. Thus, 500 billion, firstly, is not enough, and secondly, they still need to be collected, and before that it is necessary that all 27 EU member states approve this plan of Angela Merkel and Emmanuel Macron. Thus, we do not believe that the euro/dollar is growing due to these events.

As for ordinary macroeconomic statistics, everything here is also ambiguous. Market participants simply continue to ignore almost all the data at their disposal. For example, the consumer price index in the European Union for April was published today. The inflation value turned out to be worse than the already weak forecast and reached only 0.3% in annual terms. Compared to March 2020, prices in the eurozone fell by 0.2%, that is, this is a deflation. Minutes of the last meeting of the US Federal Reserve is set to be released in the evening, however, as we already said in previous articles, this document is unlikely to contain information still unknown to the markets.

Meanwhile, the most interesting information comes from the US again. Joe Biden calls the US president "President Tweety," alluding to Trump's daily posts on Twitter. Donald Trump once again called the "crazy" House Speaker Nancy Pelosi, simultaneously accusing all Democrats of corruption and the desire to remove him from power by illegal means. "There was not so much abuse against anyone as against me. The top of the FBI is corrupt and bad people. "Russian business" is a concocted, fabricated story. Democrats are sick. Nancy Pelosi is a sick woman, she has problems with her head," the US leader said. Once again, we would like to note that Trump, although he is a strong leader, is sorely lacking in flexibility and the ability to work in a team with opposition political forces, taking into account the interests of all. That is why he regularly falls under the wrath of the Democrats, who, indeed, are ready for anything, just to prevent Trump from being re-elected. Moreover, if a year ago everything was relatively good in America, and the trade war with China, although it entailed a slight reduction in the economy, nevertheless ended with the signing of a trade agreement (albeit not complete), now this deal threatens to be terminated and Beijing and Washington are preparing for a new trade war. And what successes in the presidential field can Donald Trump now boast of, daily insulting everyone and everything? Trump is to blame for everything, China, the World Health Organization, the Democrats. After that, he wonders why everyone is so unfavorable to him and fervently wants him to leave his post? Well, the situation with the coronavirus is just a cherry on the cake. Wherever COVID-19 infection came from, the United States was not prepared for an epidemic. Authorities should be blamed for this and not the WHO.

4-hour timeframe

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Average volatility over the past five days: 117p (high).

The GBP/USD pair is trading almost identically to the EUR/USD pair on May 20. The upward movement also resumed for the pound/dollar pair, although there were no strong macroeconomic reasons for this. The Ichimoku indicator has formed a new signal to buy the Golden Cross, which allows us to expect a new upward trend to form. However, the Ichimoku cloud with a strong Senkou Span B line lies on the way up. Therefore, the current upward movement continues to be identified as corrective for now, despite overcoming the critical Kijun-sen line. Volatility for the pair is extremely low today, at the time of writing, only 67 points.

The UK consumer price index for April was published today. As in the case of the European Union, inflation slowed down, but not so much, and reached 0.8% in annual terms. However, we have already noted that under current conditions, the inflation rate is not important. Inflation is a significant indicator when it comes to economic growth. The central bank is oriented to stimulate economic growth due to inflation. However, now all the economies of the world are simultaneously reducing, so it does not matter what inflation rate is fixed. Traders, as we see, hold the same opinion, because the next slowdown in the consumer price index did not cause any reaction. The British pound continued to rise moderately against the dollar. Bank of England Governor Andrew Bailey is set to make a speech today. However, we believe that he will not inform the markets of anything fundamentally new. The only thing that market participants expect from the central bank in the near future is the expansion of the quantitative incentive program by 100 or 200 billion pounds. Thus, in general, we can say that the fundamental background was absent for the pound/dollar pair today, and the macroeconomic one was again ignored. Technical factors are in first place, which we recommend paying special attention to when opening any positions and predicting the further movement of the pair.

Recommendations for EUR/USD:

For short positions:

The EUR/USD pair continues its upward movement on the 4-hour timeframe. However, it can turn around and begin to fall near the upper boundary of the lateral channel 1.0750 - 1.0990. Thus, we recommend considering selling the pair with a view to the lower boundary of the channel - 1.0750 in the case of an eloquent rebound in the price from the level of $1.10.

For long positions:

Buy orders can be opened no earlier than breaking 1.0990, the 1.1000 level and the resistance level of 1.1008. After overcoming these obstacles, we can expect an upward trend to form and continue trading for an increase.

Recommendations for GBP/USD:

For short positions:

The pound/dollar continues to adjust against the downward trend. Thus, traders are advised to resume selling the pair with the objectives of 1.2130 and 1.1987 in case of price taking below Kijun-sen.

For long positions:

You are advised to consider purchases of the GBP/USD pair while aiming for the 1.2325 level, but in small lots, since the Golden Cross is weak.

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*BoE's Bailey: Not Ruling Out Negative Interest Rates

Trading 20 mai 2020 Commentaire »

BoE's Bailey: Not Ruling Out Negative Interest Rates


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*U.S. Crude Oil Inventories Decrease 5.0 Million Barrels In Week Ended 5/15

Trading 20 mai 2020 Commentaire »

U.S. Crude Oil Inventories Decrease 5.0 Million Barrels In Week Ended 5/15


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Canadian Dollar Rallies On Higher Oil Prices

Trading 20 mai 2020 Commentaire »

The Canadian dollar climbed against its most major counterparts in the European session on Wednesday, as oil prices rose after an industry data showed U.S. crude inventories fell last week and on signs of improved demand after relaxation of lockdown restrictions in several countries.

The American Petroleum Institute reported late Tuesday that U.S. crude supplies fell by 4.8 million barrels to 521.3 million barrels in the week to May 15.

The data also showed gasoline stockpiles edged down by 651,000 barrels, while distillate inventories climbed by 5.1 million barrels.

Official data from the Energy Information Administration (EIA) is due later in the session.

Oil demand in the world's top oil importer, China, has rebounded to pre-coronavirus levels, the Bloomberg reported earlier this week, citing sources.

China was the first to go into lockdown after the Covid-19 virus emerged in Wuhan, but it was also the first country to exit lockdown.

The demand outlook is improving further as several countries across the world ease lockdown measures.

Data from Statistics Canada showed that Canda's inflation fell 0.7 percent on a seasonally adjusted monthly basis in April.

That follows the 0.9 percent drop in March.

The loonie rose to 1.3868 against the greenback and 1.5211 against the euro, from its previous lows of 1.3961 and 1.5274, respectively. The loonie is poised to find resistance around 1.33 against the greenback and 1.51 against the euro.

The loonie reversed a decline to trade modestly higher against the yen, at 77.57. If the loonie rises further, it is likely to challenge resistance around the 81.5 level.

In contrast, the loonie held steady against the aussie, after having dropped to 0.9149 earlier in the session, which was the weakest level since December 31. The pair had ended yesterday's deals at 0.9111.

Looking ahead, at 2:00 pm ET, the Fed minutes from the April 28-29 meeting are set for release.


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*Eurozone May Flash Consumer Confidence -18.8 Vs. -22.7 In Apr; Consensus -24

Trading 20 mai 2020 Commentaire »

Eurozone May Flash Consumer Confidence -18.8 Vs. -22.7 In Apr; Consensus -24


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UK Inflation Slowest Since 2016; Output Prices Turn Negative

Trading 20 mai 2020 Commentaire »

UK inflation slowed to the lowest since 2016 in April and factory gate inflation turned negative for the first time since mid-2016 as the coronavirus lockdown has weighed on global oil prices, data from the Office for National Statistics showed Wednesday.

Consumer price inflation eased to 0.8 percent in April from 1.5 percent in March. Economists had forecast the rate to ease to 0.9 percent. The latest rate was the lowest since August 2016.

Core inflation that excludes energy, food, alcoholic beverages and tobacco, slowed moderately to 1.4 percent in April from 1.6 percent in March.

The consumer prices index including owner occupiers' housing costs rose 0.9 percent year-on-year in April, slower than the 1.5 percent increase in March.

Transport cost fell 1 percent, clothing and footwear costs decreased 2.9 percent and housing, water and electricity prices dropped 1.1 percent annually. Meanwhile, food and non-alcoholic beverages prices increased 1.3 percent.

On a monthly basis, consumer prices dropped 0.2 percent after remaining flat in March. Prices were forecast to fall marginally by 0.1 percent.

James Smith, an ING economist said headline inflation is set to head down towards zero over the summer, and with unemployment rising, price pressures are unlikely to return rapidly any time soon.

With the figures triggering the first in what is likely be a series of letters from the Bank of England Chief to the Chancellor explaining why inflation is more than 1ppt below the 2 percent target, the pressure to loosen monetary policy further is likely to grow, Ruth Gregory, an economist at Capital Economics, said.

Another report from the ONS showed that output prices declined for the first time since June 2016 driven by lower cost of petroleum, chemicals and pharmaceuticals.

Output prices decreased 0.7 percent annually in April reversing a 0.3 percent rise in March. Economists had forecast a 0.4 percent decrease.

On month, output prices fell 0.7 percent after falling 0.2 percent in March. This was also faster than the expected -0.5 percent.

At the same time, input prices declined the most since December 2015. Input producer price inflation was driven mostly by commodity prices, the ONS said.

Prices plunged 9.8 percent on year versus March's 3.1 percent decrease. Economists had forecast 8.7 percent annual fall.

On a monthly basis, input prices logged its biggest fall on record. Prices fell 5.1 percent after falling 3.8 percent in March. Input prices were forecast to decrease 4 percent.

In a separate communiqu?, the ONS said house prices logged an annual growth of 2.1 percent in March versus a 2 percent rise in February.

House prices in London advanced 4.7 percent, which was the largest annual growth the capital has reported since December 2016.

The ONS said fewer transactions were available in March due to the restriction imposed to reduce the spread of the coronavirus. The House Price Index will be suspended until further notice from the April 2020.


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BCC: Majority Of UK Firms Can Partially Restart As Lockdown Restrictions Ease

Trading 20 mai 2020 Commentaire »

The majority of UK firms can partially restart operations as lockdown restrictions eased, the latest Coronavirus Business Impact Tracker from the British Chambers of Commerce showed Wednesday.

About 37 percent said they can implement the guidance and fully restart, while 45 percent report they can partially restart.

Further, 83 percent of respondents said they know some or a lot of details about government guidance on working safely.

BCC Director General Adam Marshall said, "While businesses have welcomed the publication of official guidance on how they can reopen premises and restart operations, some sectors still require greater clarity from the government on when and how they will be allowed to do so."

"This is particularly the case for hospitality and leisure companies, which will not reopen before July at the earliest," Marshall added.

According to survey, 85 percent of participants received payment from furlough scheme.


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Risk over the pound’s decline is still there, but there is a chance of growth to $1.35 in the long run

Trading 20 mai 2020 Commentaire »

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The pound was able to rise against the US dollar on Wednesday, while falling against the euro. The clouds over sterling continue to gather. A portion of today's negative came from the inflation data, which fell below 1%, to a 4-year low. This happens at a time when the UK financial authorities are debating negative rates.

The fall in inflation has given rise to speculation in the markets that the Bank of England may soon lower interest rates below zero to support an economy affected by the coronavirus pandemic.

Meanwhile, the fall of the GBP/USD pair was not so extensive. The point here is the dollar's weakness, as it declined across the entire spectrum of the market by the end of the day.

USDX

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The British currency has nothing to say against the gaining euro. The euro rose after consumer confidence in the eurozone improved by 3.2 points in May compared with April. Sterling paired with the euro in the moment touched the weakest mark since the end of March - 89.69.

The officials of the English regulator are now carefully studying the experience of other central banks with negative interest rates. However, they do not want to notice how the UK economy responds to the April emergency rate cut in response to the economic shock caused by the spread of COVID-19.

Many global strategists agree that lowering rates below zero in the UK is a bad idea.

"It is impossible to imagine an economy in which negative rates would be worse than in the UK," wrote Societe Generale.

Rates below zero will push the British currency into the abyss. Sterling is now at the bottom of its recent trading range, as Britain remains one of the pandemic-affected countries with more than 35,000 deaths and nearly 250,000 infected.

GBP/USD

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There are opinions on the market that suggest that the pound is not so bad. There is really no chance of growth in the short term. However, in the long run, one can hope for the appearance of light at the end of the tunnel.

So, strategists of the Swiss Bank UBS expect the pound to rise against the US dollar by the end of the year to the 1.35 level. This forecast implies a 10% rally from the current levels around 1.22 and strongly contrasts with other opinions on the market. Most analysts write about the British currency's decline. If we talk about the end of the year, according to a Bloomberg survey, sterling can grow against the dollar to a value as high as 1.26.

UBS believes that Brexit without a trade agreement and talking about negative interest rates in the UK are only short-term risks for the sterling.

If we talk more about these two factors, then the Bank of England in June is likely to announce an increase in QE by 100 billion pounds. Concerns about Brexit are exaggerated. It is unlikely that Britain will leave the EU without an agreement; we have already passed this. It is worth waiting for a low transaction or a small extension of the transition period.

It is also worth paying attention to the weakening dollar. Given the almost zero rates in the US, demand for US currency should decline. The dollar will also be pressured by Federal Reserve measures to alleviate the stress associated with dollar financing.

UBS also drew attention to the fact that the pound remains "deeply underestimated", and the equilibrium level of GBP/USD for three years ahead is 1.53.

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