Get started

Fed

Market Phases | Buy & Sell zone!Today, we delve into the crucial market phases, focusing on the dynamics of accumulation and distribution, along with the concepts of BOS (Breakout of Structure), Sweep, Range, and Liquidity. Understanding these phases is essential for developing an informed trading strategy and improving trading decisions. The market goes through various phases, such as accumulation and distribution, which play a key role in price formation. Accumulation represents a period when institutional traders accumulate a significant position, while distribution is associated with the sale of these positions. BOS (Breakout of Structure) is a pivotal event where the price surpasses a significant support or resistance level. Analyzing BOS can provide signals for reversal or trend continuation, indicating the end of one phase and the beginning of another. The concept of Sweep involves the rapid and aggressive buying or selling of a large quantity of assets at current market prices. This may indicate institutional interest and influence the future direction of the price. Range refers to a consolidated price interval where the market is temporarily "locked." During these phases, traders can seek breakout or breakdown signals to identify trading opportunities. Liquidity is crucial as it represents the availability of a large volume of trades at a specific price level. Understanding market phases and concepts like BOS, Sweep, Range, and Liquidity provides a solid foundation for chart analysis. Using this knowledge, informed decisions can be made to identify trading opportunities and manage risks more effectively.
Education
by Forex48_TradingAcademy
1
GBPUSD is ready for the Bullrun towards 1.281The GBP/USD is rebounding towards 1.2700, driven by surprisingly high inflation data in the UK, which diminishes expectations of aggressive interest rate cuts by the BoE. US retail sales data has bolstered the strength of the dollar, slightly exceeding expectations. The exchange rate remains above the lower limit of the ascending channel, with the Relative Strength Index (RSI) indicating a bullish bias. Resistance levels are at 1.2780, 1.2830, and 1.2860; supports are at 1.2750, 1.2710-1.2700, and 1.2670. The GBP/USD reversed its direction, closing above 1.2750 due to an improved risk sentiment. US Producer Price Index (PPI) data is awaited, following a 3.4% increase in the Consumer Price Index (CPI) in December. The initial reaction supported the USD, but the market is not convinced that the Fed will avoid rate cuts in March. The UK's Gross Domestic Product (GDP) grew by 0.3% in November, maintaining the resilience of the Pound. Meanwhile, the FTSE 100 is up by 0.8%. It is expected that US producer inflation will rise to 1.3% in December. The USD's reaction suggests that a significant increase in the PPI could influence a potential shift in monetary policy towards the end of the second quarter. Stay tuned for any updates. Regards, Nicola.
Long
by Forex48_TradingAcademy
3
EURUSD | Towards 1.08 today?The EUR/USD exchange rate is recording losses below 1.0900, marking five-week lows at 1.0862 on Tuesday. Investors are monitoring the US dollar and assessing the Federal Reserve's interest rate outlook amid persistent geopolitical risks, with a particular focus on US retail sales data. If the EUR/USD continues to decline and surpasses the 2024 low at 1.0861, it could reach the critical 200-day Simple Moving Average (SMA) at 1.0847, followed by the lows of 2023. The 4-hour chart suggests further short-term losses, with the Moving Average Convergence Divergence (MACD) and Relative Strength Index (RSI) indicating oversold conditions. Potential rebound attempts may encounter resistance at 1.0925 and 1.0998. The weakness of the euro has been influenced by the strengthening dollar, pushing the Dollar Index (DXY) to new 2024 highs beyond 103.00. Comments from European Central Bank (ECB) officials, contrary to investor expectations, have contributed to the situation. Market participants anticipate rate cuts by both the ECB and the Fed in 2024. The probability of a Fed rate cut in March is now at 70%. The decline in the euro's value has been influenced by rising yields, with German bunds reaching yearly highs. The improvement in Economic Sentiment in Germany and the broader Eurozone has not supported the European currency. In the United States, the Empire State Manufacturing Index significantly weakened to -43.7 in January. Greetings and have a good trading day to everyone from Nicola.
Short
by Forex48_TradingAcademy
1
XAU/USD: Critical Zone – Should You Buy or Sell?The price of gold (XAU/USD) is undergoing a significant sell-off, failing to reclaim the weekly high above $2,060. Investors are reassessing the timing at which the Federal Reserve (Fed) might reduce interest rates. After the failure to regain the weekly high of $2,062, the price of gold has dropped to around $2,030. It is expected to remain uncertain until new signals emerge regarding a potential Fed interest rate reduction. The precious metal has wiped out gains made on Monday, dipping below the 20-day Exponential Moving Average (EMA) at approximately $2,039. Further declines may occur if the gold price fails to defend the January 3 low of $2,030, exposing it to psychological support at $2,000. Investors are reacting to the persistent Consumer Price Index (CPI) report for December and hawkish comments from European Central Bank (ECB) officials. Despite expectations of a rate cut in March, Fed policymakers are in no rush to adopt an accommodative stance on interest rates, considering employment stability and the low likelihood of a recession in the United States. Going forward, data on US retail sales, industrial production, and the Fed's Beige Book will provide new insights into interest rate prospects.
OANDA:XAUUSDShort
by Forex48_TradingAcademy
1
USDCAD is ready to grab the liquidity at the level 135.30The Canadian dollar strengthened following mixed inflation data in Canada, while weakness in U.S. manufacturing data exerted negative pressure on the dollar. The bullish trend in USD/CAD persists, with resistances at 1.3420 and 1.3350 potentially impeding selling. The Canadian dollar (CAD) gained against many currencies on Tuesday but lost ground against the U.S. dollar (USD), maintaining its position as the top-performing major currency. Despite Canada's Consumer Price Index (CPI) in December mostly meeting expectations, the lack of price growth has reduced the likelihood of a rate cut by the Bank of Canada (BoC) in March. Currently, Canadian money markets see a 34% probability of a rate cut, down from 46% before the inflation release. Overall, the economic landscape is influenced by other factors, such as the annual growth of the Consumer Price Index at 3.4%, compared to the previous period's 3.1%. Annualized residential construction in Canada exceeded expectations, reaching 249.3 thousand for the year through December. Meanwhile, official statements from the Federal Reserve (Fed) continue to diminish expectations of rate cuts. Fed Governor Christopher Waller emphasizes that inflation should follow a gradual path toward 2%. Oil markets are still influenced by geopolitical factors, such as Houthi attacks on civilian cargo ships in the Red Sea.
Short
by Forex48_TradingAcademy
2
USDJPY | Short after the bullrun with target 140!The recovery of the US dollar is accelerating as market sentiment fades. The Yen is on the defensive with the hope that the BoJ will keep its extremely accommodative policy unchanged. Markets are quiet today, with US markets closed for a bank holiday. The pair has recovered most of the ground lost on Friday, reaching intraday highs near 146.00. The dollar seems to have ignored the post-PPI weakness in the United States in a calm trading session, with US markets closed for Martin Luther King's birthday. With the Bank of Japan monetary policy meeting approaching, the weak Tokyo CPI index and wage data from last week have practically ruled out any monetary policy normalization in the January meeting. The highlight in the US calendar will be the release of retail sales on Wednesday. In Japan, all eyes are on the national CPI data expected on Thursday. Confirmation on M15 is expected tomorrow during London or New York to assess a possible short with a target at 140. Greetings and happy trading to all.
Short
by Forex48_TradingAcademy
22
EURUSD | Will today be the day of the dollar?The EUR/USD pair is descending towards 1.0900, with the US dollar rising for the fourth consecutive day, influenced by geopolitical tensions in the Middle East. Despite hawkish comments from the ECB, the euro is struggling to gain ground. If the EUR/USD breaks the 2024 low at 1.0892, it may test the 200-day SMA at 1.0847. Below this level, further declines could occur. On the other hand, a breakout to the upside could encounter resistance at 1.0998 and 1.1139. The 4-hour chart indicates a consolidative mood, with the MACD showing signs of recovery, but the RSI remaining flat below the 50 threshold, suggesting a ranging trade. The week starts with uncertainty, as the market reacts to reduced volatility and thin trading conditions following the holidays in the United States. Hawkish comments from the ECB contrast with the outlook for rate cuts. The debate between market participants and the ECB regarding the timing of interest rate reductions continues. High inflation and mixed economic data in Europe influence the outlook. In the United States, there is a 70% probability of a Fed interest rate cut in March. European economic data shows a contraction in German GDP in 2023 and a decline in industrial production. We will see if today will be a hawkish day, expecting a downside break with a retest of the highlighted area in white in case of a strong dollar. Alternatively, an upward push with a trendline break and subsequent retest. Greetings and have a good trading day.
Short
by Forex48_TradingAcademy
1
EUR/USD: Bullish Scenario with Target 1.11 Next WeekThe EUR/USD exchange rate rose above 1.0950 and erased its daily losses in the early American session on Friday. Data from the United States revealed that the monthly Core PPI remained unchanged in December for the third consecutive month, exerting pressure on the US Dollar (USD) and assisting the pair in moving higher. The pair held steady above 1.0950 on Friday morning as markets awaited producer inflation data from the US. Mixed inflation figures from the US increased market volatility on Thursday. The Consumer Price Index (CPI) rose by 3.4% on a yearly basis in December, as reported by the US Bureau of Labor Statistics (BLS). This reading followed the 3.1% increase recorded in November and exceeded the market expectation of 3.2%. The Core CPI, excluding volatile food and energy prices, rose by 0.3% on a monthly basis, matching analysts' estimates. These data did not significantly impact the market's stance on the Federal Reserve's (Fed) policy outlook. The CME FedWatch Tool indicates a 70% probability of a 25 basis points rate reduction in March. My analysis anticipates a bearish start to the week towards 1.085 to establish a significant low, or rather a false low with a recovery towards Tuesday/Wednesday, and Thursday could potentially bring the price back towards 1.11 before a slight retracement on Friday. Wishing everyone a good Sunday. Greetings from Nicola.
Long
by Forex48_TradingAcademy
1
BTC/USD pullback expected, now heading towards 200K!Analyzing the BTC/USD scenario reveals an expansion of the bearish phase with a test of support at 40,980. The initial resistance is at 45,465, but expectations suggest the possibility of an extension of the negative trend towards new lows at 39,485. From a daily volatility perspective, the cryptocurrency shows a value of 2.79%, with a weekly performance registering at -3.16%. The reasons behind Bitcoin's decline after the historic spot ETF approval are as follows: There was strong speculation leading up to the ETF approval; now that it's approved, there is less for people to speculate on. Many expected a surge to $55,000 after approval, and since that didn't happen, people are either taking profits or selling in disappointment. Bitcoin surged from $15,400 to $49,000 with FOMO elements related to the ETF, so a correction was naturally due. This could be a sell-the-news event for many who bought Bitcoin before it reached $20,000. Money is shifting from Bitcoin to Ethereum. People are selling BTC and buying ETH because they anticipate an ETH spot ETF is coming, and since ETH hasn't surged much, they are moving to an undervalued asset. Positive aspects that many people overlook: The Bitcoin ETF generated a total volume of $4.3 billion, a historic result for any ETF in history. Now that Bitcoin is available to all Wall Street traders, trillions will flow into the market over time. The Bitcoin ETF instills trust in cryptocurrencies. Personal opinion: The Bitcoin ETF will become increasingly popular on Wall Street, and we will see companies allocating billions to Bitcoin over time, easily propelling BTC to $100,000 - $200,000+. Following the SEC approval of the first Bitcoin ETFs, we observed a temporary dip in BTC's value, dropping to around $48,000 before recovering a significant portion of the weekly movement and slipping below the previous week's highs. Currently, the overall cryptocurrency market reflects a negative trend, with Ethereum standing out positively compared to other cryptocurrencies. Thanks to ETH's strength and BTC's weakness, the ETHBTC pair exhibits a +17% performance this week, approaching the technical price level of 0.06. BTC (49 weeks on the rise) TRX (7 weeks in decline) ETH (49 weeks in decline) DOGE (49 weeks in decline)
BINANCE:BTCUSDLong
by Forex48_TradingAcademy
3
GBPUSD | Big pullback before the significant rally in 2024The analysis of GBP/USD reveals a dynamic interplay of factors influencing the currency pair. The British Pound (GBP) has strengthened against the US Dollar (USD), recovering from a decline to 1.2700 and surpassing 1.2750. This recovery is linked to challenges the USD faces in generating demand during the American session, partly influenced by softer-than-expected Producer Price Index (PPI) data for December. Technically, GBP/USD maintains a bullish stance, staying above the lower limit of an ascending regression channel, with the Relative Strength Index (RSI) above 50, indicating positive momentum. Key resistance levels are at 1.2780, 1.2830, and 1.2860, while supports lie at 1.2750, 1.2710-1.2700, and 1.2670. The positive shift in market sentiment, along with UK GDP growth in November, supports GBP/USD. US inflation data, with a 3.4% increase in the Consumer Price Index (CPI) for December, initially boosted the USD, but skepticism remains about the Fed refraining from a rate cut in March. The CME FedWatch Tool indicates a 70% probability of a 25 basis points rate cut. The broader economic context, including inflation trends, central bank expectations, and global market sentiment, will continue to shape the GBP/USD exchange rate. This was a brief overview of the GBP/USD landscape; I'll now turn to the chart for my personal expectations and explanation. Greetings and a good weekend to everyone from Nicola.
Long
by Forex48_TradingAcademy
1
XAUUSD | Short opportunities and Geopolitical tensionThe price of gold gained bullish momentum, reaching a new weekly high above $2,050. Escalating geopolitical tensions and declining US Treasury bond yields, driven by soft producer inflation data from the United States, fueled the XAU/USD rally ahead of the weekend. Continued buying would negate any short-term negative outlook and set the stage for a move towards the round figure of $2,100. On the downside, the bearish trajectory could extend further towards the December low around the $1,973 area before eventually reaching the confluence area of $1,965-1,963, which includes the 100- and 200-day SMAs. Gold price (XAU/USD) extended its recovery on Friday from a one-month low around the $2,013 area, representing the 50-day Simple Moving Average (SMA). It gained positive traction for the second consecutive day on Friday, steadily rising during the early European session. The precious metal benefited from renewed safe-haven demand amid the risk of further escalation of geopolitical tensions in the Middle East. However, it remains below the $2,040-2,042 threshold, urging caution for bullish traders due to uncertainty regarding the Federal Reserve's rate cut path. Slightly higher consumer inflation figures released from the United States on Thursday, coupled with hawkish remarks from Fed officials, led investors to reduce their bets on a more aggressive policy easing. This provided tailwinds for US Treasury bond yields and the US Dollar (USD), potentially limiting gains for the non-yielding gold price. Markets are still pricing in a higher probability of a Fed rate cut in March, offering support for the non-yielding yellow metal as traders await the US Producer Price Index (PPI) and a speech from Minneapolis Fed President Neel Kashkari for short-term impetus.
OANDA:XAUUSDShort
by Forex48_TradingAcademy
8
Reacceleration of inflation presents a trouble for the FEDYesterday, the market became slightly spooked by the release of higher-than-expected inflation numbers in the United States. The immediate reaction of the SPX to the news was negative, with the index erasing its early gains; the same price action could be observed in the Nasdaq 100 and Dow Jones Industrial Average. Nevertheless, market indices recovered much of their losses by the close and have been trending sideways. The reacceleration of inflation in the United States represents a hurdle for the FED in its quest to tame inflation (likely causing it not to cut interest rates at the next meeting at the end of January 2024 or in March 2024). In addition to that, it could shatter the investors’ expectations of premature rate cuts if no significant improvement is seen in the next print. In turn, that could negatively affect the stock market down the road. In regard to technicals, the resistance at $4,800 continues to play a crucial role; if the price manages to break above it and close there (ideally for at least two consecutive days), it will be very positive. The resumption of growth in RSI, MACD, and Stochastic on the daily chart will also bolster a bullish case. However, the flattening of these indicators and a failure of the RSI to break above 70 points will be slightly concerning. Illustration 1.01 Illustration 1.01 shows the 5-minute graph of the SPX. The yellow arrow indicates the moment when inflation numbers were released in the United States. Technical analysis Daily time frame = Neutral Weekly time frame = Neutral Please feel free to express your ideas and thoughts in the comment section. DISCLAIMER: This analysis is not intended to encourage any buying or selling of any particular securities. Furthermore, it should not serve as a basis for taking any trade action by an individual investor or any other entity. Your own due diligence is highly advised before entering a trade.
SP:SPX
by Tradersweekly
8
EURUSD | Level 1.1. strategy approach!Analysis of the EUR/USD Situation: Current Situation and Support/Resistance Levels: EUR/USD remains in a positive position, below the 1.1000 threshold. Key support and resistance levels to consider are: Support: If EUR/USD falls below the 2024 low of 1.0876, it could approach the 200-day Simple Moving Average (SMA) at 1.0846. Breaking this level might lead to the December 2023 lows at 1.0723, followed by the October 2023 weekly and yearly lows at 1.0495 and 1.0448, and finally the psychological level of 1.0400. Resistance: A breakout from the short-term consolidation could reach the recent high area at 1.0998 and, if surpassed, might indicate a move towards 1.1139. Technical Indicators: The MACD is showing signs of recovery, indicating a potential short-term rebound. The RSI has risen above 53, suggesting some bullish momentum. Influence of the US Dollar and Fed Policy: Higher-than-expected US CPI in December 2023 strengthened the dollar, leading investors to revise expectations of Fed rate cuts in Q2. Comments from Fed's L. Mester highlight that rate cuts are not being considered yet and further evidence of economic progress is needed. She emphasized the importance of a consistent decrease in inflation before considering possible rate cuts. Relevant Economic Data: No data releases in the domestic calendar and a rise in US headline CPI by 3.4% year-to-year to December, and 3.9% from the previous year for Core CPI. Initial weekly claims increased to 202K in the week ending January 6. Outlook: The optimistic outlook for the EUR/USD pair is expected to remain unchanged as long as it stays above the 200-day SMA. However, economic data and Fed policy will continue to significantly influence the pair, especially considering market caution and anticipation of further data and ECB and Fed speeches. In conclusion, the EUR/USD pair is in a delicate phase, with clear support and resistance levels to monitor. Fed policy and economic data will play a crucial role in determining the direction of the exchange rate. Personally, I predict a price rebound in the support zone with an NFP spike, a neutral week in conclusion, and a price outlook in the 1.111 area for next week. Greetings from Nicola and best wishes for successful trading to everyone.
Long
by Forex48_TradingAcademy
1
USDJPY | After the CPI : It goes up!The analysis of the USD/JPY (US Dollar/Japanese Yen) exchange rate is based on several key aspects: US Inflation and CPI: The increase in US inflation in December (3.4% against the expected 3.2%) signals a strong economy and reduces the likelihood of interest rate cuts by the Federal Reserve, favoring the US dollar. US Unemployment Insurance Claims: Lower-than-expected claims (202K against 210K expected) indicate a strong US labor market, supporting the dollar. Market Expectations and Interest Rates: Expectations for a rate cut in March have decreased due to rising inflation. Higher interest rates tend to strengthen a currency, in this case, the US dollar. Japanese Economic Indicators: Upcoming data on Japan's trade balance and current account will impact the JPY. Weak data could further weaken the yen. Technical Analysis of USD/JPY: Technically, USD/JPY has shown an uptrend, reaching a short-term high of 146.41. The 200-hour Simple Moving Average (SMA) and the congestion area between the 50-day and 200-day SMAs are key technical indicators to monitor. Breaking these thresholds could indicate further upward movements. In conclusion, recent US economic data and monetary policy expectations favor the strengthening of the dollar against the yen. However, future economic data from Japan and the US, including PPI data, will be crucial in determining USD/JPY's future direction. After the CPI, the trend seems clearly outlined towards an upward move, targeting the supply zone at 147.15. Moreover, the price is breaking a supply zone that could serve as support for an imminent bullish rebound. Happy trading to all from Nicola.
Long
by Forex48_TradingAcademy
1
GOLD| Time to evaluate a short entry!Analyzing XAU/USD, we can outline a detailed picture of the current situation and future prospects: Current Situation: Gold is struggling to make a decisive move in any specific direction mid-week. After rising above $2,030, gold lost momentum and retreated towards $2,020. The markets are awaiting the outcome of the 10-year US Treasury note auction. Macro Factors and Upcoming Events: A sparse macroeconomic calendar and upcoming top-tier events are keeping investors in cautious mode. Wall Street opened positively, attempting to reverse some of its recent losses, but trading remains uneventful. Influence of US Inflation Data: The US Consumer Price Index (CPI) for December, set to be released on Thursday, could significantly impact gold prices. An annual CPI increase of 3.2% is expected, slightly higher than the previous 3.1%, but the core CPI increase is expected to decline. Market Expectations Regarding the Fed: Market participants are betting that the Federal Reserve (Fed) might start cutting rates as early as March. This expectation is due to decreasing inflationary pressures, despite recent data showing a tight labor market. Recent Price Dynamics: Gold price (XAU/USD) saw a pause in its recovery on Wednesday, with investors focusing on US inflation data. The gold price recovery is expected to be short-lived due to investor confidence that the Fed will begin rate cuts starting in March. Technical Analysis: Gold price is aiming for stability above $2,030. It found intermediate support after correcting more than 3% from the high of December 28, 2023, around $2,090. Short-term demand for gold is no longer bullish, with the 20-day Exponential Moving Average (EMA) around $2,038 acting as a strong barrier. The broader trend remains bullish, with the 50- and 200-day EMAs sloping upwards. Further downside may occur if gold falls below the three-week low around $2,016. External Factors and Future Indications: The 10-year US Treasury yields have dropped to near 4.04% in anticipation of inflation data. The options market is showing signs of hedging against a negative outcome. Remarks by the President of the New York Federal Reserve, John Williams, could further influence gold prices. Conclusion: Currently, gold prices are influenced by a combination of expectations about the Fed's interest rates, US inflation data, and market sentiment. The future direction of the price will likely be determined by upcoming inflation data and Fed policies. My personal expectation is the 62% Fibonacci level at 1966.
FOREXCOM:XAUUSDShort
by Forex48_TradingAcademy
1
NASDAQ| It's time for a short reaction!The Nasdaq shows a significant rise in today's trading session. At the time of writing, the index has gained 460 points from the January 5th low. I've drawn two Fibonacci retracements to identify two potential areas: a bounce at the 0.62 Fibonacci level, illustrated in the chart, and a possible price reaction. Mainly, I expect a decline in the index tomorrow in anticipation of U.S. economic data. Wishing everyone successful trading.
NASDAQ:NDXShort
by Forex48_TradingAcademy
USOIL| Level 74$ will be decisive!Analyzing the oil market, we see that WTI (West Texas Intermediate) is priced around $72.55 per barrel, while Brent is at $77.71 per barrel. Several key factors are influencing the current oil market scenario. Saudi Price Reduction: Saudi Arabia's decision to lower the prices of its oil exports to Asia has contributed to a bounce back in prices from the Monday low of $70. This move might increase the competitiveness of Saudi oil in the Asian market, thus impacting the global market. Decline in Inflation and Oil Demand: The fall in oil prices is welcomed by analysts and fund managers as it could lead to a further decrease in inflation. Stock Market Dynamics and DXY Index: The steady state of the US Dollar Index (DXY) around 102.00, despite some selling pressures, and the strengthening of US and Japanese stock markets, indicate investor confidence, which could positively affect the oil market. Geopolitical Tensions: Despite geopolitical tensions, such as the recent elections in Taiwan and ongoing tensions in the Middle East, markets seem to be overlooking these risks, which could keep the oil market stable in the short term. Russian Compliance with OPEC+ Cuts: Russia is adhering to the production cuts agreed upon in the last OPEC+ meeting, helping to balance the market supply. Speculations and Realpolitik: Rumors that shipping companies paid fees to Houthi rebels for safe passage in the Red Sea, though denied, demonstrate the market's sensitivity to such news. US Secretary of State Blinken's visit to Israel could have implications for the security of maritime passages and, consequently, the oil market. US CPI Expectations: With the upcoming release of the US Consumer Price Index (CPI), a further decrease in oil prices could be expected, potentially stimulating demand. Technical Analysis: The $74 level is pivotal for WTI; we might see a bullish breakout towards $80 or a pullback towards $71. Happy trading to everyone.
TVC:USOILLong
by Forex48_TradingAcademy
Fed Policy Trajectory and Interest Rate OutlookCBOT: Micro 2-Year Yield ( CBOT_MINI:2YY1! ), Micro 10-Year Yield ( CBOT_MINI:10Y1! ) and Micro 30-Year Yield ( CBOT_MINI:30Y1! ) The latest US jobs report showed that employers added 216,000 jobs for December while the unemployment rate held at 3.7%, reported by the Bureau of Labor Statistics (BLS). That compared with respective market estimates of 170,000 and 3.8%. On Thursday, the BLS will release December’s CPI data. The prevailing market expectation is 0.3% monthly increase for headline CPI, up from 0.1% in November. The Federal Reserve sets monetary policy to support price stability and full employment. New data shows that the US economy is very resilient, and maybe slightly overheated with the upbeat job market. After hiking interest rates 11 times and pausing for 2 times, the Fed now has a dilemma. “To cut, or Not to cut”, this is a trillion-dollar question. In this 3rd installment of new year outlook for major asset classes, I will discuss what opportunities may lie ahead for bonds and interest rate derivatives. FYI: The first writing was a year-end review for metal commodities – Gold, Copper, and Aluminum. If you haven’t read it yet, you may follow the link here: The second writing was New Year outlook for US equities – the benchmark market indexes Dow, S&P 500 and Nasdaq 100. 2023: what’s the dominating market narrative? Last year, the Fed raised interest rates four times for a total of 100 bps. This was a slower pace comparing to the year before, where we saw seven rates hikes and 400 bps in total. To the surprise of most analysts, businesses continue to expand and hire new workers under tightened credit. Inflation could creep up with higher wages and a strong job market. US stock market rose for most of the year, shaking off bad news along the way. Despite interest rates are 5% higher than two yeas ago, major market indexes reached all-time-high records last December. The S&P 500 gained 23.9% for the year, and the Nasdaq Composite more than doubled that at 53.9%. 2024 Outlook for US Interest Rates Most investors agree that the Fed will cut rates in 2024. But the expectations for the timing and scope vary significantly. According to CME Group’s FedWatch Tool, the first rate-cut could occur at the March 20th Fed meeting, with a 69.2% probability. For June 12th, the odds of two or more rate cuts increase to 85.9%. By December 18th, investors expect the Fed Funds rate to fall between 1% to 2% lower than the current 5.25-5.50% range, with a 97.9% odds (Data as of January 7th). (Link: www.cmegroup.com) Treasury prices and yields move in opposite directions. Current bond prices reflect the market expectations of 5-8 rate cuts in 2024. Lower yields, higher prices. The January 2nd CFTC Commitments of Traders report (COT) shows that “Leveraged Funds” hold the following open positions on CBOT interest rate futures: • Fed Funds: 224,772 longs and 489,204 shorts • 2Y Treasury: 775,882 longs and 2,266,563 shorts • 5Y Treasury: 844,600 longs and 2,821,682 shorts • 10Y Treasury: 285,598 longs and 775,882 shorts • 30Y Treasury: 79,124 longs and 497,636 shorts The overwhelmingly Net short positions indicate that the “Smart Money” considers the rate cuts being oversold. Why do they want to short Treasury futures? If the Fed keeps the interest rates higher for longer, or implements fewer rate cuts, Treasury yields would be higher than the current price indicated. Higher yields, lower prices. Shorting Treasury futures expresses the viewpoint that Treasury bond prices would fall. In my opinion, the bond market tends to tell a better story, compared to the stock market. The institutional nature of most participants allows the bond market to be less prone to irrational hypes and price bubbles. Trading with CBOT Micro Yield Futures Micro Treasury Yield Futures are low-cost instruments to participate in the bond market. Micro yields are quoted by treasury yield directly. Higher yields, higher futures prices. This would ease the burden from working the complicated price and yield conversion. Last Friday, the February contract of Micro 2Y Yield futures (2YYG4) were settled at 4.186%. Each contract has a notional value of 1,000 index points, or $4,186 at current price. To acquire 1 contract, a trader is required to deposit an initial margin of $340. The February Micro 10Y Yield (10YG4) was settled at 4.008%. Notional value is 1,000 index points or $4,008. Initial margin is $320. The February Micro 30Y Yield (30YG4) was settled at 4.221%. N notional value is 1,000 index points or $4,221. Initial margin is $290. My reasoning: We just had a hotter than expected jobs report for December. If CPI data shows inflation rebound this week, the whole Fed cut narrative could be derailed. The January 30th Fed meeting could have a surprised rate decision, or a more hawkish Fed statement. To replicate the short bond futures strategy used by Leveraged Funds, investors could long the micro yield futures to express the same view of higher yields. Initial margins for 10Y Micro Yield are $320, compared to $2,125 for 10Y treasury notes futures (ZN). Hypothetically, if the yield goes up by 25 bps, a long Micro Yield futures position would gain $250 (= 0.25 x 1000). This would be the same for 2Y, 5Y, 10Y and 30Y micro yield futures, as they all have a 1,000-point multiplier. On the other hand, if investors continue to ignore the Fed, as they have often been in the past two years, short futures will lose money. Happy Trading. Disclaimers *Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services. CME Real-time Market Data help identify trading set-ups and express my market views. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
CBOT_MINI:10Y1!Long
by JimHuangChicago
USD/JPY edges lower ahead of Tokyo Core CPIThe Japanese yen has started the week with slight gains and is trading at 144.39 in the European session, up 0.16%. It was a rough week for the yen, which declined 2.5% against the US dollar, which has looked sharp against most of the majors since New Year's. US nonfarm payrolls ended 2023 on a strong note. The economy added 216,000 jobs in December, compared to November's downwardly revised 173,000 and above the estimate of 170,000. The unemployment rate remained at 3.7%, below the estimate of 3.8%. As well, wage growth rose 0.4% m/m and 4.1% y/y, higher than the estimates of 0.3% and 3.9%. The employment report was stronger than expected, which could lead the Fed to delay plans to lower rates. Job growth remains resilient and the wage growth data indicates that inflation remains strong in the labour market and is still too high for the Fed. The Fed fund futures markets reacted to the employment report by lowering the odds of a March rate cut to 64%, compared to 68% just prior to the employment report. The Fed has acknowledged that it plans to trim rates but failed to provide any details of timing in the minutes of the December meeting. The Fed may decide to prolong the pause in rates until the second half of the year unless there is a significant drop in inflation or unforeseen weakness in the US economy. The Fed does not seem in any rush to cut rates and the markets may be getting ahead of themselves by pricing an initial rate cut in March. Japan's Tokyo Core CPI, which will be released on Tuesday, is expected to ease in December to 2.1% y/y, compared to 2.3% in November. Core inflation has exceeded the Bank of Japan's 2% target for 18 straight months, but the central bank has insisted that it will not tighten monetary policy until wage growth rises. 144.80 and 145.80 are the next resistance lines There is support at 143.60 and 142.63
by OANDA
GBP/USD Bearish sentiment before the big rally 1.26-1.30!Analyzing GBP/USD, I note that the pair is experiencing some bearish pressure in the European session, trading slightly below 1.2700. The prevailing negative market mood is bolstering demand for the US Dollar, making it challenging for GBP/USD to maintain its position. Despite closing the previous week nearly unchanged, due to a late recovery on Friday, the pair's stability around 1.2700 is threatened by the shift in risk sentiment, which could hinder demand for the Pound Sterling. From a US perspective, the Dollar initially strengthened following the December jobs report, which exceeded expectations with a 216,000 increase in Nonfarm Payrolls. However, this momentum wasn't sustained due to the disappointing ISM Services PMI and the mixed details on the labor market, which kept market speculation alive regarding a potential Federal Reserve policy shift in March. The downward revisions in the November and October job figures, along with a slight decrease in the Labor Force Participation Rate, add complexity to the economic outlook. For GBP/USD, the risk sentiment, especially ahead of the release of the US Consumer Price Index data on Thursday, is crucial. Any negative shifts in Wall Street's performance could further strengthen the USD and put pressure on GBP/USD. Technically, the pair is at a critical juncture. Operationally, I expect the dollar's strength to drive the price below 1.2610 to create a false break with liquidity capture, then start a rally towards 1.30. Best regards and have a good trading day from Nicola.
Long
by Forex48_TradingAcademy
EURUSD: Good point to evaluate the weekly direction!On EUR/USD, there's noticeable buying interest, with the pair rebounding from multi-week lows at 1.0876 to settle around 1.0948, marking a modest 0.09% increase. During Thursday's European trading hours, EUR/USD gained ground but struggled to extend its recovery later in the day due to rising U.S. Treasury bond yields, supporting the Dollar (USD). The initial improvement in risk sentiment made it challenging for the USD to find demand on Thursday. However, after the ADP Employment Change report for December came in at 164,000, exceeding market expectations of 115,000, the yield on the ten-year U.S. Treasury bond rose above 4%, helping the USD limit its losses. The Nonfarm Payrolls (NFP) in the U.S. are expected to rise by 170,000 in December, following a higher-than-expected increase of 199,000 in November. The CME Group's FedWatch Tool indicates a 65% chance that the Federal Reserve (Fed) will cut the policy rate by 25 basis points in March, down from 85% at the beginning of the week. My personal expectation for today and possibly in the absence of movement in the coming days, I expect the price to drop below 1.088 to collect liquidity before bouncing towards 1.102 or a second scenario I personally consider less likely, a direct short towards 1.081. Happy trading everyone, from Nicola.
Long
by Forex48_TradingAcademy
XAUUSD Last rally of the year before the crash!The analysis gold price (XAU/USD) highlights several key factors influencing its market behavior. I will examine each element and assess its impact: Gold Price Movement: The gold price has increased, reaching a daily high above $2,060. This rise indicates strong investor interest, often triggered by economic uncertainty or the search for safe-haven assets. 10-year US Treasury Yield: There has been a significant decrease in the yield of 10-year US Treasury bonds, falling below 4%. Bond yields move inversely to prices; a decrease in yield indicates an increase in demand for safe bonds, which often translates into a rise in the gold price. Mixed Macroeconomic Data from the US: The varied economic data from the US have fueled the gold rally. Uncertain or weak data tend to push investors towards the safety of gold. Situation of the US Dollar and the Federal Reserve (Fed): The US dollar has been under mild pressure, influenced by mixed data and the minutes from the FOMC (Federal Open Market Committee). The Fed has considered rate cuts but has not provided precise timing indications. This uncertainty can fuel volatility and the desire for safe assets like gold. ADP Report and Labor Market: The ADP report indicated a higher-than-expected private job creation, suggesting a robust labor market "aligned with pre-pandemic hiring." A strong labor market can indicate a healthy economy but also potential inflationary pressures, influencing the Fed's interest rate decisions and, indirectly, the gold price. Nonfarm Payrolls (NFP) Report: The NFP report is awaited, which is expected to reveal the addition of 170K new jobs in September. These data are crucial to understand the health of the economy and future monetary policies, consequently influencing the gold price. Forecast: Currently, gold stands at 2045, a critical support/resistance level. I have identified two possible scenarios: the first anticipates a breakout of the bearish trendline with a retest on the breakout point followed by a rise to about 2085, while the second scenario suggests a decline towards the 1990 area. At the moment, I am leaning towards a further rise before a significant drop, so I will assess at the beginning of the week if there are conditions to go long on the market. Greetings and a good weekend to everyone from Nicola.
OANDA:XAUUSDShort
by Forex48_TradingAcademy
USDCAD It's time to go short towards 1.32!I've been closely tracking the recent dynamics of the USD/CAD pair. The exchange rate approached 1.3380, seemingly propelled by investors' apprehension about upcoming critical US labor market data. The Canadian Dollar (CAD) experienced a significant drop to a new weekly low against the US Dollar (USD), followed by an unexpected rally to a three-day peak. This tumultuous movement largely stemmed from the market's response to the robust US Nonfarm Payrolls (NFP) report, which dramatically outperformed expectations by revealing that the US added 216,000 new jobs in December, well beyond the predicted 160,000. Despite the impressive job numbers, ongoing revisions have cast a shadow over the data's accuracy, with numbers for previous months being adjusted down. In Canada, the job market has been more subdued, with job additions barely exceeding the statistical margin of error. Nonetheless, a significant uptick in wage growth, peaking at a two-year high, points to a tightening labor market and the possibility of rising inflation. In the US, while job growth was strong, other economic indicators offered a mixed view. Average Hourly Earnings saw a modest rise, and the Unemployment Rate remained steady, countering expectations of an increase. The US ISM Services PMI for December fell short of projections, hinting at a slowdown in a crucial sector of the economy. Meanwhile, in Canada, the Unemployment Rate stayed consistent, and while the Canadian December Ivey PMIs showed positivity in the seasonally adjusted data, the non-seasonally adjusted figures dipped to a 12-month low, suggesting potential cyclical economic frailties. Following the NFP release, the price rebounded to the 1.3390 level, near the 0.5% Fibonacci retracement. Observing two consecutive days of essentially neutral market channels, and considering yesterday's confirmation, I sense a strengthening Canadian dollar against a softening US counterpart. Therefore, I anticipate a retraction towards 1.32 and an ongoing bearish trend that has been active for over two months. Wishing everyone a good weekend, from Nicola.
Short
by Forex48_TradingAcademy