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GBP CHF - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact . The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet . Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic development s Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -21396 with a net non-commercial position of -16745. The big push lower in positioning means current levels for GBP still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound two weeks ago, and this week’s flash PMI’s didn’t help either, but med-term outlook remains bullish and thus positioning attractive at these levels. CHF FUNDAMENTAL BIAS: BEARISH 1. Developments surrounding the global risk outlook. As a safe-haven currency, the market's risk outlook is the primary driver for the CHF. Swiss economic data rarely proves market moving; and although SNB intervention can have a substantial impact on CHF, its impact tends to be relatively short-lived. Additionally, the SNB are unlikely to adjust policy anytime soon, given their overall bearish tone and a preference for being behind the ECB in terms of policy decisions. The market's overall risk tone is improving with coronavirus vaccines being rolled out as well as the unprecedented amount of monetary policy accommodation and fiscal support from governments. Of course, risks remain as many countries are now battling third waves of the virus. As such, there is still a degree of uncertainty and risks to the overall risk outlook which could prove supportive for the CHF should negative factors for the global economy develop; however, on balance the overall risk outlook is continuing to improve and barring any major meltdowns in risk assets the bias for the CHF remains bearish . Despite the negative drivers, the CHF has remained surprisingly strong over the past couple of weeks. This divergence from the fundamental outlook doesn’t make much sense, but the CHF often has a mind of its own and can often move in opposite directions from what short-term sentiment or its fundamental outlook suggests, thus be careful when trading the CHF and always keep the possibility of SNB intervention in mind. In a recent note ING investment provided their rationale for the recent strength in the CHF and explained that the lower inflation in Switzerland compared to the EU means the real trade-weighted CHF is actually trading too cheap. Furthermore, the ECB’s bond buying has meant that their balance sheet is expanding more rapidly compared to that of the SNB, and without any meaningful FX intervention the CHF runs the risk of slowly creeping higher, especially versus the EUR. 2. CFTC Analysis Latest CFTC data for the CHF (updated until 17 August) showed a positioning change of -1543 with a net non-commercial position of +4094. The CHF positioning continued to unwind some of its recent surprising strength over the past few weeks. The CHF still the third largest net-long positioning among the majors, which is at odds with the current fundamental bearish outlook for the currency. At the current level of positioning, one has to argue that the CHF offers attractive levels to sell into, especially versus the NZD which will is expected to offer very attractive carry yield if the RBNZ moves ahead with their planned hike projections. However, there might have been idiosyncratic factors providing support for the CHF, and any drastic escalation in risk off tones could still continue to provide support for the safe-haven currency.
by thunderpips
2
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -21396 with a net non-commercial position of -16745. The big push lower in positioning means current levels for GBP still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound two weeks ago, and this week’s flash PMI’s didn’t help either, but med-term outlook remains bullish and thus positioning attractive at these levels. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. 3. CFTC Analysis Latest CFTC data for the JPY (updated until 17 August) showed a positioning change of -3463 with a net non-commercial position of -66671. With positioning still the largest net-short among the majors we want to be very careful of the risks going into NFP next week. If NFP sparks concerns about potential faster tapering that could see risk assets push lower supporting the JPY as a safe haven. However, do keep the inverse correlation to US10Y in mind, because any expectations of faster tapering should support US10Y which should pressure the JPY.
by thunderpips
2
EURGBP: Preparing For The Next Move! Our Plan: 🇪🇺🇬🇧 EURGBP keeps being very bullish from 10th of August. Being bullish biased, I am looking for an opportunity to catch the next bullish wave. On focus is a double bottom formation on 4H. Its lows are lying on a daily support cluster. To buy with confirmation I will wait for its neckline breakout. 0.857 - 0.8575 is the zone that must be broken. Wait for a 4H candle close above that. Then buy aggressively or on a retest. Initial goal will be 0.8615 In case of a new lower low formation on 4H, the setup will be invalid. ❤️Please, support this idea with a like and comment!❤️
Long
by VasilyTrader
16
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact . The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet . Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -2419 with a net non-commercial position of +4651. The downside in the USD after the bad sentiment report wasn’t enough to see a further build in Sterling net-longs. Current levels for Sterling still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound and in the week ahead Monday’s flash PMI will be important. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. 3. CFTC Analysis Latest CFTC data for the JPY (updated until 17 August) showed a positioning change of -2551 with a net non-commercial position of -63208. The big net-short created some additional momentum to the upside for the JPY this week as risk sentiment soured and demand for safe havens rose. With positioning still the largest net-short among the majors we want to be very careful of the risks going into the Jackson Hole symposium next week. If the symposium doesn’t provide any hints of tapering though it could open up some opportunities in the battered currency pairs like NZDJPY and CADJPY etc.
by thunderpips
4
GBP USD BUY (POUND STERLING - US DOLLAR)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -2419 with a net non-commercial position of +4651. The downside in the USD after the bad sentiment report wasn’t enough to see a further build in Sterling net-longs. Current levels for Sterling still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound and in the week ahead Monday’s flash PMI will be important. USD FUNDAMENTAL BIAS: NEUTRAL 1. The global risk outlook. Global economic data continues to surprise lower and should continue to struggle to surprise to the upside after the pandemic rebound. As the USD usually moves inversely to global growth that should be supportive for the USD. 2. The Monetary Policy outlook for the FED In July the FOMC noted that the economy has made progress toward their goals, and they’ll continue to assess progress in coming meetings. They also took a more sanguine view of the virus situation by removing prior comments that sectors affected by the pandemic ‘remain weak but have shown improvement’ and instead replaced it with ‘sectors most affected by the pandemic have shown improvement but have not fully recovered’. This was initially seen as less dovish, but Powell used his usual dovish tone to correct any ‘hawkish’ takes by stressing that employment still has a ‘ways to go’ and noted that there was still "some ground to cover" when it comes to the labour market. He also reiterated that any decision to announce tapering will be done well in advance. For now, markets are looking at the incoming data to decide whether tapering will be announced at the Jackson Hole Symposium or in the fall. This past week we some interesting comments from Fed’s Waller who tilted their language and stance towards Bullard and Kaplan in expecting that two more solid employment prints (800K-1M) would mean substantial further progress has been met and tapering could then start at a faster pace. This was bullish for the USD, but the more important and market moving comments came from Fed’s Clarida who has seemingly moved into the Neutral camp (previously dovish) by saying he agrees with the median Fed projections of a first hike by early 2023 and more importantly his comments about inflation has moved away from the sanguine view expressed by the doves and is more concerned about current price pressures. This shift saw Dollar upside with all eyes on the Sep NFP to see whether markets will expect Sep or Dec to be the official tapering announcement meeting. 3. Real Yields Despite recent divergence between the USD and US real yields, we still think further downside in real yields will be a struggle so close to new cycle lows and that probability is skewed higher from here given the outlook for growth, inflation and tapering and should support the USD. 4. Economic Data Retail sales came in below consensus but given the price action it was clear that majority of participants were looking for a much worse number following the colossal drop in the Univ Mich Sentiment report the week before. However, the USD was also supported by the jittery and risk off flows in the markets and was further aided by the Fed’s minutes which confirmed that the median view of the board has shifted towards earlier tapering. In the week ahead all eyes will be on the Jackson Hole Symposium to see whether the market gets an unofficial tapering announcement nod from Fed Chair Powell which if it happens will open up the possibility of an official announcement at the Sep meeting. 5. CFTC Analysis Latest CFTC data for the USD (updated until 17 August) showed a positioning change of -115 with a net non-commercial position of +19211. For now, with the fundamental outlook still neutral, and with positioning at current levels the incoming data will remain the key driver for the USD’s short-term volatility, with the Jackson Hole and GDP this week the main events to keep on the radar.
by thunderpips
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -2419 with a net non-commercial position of +4651. The downside in the USD after the bad sentiment report wasn’t enough to see a further build in Sterling net-longs. Current levels for Sterling still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound and in the week ahead Monday’s flash PMI will be important. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y. However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. 3. CFTC Analysis Latest CFTC data for the JPY (updated until 17 August) showed a positioning change of -2551 with a net non-commercial position of -63208. The big net-short created some additional momentum to the upside for the JPY this week as risk sentiment soured and demand for safe havens rose. With positioning still the largest net-short among the majors we want to be very careful of the risks going into the Jackson Hole symposium next week. If the symposium doesn’t provide any hints of tapering though it could open up some opportunities in the battered currency pairs like NZDJPY and CADJPY etc.
by thunderpips
GBP/USD analysis with mixed signals!Hey tradomaniacs, I`m currently waiting for the FED to give the market more fundamental impulses. Looking at GBP/USD bigger picture we can currently see a mix of bullish and bearish signs. The primary trend is currently moving sideways and has formed an S/H/S-Pattern, which is usually a trend-reversal-pattern. Additionally we see a breakout below the primary trendline but so far no break below the neck-zone of the S/H/S-Pattern. The often respected 200 Moving Average has supported price aswell as you can see at at recent fakeout below support, which is a bullish sign showing absoprtion after attracting bears to sell the S/H/S. A potential lower high could cause a continuation to the upside, but as long as the FED it likely to announce a tapering until mid 2022 (not later than than september and according to MM) I will stay very cautious with longs. Need more clarity and confluence before I execute any trades here. ;-) We either need the S/H/S to get triggered or invalidated! LEAVE A LIKE AND A COMMENT - I appreciate every support! =) Peace and good trades Irasor Wanna see more? Don`t forget to follow me
by Trading2ez
6
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis GBP saw another sizable build in positioning (+7156) with the most recent CFTC data updated until 10 August. The build excluded the huge pop higher after the Dollar’s flush lower on Friday following weak consumer sentiment data. Current levels for Sterling still look attractive for medterm buyers, especially with the positioning seeing quite a flush lower in the past few weeks. With a light calendar ahead for Sterling this week, we are mostly likely going to see majority of influence coming from movement in the USD. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow dependent on the type of market environment from a risk and cycle point of view. In the past week we saw a perfect environment for downside in the JPY versus the USD after the solid ISM Services, NFP and Fed comments from the week before and provided a good opportunity to trade the USDJPY higher going into the CPI print. However, we took profit when Core CPI MM came in slightly softer. After the print the Dollar softened (also driven by strong pre-positioning), and the move was exacerbated on Friday when yields saw some chunky downside as well. The med-term outlook remains down for the JPY, but it’ll be important for us to see whether yields can keep up its upside momentum and of course we’ll need to keep an eye on overall risk sentiment as well, especially heading deeper into August and its typical summertime volatility . 3. CFTC Analysis The JPY remains the biggest net short among the majors with yet another sizable increase in net-shorts (-5467) with the latest CFTC data updated until Tuesday 10 August. The JPY has failed to take much advantage of the wash out in treasury positions and a drop to 1.12% in US10Y over the past few weeks. The flush lower in both US10Y and the USD on Friday saw some mild reprieve for the JPY as USDJPY rotated back towards key levels of technical support after a solid run higher at the start of the week. The bias for the JPY remains driven by the overall risk sentiment and movements in US10Y , which means seeing how the market decides to trade after Friday’s surprisingly big drop in US consumer sentiment will be important for the JPY as any big risk off flows should provide support for the currency in the short-term, while a recovery in yields and overall sentiment should put pressure on the safe-haven.
by thunderpips
7
Today’s Notable Sentiment ShiftsUSD – The dollar advanced against a basket of currencies on Thursday, after data showed producer prices posted their largest annual increase in more than a decade in the 12 months through July, suggesting inflation pressures remain strong. Action Economic summarized today’s and yesterday’s reports, stating that “today’s huge upside PPI surprise follows yesterday’s solid but moderating CPI gains, leaving a mix that will keep inflation concerns alive even as economists will continue to expect a slowing in monthly price gains into year-end.” GBP – Sterling edged lower on Thursday as analysts expected the Bank of England to make no imminent moves in its monetary policy after official data showed Britain’s economy grew in line with expectations in the second quarter. Equiti Capital argues that “for sterling while the economic landscape continues to provide solid support, it does suggest further topside progress will be slow, It is quite likely that the pace of growth has already peaked.”
by thunderpips
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Today’s Notable Sentiment ShiftsUSD – The dollar hit highs not seen in more than four months against the euro, as investors speculated further over whether recent strong jobs data could be enough to push the Federal Reserve to soon start tapering its bond-buying program. Bannockburn Global Forex argues that “the dollar is well bid, and it’s been well bid since the middle of last week. A combination of hawkish comments from several Federal Reserve officials and the second monthly increase of more than 900,000 jobs has reaffirmed what the market has suspected, and that is for a tapering decision to be made shortly.” GBP – Sterling rose to an 18-month high against the euro, as signs of economic recovery and falling COVID-19 rates spur expectations of a far earlier interest rate lift-off compared to the Eurozone.
TVC:DXY
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GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis GBP positioning moved back into neutral positioning with a +5598 build according to the most recent CFTC data. Current levels for Sterling still look attractive for med-term buyers, especially with the positioning seeing quite a flush in the past few weeks. With the only data point of note for Sterling in the week ahead being GDP data, we are mostly likely going to see majority of influence coming from movement in the USD and overall risk sentiment. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y. However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow dependent on the type of market environment from a risk and cycle point of view. In the past week we saw a perfect environment for downside in the JPY versus the USD when better-than-expected ISM Services data and less dovish comments from Fed’s Clarida gave US10Y a lift alongside the US Dollar, which was enough for the USDJPY to break back above 109.00 and 109.50. Then on Friday the good US jobs report saw yet another environment for US10Y and the Dollar to push higher, creating yet another perfect environment for USDJPY to push higher, and the pair managed to reclaim the 110.00 and break above key technical trend support. Given the positive backdrop from last week, the pair should continue to enjoy upside, with the biggest risk being any major risk off moves which might see downside in yields and upside in the JPY from safe haven flows. 4. CFTC Analysis The JPY remains the biggest net short among the majors and didn’t manage to take any real advantage of the drop lower in US10Y. Given the wash out in treasury positions and the move towards 1.12% in US10Y over the past few weeks the JPY has not really taken the bait to appreciate as one would have thought. Thus, even though the currency remains oversold from a positioning point of view, it does show that there is some possible asymmetry in long USDJPY right now as a move lower in yields have not negatively affected the pair as one would have expected. After the most recent Fed rhetoric and the solid US data we’ve have finally seen some promising moves higher in US10Y in line with the med- term outlook, and with a very light data calendar in the week ahead a further move higher in the USD and US10Y could provide a good backdrop for a further grind higher in the USDJPY, with big risk off flows the biggest risk to that view as it should be supportive of the safe haven JPY.
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