UK Growth Revised Lower

The UK economy expanded by less than previously thought in the last three months of 2017, official figures say.GDP grew by 0.4% in the October-to-December period, the Office for National Statistics (ONS) said, down from the initial estimate of 0.5%.The revision was due to slower growth in production industries, the ONS said.In 2017 as a whole, the economy grew by 1.7%, also slightly lower than previously thought and the weakest since 2012.

Source: UK economic growth revised downwards – BBC News

Futures Flat After Hawkish Fed Minutes

Dollar maintains its firmer tone

Merkel Wants Overhaul of EU Finances After Brexit

Brexit offers the European Union an opportunity for a broad rethink of its financial set-up, German Chancellor Angela Merkel said on Thursday before an EU summit that will tackle the bloc’s future budget.Chancellor Angela Merkel addresses the German lower house of parliament Bundestag in Berlin, Germany, February 22, 2018. REUTERS/Axel SchmidtAddressing the Bundestag (lower house of parliament), Merkel made clear that the future of the EU would be a priority in her fourth term, provided a coalition deal between her conservatives and the pro-EU Social Democrats is approved by SPD members.“We need a new start for Europe,” said Merkel, adding the looming debate on a new budget for the 27-member bloc after Britain’s withdrawal in 2019 could lead to some major changes.

Source: Merkel eyes overhaul of EU finances for post-Brexit bloc – Reuters

Futures Flat After Hawkish Fed Minutes

Dollar maintains its firmer tone

Italians Warned of Mafia Meddling

There is a risk of Italy’s mafias “conditioning” the general election in March, Italy’s Interior Minister Marco Minniti warned.Italians go to the polls on March 4 and Minniti said there was “too much silence” on the “concrete” risk of the mafias posing a threat to democracy and “the freedom to vote,” Italian news agency ANSA reported.”We’re in the swing of the electoral competition and … There is a concrete risk of the mafias conditioning electors’ free vote,” Minniti said on Wednesday as he presented an annual report to the Anti-Mafia commission in Rome.

Source: Italian election could see mafia interference – CNBC

Futures Flat After Hawkish Fed Minutes

Dollar maintains its firmer tone

ECB Optimistic But Cautious

The euro rose to a day’s high on Thursday shortly after the European Central Bank (ECB) released minutes of its January meeting.The currency hit $1.23085 at around 12:30 p.m. London time (7:30 a.m. ET) but it eased some of that strength a few minutes later.ECB minutes showed that inflation, the most important economic indicator at the central bank, is set to finally rise. As a result, some market participants briefly interpreted that as an indicator that monetary stimulus will come to an end earlier than previously thought.

Source: European Central Bank leaves policy on hold, inflation set to rise – CNBC

Futures Flat After Hawkish Fed Minutes

Dollar maintains its firmer tone

Too Many Rate Hikes Could Harm Economy

Central bankers need to be careful not to increase interest rates too quickly this year because that could slow the economy too much, St. Louis Federal Reserve President James Bullard told CNBC on Thursday.Wall Street expects the Fed to raise rates at next month’s meeting, in the first of what’s seen as at least three total hikes in 2018. The Fed increased the cost of borrowing money three times last year to the current range of 1.25 to 1.50 percent.Hiking rates by a total of 1 percent this year, which would signal four increases of the typical 0.25 percent, would be “priced for perfection,” Bullard said.

Source: Fed’s Bullard: Too many hikes this year could slow economy too much – CNBC

Futures Flat After Hawkish Fed Minutes

Dollar maintains its firmer tone

CAC Ticks Lower, Eurozone CPI Ahead

The CAC index has posted slight losses in the Thursday session. Currently, the index is at 5,299.00, down 0.06% since the close on Wednesday. On the release front, French CPI declined 0.1%, matching the forecast. This marked the first decline in four months.As well, the ECB released the minutes of its January policy meeting. On Friday, the eurozone publishes Final CPI.

It’s been a rough ride February for global stock markets, and the CAC has shed 3.9 percent so far this month. Much of the correction can be attributed to concerns of tighter policy from both the Federal Reserve and the ECB. Ironically, these concerns have been heightened by strong economic data in the eurozone and the US, which have stoked fear of higher inflation and more rate hikes. Analysts are forecasting that the Fed could change its projection of three hikes in 2018, and could press the rate trigger four or five times. As for the ECB, it appears in no rush to raise interest rates anytime soon, and there is little pressure to do so, as there is plenty of slack in the economy. However, the ECB asset purchase program is scheduled to wind up in September, and if eurozone growth remains solid and inflation moves upwards, there will be pressure on the ECB to raise rates in the fourth quarter of 2018 or early in 2019.

The Federal Reserve released the minutes of its January meeting, and as expected, the benchmark rate was left unchanged at a rate between 1.25% and 1.50%. The message from policymakers was that further rate hikes could be in the cards, due to strong economic conditions in the US. In the words of the minutes, policymakers “anticipated that the rate of economic growth in 2018 would exceed their estimates of its sustainable longer-run pace and that labor market conditions would strengthen further”. At the December meeting, the Fed penciled in three rate hikes in 2018, and there was no reference to a quicker pace of hikes in the January minutes. As for inflation, the minutes did not reveal any concern. Most Fed members were of the opinion that inflation would rise towards the Fed target of 2 percent.

 

Economic Calendar

Thursday (February 22)

  • 2:45 French Final CPI. Estimate -0.1%. Actual -0.1%
  • 7:30 ECB Monetary Policy Meeting Accounts

Friday (February 23)

  • 5:00 Eurozone Final CPI.  Estimate 1.3%

*All release times are GMT

*Key events are in bold

CAC, Thursday, February 22 at 9:40 EDT

Open: 5,271.00 High: 5,296.30 Low: 5,253.30 Close: 5,299.00

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Confusion reigns

Confusion reigns

In a market starved for significant news, the FOMC minutes provided just enough talking points to keep the dollar bid as US bond yields nudged towards crucial resistance levels.However, the Feds assortment of views on wage growth suggests the FOMC remains pliable during the transition phase from Yellen to Powell. In other words, the Feds stay in wait and see mode regarding inflation.

Of course, the market latched on to the dovish stuff as traders were partial to sell the dollar, but as is so often the case when interpreting the Feds exercise in verbal gymnastics, the market got it wrong. The FOMC minutes were eventually deemed slightly more hawkish after suggesting economic growth will surpass their estimates which caused STIRT traders to nudge rate hike expectations higher through 2018  and providing a bump to dollar sentiment. But given the lack of follow-through, the jury remains out.

The exciting part of the equation today will be the return of China investors which should provide a spark to regional sentiment. But the jury is out on the currency markets and in particular USDJPY which remains the primary vehicle to express currency sentiment.

So there lies the debate,  interest rate hawks preach the FOMC had not seen last week’s sharp inflation report while the doves suggest a need for a string of convincing inflation prints before moving to the four rate hike camp.

Bond Markets

The bond market is confused, but as my first boss on the BondDesk was always quick to remind me, when in doubt Sell.
Oil prices

Tumbling oil prices got a reprieve at the end of the day after American Petroleum Institute data showed a drop of 0.907 million barrels in US crude inventories. Given all the noise about a shale production ramp, Traders were expecting an increase in the warehouse when in reality improved pipeline infrastructure to the Gulf coast and the decreased supply via TransCanada’s Keystone pipeline, sent Cushing inventories tumbling.But the firming dollar continues to thwart investor sentiment despite the bullish inventory data.  By no means is the dollar returning to form so this upbeat inventory data could have some legs.

Gold Prices

It was a  meltdown in Gold markets overnight, and I’m not talking about scrap prices. But in reality, this should provide Gold investors with another opportunity to re-engage as the Fed fell well short of confirming a 4th rate hike in 2018. The minutes were more balanced in my view as the recent uptick in volatility will have as much bearing on Fed policy decision as the subtle rise in inflation.

G-10

The Euro

Disappointing price action from the long perspective continues to weigh on sentiment; bullish views continue to be challenged ahead of the Italian elections, as near-term convictions turn neutral to slightly bearish

The Japanese Yen

There remain substantial offers between 107.50-108 levels that are providing a cap on USDJPY, but Traders remains exceptionally cautious in either direction despite increasing signals for a structural demise in USD sentiment.While fiscal stimulus looks good on paper, we’re entering uncharted territory as the Fed pares back bond purchases while the Treasury issues absurd amounts of debt.
Malaysian Ringgit

We should anticipate more liquidity coming back to the market as mainland investor return. While we’re nowhere near a make or break scenario for the Ringgit, short-term sentiment remains tarnished by an unexpectedly faster rise in US bond yields. While this is mildly negative for local opinion, the main issue is investors are growing increasingly concerned about a quicker pace of interest rate normalisation from the Fed which could trigger regional capital outflow.

The FOMC minutes served up little more than a plate of confusion last night, so I expect G-10 along with Asia FX to remain in a state of limbo until Fed Chair Powell takes the podium later this month.

Gold in Holding Pattern Ahead of Federal Reserve Minutes

Gold is steady in the Wednesday session, following sharp losses on Tuesday. In North American trade, the spot price for an ounce of gold is $1329.08, down 0.05% on the day. On the release front, all eyes are on the Federal Reserve, which will release the January minutes later in the day. Earlier, Existing Home Sales disappointed, dropping to 5.38 million. This was well short of the estimate of 5.61 million. On Thursday, the US will release unemployment claims.

Gold prices remain under pressure, as the metal has lost 1.5% this week, erasing much of last week’s gains. Concerns that strong US numbers could stoke inflation and more rate hikes sparked the recent turbulence in global stock markets. This has triggered volatility in gold, as gold prices are sensitive to moves (or expected moves) in interest rates. The Fed is currently projecting three rate hikes this year, but if inflation continues to move upwards, many analysts are expecting that the Fed could press the rate trigger four, or even five times in 2018. Traders should be prepared for some movement from gold later in the North American session, as the minutes could provide some clues regarding future rate policy.

It’s been a busy start for Jerome Powell, who has just commenced his stint as chair of the Federal Reserve. Strong US data in recent weeks has raised speculation that the Fed may need to accelerate the pace of interest rate hikes in 2018.  Meanwhile, concern over higher inflation and more rate hikes sent the stock markets into a frenzy earlier in February. Powell sought to reassure the markets that the Fed was monitoring the situation, but it’s doubtful that the Fed can do much to prevent volatility in the markets.

XAU/USD Fundamentals

Wednesday (February 21)

  • 9:45 US Flash Manufacturing PMI. Estimate 55.4. Actual 55.9
  • 9:45 US Flash Services PMI. Estimate 53.8. Actual 55.9
  • 10:00 US Existing Home Sales. Estimate 5.61M. Actual 5.38M
  • 14:00 US FOMC Meeting Minutes

Thursday (February 22)

  • 8:30 US Unemployment Claims. Estimate 230K

*All release times are GMT

*Key events are in bold

XAU/USD for Wednesday, February 21, 2018

XAU/USD February 21 at 12:35 EST

Open: 1329.66 High: 1333.04 Low: 1325.27 Close: 1329.08

 

XAU/USD Technical

S3 S2 S1 R1 R2 R3
1260 1285 1307 1337 1375 1416
  • XAU/USD posted losses in the Asian and European sessions. The pair continues to lose ground in North American trade
  • 1307 is providing support
  • 1337 has switched to a resistance role following losses from XAU/USD on Tuesday
  • Current range: 1307 to 1337

Further levels in both directions:

  • Below: 1307, 1285 and 1260
  • Above: 1337, 1375, 1416 and 1433

OANDA’s Open Positions Ratio

XAU/USD ratio is showing slight movement towards short positions. Currently, short positions have a majority (60%), indicative of trader bias towards XAU/USD breaking out and moving lower.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

GBP/USD – Strong UK Employment Numbers Fail to Rally Pound, Fed Minutes Loom

The British pound has posted losses in the Wednesday session. In North American trade, GBP/USD is trading at 1.3946, down 0.37% on the day. On the release front, British employment numbers were solid. Wage growth remained at 2.5%, matching the forecast. Unemployment rolls declined 7.2 thousand, crushing the estimate of a 2.3 thousand gain. However, the unemployment rate ticked up to 4.4%, above the estimate of 4.4%. In the US, the key event is the Federal Reserve minutes from the January meeting. Earlier, Existing Home Sales disappointed, dropping to 5.38 million. This was well short of the estimate of 5.61 million. On Thursday, the UK releases revised GDP for the fourth quarter as well as Preliminary Business Investment. The US will publish unemployment claims.

The Bank of England has been hinting that it could speed up the pace of rate hikes, and this was further reinforced on Wednesday, as BoE Chief Economist Andy Haldane said that interest rates might need to climb faster than previously expected, in order to bring down inflation to the BoE’s target of 2 percent. The Bank has been reluctant to raise rates in order to lower inflation, but may be running out of options, as inflation hovers at 3 percent and continues to erode the purchasing power of consumers. The Bank has taken pains to be transparent with the markets, stating recently that the pace of rate hikes could be accelerated and larger hikes than previously forecast could be on the way.

It’s been a busy start for Jerome Powell, who has just commenced his stint as chair of the Federal Reserve. Strong US data in recent weeks has raised speculation that the Fed may need to accelerate the pace of interest rate hikes in 2018. The Fed is currently projecting three rate hikes this year, but if inflation continues to move upwards, many analysts are expecting that the Fed could press the rate trigger four, or even five times in 2018. Meanwhile, concern over higher inflation and more rate hikes sent the stock markets into a frenzy earlier in February. Powell sought to reassure the markets that the Fed was monitoring the situation, but it’s doubtful that the Fed can do much to prevent volatility in the markets.

 

GBP/USD Fundamentals

Wednesday (February 21)

  • 4:30 British Average Earnings Index. Estimate 2.5%. Actual 2.5%
  • 4:30 British Claimant Count Change. Estimate 2.3K. Actual -7.2K
  • 4:30 British Public Sector Net Borrowing. Estimate -11.5B. Actual -11.6B
  • 4:30 British Unemployment Rate. Estimate 4.3%. Actual 4.4%
  • 9:15 British Inflation Report Hearings 
  • 9:45 US Flash Manufacturing PMI. Estimate 55.4. Actual 55.9
  • 9:45 US Flash Services PMI. Estimate 53.8. Actual 55.9
  • 10:00 US Existing Home Sales. Estimate 5.61M. Actual 5.38M
  • 14:00 US FOMC Meeting Minutes

Thursday (February 22)

  • 4:30 British Second Estimate GDP. Estimate 0.5%
  • 4:30 British Preliminary Business Investment. Estimate 0.5%
  • 8:30 US Unemployment Claims. Estimate 230K

*All release times are GMT

*Key events are in bold

 

GBP/USD for Wednesday, February 21, 2018

GBP/USD February 21 at 12:10 EDT

Open: 1.3996 High: 1.4009 Low: 1.3994 Close: 1.3946

 

GBP/USD Technical

S1 S2 S1 R1 R2 R3
1.3744 1.3809 1.3901 1.4010 1.4128 1.4271

GBP/USD edged lower in Asian trade and posted stronger losses in the European session. GBP/USD has posted small gains in North American trade

  • 1.3901 is providing support
  • 1.4010 is the next resistance line

Current range: 1.3901 to 1.4010

Further levels in both directions:

  • Below: 1.3901, 1.3809 and 1.3744
  • Above: 1.4010, 1.4128, 1.4271 and 1.4345

OANDA’s Open Positions Ratio

GBP/USD ratio is almost unchanged in the Wednesday session. Currently, short positions have a majority (57%), indicative of trader bias towards GBP/USD continuing to move to lower ground.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

GBP/JPY – Bearish Breakout Ahead of Jobs Data and BoE

OANDA Senior Market Analyst Craig Erlam talks to Core Finance about the recent bearish break in GBPJPY and whether it signals more pain ahead. He also previews the UK jobs data and Bank of England inflation report hearing and what they could mean for interest rates this year.

USD/JPY – Japanese Yen Edges Lower as Japanese Manufacturing PMI Dips

BoE Hearing and Fed Minutes in Focus

DAX Under Pressure, Investors Eye Fed Minutes