Its-Veso Trading Blog

Tuesday, October 4, 2016

AUD/USD: Trading Australian Trade Balance

Australian Trade Balance is closely linked to currency demand and is a key indicator. A reading which is higher than expected is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD ^[1].

Published on Thursday at 00:30 GMT.

Indicator Background

Australian Trade Balance measures the difference in the value of imported and exported goods on a monthly basis. An unexpected reading can have a significant impact on the movement of AUD/USD.

In July, the trade deficit narrowed to A$2.41 billion, compared to A$3.20 billion a month earlier. This easily beat the estimate of A$2.65 billion. The deficit is expected to continue to drop, with an estimate of A$2.32 billion.

Sentiments and levels

The Fed didn’t raise rates in September but its stance is hawkish regarding a rate hike in December, and the markets have currently priced in a December hike at about 50/50. The RBA has downplayed any expectations of a rate hike, so monetary divergence will continue to favor the greenback. So, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 0.7938, 0.7835, 0.7692, 0.7597, 0.7513 and 0.7427.

5 Scenarios

Within expectations: A$-2.40 billion to A$-2.25 billion. In such a scenario, the AUD/USD is likely to rise within range, with a small chance of breaking higher.
Above expectations: A$-2.41 billion to A$-2.49 billion: An unexpected higher reading can send the pair below one support line.
Well above expectations: Above A$-2.49 billion: The chances of such a scenario are low. Such an outcome could send AUD/USD downwards and a second support line might be broken as a result.
Below expectations: A$-2.24 billion to A$-2.17 billion: A smaller decline than expected could push the pair above one resistance line.
Well below expectations: Below A$-2.17 billion. In this scenario, AUD/USD could break below a second resistance line.

For more on AUD/USD, see the Australian dollar forecast ^[2].

To follow this event live:

References

^{^} AUD/USD (www.forexcrunch.com)
^{^} Australian dollar forecast (www.forexcrunch.com)
^{^} FXstreet.com (www.fxstreet.com)
^{^} Get the 5 most predictable currency pairs (www.forexcrunch.com)

from Forex Crunch http://feedproxy.google.com/~r/ForexCrunch/~3/eBoFzf5N6Ag/

from Online Forex Trading Resource http://its-veso.tumblr.com/post/151349767597

USD/JPY: 4 Reasons Why BoJ's 'Double Down' Will Pay Off - Goldman Sachs

At the September policy meeting, the Bank of Japan made significant dovish changes to its policy framework. Japanese stocks rose as the commitment to keep the 10-year around zero allows the BoJ to control the slope of the yield curve and safeguard banks’ profitability. But, the Yen initially appreciated before stabilizing as the market appeared to interpret the new policy framework as a way to taper bond purchases.

In our view, the BoJ has doubled down. (see here)

First, the BoJ has set in place a framework for cutting the policy rate further into negative territory, reducing the costs for banks from such a policy with a bull steepening of the yield curve.

Second, to establish the credibility of the new framework, the BoJ will continue to expand the monetary base at around the current pace. To keep both the quantity and the yield commitment, the BoJ can buy more short-dated bonds than 10-year or longer-dated JGBs, leading to a wider interest rate differential between JPY and US short-term rates. This will push USD/JPY higher.

Third, gradually moving away from monetary targets will enhance the durability of the programme by eliminating concerns about scarcity of JGBs.

Fourth, the BoJ has removed any market pressure on the government to finance fiscal deficits: any increase in public spending or cuts in taxes can be financed by issuing JGBs at a zero or lower rate and the BoJ’s balance sheet can potentially expand by even more than JPY80trn per year. Although the BoJ has disappointed by not cutting the policy rate at the September meeting, we think its actions demonstrate a willingness to innovate with its monetary policy measures and a commitment to its inflation target. This continued policy divergence versus the US should continue to drive the JPY weaker against the USD.

FX Forecasts: Our USD/JPY forecasts at 108, 110 and 115.

Monetary Policy Forecast: The BoJ has committed to very accommodative monetary policy until the price stability target of 2% is exceeded sustainably. We expect the BoJ to continue to ease policy by further interest rate cuts. FX interventions are less likely.

Things to Watch: We are watching for any signs that the economy is responding to ongoing monetary easing and to evidence that the new policy framework is not about tapering JGBs purchases.

The article is published by one of the foremost sources of Forex trading information. Link to the original article above.

from eFXNews http://feedproxy.google.com/~r/Efxnews/~3/Lc8fum4w9j0/usdjpy-4-reasons-why-bojs-double-down-will-pay-goldman-sachs

from Online Forex Trading Resource http://its-veso.tumblr.com/post/151348204922

Why the ECB’s taper talk should be faded

Reports that the ECB will taper bond buys before completely halting the program moved the slow-mo EUR/USD. A jump of around 100 pips was seen, from the abyss of 1.1140, close to the 1.1120 support line, all the way up to 1.1240. However, this didn’t last too long and the pair is hugging its beloved 1.12 level once again.

What’s in the report? Here is the opening quote from the Bloomberg article ^[1]:

The European Central Bank will probably gradually wind down bond purchases before the conclusion of quantitative easing, and may do so in steps of 10 billion euros ($11.2 billion) a month, according to euro-zone central-bank officials.

So, is the ECB about to announce the beginning of the end of its 80 billion bond-buying scheme? The program runs through March 2017 and markets assumed it would be extended and somewhat tweaked.

If the ECB begins tapering in March and eventually ends the program, this is a bullish shift and that’s why EUR/USD jumped.

But, tapering does not necessarily have to begin in March. This quote is from the second paragraph:

They didn’t exclude that QE could still be extended past the current end-date of March 2017

So, perhaps the talk about tapering is only a general description? The Fed also tapered down its program before completely ending it. The ECB followed their peers across the pond in various occasions. This may be another one of those, but perhaps not so fast.

The ECB is not nearing its inflation target of “2% or a bit below”. Recent data showed headline inflation rising, but to a meager 0.4%. Core inflation is not going anywhere fast. At 0.8%, it seems that Draghi’s problems are not limited to oil prices.

Here is the move on the chart. After getting closer to support ^[2], the pair escaped this level. But, it never went too far.

More: EUR/USD parity in 12 months ^[3] – Goldman Sachs

eurusd-ecb-taper-talk-october-5-2016

Get the 5 most predictable currency pairs ^[4]

References

^{^} article (www.bloomberg.com)
^{^} closer to support (www.forexcrunch.com)
^{^} EUR/USD parity in 12 months (www.forexcrunch.com)
^{^} Get the 5 most predictable currency pairs (www.forexcrunch.com)

from Forex Crunch http://feedproxy.google.com/~r/ForexCrunch/~3/UJxbAk1Qdr8/

from Online Forex Trading Resource http://its-veso.tumblr.com/post/151347945227

GBP/USD has more room to the downside – 3 opinions

The British pound has reached new 31-year lows ^[1] against the US dollar. But this may not be over. Here are 3 opinions seeing more room to the downside:

Here is their view, courtesy of eFXnews:

1. GBP: Further Weakness Short-Term On Bearish Technical Signals – BTMU

The pound has come under renewed selling pressure early this week which has resulted in the trade-weighted pound falling to new cyclical lows. The break of key technical support levels has reinforced the pound’s renewed downward momentum.

The lows for the pound during the initial aftermath of the Brexit vote from early in July have been taken out as cable has broken below support at just below the 1.2800- level and EUR/GBP has rose above resistance at the 0.8725-level.

It provides a bearish technical signal that the pound is likely to weaken further in the near-term.

For lots more FX trades from major banks, sign up to eFXplus^[2]

By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.

‘Hard Brexit’: Staying Bearish GBP Even After Reaching Our 1.28 Target- BNPP

Prime Minister May’s indication at the weekend Conservative party conference that the UK will invoke Article 50 of the EU Treaty by the end of Q1 2017 seems to have refocused markets on the considerable uncertainty that lies ahead. In her comments she rejected the notion that the UK could select an existing model, such as Norway or Switzerland now employ, and stressed that a unique relationship with the EU would be negotiated.

Our economists note that the position may add to concerns about the possibility of a hard Brexit given the difficulty of reconciling controls on immigration with full access to the single market. Meanwhile, in separate comments, the UK Chancellor appeared to rule out significant fiscal stimulus to smooth the transition, leaving the economy reliant on further BoE easing if data begins to slow again.

We remain broadly bearish on the GBP even after reaching our 1.28 target in GBPUSD.

GBP: Sterling’s Travails Show No Sign Of Easing Yet; Staying Short – SocGen

Confirmation that the UK Government plans to trigger article 50 by the end of Q1 2017 hit sterling harder than I expected yesterday, which given how much time I have spent blathering on about the risks to the pound is saying something. Some sort of a bounce is possible today but the noises from the Conservative party conference aren’t helpful. There will be fiscal slippage as the Chancellor won’t try to hit previous deficit reduction targets, but a significant easing is not on the cards. Nor is the government showing any signs of shifting a position where control on immigration is the hardest of lines in negotiations to leave the EU, and won’t be sacrificed or watered down in order to keep access to the single market, particularly for financial services. There’s nothing there to soften the outlook for sterling, at all.

sterling-travails-show-no-sign-of-easing-yet

f I extrapolate the correlation between GBP/USD and rates, GBP/USD 1.25 is reached if the market prices a 12-month forward rate differential of 1%. That will happen as long as the Fed is on track to raise rates at least twice by the end of 2017, and the UK is on track to ease at all. To get sterling below 1.20 we need the market to price much more Fed hiking, or the UK economy to be in poor enough shape that these simple rate/FX correlations break down. For now, our base case is still for a low of GBP/USD 1.23 in March.

*SocGen maintains a short GBP/USD position from 1.3750 targeting 1.25.

For lots more FX trades from major banks, sign up to eFXplus^[3]

By signing up to eFXplus via the link above, you are directly supporting Forex Crunch.

Get the 5 most predictable currency pairs ^[4]

References

^{^} The British pound has reached new 31-year lows (www.forexcrunch.com)
^{^} sign up to eFXplus (plus.efxnews.com)
^{^} sign up to eFXplus (plus.efxnews.com)
^{^} Get the 5 most predictable currency pairs (www.forexcrunch.com)

from Forex Crunch http://feedproxy.google.com/~r/ForexCrunch/~3/d5hLAFS8r6A/

from Online Forex Trading Resource http://its-veso.tumblr.com/post/151346581122

JPY: Close To Fair Value; What's Next? - Nordea

The JPY has stopped strengthening over the past few months. It paused in late July when the government was close to announcing what ultimately became the JPY 28tn fiscal package. More steepening of the curve, the current BoJ aim, as inflation picks up, will weaken the JPY in the coming months.

JPY – close to “fair value”; better chance of weakening ahead.

The JPY has been closely correlated with global rates lately. Looking at short-term models, the USD/JPY looks fair at current levels. Global long yields need to rise to push the JPY weaker. The bias for rates is clearly up in Q4 because of inflation. But timing is everything, and it is difficult to see a major push higher ahead of the November 8 US presidential elections. On the 3M horizon we see USD/JPY back at 104 and higher later on, which exceeds consensus expectations and is more than the forward market prices in.

The article is published by one of the foremost sources of Forex trading information. Link to the original article above.

from eFXNews http://feedproxy.google.com/~r/Efxnews/~3/KKe0-dUjmkY/jpy-close-fair-value-whats-next-nordea

from Online Forex Trading Resource http://its-veso.tumblr.com/post/151341279527

GBP: Further Weakness Short-Term On Bearish Technical Signals - BTMU

It provides a bearish technical signal that the pound is likely to weaken further in the near-term.

The article is published by one of the foremost sources of Forex trading information. Link to the original article above.

from eFXNews http://feedproxy.google.com/~r/Efxnews/~3/3SOlz2eMPRY/gbp-further-weakness-short-term-bearish-technical-signals-btmu

from Online Forex Trading Resource http://its-veso.tumblr.com/post/151341279227

Attractive Risk-Reward In Long USD Vs High-Beta; Staying Short NZD/USD - Credit Agricole

The USD is unlikely to lose sight of the opinion polls and candidates’ rhetoric going into the second presidential debate on 9 October, especially as the first debate has now put pressure on Donald Trump to come up with a more forceful performance.

For the September non-farm payrolls we expect an improvement from the August reading with a gain of 175K. Given Fed Chair Yellen’s message in September suggesting that there was more room for labour market improvement without creating excessive inflationary pressures, measures of broader labour market slack and wages should be particularly in focus this time.

We still believe the more attractive short-term risk-reward is for USD longs against the G10 commodity bloc currencies and remain short NZD/USD* in our portfolio.

Credit Agricole maintains a short NZD/USD from 0.7292 targeting 0.70.

*This trade is recorded and tracked in eFXplus Orders.

The article is published by one of the foremost sources of Forex trading information. Link to the original article above.

from eFXNews http://feedproxy.google.com/~r/Efxnews/~3/aTEWtOBzLuc/attractive-risk-reward-long-usd-vs-high-beta-staying-short-nzdusd-credit-agricole

from Online Forex Trading Resource http://its-veso.tumblr.com/post/151341278962