UK supreme court begins hearing on prorogation of parliament

The hearing is to last at least three days

Brexit

The judges will have to deal with appeals from the Scottish court, the English high court, as well as the Northern Irish court in determining whether Boris Johnson acted lawfully in proroguing parliament until 14 October.

I don't think this is a real game changer for the pound as the prorogation was meant to prevent lawmakers from getting a Brexit delay bill turned into law - which still happened anyway.

But you'll never know how the ruling may affect the future of Boris Johnson so just keep an eye on the matter at hand just in case.



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EUR/USD sellers reclaim near-term control, what's next?

EUR/USD near-term bias is more bearish since overnight trading

EUR/USD H1 17-09

The shift in near-term bias comes as sellers broke below the 100 and 200-hour MAs (red and blue lines respectively) yesterday in a move to test the 1.1000 handle.

Currently, the downside move is running into support around the figure level with the 61.8 retracement level @ 1.0997 providing added support for the time being.

So, what's next for the pair?

Sellers may have seized near-term control again but with the Fed meeting tomorrow, price could potentially sit in this area (further support around 1.0985) close to 1.1000 before finding more direction this week.

Risks to any downside move from here can be defined and limited by the key hourly moving averages close to 1.1040 while any further downside extension requires a firm break below 1.1000 - and preferably 1.0985 - to see a potential test of lows around 1.0926-27.

Of note, there are also large expiries rolling off at 1.1000 today (€856m) and tomorrow (€1.6bn) so that may factor into price action being a bit more "sticky" at current levels ahead of the Fed decision tomorrow.



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Aussie loses yields tailwind as upside momentum fades

AUD/USD trades at the lows for the day to begin the European morning

AUD/USD D1 17-09

The upside bounce in the pair appears to have run its course after meeting resistance at the 50.0 retracement level @ 0.6880 and failing to move above 0.6900 to challenge the 100-day MA (red line) in the past week.

The daily chart above doesn't inspire any confidence whatsoever as price has been making lower highs consistently ever since December last year. The high this month would mark the fifth consecutive sequence of that.

That's never a good sign if you're leaning towards the bullish side of a currency. Add to the fact that the yields spread divergence and has now converged:

AU yields

There is a strong argument for AUD/USD to potentially get a stronger nudge lower if things fall into place this week i.e. less dovish-than-expected Fed tomorrow and softer Australian jobs report on Thursday.



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ECB's Lane: Convergence of inflation towards aim has recently slowed, partly reversed

ECB chief economist, Philip Lane, speaks in London

  • ECB mandate for price stability is unconditional

  • Incoming information signals more extended slowdown in Eurozone growth dynamics

  • This slowdown is mainly due to external developments

  • Forward guidance is a very powerful instrument, remains our principal tool

  • The case for monetary policy response was clear

  • ECB can do QE within current limits for an extended period

  • ECB policies create a cushion to insulate the economy from the materialisation of downside risks

  • Full speech

Nothing new on offer here from Lane. He's essentially just reiterating the baseline view adopted by the central bank at its decision last week. There will be a Q&A session to follow after his speech so perhaps there will be more 'juicy' remarks to come.



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EUR/USD falls to session low as sellers look to regain near-term control

EUR/USD falls just under 1.1050 to test the 100-hour moving average

EUR/USD H1 16-09

The "ECB bounce" is starting to fade already as sellers look to try and seize near-term control once again in EUR/USD. Price is creeping lower to start the new week with the downside move today testing the 100-hour MA (red line) currently.

The 200-hour MA (blue line) also sits nearby @ 1.1042 and a break below those levels will see sellers regain near-term control in the pair.

Since the ECB meeting, there has been plenty of focus and talk about the need for fiscal policy but until we see any concrete signs of that, I don't think any boost from mere talks will be sustainable for the single currency.

As we look towards the medium-term, the trade for the euro will be a trade on the performance of the euro area economy as the ECB pushes monetary policy to its limits.

If that doesn't cut it for the economy and inflation, there is little optimism to keep the euro buoyed. As such, I would argue that this is the most important chart to keep an eye on if you're trading the euro in the coming months:

EUR 5Y-5Y inflation

As you can see, inflation expectations have somewhat "stabilised" since markets got to know that the ECB will introduce a stimulus package in September and has improved to ~1.31% after the decision last week.

However, if economic data continues to deteriorate further in Q4 and inflation expectations start debasing again, expect that to pressure the euro lower towards the year-end.



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EU's Hogan: Recent events in UK parliament have improved the likelihood of Brexit extension

Comments by incoming trade commissioner, Phil Hogan

  • Onus is on the UK to find a workable solution to the Irish border

Interestingly enough it is actually comments by European officials that are feeding into this "extension optimism" with European Parliament president David Sassoli saying yesterday that they are open to the idea of a Brexit extension; and now this.

We'll see though as there is still quite some time between now and 31 October but I reckon they're going to let things go right down to the wire before granting another extension.



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EUR/USD hits fresh two-week high as push higher continues

EUR/USD touches a high of 1.1090, highest level since 29 August

EUR/USD H1 13-09

The solid rebound in the euro continues after hitting a double bottom around last week's low of 1.0926. Price has since jumped up by ~160 pips to trade at fresh two-week highs near 1.1090 in early European trading today.

As it stands, buyers are in near-term control and are in search of a more meaningful technical break higher. Currently, price is contesting near-term resistance @ 1.1085 (again) as well as the 50.0 retracement level @ 1.1088.

A break of those levels will see buyers eye the 1.1100-10 region next.

So, is this the start of a strong breakout in EUR/USD? I wouldn't get too carried away for the time being, not with the Fed still to come next Wednesday.

The near-term technical picture suggests that buyers are in control but there isn't much besides a relief rally to fundamentally suggest that the euro may track higher - unless economic data starts to improve on the back of the dovish efforts by the ECB yesterday.

It sounds a bit convoluted, doesn't it? Dovish monetary policy = stronger currency? Well, it's all about sentiment and focus. Right now, for the Eurozone, it's mainly trying to avert an economic disaster over the next 12-18 months.

If the ECB's stimulus package is "adequate" enough to bolster economic confidence and shore up inflation, then ultimately it can be viewed as a good thing. But I wouldn't count on that being the case as evident to what we have seen in the past.

But we'll see. Time will tell how things will play out on that front.

For now, the EUR/USD looks better for buyers but any confirmation of a trend breakout depends on the reaction to the Fed next week.



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How are markets initially reacting to the ECB decision?

Euro weaker, bonds surge as the ECB reintroduces QE

EUR/USD H1 12-09

I'll try to keep this short and concise. So, what was announced by the ECB today?

1. A 10 bps cut to the deposit facility rate

2. A rate tiering system

3. Change in forward guidance (dropped date-based forward guidance)

4. Reintroduction of QE (€20 billion per month) starting 1 November

So far, the initial market reaction is as what you would see with the euro weaker on the more or less "expected" stimulus package. The initial knee-jerk reaction was a move higher before a whipsaw back lower in the single currency.

On the balance of things, it is a dovish decision but I reckon the move lower in the euro could also be in part tied back to markets not having confidence that this is enough to bolster economic confidence and/or inflation expectations.

But we'll see, there's still Draghi's press conference and time after that to let the dust settle before we get more clarity.

Elsewhere, equities are moving higher on the easing decision and the introduction of the rate tiering system is helping to lift bank stocks as well.

Meanwhile, bonds are loving the QE news as yields tumble across the board where we're seeing even Italian 10-year bond yields hit a record lower of 0.77%. Treasury yields are much firmer across the board as well and that is putting a bid in the yen with USD/JPY falling to 107.70 levels currently.



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EUR/USD slumps back below 1.1000 as the clock ticks towards the ECB

German growth downgraded

German growth downgraded

The ECB decision tomorrow is the main event this week. Economists are still looking for QE but all the leaks suggest it isn't coming and the rebound in bond yields lately is at least partly due to the belief that the central bank will keep its powder dry on QE (while extending forward guidance and cutting the deposit rate).

There's a bigger trend in euro is towards fiscal stimulus and growth as the driver. There was more talk of soft German growth as IfW and DIW both cut forecasts today and now see 1.4-1.7% growth next year.

I fear that the ECB is going towards a hard pivot to a stance where they aggressively stand their ground and implore governments to take up the mantle. That's the kind of thing that could lead to an ugly drop in the euro.



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EUR/USD sellers look to seize near-term control ahead of ECB policy decision tomorrow

EUR/USD falls to a session low of 1.1018

EUR/USD H1 11-09

It has been a quiet session overall but the euro has steadily inched lower in the European morning amid continued focus that the ECB will be delivering a stimulus package at tomorrow's monetary policy meeting.

Currently, price is looking towards the 200-hour MA (blue line) @ 1.1014 after sellers managed a break of the 100-hour MA (red line) earlier today. If they can break below the former, that puts them back in near-term control ahead of the ECB tomorrow.

The price action above suggests that we could see some short covering (sell the rumour, buy the fact) in the event the ECB delivers a more "expected" outcome. That said, any immediate reaction to the decision will depend on the magnitude of rate cuts (10 or 20 bps) and any imminent QE announcement as well.

As it stands, markets are on the fence on the former while there is significant expectations that the central bank should deliver something on QE tomorrow.

I reckon failure to announce a restart of QE may see the euro rise initially due to a relief rally and further short covering but the material impact on what that means for the euro will take more time to play out.

The lack of a strong stimulus package may not necessarily be a good thing as it will do little to bolster economic confidence and inflation expectations. As mentioned yesterday, it's essentially a "go big or go home" play for the ECB at this stage.

If they aren't going to "go big", markets may eventually view the decision tomorrow as a disappointment and the euro's relief rally may end on a more sour note in the big picture.



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