EUR/USD: where is the limit for dollar’s decline and euro’s rise?

Trading 17 Déc 2020 Commentaire »

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Investors continue to ignore the negative news on the pandemic, preferring to focus on positive messages regarding the development of coronavirus vaccines and discussions on the next package of fiscal stimulus in the United States.

As market participants become more optimistic about the global growth forecast for 2021, the defensive dollar is weakening.

Yesterday, the USD index updated its low since April 2018, dropping below 90 points.

The last FOMC meeting this year did not bring relief to the US currency.

Contrary to expectations, the Federal Reserve refrained from adjusting its bond buying program. At the same time, the US central bank confirmed its commitment to do everything necessary to support the national economy and promised to continue working with low rates until 2023, as well as with quantitative easing for a long time. As a result, after the initial growth, the greenback fell again.

Meanwhile, politicians in Washington continue to discuss the next package of assistance to the American economy, worth more than $900 billion.

The encouraging news is putting pressure on the safe dollar, which has already dipped to 89.7 points, reaching its lowest level in two and a half years.

"The USD index has all the chances for the first time since April 2018 to close the trading session on Thursday below 90 points, which will compel it to test the lows of early 2018 at 88.25 points," said Vassilis Karamanis, currency strategist at Bloomberg.

Earlier, ex-head of Morgan Stanley Asia Stephen Roach said that a large-scale increase in fiscal stimulus in the United States will lead to a fall in the savings rate and a deficit in the current account. If he turns out to be right, then the dollar may fall by another 29%, to the level of 63 points.

The main currency pair is growing for the fourth consecutive trading session, despite the fact that the coronavirus continues to rage in the EU and the US.

The data on business sentiment in the eurozone turned out to be unexpectedly strong. The largest contribution to the growth of the composite PMI of the currency bloc was made by the growth of the purchasing managers' index of the services sector, which rose to 47.3 points in December from 41.7 points recorded in November. The improvement in sentiment in the eurozone's non-manufacturing services sector amid continuing quarantines in France and Germany looks surprising. Nevertheless, due to this news, EUR/USD rose above 1.2200. Before the announcement of the Fed's verdict on monetary policy, it retreated to 1.2160, but at the end of the December meeting of the FOMC quickly returned to the 1.2200 level.

In the context of the prevailing bearish mood on the US dollar, the path of least resistance for the EUR/USD pair is to rise. At the same time, it is obvious that the pair has gone too far, grew too fast and may undergo a downward correction.

Vaccine optimism is unlikely to last long on the markets.

At some point, investors may still understand that the mere fact of approval and the beginning of the deployment of vaccines does not mean that the pandemic will immediately recede, and then the markets will begin to avert risks, and a fairly oversold protective greenback will have a chance to recover.

Until the end of the year, the EUR/USD pair will probably try to renew its multi-year highs more than once in order to get closer to the 1.2300 level, but in the end it could fall to at least 1.1800.

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Big money will ruin the dollar. Fall has reached a critical level. What’s next?

Trading 17 Déc 2020 Commentaire »

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Key US stock indexes opened higher in anticipation of big money. Federal Reserve Chairman Jerome Powell beamed with optimism yesterday, promising extensive support for the country's economy. Powell also instilled hope that vaccinations should play a big role in the recovery of the US economy. Risk appetite is high, and the S&P 500 has conquered the next high, thereby punishing stubborn sellers.

However, the growth of the stock markets may gradually exhaust itself, and closer to the new year, investors will probably want to take profits on long positions. Now there is growth, the key factor of which is stimulation.

"Any assistance to the economy at this stage is already good, especially when we are going through a difficult year. This will speed up the economic recovery a little," Pine Bridge Investments said.

The dollar has no other choice but to fall in the current environment. The weakness is gradually gaining momentum, pushing market players into other assets. Rush demand is in stocks, euros, gold, as well as cryptocurrencies.

The US central bank has promised to continue buying assets on the balance sheet at 120 billion per month. This will continue until inflation approaches the desired 2%. Such comments kept the upward trend of investors and put even more pressure on the positions of the dollar. Not only does the Fed play against the US currency, but so do macroeconomic reports. Retail sales declined in November for the second consecutive month. The stock positive about the vaccine, as we can see, did not spread to the ordinary American man in the street, who continues to worry about the pandemic in the country and does not dare to spend money yet.

The April financial cushion with a check of $1,200, as practice shows, is quickly depleted. The legislators' new plans call for a $600 handout, which is half that. However, these plans have not yet been implemented. The economy is left without support, and the only potential savior is the Fed, which is providing support through low rates and QE. This is a disaster for the national currency, and there are no chances for recovery now.

Today, investors are evaluating a new piece of statistics from the United States. The negative news came from the labor market. The number of initial applications for unemployment benefits increased over the week by 23,000, to 885,000 applications. On the other hand, analysts had expected it to decrease by 53,000, to 800,000. Meanwhile, the number of new buildings in the country increased by 1.2% in November, while market players had expected it to remain unchanged since October.

Today, the dollar index broke down the level of 90 points, which for a relatively long time resisted the attack of sellers. During the session, there were no attempts to restore positions. The dollar continued to decline against a basket of its main competitors in the US session, the indicator reached 89.7. Judging by the directed downward movement, the downward trend will continue.

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The euro and the pound, which rose above 1.2230 and 1.3550, respectively, showed impressive dynamics, mainly due to the fall in the dollar. The pound broke through the 1.36 mark. The contrast with the US was strengthened by PMI estimates, which indicated a fairly confident recovery in manufacturing in both the EU and the UK.

The pound's positions largely depend on how the dialogue between Brussels and London will develop. Concerns about Brexit remain a key factor at the moment.

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Meanwhile, today's rally in sterling has somewhat corrected expectations about how traders will react to any trade after Brexit. If it does take place, then the GBP/USD pair should initially go above 1.37. It is not a fact that the British currency will last long at such levels. We need to tune in to sell, as the pound, as analysts say, is facing unsteady fundamentals.

As for today's Bank of England meeting, the pound, as expected, reacted modestly to its results. The main focus is now on Brexit.

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Treasury Reveals Details Of This Month's Twenty-Year Bond Auction

Trading 17 Déc 2020 Commentaire »

The Treasury Department on Thursday announced the details of this month's auction of twenty-year bonds.

The Treasury revealed that it plans to sell $24 billion worth of twenty-year bonds, with the results of the auction due to be announced next Monday.

Last month, the Treasury sold $27 billion worth of twenty-year bonds, drawing a high yield of 1.422 percent and a bid-to-cover ratio of 2.27.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Since being reintroduced in May, the six previous twenty-year bond auctions had an average bid-to-cover ratio of 2.45.


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Czech Central Bank Holds Rate Steady

Trading 17 Déc 2020 Commentaire »

The Czech central bank left its key interest rate unchanged on Thursday, citing substantial risks and uncertainty in the backdrop of the second wave of the coronavirus pandemic. The Bank Board unanimously kept interest rates unchanged, the Czech National Bank said in a statement. The decision was in line with economists' expectations. The two-week repo rate was left at 0.25 percent, the discount rate at 0.05 percent and the Lombard rate at 1 percent.

"The Bank Board assessed the risks and uncertainties of the current forecast in the context of the ongoing second wave of the pandemic as remaining very substantial," the CNB said. The bank also said that it is not ruling out the risk that the Covid-19 pandemic situation could get worse and the risk of further lockdowns domestically and abroad. Further, the bank said the risk of a no-deal Brexit is increasing.


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Norway Leaves Rates Unchanged

Trading 17 Déc 2020 Commentaire »

Norway's central bank left the key interest rate unchanged again, at zero percent, and signaled that the rate will remain at the current level for some time ahead. The Monetary Policy and Financial Stability Committee unanimously decided to retain the policy rate at zero percent, Norges Bank said in a statement.

The previous change was a quarter point reduction in May, after a cumulative 125 basis points reduction in two extraordinary sessions in March from 1.50 percent.

Higher infection rates and stricter containment measures are now holding back the recovery, the bank said. That said, the positive news about vaccines and prospects that vaccination can begin in the very near future, may result in a faster pick-up in economic activity than previously projected, Norges Bank added. "The sharp economic downturn and considerable uncertainty surrounding the outlook suggest keeping the policy rate on hold until there are clear signs that economic conditions are normalizing", Governor Oystein Olsen said.

The policy rate forecast implies a rate at the current level for over a year ahead, followed by a gradual rise from the first half of 2022 as activity approaches a normal level, the bank said. This implies a somewhat faster rate rise than projected in September.


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Philly Fed Index Indicates Significantly Slower Growth In December

Trading 17 Déc 2020 Commentaire »

The Federal Reserve Bank of Philadelphia released a report on Thursday showing the pace of growth in regional manufacturing activity slowed by much more than anticipated in the month of December.

The report said the Philly Fed Index tumbled to 11.1 in December after falling to 26.3 in November. While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to show a much more modest drop to 20.0.

The bigger than expected decrease by the headline index partly reflected a substantial slowdown in the pace of growth in new orders, as the new orders index plunged to 2.3 in December from 37.9 in November.

The number of employees index also tumbled to 8.5 in December from 27.2 in November, while the shipments index slumped to 14.4 from 24.9.

The report also showed a slowdown in the pace of price growth, as the prices paid index slid to 27.1 in December from 38.9 in November and the prices received index fell to 18.0 from 25.4.

Looking ahead, the Philly Fed said changes in future indexes were mixed this month but suggest that overall growth is expected to continue over the next six months.

The report said the diffusion index for general activity over the next six months dropped to 39.2 in December from 44.3 in November.

"Manufacturing will maintain an upward trajectory, but softening demand and the resurging pandemic will constrain the gains," said Oren Klachkin, Lead US Economist at Oxford Economics.

He added, "Another round of fiscal stimulus will inject some strength into manufacturing, but the package likely won't significantly lift activity."

On Tuesday, the New York Fed released a separate report showing regional manufacturing activity edged slightly higher in the month of December.

The New York Fed said its general business conditions index slipped to 4.9 in December from 6.3 in November, but a positive reading still indicates growth. Economist had expected the index to dip to 5.8.


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U.S. Housing Starts Unexpectedly Jump, Building Permits Spike To 14-Year High

Trading 17 Déc 2020 Commentaire »

A report released by the Commerce Department on Thursday showed new residential construction in the U.S. unexpectedly increased in the month of November.

The Commerce Department said housing starts jumped by 1.2 percent to an annual rate of 1.547 million in November from a revised October rate of 1.528 million.

Economists had expected housing starts to come in unchanged compared to the 1.530 million originally reported for the previous month.

With the unexpected increase, housing starts reached their highest annual rate since hitting 1.567 million in February.

Multi-family housing starts led the way higher, surging up by 4.0 percent to a rate of 361,000, while single-family housing starts edged up by 0.4 percent to a rate of 1.186 million.

The report also said building permits spiked by 6.2 percent to an annual rate of 1.639 million in November from 1.544 million in October.

Building permits, an indicator of future housing demand, had been expected to rise by 0.4 percent to a rate of 1.550 million.

The sharp increase lifted the annual rate of building permits to highest level since reaching 1.655 million in September of 2006.

Single-family permits jumped by 1.3 percent to a rate of 1.143 million, while multi-family permits skyrocketed by 19.2 percent to a rate of 496,000.

Compared to the same month a year ago, housing starts in November were up by 12.8 percent and building permits were up by 8.5 percent.

On Wednesday, the National Association of Home Builders released a separate report showing homebuilder confidence pulled back off a record high in December.

The report said the NAHB Housing Market Index slid to 86 in December after climbing to 90 in November. Economists had expected the index to dip to 88.

NAHB Chief Economist Robert Dietz noted housing remains a bright spot for a recovering economy even as homebuilder confidence fell from historic levels.


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U.S. Weekly Jobless Claims Unexpectedly Climb To Three-Month High

Trading 17 Déc 2020 Commentaire »

After reporting a significant increase in first-time claims for U.S. unemployment benefits in the previous week, the Labor Department released a report on Thursday showing initial jobless claims unexpectedly saw further upside in the week ended December 12th.

The report said initial jobless claims rose to 885,000, an increase of 23,000 from the previous week's revised level of 862,000.

The continued increase surprised economist, who had expected jobless claims to drop to 800,000 from the 853,000 originally reported for the previous week.

With the unexpected increase, jobless claims climbed to their highest level since hitting 893,000 in the week ended September 5th.

"While hope is on the horizon as the coronavirus vaccine comes online, the labor market, for now, remains under a severe strain as Covid cases surge and restrictions on activity are put in place," said Nancy Vanden Houten, Lead U.S. Economist at Oxford Economics.

The Labor Department said the less volatile four-week moving average also rose to 812,500, an increase of 34,250 from the previous week's revised average of 778,250.

Meanwhile, the report said continuing claims, a reading on the number of people receiving ongoing unemployment assistance, fell by 273,000 to 5.508 million in the week ended December 5th.

The four-week moving average of continuing claims also slid to 5,726,250, a decrease of 215,500 from the previous week's revised average of 5,941,750.


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Philly Fed Index Slumps Much More Than Expected In December

Trading 17 Déc 2020 Commentaire »

The Federal Reserve Bank of Philadelphia released a report on Thursday showing the pace of growth in regional manufacturing activity slowed by much more than anticipated in the month of December.

The report said the Philly Fed Index tumbled to 11.1 in December after falling to 26.3 in November. While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to show a much more modest drop to 20.0.

Looking ahead, the Philly Fed said changes in future indexes were mixed this month but suggest that overall growth is expected to continue over the next six months.


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

U.S. Housing Starts Unexpectedly Jump 1.2% In November

Trading 17 Déc 2020 Commentaire »

A report released by the Commerce Department on Thursday showed new residential construction in the U.S. unexpectedly increased in the month of November.

The Commerce Department said housing starts jumped by 1.2 percent to an annual rate of 1.547 million in November from a revised October rate of 1.528 million.

Economists had expected housing starts to come in unchanged compared to the 1.530 million originally reported for the previous month.

The report also said building permits spiked by 6.2 percent to an annual rate of 1.639 million in November from 1.544 million in October.

Building permits, an indicator of future housing demand, had been expected to rise by 0.4 percent to a rate of 1.550 million.


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