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Main FX Titles: Discussion Points:
- The new president of the European Central Bank, Christine Lagarde, said the central bank "has not reached the lower limit of interest rates," but traders expect a more aggressive rate reduction path.
- Day-to-day index swaps currently provide for a 100% probability rate reduction of 10 basis points at the September ECB meeting, but the probability of a 20bp cut increased from 10% to 26% over the last day.
- the IG customer sentiment index to suggeststhe combination of the current sentiment and the recent changes gives us a stronger trade bias against the USD / USD pair.
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The last weeks of August are generally a quiet time for global financial markets because computer screens are being traded for sunscreens. But this year has been different: with the trade war between the United States and China, the Brexit deadline of October 31 and concerns about global growth, the wire has been a real source of risk. event as market players wait for comments from politicians and central bankers to help guide their investment decisions. Today has not been different.
The new president of the ECB seems very dovish
There is no reason to split hairs: the new ECB President, Christine Lagarde, seemed very accommodating this morning in her remarks prepared in front of the European Parliament. Starting slowly, the rising central banker noted that the ECB had a "panoply of tools" and that it "should be ready to act". she looks like Mario Draghi, outgoing president of the ECB.
But where Lagarde stands out from Draghi, it may be that his will to go more dovish energetically, in a short period of time. In his letter to the European Parliament, Lagarde noted that the ECB "has not reached the lower limit of interest rates", suggesting that, unlike its predecessor, it would be willing to aggressively push ahead. interest rate deeper into negative territory.
September meeting of the ECB will start the cycle of falling rates
While the new ECB president, Lagarde, was expressing his expectations for a dynamic Dovish policy, the interest rate markets reacted in the same way by dragging expectations of rate cuts. Yesterday at the end of the day, according to day-to-day index trading, there was a 100% chance of a 10 basis point rate cut at the September ECB meeting and 10% of a reduction of 20 basis points.
Interest rate forecasts of the European Central Bank (29 August 2019) (Table 1)
After Lagarde's comments, onight index swaps are again price on 100% chance of a rate reduction of 10 basis points at the September meeting of the ECB but now expect a reduction probability of 20 basis points in September of 26%. There is a 69% chance that a second 10-basis-point rate cut will come in October, while there is a 82% chance of the second 10 bps rate reduction at the December meeting of the ECB. The rate markets are considering a third rate cut over the next 12 months, starting in January 2020.
Economic data from the euro zone still disappointing
For the ECB, there may be good reasons to try to reduce interest rates. Germany, the largest economy in the euro zone, is fast approaching a "technical" recession, two consecutive quarters with a contraction in GDP. Overall, euro area economic data have been disappointing in recent weeks, at least judging by the economic data of a goal point of view.
TThe Citi Economic Surprise Index for the euro area, an indicator of the dynamics of economic data, is currently at -41.3; a a month ago, it was at –37.5. The disappointing euro-zone data series continues alongside growing concern over growth around the US-China trade war.
Eurozone inflation expectations in relation to Brent oil prices: daily calendar (August 2018 to August 2019) (Chart 1)
outgoing ECB President Mario Draghi's preferred inflation rate, the 5-year inflation swap, are currently trading to 1.2481% 1.3315% lower than where they were a month earlier, but still well above the yearly low set on June 17 to 1.141%. regardless; These are market readings that will reinforce speculation about further easing on the part of the ECB.
TECHNICAL ANALYSIS EURUSD: DAILY CALENDAR (OCTOBER 2018 TO AUGUST 2019) (TABLE 2)
In our last EURUSD technical forecast update, it was noted that "EURUSD's attempt to break with the symmetrical triangle was thwarted in the form of a bullish key reversal / exceeding the bar by engulfing the daily calendar…The symmetrical triangle pattern is still neutral, but traders may want to focus once more on the potential of the top."It was only half correct: the triangle is indeed neutral; but traders should not focus on the potential of the surface, but rather on the potential for the downside.
The symmetrical triangle EURUSD, which has been formed since mid-July, now enjoys the support of the lowest levels on 1 and 23 August, around 1.1060. The price is now below the daily envelope of 8, 13 and 21 EMA, while the daily MACDs and stochastics have turned inferior in bearish territory. August 23 Bullish Key Reverse / Ba Gobbling Outsider low comes into play at 1.1052; below here, then a bearish breakout may be in progress.
IG customer confidence index: EURUSD rate forecasts (August 29, 2019) (Chart 3)
EURUSD: Data from retail traders indicate that 68.2% of traders have a net balance, with a ratio of long traders short of 2.14 to 1. In fact, traders have remained net since the month of July.there 1 when the EURUSD traded close to 1,1397; price has fallen by 2.9% since. The number of net-long traders is 4.9% higher than yesterday and 8.8% higher than last week, while the number of net-short traders is 1.1% lower than the number of traders. Yesterday and 8.0% over last week.
We generally have an opposite view on sentiment, and the fact that traders have a net balance suggests that prices in EURUSD may continue to fall. Traders are even sharper than yesterday and last week, and the combination of the current sentiment and the recent changes gives us a stronger trade bias against the EURUSD pair.
TECHNICAL ANALYSIS EURJPY: DAILY CALENDAR (FEBRUARY 2017 TO AUGUST 2019) (TABLE 4)
In our last EURJPY technical forecasts At the update, it was noted that "at the close of trading, Friday, August 23, EURJPY had broken its symmetrical triangle down."There has not been much follow-up in recent days, however: Friday's close was at 117.42; EURJPY rates traded between 116.56 and 118.20 this week (range of 1.38%).
The lack of follow-up in the bearish break sawindicators such as daily MACD and slow stochastic turn higher, although standing in bearish territories. EURJPY rates are while carryingat the daily 8-EMA, and stay below the everyday 13 and 21-EMAs. The 100% Fibonacci expansion of the move from the highest of September 2018 to the lowest of January 2019 until the March 2019 high reached 113.21, seems more and more at stakelonger than EURJPY goes below the 61.8% Fibonacci extension at 118.67.
TECHNICAL ANALYSIS EURJPY: WEEKLY CALENDAR (2008 TO 2019) (TABLE 5)
Overview: We may be witnessing the early stages of what could be a long-term downtrend for EURJPY with the weekly calendar suggesting a loss of support from the triangles relative to the troughs of 2012 and 2016 and of recent swing support when the Japanese yen burst in January 2019 weak at 118.82.
IG customer confidence index: EURJPY rate forecasts (August 29, 2019) (Chart 6)
EURJPY: Data from retail traders indicate that 66.5% of traders have a net balance with a ratio of long traders to short, 1.99 to 1. In fact, traders have remained net since Aprilhe When the EURJPY was traded around 125.28; price has dropped by 5.7% since. The number of net-long traders is 2.5% higher than yesterday and 26.8% higher than last week, while the number of net traders is 7.4% higher than last week. that of yesterday and 0.4% lower than last week.
We generally have an opposite view on general sentiment, and the fact that traders are net-long suggests that prices in EURJPY could continue to fall. The positioning is shorter than yesterday but longer last week. The combination of current sentiment and recent changes gives us a more heterogeneous trading bias in EURJPY.
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail to [email protected]
Follow him on Twitter at @CVecchioFX
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