What To Look For In UK Inflation Data

Tomorrow we will be getting a host of data out of the UK. Some of it is likely to move the markets significantly, and some of it won’t.

We could see a bunch of volatility, with the market trying to digest a lot of moving parts all at once. Naturally, the CPI inflation data will be the one to get the headlines. But let’s try to make sense of PPI, PRI, HPI and the others.

This will be a good chance to get a gauge of the market ahead of the next barrage of data that comes out in Friday, led by Retail Sales data. Even without the looming discussions of Brexit, the pound is in for a pretty active week.

What We Are Expecting

Set your watches for the flood of data at 10:30 CET (or 04:30 EST) when we get all the UK data for the day. The ones likely to get the market’s attention are the titular CPI data, but PPI can also move the market on its own. Especially in this scenario where the expectations for each set of data are pointing in different directions.

Traditionally it’s the core numbers that are the most relied on. But, in the case of the UK, we’ll be focusing on the headline results. Of course, CPI takes precedence, because that’s what the BOE looks at when setting policy. However, PPI also influences inflation, so it’s quite relevant as well.

Inflation Outlook and Analysis

The consensus among analysts is that the UK monthly inflation rate for April was 0.3%. This is a little above the previous month’s 0.2%. A result like this would take the annualized rate to 1.8%, a step in the wrong direction from the 1.9% prior. The core rate is also expected to come in at 1.8%.

UK inflation has remained just below the BOE’s target since the beginning of the year. Even though the next move is still expected to be a hike around November, the lack of growth in the rate could put a damper on that expectation. However, there is a significant number of analysts who are projecting a higher inflation rate. They are expecting it to pop over 2.0% annualized. This would help affirm the hawkish outlook.

Underlying Price Moves

The Producer Price Index is expected to stay flat on input and tick up 0.1% on output, both on a monthly basis. On an annualized basis both input and output producer prices are well above the target inflation rate.

A matter of concern for businesses is that input prices continue to grow faster than output prices. This shows that UK producers are having difficulty passing the cost increases on to customers, which would show a certain absorption of inflation.

This would be a bad sign for the FTSE, even though through the last earnings season, most UK companies reported robust trading in the first quarter. Should businesses manage to pass increasing materials costs on to customers, we could see an increase in inflation in the near future.

The Market Moves

Generally, we can expect a 40-60 pip move immediately after CPI data. The question this time around is whether the PPI data is going to exacerbate or mute the market reaction.

If we get outperformance in both, then we could expect a good deal of strength in the pound. Even though there is a public consensus on a somewhat flat outlook in inflation, the market appears to be pricing in at least some of the more optimistic outlook.

Should the data disappoint enough, we could be looking at a delay to the expected hike by the BOE, or even the potential of a change in stance. That would be negative for the pound, though most negativity seems to have been wrung out by the constant Brexit news.




Trump Delays EU Autos Tariffs But EURUSD Continues Lower

The EUR continues to trade lower this week despite Trump’s Friday announcement that tariffs on EU automobile imports to the US would be delayed by six months.

Trump recently stepped up the trade war with China by raising tariffs on $200 billion of Chinese goods from 10% to 25%. He was also planning on raising tariffs on EU and Japanese automobile imports to the US.

However, China retaliated with its own 25% tariffs on $60 billion of US goods. And it seems that the US has decided not to exacerbate worsening global trade relations once again.

Trade Wars Heating Up

Trump recently announced that he was considering similar 25% tariffs on auto imports from Japan and the EU. However, given the potential for both these economic areas to retaliate with their own tariffs, Trump has instead opted to delay the tariffs for 180 days.

Similar to last year, global markets cascaded lower in response to the fresh outbreak of tit for tat trade tariffs between the US and China. So, instead, the US will now engage in trade negotiations with both the EU and Japan to address the imbalance in automobile imports.

Trump Cites National Security Threat

When Trump announced an investigation into the automobile imports from these countries, he explained:

“Under current circumstances, this action is necessary and appropriate to remove the threatened impairment of the national security”.

The President also added:

“The United States defense industrial base depends on the American-owned automotive sector for the development of technologies that are essential to maintaining our military superiority”.

US Trade Secretary Robert Lighthizer will now have 180 days to report back to the president.

What is Driving EURUSD?

So, with the tariffs having been avoided for now, why is EURUSD still trading so heavily?

Part of the reason is that the market never seemed to fully price in the tariffs. The majority of the market focus was on the escalating trade tensions between the US and China. In fact, many banks had been expecting that such a delay would be likely.

Furthermore, the direct impact of any such tariffs, though negative, would likely be limited. This is because FX flows from the goods trade in EURUSD are diluted by financial flows.

The main issue driving EURUSD continues to be concerns surrounding the health of the eurozone economy. The manufacturing recession which has gripped the economy over the last year, as well as subdued inflation, have kept the ECB’s hands tied when it comes to policy normalization.

Implications for the ECB

The ECB has been able to formally end its QE program as of the start of the year. However, the planned Q3 rate hikes projected toward the end of last year have now been pushed out into 2020.

As of now, there are concerns that should the tariffs eventually come into play, in six months time, the eurozone economy might suffer. The tariffs would squeeze growth at a time when the ECB has barely any policy room left to manage the situation. This would leave a lower EUR as one of the only viable options for loosening financial conditions in the eurozone.

Technical Perspective

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EURUSD continues to trade lower within the bearish channel which has framed price action over the last months. The sell-off has taken price down through the 1.1153 support zone as of today. This puts focus on a test of the 1.1129 level next, where we also have confluence with the bearish channel low. For now, focus remains on further downside unless we see a meaningful reversal above 1.1184.




AUD Collapse Continues As Trade War Woes Outweigh Elections Relief

USD Having a Quiet Start

The US dollar has had a relatively subdued session over the European morning on Tuesday. Markets await the first key drivers of the week. Looking ahead to the US session today we have very little on the data sheet aside from a few Fed members who will be speaking. For now, the index trades higher within the 97.68–98.06 range. We are likely to see meaningful breaks made today.

Euro Under Pressure

EURUSD continues lower today. This is despite Trump’s announcement on Friday that EU auto tariffs will be delayed for six months. EUR remains pressured as concerns regarding the health of the eurozone remain the key driver. However, in its latest outlook released today, the OECD upgraded its eurozone growth forecasts for the year ahead despite warning that the US/China trade war will weigh on world growth again. EURUSD remains capped by the 1.1153 resistance level so far today.

Pound Pummelled Again

GBPUSD remains firmly pressured today extending recent losses to an 8th straight day as Brexit uncertainty and political disruption in the UK continue to weigh on sentiment. The market is very skeptical of May’s chances of delivering a Brexit deal. They are worried about the prospect of a no deal scenario materializing later in the year. GBPUSD trades 1.2690 last, testing the bearish channel low running from March highs.

Risk Sentiment Stable

Risk sentiment has been a little firmer today with SPX500 recovering off session lows to trade back up and test the 2856.30 resistance level. The main driver of risk flows continue to be the ongoing trade warn and simultaneous negotiations between the US and China. While above the 2816.15 level, focus remains on further upside.

Crude Remains Bid

Oil prices have had a subdued session so far today also though are trading higher on the day. Tensions in the Middle East have kept oil prices underpinned over recent days, despite last week’s bearish report from the EIA. Looking ahead today, the market will be watching the API inventories report for an early indication on stock levels ahead of the main EIA report tomorrow. Crude trades 63.42 last, remaining near the upper end of the 61.89–64.38 range.

Commodities Mixed

USDCAD has traded a little lower so far today. Firmer oil prices and a subdued US dollar have kept the pair weighed down. USDCAD is currently sitting on the trend line from April lows, trading 1.3426 last. While above the 1.3413 level, focus remains on further upside.

AUDUSD has been sharply lower again today. The pair had rebounded in early trading yesterday on news of Scott Morrison’s party retaining government, which is seen as growth positive. However, the key driver of AUD price action atm continues to be the ongoing trade war between the US and China. As China’s largest trading partner, the currency of Australia is highly sensitive to economic movements in China. Given the potential for severe economic damage from the new US tariffs, AUD is trading heavily. Price remains firmly below the .6982 currently with last week’s .6864 low looking vulnerable to a break this week.




Why Does Technical Analysis Work?

When it comes to either speculating or investing in the financial markets, there are two main approaches. The first being fundamental analysis and the other being technical analysis. Both these fields of study of the financial markets are different. Yet, they point to the same goal of buying low and selling high.

In forex, technical analysis is the go-to form of study. Technical analysis is merely the study of past prices in order to predict future price movements. Traders focus on a number of methods such as studying chart patterns or using technical indicators derived from price to understand what price will do.

In a way, technical analysis is predictive in nature. It can tell you, with some amount of confidence where price will be at, studying the past price behavior.

Technical Analysis vs. Fundamental Analysis

Traders often debate about which of these two types of analysis is better. The truth is that in order to understand the full scope of the markets that you are trading, both technical and fundamental analysis is required.

Fundamental analysis deals with understanding and studying the reasons behind the price behavior. On the other hand, technical analysis is all about understanding and studying what price will do.

Many traders view technical analysis in isolation. Sometimes, technical analysis works and at times it doesn’t. One of the main differences between fundamental and technical analysis is that the former is subjective in nature.

The interpretation can vary depending on the amount of information one has. Contrarily, technical analysis is objective. It is only when you combine the strengths of both these forms of analysis, that you get a full picture of the market.

Does Technical Analysis Work?

The answer to this depends on how one applies technical analysis. For example, you can be one trader using technical analysis on a 5-minute chart while another can use the same study but on a larger time frame.

The goal with both these different approaches in technical analysis is basically the same, which is to identify what price will do and then determine if it would be ideal to buy or sell.

Up to a certain point, technical analysis can work for traders. This is because you are after all studying the price of the security in question. The price that is reflected on the chart basically depicts the traders’ sentiment behind it.

In a sense, technical analysis is also one way of studying the market sentiment and the trader’s view of the security in question. Because patterns tend to repeat themselves, over time, technical analysis has been able to capitalize on this.

As an example, when you see a bearish engulfing pattern on a price chart that forms near a resistance level, you know that price is more likely to fall than rise. Technically, this can come across as something mysterious.

But if you scratch the surface, this bearish engulfing pattern simply reflects the bearish sentiment in the market. Now when you combine this view with the fundamentals behind the price behavior it brings more meaning.

Technical Analysis is Not All About Buying and Selling

For many traders who use automated trading strategies, technical analysis boils down to buying and selling based on the indicators they use. But while this remains a rather simplistic view of technical analysis, remember that the buy and sell signals generated are derived from price itself.

As we know, price is set by the markets which are made up of buyers and sellers. So, if you think that technical analysis is something that is mysterious it really isn’t. Technical analysis simply puts the market sentiment in perspective.

There are times when technical analysis can fail. One of the reasons behind this is the fact that the markets are adjusting to the news. Price discounts all the information that is already available. Therefore, when there is a mismatch on the market’s expectations and the fundamentals, you will notice from time to time that price can behave erratically.

In order to make technical analysis work for you, traders need to have a full understanding of the markets which includes using both fundamental and technical analysis. Remember that both these forms of study complement each other rather than giving opposing views.




Indicator analysis. Daily review for May 21, 2019 for EUR/USD and GBP/USD currency pairs

On Monday, the market in both currencies moved to the side channels. The GBP / USD pair opened with a gap upwards, and then they tried to close it all day. On the other hand, the EUR / USD pair remained in a standby mode. Traders could not decide in any way where to go further, or what to break through – either the line of support or resistance. On Tuesday, strong calendar news comes out at 8.30 and 14.00 Universal time.

Trend analysis (Fig. 1).

Today, the price can continue to move downwards with the target of 1.1147 – the support line (blue bold line) and further movement downwards with the target of 1.1112 – the lower fractal.

Fig. 2 (daily schedule).

Comprehensive analysis:

– indicator analysis – down;

– Fibonacci levels – down;

– volumes – down;

– candlestick analysis – up;

– trend analysis – down;

– Bollinger lines – down;

– weekly schedule – down.

General conclusion:

On Tuesday we are waiting for the continuation of the downward movement. The first lower target of 1.2662 is the pullback level of 76.4% (blue dashed line).

The material has been provided by InstaForex Company – www.instaforex.com

Source:: Indicator analysis. Daily review for May 21, 2019 for EUR / USD and GBP / USD currency pairs




Wave analysis of EUR/USD and GBP/USD for May 21, 2019

EUR / USD

On Monday, May 20, trading on the Forex market ended for the pair EUR / USD with a rise of several base points. However, the wave pattern remains the same and implies the construction of a downward wave of 3, 3, 3 as part of a downward trend section with targets located below the 11th figure. On Monday, the markets did not receive any interesting news and reports from world leaders. Only China said that negotiations with Trump on trade conditions were really deadlocked, and the American side was blamed for this. Allegedly, the States do not show sincerity and increase pressure, using various tricks to disrupt the negotiations. In fact, this only means that countries are unlikely to be able to agree in the near future. The US dollar, which continues to rise against the euro, may respond to this event with a new increase.

Sales targets:

1.1097 – 161.8% Fibonacci

1.1045 – 200.0% Fibonacci

Purchase goals:

1.1324 – 0.0% Fibonacci

General conclusions and trading recommendations:

The euro / dollar is still in the process of building a downward trend. Now, I recommend the bears to remain on the instrument with targets of 1.1097 and 1.1045, which corresponds to 161.8% and 200.0% in Fibonacci and a restrictive order above the level of 50.0% in Fibonacci, which can be gradually carried down.

GBP / USD

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nOW3ir_j-mj65wCoIzN8McThXEP5BrRT00Wgvqrn

On May 20, the GBP / USD pair lost another 10 basis points and continues to build the estimated wave. Monday was marked by extremely low activity in the foreign exchange market. Nevertheless, wave c still looks very simple, but there are no signs of completion for its construction right now. An unsuccessful attempt to break the Fibonacci mark of 161.8% can lead to a departure of quotes from the lows reached. News background remains negative for the pound sterling. There are no positive news and messages from the UK. Accordingly, the markets find no reason to refuse selling the pound sterling. As a result, the decline in the pair GBP / USD will continue. Markets are waiting for the fourth vote in agreement with the European Union. And if the parliament again refuses to accept this agreement, then, at this moment Theresa May will surely resign.

Sales targets:

1.2675 – 161.8% Fibonacci

1.2554 – 200.0% Fibonacci

Purchase goals:

1.3175 – 0.0% Fibonacci

General conclusions and trading recommendations:

The wave pattern of the pound / dollar instrument implies a continuation of the instrument decline within the wave c. Thus, now, I recommend sales with targets located near the estimated marks of 1.2675 and 1.2554, which corresponds to 161.8% and 200.0% in Fibonacci. An unsuccessful attempt to break through the 161.8% mark may lead to a departure of quotes from the lows reached.

The material has been provided by InstaForex Company – www.instaforex.com

Source:: Wave analysis of EUR / USD and GBP / USD for May 21. China accuses America of disrupting trade agreement negotiations.




Bitcoin is preparing a new wave of growth

The Bitcoin exchange rate is preparing for a new wave of growth, and it must be done in the near future, otherwise, the risk of a larger downward correction will increase significantly.

Signal to buy Bitcoin (BTC):

Bitcoin buyers face a level of 8100, the breakthrough of which will provide good demand and lead to new annual highs in the area of 8440 and 8700, where I recommend fixing the profit. Of course, the main goal will be the test of the psychological mark of 9000 USD. In the down scenario, there is a support level of 7650, but it is best to open long positions immediately on a rebound from a minimum of 7250.

Signal to sell Bitcoin (BTC):

Bears should wait for the formation of a false breakdown in the resistance area of 8150, and it is best to try to return Bitcoin to the support level of 7650, from where the demolition of a number of stop orders will collapse the cryptocurrency rate to the area of minimums 7260 and 6820, where I recommend fixing the profit.

The material has been provided by InstaForex Company – www.instaforex.com

Source:: Bitcoin. Bitcoin is preparing a new wave of growth




Markets Open On A Soft Note

Lack of economic data and fresh trade rhetoric saw the markets trading rather subdued on Monday. The US dollar index was trading flat although price remains steady near the recent highs.

Wednesday’s FOMC meeting minutes could be the main catalyst in the near term. On the economic front, the existing home sales report is due later today. Fed members, Evans and Rosengren are also due to speak later in the day.

Tariff Hikes Remain a Concern for the Eurozone

Although the US administration put off the potential hike in tariffs on European automobile imports, concerns still remain. Compared to the 22% duty on US car imports to the eurozone, the US currently has a 2.5% duty on automobile imports. Concerns about a hike in tariffs saw the European equity markets closing in the red on Monday.

EURUSD Stays Subdued

Price action in the EURUSD currency pair was subdued on Monday. The euro managed to close with some modest gains forming a possible spinning bottom pattern. A bullish follow-through is required in order to confirm a short term correction to the upside. Price is, however, likely to extend lower to test the 1.1140 support.

eurusd charteurusd chart

GBP Awaits Further Clues

The British pound continued its descent, but price seems to have steadied for the moment. Economic data remains sparse with only the inflation report hearing due later in the day. This comes ahead of the inflation due later in the week. Headline inflation is forecast to rise 2.2% on a year over year basis in April. Stalemate on Brexit talks continues with no agreement in sight within the UK’s parliament.

Can GBPUSD Hold Steady Near Current Lows?

The GBPUSD has been consolidating near the support level of 1.12716. While the Stochastics oscillator remains very oversold, there is scope for an upside bounce. A close above 1.2755 could potentially confirm a corrective move. The initial target is seen at 1.2897 followed by 1.2975.

gbpusd chartgbpusd chart

Gold Eases as Geopolitical Tensions Soften

Gold prices continued to retreat as trade tensions eased. In the overnight session, Fed Chair, Jerome Powell was speaking at an event. However, his speech did not impact the markets much. Powell mostly discussed the corporate debt levels in the US and that the Fed was keeping a steady watch to assess any risks.

XAUUSD Closes with a Doji

Gold prices were trading flat on Monday as price action closed with a doji near the 200-day moving average. Price action indicates a potential rebound unless gold extends declines sharply below the current levels. The lower support at 1270 could temporarily hold the declines. To the upside, a retest of the 1285 level for resistance could confirm the downside bias in gold.

xauusd dojixauusd doji




Upcoming Q1 Retail Sales From New Zealand

We are expecting some volatility in the NZD tonight thanks to the release of the first major economic data for the week.

Unlike other countries, New Zealand only reports its retail sales data once every quarter. Therefore, the data tends to have a bitter impact on the market when it does come out.

The question is, now that the RBNZ has cut rates, how long will they maintain the current stance? Well, the data tonight as well as later in the week may give us some clues as to the answer.

What We Are Looking For

There are three important data points coming out at 00:45 CET (or the day before at 18:45 EST.) The headline is the quarter over quarter change in the retail sales number.

Expectations are for retail sales to have stayed flat in the first quarter, compared to 1.7% growth in the three months prior. This is somewhat disappointing because January and February are the most important months for tourism in New Zealand. Considering there were record tourist arrivals, retail sales should be doing better.

The Underlying Numbers

Analysts expect the core retail number to come in at 0.9%. This is down from 2.0% in the prior quarter.

The core indicator strips out the effect of vehicle purchases, explaining the difference – which we’d already seen in the trade balance. A drop in vehicle sales can be a sign of reluctance to engage in investment spending.

On the other hand, vehicles are purchased on credit. This means it could be a sign that consumers were anticipating a rate drop by the RBNZ and were holding off for better credit conditions. We’ll be able to verify this with the trade balance coming out Friday morning (or Thursday evening if you are in America).

Forecasts dictate that the year over year retail sales number will drop to just 0.6% from 3.5% This indicates a more longer-term drop in consumer sentiment.

The Auguries

Retail sales are an essential driver of inflation. In fact, the lack of progress in getting the inflation rate to rise to target levels is what motivated the RBNZ to cut rates the last time around.

If retail sales trends continue, it would be a bad sign for inflation. It could also put further pressure on the RBNZ to be dovish and increase the likelihood of another rate cut.

On the positive side, business confidence reported last week showed a significant increase in to positive territory. This might be an indicator that following three months of uncertainty, the economy is settling into a more positive outlook. After all, electronic card transactions took a turn to the upside in the last three months.

The Markets

Retail sales data from New Zealand takes the place of consumer confidence in other economies. And the market could react accordingly. The number is important because of the inflation expectations it implies.

Higher than expected retail sales would indicate a stronger consumer segment and potentially higher inflation. This would reduce the chances of central bank action. We’d expect to see strength in the NZD in that case. Keep in mind that the current expectations are at the bottom of the usual fluctuations of this data. So, there is more potential for upside as the market is already pricing in disappointing data.

If the retail sales on a quarterly basis slip into contraction, that would be a bad sign for the economy. In fact, it would raise the prospect of another interest rate cut. While it might be seen as positive for the NZ stock market, it would likely drag on the currency.




US Trade War Intensifies With Huawei Ban

Trump Order Restrictions on US Firms Dealing With Huawei

The trade war between the US and China rages on. And the latest development has seen President Trump ordering restrictions on US firms dealing with Chinese tech giant Huawei.

On Friday, Trump added Huawei to the “Entity List.” This is a list of 44 Chinese firms restricted from doing business with US companies without US government approval.

Under the restrictions stipulated by the “Entity List”, Huawei will be unable to purchases parts of technology from US companies without government permission. This comes as the US now considers Huawei to be a vehicle for Chinese state espionage.

Google Announces Suspension of Operations with Huawei

Following Trump adding Huawei to the Entity List, the Chinese tech giant has been dealt a massive blow. Google has announced this week that it is suspending the delivery of key software and technical services to Huawei in accordance with the new restrictions.

Big Blow to Huawei’s Business

This will cause massive disruption to Huawei’s business as it relies heavily on Google’s Android operating system for its mobile devices. Huawei shipped more than 200m phones last year, which saw it overtaking Apple in the second quarter. It is now the world’s largest smartphone maker.

Huawei Defends Itself

In response to the announcement from Google, Huawei defended itself. The company claimed that it had worked closely with the Android platform to develop a beneficial ecosystem for users and the industry as a whole.

In a statement, the Chinese firm said:

“Huawei will continue to provide security updates and after-sales services to all existing Huawei and honour smartphone and tablet products covering those have been sold or still in stock globally”.

Will Other Countries Follow US?

The key driver behind the explosion in growth for Huawei is the speed and cost of its 5G products which are far cheaper than any other providers. Following news of the US restrictions, there is now speculation that Europe could follow suit. Concerns regarding espionage have been mainly confined to the US for now. However, we have also seen Australia banning Huawei’s 5G equipment.

Huawei Currently Biggest Global 5G Provider

Huawei currently has 283 global partners as well as 57 regional partners. The firm forecasts that it will have one million base stations globally by 2020.

Furthermore, industry reporting shows that Huawei made the highest number of 5G contributions last year. The company now holds 11,423 patents, followed by Ericsson with 10,351 and Nokia with 6,878.

Other US Firms Announce Suspension in Activity

Google is not the only one announcing the suspension of certain operations with Huawei. Other US firms such as Intel, Qualcomm, Xilinx, and Broadcom have announced that they will not supply chips to Huawei until further notice.

US Warships Sail Through Disputed South China Seas

While US/China trade tensions continue to heat up, US warships have sailed through disputed waters in the South China seas. The commander of the USS Preble said:

“Preble sailed within 12 nautical miles of Scarborough Reef in order to challenge excessive maritime claims and preserve access to the waterways as governed by international law,”

This is the second time that the US has led ships through disputed Chinese waters in the last month. It is a further countermeasure by the US against Chinese attempts to limit freedom of movement in strategic waters.

The US has frequently accused China of over-militarization of the South China seas following the building of military outposts on artificial islands and reefs. However, China defends such moves as necessary for self-defense. In fact, the Asian giant accuses the US of increasing tensions in the region by sending warships and planes through the region.