GBP/USD. Don’t scare the pound with a negative rate!

Trading 17 sept 2020 Commentaire »

The British pound reacted negatively to the results of the September meeting of the Bank of England. The possibility of introducing negative interest rates (though, in a hypothetical context) was mentioned once again in the text of the accompanying statement. This issue is very painful for GBP/USD traders, so the reaction of the pound was not long in coming. Secondly, the central bank was quite pessimistic about the prospects for the economy's recovery: the BoE confirmed the risk of a longer period of unemployment growth, while recognizing the weak dynamics of the recovery process. This attitude also put pressure on the British pound - it weakened to 1.2864 against the dollar. But the bears could not develop the downward trend: the latest news regarding Brexit prospects turned the pair 180 degrees, after which the price returned the lost points in just a few hours. As a result, the GBP/USD pair ends the trading day in almost the same positions as it started.

Why is the market so careless about the BoE's dovish rhetoric? Here it is necessary to recall the background of the issue. For the first time, rumors that the British central bank may introduce a negative rate appeared in early May, when macroeconomic indicators initially reflected the scale of the economic disaster. Then, BoE Governor Andrew Bailey returned to this issue at each subsequent meeting. At first, he admitted such a scenario, but then became more skeptical about the idea. For example, at a previous meeting, he said that "negative rates are part of the stimulus measures of the central bank, but they will not be used in order to bring the British economy out of the coronavirus crisis."

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Therefore, buyers of the GBP/USD pair were unpleasantly surprised by the news that the central bank discussed the effectiveness of using negative interest rates "if the need arises." The accompanying statement indicates that the BoE may resort to this scenario "if the prospects for inflation and production justify the rate below zero."

And yet, despite such a dovish rhetoric of the accompanying statement, the results of the September meeting only briefly pulled down the pound. Firstly, many members of the Committee are against the rate cut and have been before (even at the peak of the epidemic). In their reasonable opinion, this step has too many side effects, and not only for the banking sector. Secondly, investors are no longer frightened by anti-records in British macroeconomic indicators in recent years. Take inflation and the labor market. The consumer price index showed positive dynamics on an annualized basis, after a strong decline in July. Core inflation also rose: the core consumer price index exceeded the forecasted values and reached 0.9%. The labor market also pleased market participants. The unemployment rate rose predictably to 4.1%. At the same time, salaries were in the green zone, contrary to the pessimistic forecasts of experts.

In my opinion, the BoE has started talking about the negative rate with a "preventive purpose". Figuratively speaking, the central bank is gradually preparing traders for the implementation of such a scenario, if the UK ultimately fails to conclude a trade deal with the European Union, and the transition period is not extended. The transition to the "WTO rails" can be painful for the country's economy, and in this case, the British central bank can really decide on drastic measures.

But under the current conditions, the central bank is unlikely to resort to rate cuts. Therefore, the rhetoric of the accompanying statement must be viewed through the prism of the current Brexit talks.

The controversial UK Internal Market Bill, which knocked the pound down last week, is under consideration in the House of Commons. Many Conservative MPs publicly criticize its main provisions. There were doubts in the market that the Parliament would approve the bill - at least in the form in which Prime Minister Boris Johnson presented it. These doubts make it possible for the pound to gradually approach the 30th figure. In addition, today the head of the European Commission, Ursula von der Leyen, voiced unexpectedly optimistic theses - in particular, she expressed confidence that a trade deal between the EU and Britain "is still possible." After these words, the pair turned 180 degrees and fully recovered from the morning shock.

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Thus, the GBP/USD pair quickly won back the results of the September meeting, after which it focused on the prospects for Brexit. The pair may test the resistance level of 1.3020 (Tenkan-sen line on the daily chart) in the medium term. The next resistance level is at 1.3100 (middle Bollinger Bands line coinciding with the Kijun-sen line). You can open longs to the specified levels from current positions. At the same time, the pair is unlikely to go above the 31st figure in the long term, given the existing uncertainty about the prospects for a trade deal and, in general, further relations between Britain and the EU.

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Analytics and trading signals for beginners. How to trade EUR/USD on September 18? Getting ready for Friday session

Trading 17 sept 2020 Commentaire »

Hourly chart of the EUR/USD pair

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The EUR/USD pair turned to the upside in the morning and began to restore previously lost positions on Thursday, September 17. The MACD indicator moved up almost simultaneously with the price, so novice traders could get out of short positions according to our morning recommendations, or on the signal of the MACD indicator up. Unfortunately, there are no trend lines, channels or other patterns that currently support an upward or downward trend within the $1.17-1.19 side channel. Thus, we would be deprived of the opportunity to declare a trend change during the day, although the upward movement seems to be quite strong. The euro/dollar pair aims to return to the upper area of the sideways channel. But in general, the pair remains flat. We remind novice traders to consider buying or selling more seriously when the price leaves the $1.17-1.19 channel.

The report on inflation in the European Union acted as the fundamental background on Thursday. Despite the fact that the consumer price index remained at the level of -0.2% in annual terms. This means that prices in the European Union have decreased (!!!) by 0.2% compared to August 2019. It also means that deflation has been recorded in Europe, which is very bad for the European economy, its recovery and the prospects for tightening monetary policy. In any case, this is a very negative factor that traders did not pay any attention to. The euro continued to rise in price during the day despite a weak inflation report. What's most interesting is that the report on claims for unemployment benefits in the US also showed an overall decrease in unemployment in the country, but also went unnoticed by traders. This report is not important, however, it could provide at least a small support to the US currency. Thus, throughout the day, market participants simply corrected the pair after the previous fall, that is, they worked on pure technique.

The European Union will not publish a single macroeconomic report on Friday, September 18. In the United States, only the University of Michigan Consumer Confidence Index is scheduled for the day, which is not an important report. Thus, in general, we can assume that news and reports may not influence the currency pair's movement tomorrow. Based on this, we can conclude that volatility will go down tomorrow, and the pair may start to adjust against the correction.

Possible scenarios for September 18:

1) Novice traders are still not recommended to buy at this time, since the price failed to overcome the 1.1903 level once again, which is the upper line of the side channel. Also, there is not a single serious pattern that would support the upward trend.

2) Selling still looks more attractive now, as traders have not overcome the 1.1903 level, and the price has settled below the upward trend line. Thus, novice traders may consider opening new short positions on a new sell signal from the MACD indicator with targets at 1.1774 and 1.1734. If the price moves down in the next few hours, then traders may still have time to open shorts today. Otherwise, we recommend waiting for tomorrow morning and considering the possibility of opening new positions tomorrow.

On the chart:

Support and Resistance Levels are the Levels that serve as targets when buying or selling the pair. You can place Take Profit near these levels.

Red lines are the channels or trend lines that display the current trend and show in which direction it is better to trade now.

Up/down arrows show where you should sell or buy after reaching or breaking through particular levels.

The MACD indicator (10,20,3) consists of a histogram and a signal line. When they cross, this is a signal to enter the market. It is recommended to use this indicator in combination with trend lines (channels and trend lines).

Important announcements and economic reports that you can always find in the news calendar can seriously influence the trajectory of a currency pair. Therefore, at the time of their release, we recommended trading as carefully as possible or exit the market in order to avoid a sharp price reversal.

Beginners on Forex should remember that not every single trade has to be profitable. The development of a clear strategy and money management are the key to success in trading over a long period of time.

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

*S. Africa CB Keeps Rate Unchanged At 3.5% In A Split Vote

Trading 17 sept 2020 Commentaire »

S. Africa CB Keeps Rate Unchanged At 3.5% In A Split Vote


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Indonesia Leaves Rates Unchanged Again

Trading 17 sept 2020 Commentaire »

Indonesia's central bank left its key interest rates unchanged on Thursday it expects inflation to remain low and economic expansion to be gradual. Bank Indonesia left the 7-day reverse repo rate unchanged at 4 percent as expected. The bank had reduced the key interest rate four times this year to support the economy amid the crisis caused by Covid-19. The overnight deposit facility rate and the lending facility rate were maintained at 3.25 percent and 4.75 percent, respectively.

"The decision is consistent with the need to maintain rupiah exchange rate stability against a backdrop of projected low inflation," the bank said. The central bank also announced a host of stimulus measures that included an extension of the 50 basis points lower rupiah reserve requirements from December 31, 2020 previously until June 30, 2021. This serves as an incentive for banks disbursing loans to small and medium enterprises and for export-import activity as well as to non-SMEs operating in priority sectors as stipulated in the national economic recovery program, the bank said.

The central bank expects the rupiah to regain lost value as the currency is still fundamentally undervalued. This strengthening will be supported by low and stable inflation, a narrow current account deficit, highly attractive domestic financial assets for investment as well as a lower risk premium in Indonesia.

Bank Indonesia projects inflation for 2020 and 2021 to remain under control within the 3.0 percent ?1 percent target corridor, and a low current account deficit below 1.5 percent of GDP this year, thus reinforcing external sector resilience.


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Treasury Announces Details Of Two-Five, Five-Year & Seven-Year Note Auctions

Trading 17 sept 2020 Commentaire »

The Treasury Department on Thursday announced the details of this month's auctions of two-year, five-year, and seven-year notes.

The Treasury revealed its plans to sell $52 billion worth of two-year notes, $53 billion worth of five-year notes and $50 billion worth of seven-year notes.

The results of the two-year note auction will be announced next Tuesday, the results of the five-year note auction will be announced next Wednesday and the results of the seven-year note auction will be announced next Thursday.

Last month, the Treasury sold $50 billion worth of two-year notes, $51 billion worth of five-year notes and $47 billion worth of seven-year notes.

The two-year and five-year note auctions attracted above average demand, while the seven-year note auction attracted average demand.


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Bank Of England Raises Negative Rate Expectations

Trading 17 sept 2020 Commentaire »

The Bank of England retained its interest rate at a record low on Thursday, but policymakers started to assess how negative interest rates work amid talks on post Brexit trade deal, the recent rise in Covid-19 cases and the rising risk of elevated unemployment.

The nine-member Monetary Policy Committee unanimously decided to hold the interest rate at 0.10 percent, as widely expected. The bank had altogether reduced the rate by 65 basis points at two unscheduled meetings in March.

Policymakers also unanimously decided to retain the size of the asset purchase programme at GBP 745 billion.

The BoE together with the bank regulators will begin 'structured engagement' on the operational considerations of negative rates in the fourth quarter of this year.

The key interest rate has never been below zero.

The MPC had been briefed on the BoE's plans to explore how a negative Bank Rate could be implemented effectively, should the outlook for inflation and output warrant it at some point during this period of low equilibrium rates.

Markets are expecting an expansion to its quantitative easing at the November meeting.

Further preparation for negative rates is likely to be taken as a vindication of market expectations and brings more downside risk to gilt yields, Antoine Bouvet and Petr Krpata, economists at ING, said.

"We remain confident that an increase in the APF is more likely in the near-term," they said.

Andrew Wishart, an economist at Capital Economics, said he still think that the bank will loosen policy further, most likely in the form of more QE rather than negative interest rates as the market expects.

The bank is expected to add QE by GBP 250 billion over the course of the next year, with an installment of GBP 100 billion in November, Wishart added. The MPC said it does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2 percent inflation target sustainably.

Policymakers noted that the outlook for the economy remains "unusually uncertain".

According to the bank staff, in the third quarter of 2020, GDP would to be around 7 percent below its 2019 fourth quarter level, but less weak than had been expected in the August Report.

CPI inflation is expected to remain below 1 percent until early 2021, albeit slightly higher than expected at the time of the August Report. As the August inflation was more than one percentage point below the 2 percent target, BoE Governor wrote an open letter to the Chancellor Rishi Sunak explaining the reason for the decline.

Governor Andrew Bailey said the MPC expected a period of low inflation in the near term due to the effects of the Covid-19 pandemic.

He also added that the temporary cut in VAT for hospitality, holiday accommodation and attractions, together with the Government's Eat Out to Help Out scheme, were expected to lead to a material drop in inflation in August.

In his reply to Bailey, Sunak said the government's commitment to the BoE's operational independence and the flexible inflation targeting regime, with an operational target of 2 percent CPI inflation, remains absolute.


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Philly Fed Index Drops For Third Straight Month But Still Indicates Growth

Trading 17 sept 2020 Commentaire »

Growth in Philadelphia-area manufacturing activity slowed modestly in the month of September, according to a report released by the Federal Reserve Bank of Philadelphia on Thursday.

The Philly Fed said its diffusion index for current activity slipped to 15.0 in September after dropping to 17.2 in August, although a positive reading still indicates growth in regional manufacturing. The dip by the index matched economist estimates.

The headline index fell for the third consecutive month despite a faster rate of growth in new orders and a significant acceleration in the pace of growth in shipments.

The report said the new orders index jumped to 25.5 in September from 19.0 in August, while the shipments index spiked to 36.6 from 9.4.

The number of employees index also surged up to 15.7 in September from 9.0 in August, indicating a faster rate of job growth.

The prices paid index also shot up to 25.1 in September from 15.3 in August, while the prices received index climbed to 18.4 from 12.4.

Looking ahead, the Philly Fed said nearly all of the future indexes increased, suggesting more widespread optimism among firms about growth over the next six months.

The report said the diffusion index for future general activity spiked to 56.6 in September after edging up to 38.8 in August.

"The third consecutive monthly decline of the Philly Fed manufacturing index in September signals regional activity is falling in line with the slower pace of underlying economic expansion," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She added, "Encouragingly, manufacturers are maintaining their near-term optimism and envision the need to increase activity and hiring ahead."

On Tuesday, New York Fed released a separate report showing a significant acceleration in the pace of growth in regional manufacturing activity in the month of September.

The New York Fed said its general business conditions index jumped to 17.0 in September from 3.7 in August. Economists had expected the index to rise to 6.0.


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U.S. Housing Starts Pull Back Sharply Amid Plunge In Multi-Family Starts

Trading 17 sept 2020 Commentaire »

After reporting a substantial increase in new residential construction in the U.S. in the previous month, the Commerce Department released a report on Thursday showing housing starts pulled back by much more than expected in the month of August.

The report said housing starts tumbled by 5.1 percent to an annual rate of 1.416 million in August after soaring by 17.9 percent to a revised rate of 1.492 million in July.

Economists had expected housing starts to pullback by 1.2 percent to a rate of 1.478 million from the 1.496 million originally reported for the previous month.

The bigger than expected decrease came as a steep drop in multi-family starts more than offset a continued increase in single-family starts.

Multi-family starts plunged by 22.7 percent to an annual rate of 395,000, while single-family starts jumped by 4.1 percent to a rate of 1.021 million.

The Labor Department said building permits also fell by 0.9 percent to an annual rate of 1.470 million in August after spiking by 17.9 percent to a revised rate of 1.483 million in July.

Building permits, an indicator of future housing demand, had been expected to increase by 1.7 percent to a rate of 1.520 million from the 1.495 million originally reported for the previous month.

The unexpected pullback came as multi-family permits tumbled by 14.2 percent to an annual rate of 434,000, more than offsetting a 6.0 percent surge in single-family permits to a rate of 1.036 million.

On Wednesday, the National Association of Home Builders released a separate report showing homebuilder confidence jumped to a record high in September.

The report said the NAHB/Wells Fargo Housing Market Index shot up to 83 in September from 78 in August. Economists had expected the index to come in unchanged.

With the unexpected increase, the index rose to its highest level in the 35-year history of the series, surpassing the previous record high of 78 that was set last month and also matched in December 1998.


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U.S. Jobless Claims Dip Less Than Expected But Hit Lowest Since March

Trading 17 sept 2020 Commentaire »

A report released by the Labor Department on Thursday showed first-time claims for U.S. unemployment benefits fell less than expected in the week ended September 12th.

The Labor Department said initial jobless claims slipped to 860,000, a decrease of 33,000 from the previous week's revised level of 893,000.

Economists had expected jobless claims to dip to 850,000 from the 884,000 originally reported for the previous week.

With the modest pullback, jobless claims fell to their lowest level since hitting 282,000 before the coronavirus-induced lockdowns in March.

The Labor Department said the less volatile four-week moving average fell to 912,000, a decrease of 61,000 from the previous week's revised average of 973,000.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also plunged by 916,000 to 12.628 million in the week ended September 5th.

The four-week moving average of continuing claims tumbled to 13,489,000, a decrease of 532,750 from the previous week's revised average of 14,021,750.

"Sifting through the messy jobless claims data, we find that layoffs remain widespread and a historically high number of individuals are still receiving some type of jobless benefits," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

She added, "Failure on the part of policymakers to enact another fiscal relief package poses significant downside risks to the economy and labor market as the recovery appears to be losing momentum."


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Gold retests triangle boundary

Trading 17 sept 2020 Commentaire »

Gold price is trading at $1,944 after getting rejected once again at $1,970. Price is again touching the broken triangle pattern from above. Gold bulls need to recapture $1,960 and stay above it in order to continue higher towards $2,000.

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Pink lines - triangle pattern

Gold price is testing short-term support at $1,940. Breaking below it will open the way for $1,900. If we adjust the triangle pattern into a new one where the upper triangle boundary starts at the $2,009 high, then Gold price is still inside the triangle formation and we have not broken out yet.

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If price continues this sideways movement inside the trading range, then this last triangle pattern will most probably be the correct one. This means that Gold could revisit the $1,900 and bounce again towards $1,960. What we know with certainty is that Gold bulls do not want to see price break below $1,900, while Gold bears do not want to see price above $1,970.

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