Hawkish Fed Speak Has Market Reassessing The Chances Of Early Rate Hike
Axi | Aug 22, 2016 12:31
Friday saw comparatively little movement in stock markets, while the US$ strengthened a little as traders began to weigh up the chances that the Fed may raise interest rates, possibly as early as September. The speculation follows on from some hawkish comments last week from various Fed officials who hinted at a bias towards hiking sooner rather than later in order to remain ahead of the curve in the event of a pickup in inflation. The remarks have caused traders to re-examine the FOMC minutes from the most recent meeting, released last Wednesday, which seemed to carry a more dovish tone than the Fed board (Dudley/Williams) are currently signalling.
This week will be another busy one, culminating in the Jackson Hole symposium (25/27 August) although we should not expect too much insight about the timing of the next Fed hike from Janet Yellen's speech and it seems likely that the conference will clarify that the Fed will only be able to execute a very shallow hiking cycle, despite the various Fed members calling for a hike as soon as September. If this turns out to be the case, expect some market disappointment translating into a softer dollar and probably higher stocks and metals. Elsewhere there are Q2 GDP figures to come from German, UK and US through the week, with the US Durable Goods Orders (Tue), German IFO Business Climate/Expectations (Thursday) being other major highlights. Monday will kick the week off with the global flash PMIs. Have a good week.
h2 EURUSD: 1.1315/h2
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The dollar staged the mildest of recoveries following more hawkish Fed speak on Friday but still finished the week above the 100-week MA for the first time since August 2014. the 4 hourlies appear to be rolling over to point lower but the dailies still appear to be picking up a more positive outlook, so buying dips would once again seem to be the plan, but without looking for too much as the choppy price action that has dominated over the last couple of months seems set to continue. Ahead of Jackson Hole, when Yellen will be speaking, it may be choppy but without too much direction. Early in the week the flash PMIs and the US Durable Goods will be the main focus.
24 Hour Bias: Prefer to buy dips
Medium Term Bias: Mildly Bullish
Economic data highlights will include:
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M: Flash EU/US manufacturing/Services/Composite PMIs, BuBa Monthly Report
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T: US Durable Goods Orders, New Home Sales, API Weekly Crude Oil Stock Inventory, EU Provisional Consumer Confidence
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W: German GDP, US House Price Index, Existing Home Sales, EIA Crude Oil Stocks Weekly Change
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T: German Import rice Index, German IFO Business Climate/Expectations, US Jobless Claims, Kansas Fed Mfg Activity, Jackson Hole Symposium
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F: US Provisional GDP (Q2), Personal Consumption/Expenditure, Jackson Hole Symposium
h2 USDJPY: 100.65/h2
24 Hour Bias: Prefer to buy dips
Medium Term Bias: Prefer to sell rallies/Mildly bearish
Monday Open – The dollar has gapped higher in early interbank trade following some Kuroda comments that he won’t rule out negative rates. The high so far has been 100.83 (interbank), 100.76 (MT4).
USD/JPY had a choppy day on Friday, using 100.00 as a pivot but finishing towards the top end of its range, with some mild dollar buying on the back of some more hawkish Fed comments, this time from Dudley/Williams. Technically, the daily momentum indicators still look heavy, so a retest of the recent 99.50 lows would seem possible although there was decent buying interest as we approached that level on a couple of occasions last week. A break of 99.50 however would then target the 24 June low at 98.94 and possibly lower, although the talk of a Fed rate hike may slow any downside momentum. Expect increasing volume of complaint from the BOJ should we remain below 100.00, which will make for some choppy conditions. Selling rallies is again preferred but with a tight SL, currently placed just above 101.00.
Economic data highlights will include:
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M: Nikkei Flash Mfg PMI
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T:
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W:
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T: Foreign Bond/Stocks Investment
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F: Japan CPI
h2 GBPUSD: 1.3070/h2
24 Hour Bias: Neutral
Medium Term Bias: Mildly Bullish
Having almost reached 1.3200 on Friday, Cable then turned lower after a rumour, later denied, that Article 50 to leave the EU would be signed in April 2017, while also not helping Cable’s cause was the story that RBS (LON:RBS) will now charge major corporations negative rates on deposits. Technically, the 4 hour charts now appear to be rolling over and suggest we may be in for some more mild Sterling weakness. On the other hand, the dailies still look mildly constructive so we might see a little more upside in coming days, and buying dips is therefore still mildly preferred. As we said on Friday, Cable may be building a triangle formation with parameters at around 1.2870/1.3365, which at least gives us a decent range to play with!
Economic data highlights will include:
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M: CBI Industrial Survey Trend, Gfk Consumer Confidence,
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T: Inflation Report Hearing
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W: CBI Distributive Survey - Realised
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T:
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F: UK GDP (Q2)
h2 USDCHF: 0.9600/h2
24 Hour Bias: Prefer to sell rallies
Medium Term Bias: Neutral
With the dailies seemingly picking up increasing downside momentum staying on the short side, selling rallies is favoured. The 4 hour momentum indicators are actually looking a little more positive, so waiting and selling into strength, possibly towards the minor descending trend resistance at around 0.9635. SL on short positions should be placed above this, probably above the Aug 18 high at 0.9657.
Economic data highlights will include:
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M:
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T: Trade Balance
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W:
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T: Industrial Production
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F:
h2 AUDUSD: 0.7622/h2
24 Hour Bias: Prefer to be short and to sell rallies
Medium Term Bias: Neutral
We have now had the close under 0.7630, mentioned last week, that would seem to add to the bearish outlook and with both the 4 hour/daily momentum indicators pointing lower a more sustained test of 0.7600 - and lower - could be on the cards. I prefer to be short, looking to sell into strength, with a stop, today placed above the 200 HMA and around 0.7680. Initial downside targets, below 0.7600 would be at around 0.7585. Note that it is a light data week for the Aud and it will be offshore headlines that dominate the action.
Economic data highlights will include:
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M:
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T: China Leading Economic Index
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W: Construction Work Done
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T: Private Capital Expenditure (Q2)
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F:
h2 NZDUSD: 0.7270/h2
24 Hour Bias: Prefer to sell rallies
Medium Term Bias: Mildly Bearish
The USD/NZD remained choppy on Friday but overall it has been quite resilient recently, hanging just below 0.7300 into the weekly close after a 0.7240/90 range. The daily momentum indicators still remain mildly supportive, although the 4 hourlies less so but as I said previously, with further rate cuts likely in the months to come I still prefer to look to sell into strength although this has not been easy recently and the timing has been tricky. As with the Aud, note that it is a light data week for the Kiwi and it will be offshore headlines that dominate the action.
Economic data highlights will include:
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M:
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T:
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W: Trade Balance
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T:
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F:
Jim Langlands
FX Charts
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