GBP/USD. Minute of glory: pound strengthens despite dollar’s overall hegemony

Trading 04 Fév 2021 Commentaire »

The pound is the only currency from the "major group" that resists the strengthening of the greenback. Against the background of increased demand, the US dollar index updated two-month highs, rising to the 91.50 level. The greenback strengthened its position in all major dollar pairs - except for GBP/USD. The pound, in turn, received quite strong support from the Bank of England, which summed up the results of the February meeting.

Let's start with the main thing: the British central bank has finally put an end to months of speculation about the likelihood of introducing a negative rate. The central bank said that it excludes such a scenario – at least in the foreseeable future. In response to this remark, the pound shot more than 100 points against the dollar. It is noteworthy that the pound plunged before the press conference of Bank of England Governor Andrew Bailey, updating the almost two-week low. The fact is that the British central bank has been studying the issue of reducing the rate for six months – the central bank's economists interacted with the country's financial institutions, modeling and analyzing the consequences of this step. First of all, possible side effects for the country's banking sector were studied. The central bank even organized a large-scale study, in which the country's financial institutions had to express their opinion on reducing the rate to zero or below zero. And so, today, the Bank of England presented the results of its research, voicing a general verdict. According to the country's commercial banks, they will need six to eight months to adapt to the rate cut in the negative area. This statement was interpreted by the market in its own way: traders, apparently, perceived this message as a signal for easing monetary policy in the near future.

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Actually, thanks to this background, the pound jumped as soon as Bailey denied this possibility. A kind of "contrast" made it possible for the pound to overcome the pressure of dollar bulls and approach the borders of the 37th figure. However, the strong growth momentum quickly faded: the GBP/USD bulls did not dare to storm the resistance level of 1.3700, afterwards the pair began to slowly slide to the middle of the 36th figure.

By and large, the pound was in the same position where it was before the announcement of the results of the February meeting. The pound experienced quite strong price turbulence (a descent of 100 points, a rise of almost 150 points) - but at the same time did not decide on the vector of its succeeding movement. I note that the GBP/USD pair has been trading in the 150-point price range of 1.3610-1.3760 for the past week, alternately starting from the boundaries of the range. And despite today's price "flights", the pound remained within the specified range once again. The increased volatility of the pair was equally useless for both buyers and sellers of the GBP/USD pair.

If we talk about a broader time frame, the central bank's verdict will make it possible for the pound to resume its attack on growth as soon as the dollar bulls loosen their grip. Only on one condition – if British inflation continues to show positive dynamics. The Bank of England "in general" did not rule out the option of reducing the rate in the negative area. Bailey reiterated the thesis that the central bank "will not hesitate" to take appropriate measures in the event of a slowdown in inflation. At the same time, the Bank of England will already be preparing for the possible use of a negative rate in the future. In other words, the central bank "leaves the door ajar" on this issue, while the main focus will be on the dynamics of the labor market and inflation.

According to the latest data, the key macroeconomic indicators in these areas showed positive dynamics. The overall consumer price index on a monthly basis left the negative zone and reached 0.3%, while on an annualized basis, the indicator accelerated to 0.6% (from the previous value of 0.3%). Core inflation increased to 1.4%. With regard to the labour market, there was no reason to talk about any significant achievements. On the other hand, the latest releases were much better than the pessimistic forecasts. For example, the number of applications for unemployment benefits in December increased by only 7,000, while the forecast growth to 48,000. Unemployment slightly rose (to 5%), but it should be taken into account that this is not a December figure, but a November figure (whereas in November in Britain there was a strict lockdown).

Thus, the Bank of England gave the pound a kind of carte blanche, freeing it from the burden of doubts about a rate cut in the foreseeable future. But in order to develop the growth trend, buyers of GBP/USD need to: a) the decline in the dollar index; b) the growth of key indicators in the field of inflation and the labor market. British macro indicators will not be published soon, so in the medium term, focus will be on the dynamics of the US currency.

The dollar is still in demand amid rising treasury yields and uncertainty about the approval of the aid package for the US economy. So, the yield on 10-year Treasury bonds hit a three-week high today, while Democrats are still trying to pass a nearly $2 trillion bailout bill without the help of Republicans. To do this, they must first pass a budget resolution in both houses of Congress that will prevent the opposition in Congress from taking advantage of the filibuster.

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Today, the House of Representatives voted in favor of this resolution - it was supported by 218 Democrats, while two opposed. Now there will be a similar vote in the Senate (most likely, it will take place on Friday). It is worth noting that the Democratic Party does not have an "additional" margin of votes in the upper house, so if at least one Democratic senator does not support the party members, the situation will float in the air. Against the background of such (possible) prospects, anti-risk sentiment has again increased in the market, and the safe dollar has become in high demand.

Summing up, it is worth noting that the Bank of England laid the basis for the development of the growth trend of GBP/USD in the long term – provided that the key macro indicators show positive dynamics. In the medium term, the pound will focus on the greenback, which continues to gain momentum. Therefore, in the near future, we can expect a decline in the price to the first support level of 1.3600 (the Kijun-sen line on the daily chart). If the downward momentum fades when this target is reached, then you can turn to a long position - with the main target of 1.3670 (the Tenkan-sen line on the same timeframe).

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EUR/USD: Euro desperately defends, hoping to win back in the future

Trading 04 Fév 2021 Commentaire »

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Market sentiment against the US dollar has improved lately, while the ranks of euro fans have begun to thin out.

Recently, the mood of market participants in relation to the US dollar has improved, while the ranks of euro fans have begun to thin out.

The EUR/USD pair has already lost almost half of its growth that took place between November 2020 and the beginning of January 2021.

Progress with mass vaccination against coronavirus in the United States, steps by President Joe Biden to adopt additional fiscal incentives, as well as improved statistics on the United States are forcing investors to abandon bearish bets against the greenback.

At the same time, concerns about the expansion of quarantine restrictions in the EU and the decline in economic growth in the region are forcing market participants to curtail long positions for the single currency.

On Thursday, the dollar reached its highest level against the euro since the beginning of December.

The dollar was supported by positive macroeconomic statistics for the United States.

The ADP report pointed to an increase in the number of jobs in the private sector of the country by 174 ,000 in January. At the same time, the ISM index of business activity in the service sector rose to 58.7 points. Both indicators beat forecasts and raised expectations for the number of jobs in the US non-agricultural sector, which will be released on Friday.

According to preliminary estimates, the US economy added 50,000 jobs last month, which will be a moderate recovery after a 140,000 contraction in December.

The White House has made it clear that it is ready to compromise with the Republican Party and with moderate Democratic Senator Joe Manchin to accept the next package of assistance to the American economy.

Standard & Poor's experts believe that thanks to the support package of $1.9 trillion, US GDP can return to pre-crisis levels in the second quarter of this year.

There is an active vaccination campaign against COVID-19 in America. This gives market participants a reason to hope for an early exit of the United States from the crisis. Meanwhile, Europe continues to lag behind on this issue.

Slower than in the US, the pace of vaccination in the EU countries can cost the European economy tens of billions of euros of lost GDP, experts warn.

The EUR/USD pair remains under pressure for the fourth consecutive day on the back of the dollar strengthening on a broad front. Today, it broke through the round level of 1.2000, updating the two-month lows.

"The decline in the euro against the US dollar below the $1.2000 mark may cause a significant weakening of the positive mood towards the single currency," Nomura believes.

Although the bank is closing its bullish position on the euro, it hopes that the fall of the single currency will be short-lived.

"The euro may resume its upward trajectory from mid-February as mass vaccination against COVID-19 begins to gain momentum in the EU," Nomura strategists said.

They expect that the EUR/USD pair will reach the 1.2700 level in the second–third quarter, and then approach the 1.3000 level in the fourth.

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Pound Climbs As BoE Dismisses Negative Interest Rate Prospect

Trading 04 Fév 2021 Commentaire »

The pound gained ground against its major opponents in the European session on Thursday, as the Bank of England left its interest rate and the quantitative easing programme unchanged and signaled that negative interest rate policy is not imminent.

The nine-member Monetary Policy Committee, headed by Governor Andrew Bailey, unanimously voted to hold the interest rate at 0.10 percent and the quantitative easing at GBP 895 billion in the latest policy meeting.

The MPC said it did not wish to send any signal that it intended to set a negative Bank Rate at some point in the future. It concluded overall that it would be appropriate to start the preparations to provide the capability to do so if necessary, in the future.

The economy is expected to fall by around 4 percent in the first quarter of 2021, in contrast to expectations of a rise in the November Report.

According to latest Monetary Policy Report, GDP is projected to recover rapidly towards pre-COVID levels over 2021, as the vaccination programme is assumed to lead to an easing of COVID-related restrictions and people's health concern.

Consumer price inflation is forecast to rise sharply towards the 2 percent target in the spring, as the reduction in VAT for certain services comes to an end and given developments in energy prices.

Inflation is projected to be close to 2 percent over the second and third years of the forecast period.

Survey results from IHS Markit showed that UK construction sector contracted marginally in January, ending a seven-month period of expansion.

The IHS Markit/Chartered Institute of Procurement & Supply construction Purchasing Managers' Index fell to 49.2 in January from 54.6 in December.

The Pound declined against its major trading partners in the Asian session as investors awaited the Bank of England's monetary policy decision regarding its findings on negative interest rates.

The Pound added 0.7 percent to touch near a 1-year high of 0.8780 against the euro, after falling to a 3-day low of 0.8840 at 3:15 am ET. The Pound had ended yesterday's trading session at 0.8818 against the euro. The Pound is likely to face resistance around the 0.86 region, if it gains again.

Data from Eurostat showed that Eurozone retail sales grew in December after a sharp fall in November.

Retail sales increased 2 percent month-on-month in December, in contrast to a fall of 5.7 percent in November. Sales were forecast to grow 1.6 percent.

The Pound approached near a one-year high of 1.2332 against the franc, climbing 0.8 percent from a 3-day low of 1.2235 set at 3:00 am ET. At Wednesday's close, the pair was worth 1.2264. The Pound is seen locating resistance around the 1.25 mark.

Survey data from the State Secretariat for Economic Affairs showed that Swiss consumer sentiment deteriorated slightly in January.

The consumer sentiment index fell to -14.6 in January from -13.0 in the preceding quarter. The indicator remained below its long-term average of -5.0.

The Pound was up by 0.8 percent at 1.3681 against the dollar, following more than a 2-week decline to 1.3566 at 6:45 am ET. The pair had finished Wednesday's deals at 1.3644. Immediate resistance for the Pound is likely seen around the 1.42 level.

After a 1-week drop to 142.84 at 3:15 am ET, the Pound gained 0.9 percent to near a one-year peak of 144.14 against the yen. The pair was valued at 143.30 when it ended trading on Wednesday. Should the Pound strengthen further, it is likely to test resistance around the 148.00 region.


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U.S. Factory Orders Jump More Than Expected In December

Trading 04 Fév 2021 Commentaire »

New orders for U.S. manufactured goods showed another significant increase in the month of December, according to a report released by the Commerce Department on Thursday.

The report said factory orders jumped by 1.1 percent in December after surging up by 1.3 percent for three consecutive months. Economists had expected factory orders to climb by 0.7 percent.

The bigger than expected increase in factory orders came as orders for non-durable goods spiked by 1.7 percent, while orders for durable goods rose by an upwardly revised 0.5 percent.

Shipments of manufactured goods also shot up by 1.7 percent in December following a 0.8 percent increase in November.

The Commerce Department said inventories of manufactured goods also rose by 0.3 percent in December after climbing by 0.8 percent in the previous month.

With shipments rising by more than inventories, the inventories-to-shipments ratio dropped to 1.39 in December from 1.41 in November.


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*U.S. Factory Orders Jump 1.1% In December

Trading 04 Fév 2021 Commentaire »

U.S. Factory Orders Jump 1.1% In December


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U.S. Labor Productivity Pulls Back Sharply In Q4, Labor Costs Spike

Trading 04 Fév 2021 Commentaire »

A report released by the Labor Department on Thursday showed a steep drop in U.S. labor productivity in the fourth quarter and a sharp increase in unit labor costs.

The Labor Department said labor productivity plunged by 4.8 percent in the fourth quarter after spiking by an upwardly revised 5.1 percent in the third quarter.

Economists had expected productivity to tumble by 2.8 percent compared to the 4.6 percent jump that had been reported for the previous quarter.

The substantial decrease in productivity, a measure of output per hour, came as hours worked soared by 10.7 percent compared to a 5.3 percent surge in output.

"Looking ahead, productivity growth should pick up later this year as the economic recovery gets a boost from the rollout of vaccines and sizeable fiscal stimulus," said Lydia Boussour, Lead U.S. Economist at Oxford Economics.

She added, "However, we expect the gains to gradually revert back to a more subdued trend in the medium run."

The report also showed unit labor costs skyrocketed by 6.8 percent in the fourth quarter after plummeting by a revised 7.7 percent in the third quarter.

Unit labor costs were expected to surge up by 3.9 percent compared to the 6.6 percent nosedive that had been reported for the previous quarter.

The spike in labor costs reflected the steep drop in productivity combined with a 1.7 percent increase in hourly compensation.


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U.S. Weekly Jobless Claims Drop To Two-Month Low

Trading 04 Fév 2021 Commentaire »

With the more closely watched monthly jobs report looming, the Labor Department released a report on Thursday showing a decrease in first-time claims for U.S. unemployment benefits in the week ended January 30th.

The report said initial jobless claims fell to 779,000, a decrease of 33,000 from the previous week's revised level of 812,000.

Economists had expected jobless claims to edge down to 830,000 from the 847,000 originally reported for the previous week.

Jobless claims dropped for the third straight week, falling to their lowest level since hitting 716,000 in the week ended November 28th.

The Labor Department said the less volatile four-week moving average also edged down to 848,250, a decrease of 1,250 from the previous week's revised average of 849,500.

Continuing claims, a reading on the number of people receiving ongoing unemployment assistance, also slid by 193,000 to 4.592 million in the week ended January 23rd.

The four-week moving average of continuing claims dropped to 4,881,750, a decrease of 120,000 from the previous week's revised average of 5,001,750.

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

Economists currently expect employment to rise by 50,000 jobs in January after slumping by 140,000 jobs in December. The unemployment rate is expected to hold at 6.7 percent.


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UK Construction Sector Shrinks Slightly

Trading 04 Fév 2021 Commentaire »

UK construction activity declined in January for the first time in eight months amid weakness in commercial activity and house building.

The CIPS UK Construction purchasing managers' index eased to 49.2 from 54.6 in December, survey data from IHS Markit showed Thursday. Economists had expected a score of 52.9.

A reading below 50 suggest contraction in the sector. The decline was the first since May last year.

New order growth was the weakest since June last year as clients hesitated to place orders, especially for commercial projects, due to the third national lockdown and concerns about the near-term economic outlook. Supplier performance was severely hurt by transport shortages and delays at UK ports during January. Commercial activity and civil engineering work registered renewed falls, while residential projects grew strongly, though the pace was the slowest since the rebound started in June. Employment decreased in January, reversing the marginal growth in the previous month, largely due to the non-replacement of leavers following project completions.

Rising prices for plaster, steel and timber drove the input price inflation to its highest for just over two-and-a-half years.

Business expectations for the year ahead remained positive, but eased to a three-month low. "The latest survey highlighted that construction companies have become more cautious about the business outlook," IHS Markit Economics Director Tim Moore said.

"Output rebounded quickly after stoppages on site at the start of the pandemic, but hesitancy among clients in January and worries about near-term economic conditions resulted in a dip in growth expectations for the first time in six months."


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Short-term technical analysis on Litecoin

Trading 04 Fév 2021 Commentaire »

LTC/USD today reached a high at $158. In our previous analysis we noted that price could reach $160-65 if resistance was broken. I believe we came very close to our target. However bulls so far were not able to keep prices that high and LTC/USD is pulling back.

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Red line - resistance (broken)

Blue rectangle - support (previously resistance)

Green rectangle - support

EURUSD is back testing the break out area of $145. Short-term trend remains bullish. Support is found at $141 and if this level holds, we could see next week a move above $160. The RSI is back to neutral territory. This pull back is considered a buying opportunity and we remain bullish as long as price is above $125. We raise our key support level from $118.50 to $125.

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Gold price lost $1,800 support

Trading 04 Fév 2021 Commentaire »

Gold price is trading below $1,800. Price made a low today at $1,784. In all our previous posts we warned bulls that $1,850 should be recaptured as this was a key pivot level. Staying below it would be a bearish sign. All of our analysis both technical and using Ichimoku cloud indicator showed Golds vulnerability and tendency to fall.

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Blue lines - trading range

Gold price finally broke out and below the trading range it was. Price is making new lower lows and lower highs. Having broken below recent low at $1,809, makes us expect more selling pressures on Gold. So far any bounce is considered a selling opportunity.

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