Live FX Market Analysis – 16 October 2018 (Video)

It’s been another turbulent week in FX markets with last week’s sell-off suitably spooking investors, Saudi Arabia causing a stir following allegations of murder at its embassy in Turkey, Brexit talks stalling and Italy risking the wrath of the European Commission after submitting its budget. Senior Market Analyst Craig Erlam discusses all of these and more in this week’s webinar.

Craig also gives his live analysis on EURUSD (16:37), GBPUSD (18:09), EURGBP (20:05), AUDUSD (21:56), USDCAD (24:25), GBPCAD (29:37), NZDUSD (30:14), USDJPY (31:05), GBPJPY (31:50) and EURJPY (32:40).

Live FX Analysis – 25 September 2018 (Video)

In this week’s FX webinar, Senior Market Analyst Craig Erlam discusses the upcoming Federal Reserve meeting and provides and update on Brexit and trade wars.

Craig also gives his live analysis on EURUSD (12:04), GBPUSD (17:23), EURGBP (22:05), AUDUSD (24:38), USDCAD (27:24), GBPCAD (28:30), NZDUSD (29:54), USDJPY (30:47), GBPJPY (32:31) and EURJPY (34:25).

Sterling Down on May Brexit Warnings

May resorts to rehashing old threats after failed Salzburg meeting

Theresa May took to the podium on Friday in an attempt to hit back at the EU after she was humiliated in Salzburg in what was meant to be a positive meeting ahead of the Tory Party Conference.

While May will be desperate for the takeaway from the speech to be that the UK is serious in its no deal threats and the EU should take their proposal seriously and resume dialogue based on the government’s Chequers plan or risk such an outcome, the speech itself was nothing but a stern rehash of what has been said in the past. As ever, these talks are showing themselves to be a frustrating and soul destroying game of chicken among a group of officials that agree that no deal is a bad outcome but are determined to drag them out in the hope of slightly better terms.

The pound came under pressure in the lead up to May’s speech and that continued during and in the aftermath, with traders potentially seeing this as a sign that no deal is a real and increasingly likely outcome. That may be exactly the message May wanted to send to the media, her party – particularly the Brexiteers – and the EU but I do not believe it changes anything. A fudged 11th hour deal that kicks the can down the road on the toughest decisions still remains the most likely outcome and I do not believe the appetite exists on either side for no deal that makes it as likely as we’re being led to believe.

GBPUSD Daily Chart

EURGBP Daily Chart

GBPJPY Daily Chart

GBPCAD Daily Chart

For a look at all of today’s economic events, check out our economic calendar.

Live FX analysis – 18 September 2018 (Video)

Senior Market Analyst Craig Erlam discusses the key market themes from the summer – most notably US tariffs and Brexit – and the events to watch out for this week.

Craig also gives his live analysis on EURUSD (17:48), GBPUSD (21:36), EURGBP (24:42), AUDUSD (25:44), USDCAD (28:33), GBPCAD (31:02), NZDUSD (32:41), USDJPY (34:16), GBPJPY (35:25) and EURJPY (36:31).

Will we get fireworks from BoE and ECB?

What to expect from a not-so-super Thursday

Thursday has the potential to be another interesting day in the markets, with interest rate decisions due from both the Bank of England and the European Central Bank.

It’s not often that we hear from two major central banks on the same day, let alone around the same time, but when we do there’s always the potential for some turbulence.

Both central banks are in the early days of their respective tightening cycles, with the BoE having recently raised interest rates above 0.5% for the first time since the financial crisis and the ECB drawing its quantitative easing program to a close at the end of this year.

While there’ll still be plenty of cash sloshing around the financial system until they start the process of reducing their balance sheets – as the Federal Reserve is currently experimenting with – the moves being undertaken represent a very cautious and gradual tightening that traders are monitoring very closely for any signs that they may lose their nerve.

This is particularly true in the current environment with the UK and EU locked in Brexit negotiations as the 31 March deadline draws ever near. Protectionism is another key risk factor with US President Donald Trump threatening tariffs on the block. Add to that the struggles being experienced in emerging markets at the moment – a major trade partner of Europe – and the jobs of the central banks become that much harder.

We already appear to be seeing a slowdown in numerous economies across Europe due to a combination of these factors, something the central banks don’t appear to concerned about just yet but may do should they persist.

USD/JPY – Japanese yen gains ground

What should I be looking at?

The obvious chart is EURGBP given that these are the two currencies most sensitive to what the BoE and ECB do. The closely linked nature of the two economies can mean we see less powerful swings in this pair though than we do certain others which can make it more or less appealing, depending on preferences.

EURGBP Daily Chart

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The euro has definitely had the better of things throughout the summer, with no deal Brexit being viewed as a far greater risk for the UK than the eurozone, which is understandable. What this means though is that if the two sides do start to find common ground, we may see this trend reverse course, as we have over the last couple of weeks when we’ve had some more positive news flow.

That trend may already have changed, with last week’s sell-off taking us below the rising trend line and potentially signalling a shift in sentiment in the market. Obviously that won’t change the outcome of the meetings, or press conference in the case of the ECB, but it does give a sense of bias heading into it.

Sterling Pauses on Reports of Leadership Challenge

Both currencies have found some form against the US dollar over the last month following a rough summer but are yet to see the spark that gives some confidence that they’ve broken into a more sustainable uptrend. They’ll definitely be ones to watch heading into the meetings.

EURUSD Daily Chart

GBPUSD Daily Chart

What can we expect from the meetings?

My expectations are actually quite low for the meetings. The reason why is that it seems to suit both central banks to stay under the radar for now. Both have made important first steps towards normalization and are in no rush and with Brexit on the horizon, now is not a good time to be changing course, especially as they don’t have to.

Both have laid out quite clear plans for the next year and even if they don’t stick to them – which there’s a good chance they don’t given the amount of unknowns and risks – the important thing is that investors are largely on board and the economies are doing ok. I don’t think they’ll want to mess with that.

So I don’t expect any changes in interest rates or QE this month and we can probably expect ECB President Mario Draghi’s press conference to be a rather dull affair.

Famous last words eh….

GBP Dives on Dovish BoE Hike

Profit taking seen as MPC doesn’t combine hike with hawkish rhetoric

Sterling tumbled on Thursday after the Bank of England raised interest rates by 0.25% to a post-financial crisis high.

The hike, which was initially planned for May prior to the first quarter slowdown, has not come without it criticism due to the mixed data, temporary factors driving some numbers and the uncertain outlook, associated with Brexit. It was, however, almost fully priced into the markets with investors correctly drawing on the central bank’s previous views on the labour market and deafening silence as market rates rose in the run up to the meeting.

With markets pricing in more than a 90% probability of a hike prior to the meeting, it left little room for confirmation of it to have an impact. While this did come in the immediate aftermath of the hike, the lack of any apparent hawkish language alongside it or warning that more hikes will follow in the near-term appears to have triggered some profit taking on those pre-meeting positions and possibly even stops being hit after that.

BoE hike a close call

Will hike be seen as brave or stupid come March?

The result is that, despite an initial rally, the pound plummeted shortly after falling back towards 1.30 against the dollar, 145 against the yen and 1.12 against the euro (or 0.89 for EURGBP). The central bank once very keen to emphasise though that rate increases were likely to be gradual and limited, citing market expectations of three over the next three years, while also stressing the uncertain influence of Brexit, despite it assuming a smooth transition in its forecasts. All of this lacked the hawkishness that traders were obviously hoping for which aided the decline in the pound.

I think it’s clear that the BoE could have held off on the decision today until it had more certainty on Brexit – maybe even by November – and avoided the possibility that it will have to do an embarrassing u-turn in the near future. That said, it backed itself into a corner earlier this year and clearly decided it’s a risk worth taking and should negotiations take a turn for the better and the economic data improve as a result, we could look back on this as a brave and calculated move that set us on a path towards policy normalisation.

AUD/USD slides despite jump in trade surplus

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.

BoE Super Thursday to live up to its name

Surely they won’t bottle it again, right?

Super Thursday promises to live up to its name one way or another this week, as the Bank of England either raises interest rates to post-financial crisis highs or risks causing unnecessary and significant market volatility.

  • Rate hike priced in but not guaranteed
  • Possible scenarios on Thursday
  • Key things to look out for

It’s been an unusual lead up to a central bank meeting, in that despite a lack of clear and specific warning signals, the likes of which we’ve become accustomed to, investors have become absolutely convinced it’s happening.

In fact, markets are now pricing in almost a 90% chance that the Monetary Policy Committee will vote to hike rates on Thursday. If the central bank doesn’t hike now, it will need a very good excuse and even then, this entire process of forward guidance will once again be heavily criticized.

BoE Interest Rate Probabilities

Source – Thomson Reuters Eikon

While it may not make much sense to blame the central bank when I’ve earlier stated that there’s been a lack of clear and specific warning signals, but policy makers are very aware of what market expectations are and when they deviate in such a significant way from reality, they do something about it. This time they have not.

This is where assumptions come into it. The lack of alternative guidance from policy makers has actually fuelled expectations that they must be planning a rate hike or they would have otherwise intervened to realign expectations.

Head fake or breakthrough ??

Remember, investors are always looking for subtle hints in order to get ahead of the curve and in this case, the central bank’s silence has been deafening. Or so investors hope. Should the MPC not deviate much from last month’s vote and hold off again, there could be a sizeable response in the markets, particularly in the pound and short-term UK debt.

Whichever way the central bank goes – and just to be clear, I think they will raise rates – there could be a very interesting response in the markets. These are some of the possible outcomes.

Dovish hike

In this scenario, it would be natural to think that this would be bullish for the pound and, in the immediate aftermath it could be. But if markets are already largely pricing this in then what exactly is left?

A rate hike that is accompanied by dovish language and cautious approach on the economy, or even wait and see approach to Brexit negotiations, could quickly trigger some profit taking by those who have anticipated such a move prior to the meeting and be bearish for the pound not long after the announcement.

EURGBP Daily Chart

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Hawkish hike

This is probably the most bullish feasible outcome for the pound. In this scenario, the BoE raises interest rates and warns that more will follow, maybe even a couple by the end of next year (more is of course possible but maybe not realistic given how the economy is right now and the uncertainty linked to Brexit).

In this case, the BoE is likely opting to look through Brexit or using base case assumptions on it – due to the sheer number of unknowns still – and base its views purely on the economic data, some of which is very good (unemployment, job openings, inflation) and some of which isn’t great (wages, investment, household debt).

GBPUSD Daily Chart

No hike

I don’t think this is likely (although it is arguably what the central bank should be doing) but it’s possible. Under this scenario, the central bank takes all of the recent data into consideration and takes the view that, given the uncertain outcome of Brexit negotiations and possibility of no deal, it makes more sense to wait until November to raise rates.

A few months is not a long time to wait but by then, they should be a lot better positioned to judge what the outcome of Brexit negotiations will be and whether it’s risky or not to be raising rates in such an environment, or what the chance is that it will be reversing course in the near-future, to its own embarrassment.

Of course, the argument against this is that there has been no noise coming from the central bank that market expectations are out of sync with their own which is usually a reliable sign that they are not.

GBPCAD Daily Chart

What to look out for

All things considered, a rate hike looks likely but there is going to be a number of elements of tomorrow’s event that will influence how markets respond.

Fed decision and US labour market in focus

The interest rate decision is the most obvious (12pm UK time) but alongside the release, we’ll get the minutes from the meeting, voting and the inflation report which contains new growth and inflation forecasts for the coming years, which will effectively determine how many hikes we’ll see.

This will then be followed by a press conference with Carney and his colleagues 30 minutes later which is never a dull event and certainly won’t be if the central bank once again bottles it.

Live FX Market Analysis – 24 July 2018

In this week’s FX webinar, Senior Market Analyst Craig Erlam discusses the latest events that are moving financial markets – Trump attacks the Fed, Brexit plans widely criticized etc – and previews the week ahead.

Craig also gives his live analysis on EURUSD (9:22), GBPUSD (11:48), EURGBP (18:45), AUDUSD (19:34), USDCAD (21:04), GBPCAD (22:14), NZDUSD (23:31), USDJPY (24:38), GBPJPY (27:41) and EURJPY (29:09).

Live FX Market Analysis – 10 July 2018 (Video)

In this week’s webinar, Senior Market Analyst Craig Erlam discussed the latest Brexit developments as two members of her team resign after an apparently united and productive meeting on Friday. He also talks Trump, after the latest imposition of trade tariffs and ahead of his trip to the UK and the NATO summit, and previews the week ahead.

Craig also gives his live analysis on EURUSD (12:20), GBPUSD (15:03), EURGBP (17:50), AUDUSD (19:35), USDCAD (24:12), GBPCAD (26:19), NZDUSD (28:31), USDJPY (30:22), GBPJPY (32:25) and EURJPY (34:52).

GBP/USD – British pound steady on modest GDP growth

USD/JPY – Japanese yen dips to 7-week low, inflation reports next

Commodities Weekly: Gold saved by dollar’s retracement

FX Market Analysis – 20 February 2018 (Video)

Senior Market Analyst Craig Erlam discusses this week’s key event risks, with the most notable being the UK jobs report and BoE inflation report hearing.

Craig also gives his live analysis on EURUSD (11:04), GBPUSD (15:13), EURGBP (17:04), AUDUSD (18:36), USDCAD (20:02), GBPCAD (22:01), NZDUSD (24:47), USDJPY (25:44), GBPJPY (26:47) and EURJPY (28:24).

USD/JPY – Dollar Punches Above 107 Yen, Fed Minutes Ahead

Higher Yields Pushing Dollar Up

Intermezzo