S&P 500 Forecast: SPY ETF Sees Largest Outflow in 11 Months Ahead of Fed

S&P 500 Price Chart Forecast

S&P 500 Forecast: SPY ETF Sees Largest Outflow in 11 Months

Markets and investors alike are expressing apprehensiveness on Tuesday as time runs out until the highly anticipated September FOMC meeting on Wednesday. Largely responsible for much of the optimism surrounding the Index, dovish expectations have been heightened as the meeting approaches but not all are convinced the Fed can deliver as futures pricing suggests the market’s dovish convictions are slipping. At present, the odds of a 25 basis point cut stand narrowly above 50% – down from the nearly certain 99% just weeks ago. Consequently, the SPY ETF has seen drastic inflows and outflows in recent days as investors place their bets ahead of a decision with immense market-moving potential.

S&P 500 Price Chart & SPY ETF Flows

S&P 500 price chart forecast

Data source: Bloomberg

To that end, Monday saw investors pull over $6 billion out of the SPY ETF in the largest intraday outflow since October 2018 when over $6.6 billion fled elsewhere. To be sure, the fund has been dominated by a string of inflows throughout September as SPY racked up a total of $6 billion in net inflows during the period – assisted by Friday’s inflow of $5.5 billion which was the largest net inflow since January. Thus, an outflow of such magnitude given the proximity to the meeting could suggest a late change in attitude among investors that may hint more investors are becoming uncertain the Fed will be unable to meet the market’s expectations.

It is also possible the outflow was spurred, at least in part, by the attack on the Saudi Aramco facilities that sparked a crude oil price rally. Either way, the capital flows and deadlocked price action suggest the market is anything but certain heading into the September Fed meeting, which is somewhat concerning given that the VIX rests at a modest 14.5.

VIX Price Chart Overlaid with the SKEW Index

vix price chart and S&P 500 chart

Created with TradingView

With so much at stake and a depressed “fear gauge,” the potential for an outsized move is heightened. That potential is in turn reflected in an elevated SKEW Index. The Index attempts to calculate the possibility of a move outside one standard deviation and has crept to levels similar to that of late July – around the time of the previous FOMC meeting. With that in mind, waiting on the sidelines until the event has passed may prove to be a prudent play and that same strategy could be why the SPY ETF saw such a large outflow ahead of the Fed meeting tomorrow.

As the decision approaches, be sure to keep a watchful eye on the situation by following @PeterHanksFXon Twitter. Alternatively, the weekly equity webinar “Dow Jones and DAX 30 Levels to Watch Ahead of the Fed,” will precede Wednesday’s event. There we will talk technicals, commentary to look for alongside other equity markets.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Dow Jones, DAX 30, FTSE 100, S&P 500 Forecasts for the Week

How Gold, Oil, Stocks & USD Perform After FOMC Rate Cuts Start

FEDERAL RESERVE RATE CUT CYCLES & MARKET PERFORMANCE – SUMMARY POINTS:

  • The Federal Reserve is expected to announce its second interest rate cut this year and stands to confirm the central bank’s shift toward increasingly dovish monetary policy
  • FOMC rate cuts have historically produced mixed returns across assets like gold, crude oil, the S&P 500 and US Dollar
  • Check out our free educational guide discussing strategies behind Trading Forex News

The Federal Reserve is slated to deliver its latest monetary policy update Wednesday at 18:00 GMT. Markets widely anticipate the FOMC to cut its benchmark interest rate by 0.25% as central banks around the world loosen financial conditions. Dovish action by the Fed and other central banks have primarily sought to combat signs of economic weakness and sustain the current expansion in light of staggering risks that stem largely from the US-China trade war and rising geopolitical instability.

On that note, the July Fed meeting revealed the FOMC’s first interest rate cut in over a decade. The move came subsequent to a dramatic shift in the Federal Reserve’s language and forward guidance compared to this time last year. In fact, the median estimate for the 2019 federal funds rate (FFR) was previously listed as 3.1% according to the September 2018 economic projections provided by Fed members, while the most recent forecast provided this past June sees the FFR at 2.4%. Yet, the current target federal funds rate range sits at 2.00-2.25%.

IS THE FED ENTERING A CYCLE OF INTEREST RATE CUTS?

The Federal Reserve’s stated dual mandate that governs the central bank’s decisions encompasses price stability and full employment. While the downside risks chiefly contributing to slowing global GDP growth remain unresolved, the potential that economic fundamentals deteriorate further cannot be discounted and may encourage additional interest rate cuts down the road – regardless of what Wednesday’s FOMC decision reveals.

Correspondingly, with inflation continuing to run below the Fed’s target amid fermenting recession fears induced by the recent US Treasury yield curve inversion, the central bank will likely press onward by lowering borrowing costs in hopes of incentivizing consumption and business investment. That said, another Fed rate cut could suggest the scale is tipping away from a “mid-cycle adjustment” in lieu of a full-blown series of accommodative policy measures. Alas, in a sequel to our original analysis on stock market returns when the Fed cuts rates, the tables and graphs below detail how various assets like gold, crude oil, the S&P 500 and US Dollar have historically performed when the Fed enters a cycle of interest rate cuts.

GOLD PRICE RETURNS WHEN THE FED CUTS RATES

Gold Price Returns During Fed Rate Cut ChartHow Gold, Oil, Stocks & USD Perform After FOMC Rate Cuts Start

CRUDE OIL PRICE RETURNS WHEN THE FED CUTS RATES

Oil Price Returns During Fed Rate Cut ChartFOMC Rate Cut and Oil Price Performance Chart

S&P 500 INDEX RETURNS WHEN THE FED CUTS RATES

Stock Price Returns When Fed Cuts Rates TableFOMC Rate Cut and S&P 500 Index Performance Chart

DXY US DOLLAR INDEX RETURNS WHEN THE FED CUTS RATES

US Dollar price returns during Fed rate cut tableFOMC Rate Cut and US Dollar Index Performance Chart

— Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

S&P 500 Forecast: SPY ETF Sees Largest Outflow in 11 Months Ahead of Fed

S&P 500 Price Chart Forecast

S&P 500 Forecast: SPY ETF Sees Largest Outflow in 11 Months

Markets and investors alike are expressing apprehensiveness on Tuesday as time runs out until the highly anticipated September FOMC meeting on Wednesday. Largely responsible for much of the optimism surrounding the Index, dovish expectations have been heightened as the meeting approaches but not all are convinced the Fed can deliver as futures pricing suggests the market’s dovish convictions are slipping. At present, the odds of a 25 basis point cut stand narrowly above 50% – down from the nearly certain 99% just weeks ago. Consequently, the SPY ETF has seen drastic inflows and outflows in recent days as investors place their bets ahead of a decision with immense market-moving potential.

S&P 500 Price Chart & SPY ETF Flows

S&P 500 price chart forecast

Data source: Bloomberg

To that end, Monday saw investors pull over $6 billion out of the SPY ETF in the largest intraday outflow since October 2018 when over $6.6 billion fled elsewhere. To be sure, the fund has been dominated by a string of inflows throughout September as SPY racked up a total of $6 billion in net inflows during the period – assisted by Friday’s inflow of $5.5 billion which was the largest net inflow since January. Thus, an outflow of such magnitude given the proximity to the meeting could suggest a late change in attitude among investors that may hint more investors are becoming uncertain the Fed will be unable to meet the market’s expectations.

It is also possible the outflow was spurred, at least in part, by the attack on the Saudi Aramco facilities that sparked a crude oil price rally. Either way, the capital flows and deadlocked price action suggest the market is anything but certain heading into the September Fed meeting, which is somewhat concerning given that the VIX rests at a modest 14.5.

VIX Price Chart Overlaid with the SKEW Index

vix price chart and S&P 500 chart

Created with TradingView

With so much at stake and a depressed “fear gauge,” the potential for an outsized move is heightened. That potential is in turn reflected in an elevated SKEW Index. The Index attempts to calculate the possibility of a move outside one standard deviation and has crept to levels similar to that of late July – around the time of the previous FOMC meeting. With that in mind, waiting on the sidelines until the event has passed may prove to be a prudent play and that same strategy could be why the SPY ETF saw such a large outflow ahead of the Fed meeting tomorrow.

As the decision approaches, be sure to keep a watchful eye on the situation by following @PeterHanksFXon Twitter. Alternatively, the weekly equity webinar “Dow Jones and DAX 30 Levels to Watch Ahead of the Fed,” will precede Wednesday’s event. There we will talk technicals, commentary to look for alongside other equity markets.

–Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more:Dow Jones, DAX 30, FTSE 100, S&P 500 Forecasts for the Week

Australian Dollar Price Outlook: Aussie Breakout Potential into FOMC

The Australian Dollar is virtually unchanged against the US Dollar since the start of the week and heading into tomorrow FOMC interest rate decision, the focus is on a break of the objective weekly opening-range for guidance. These are the updated targets and invalidation levels that matter on the AUD/USD price chart. Review my latest Weekly Strategy Webinar for an in-depth breakdown of this Euro price setup and more.

New to Forex Trading? Get started with this Free Beginners Guide

Australian Dollar Price Chart – AUD/USD Daily

Australian Dollar Price Chart - AUD/USD Daily - Aussie Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; AUD/USD on Tradingview

Technical Outlook: In my last Australian Dollar Price Outlook we noted that AUD/USD was vulnerable on the back of a 2.6% advance off the yearly lows with, “initial support at 6827/32 backed by 6803 – both levels of interest for possible downside exhaustion / long-entries IF reached.” Price registered a low today at 6830 before rebounding sharply – so was that it?

Its too early to tell, but with the FOMC on tap tomorrow, we’re look for clarity here. A topside breach above the high-close at 6880 would put Aussie back in play targeting 6911 and confluence resistance at the median-line / 61.8% retracement at 6927. Key daily support now 6791 with broader bullish invalidation at 6760/66.

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Australian Dollar Price Chart – AUD/USD 120min

Australian Dollar Price Chart - AUD/USD 120min - Aussie Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; AUD/USD on Tradingview

Notes: A closer low at Aussie price action sees AUD/USD continuing to trade within the confines of an ascending pitchfork formation extending off the August / September lows with the recent pullback finding support today at lower parallel / 6827/32. Initial resistance objectives at the weekly open at 6862 backed by 6880/84 – A topside breach of the weekly opening-range would be needed to mark resumption targeting 6911 and 6924/27.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line: Aussie is rebounding off confluence support today and we’re on the lookout for a low / validation of a low in price. From at trading standpoint, the focus remains weighted to the topside while within this formation targeting a topside breach of the weekly range. Weakness beyond 6815 would suggest a larger correction is underway. Stay nimble here- expect volatility with the Fed is on tap tomorrow – IF price spikes lower, look to fade a final drop closer to daily slope support / the low-day close. A stretch into 6920s would have me looking for topside exhaustion / short entries. Review my latest Australian Dollar Weekly Price Outlook for a closer look at the longer-term AUD/USD technical trading levels.

Aussie Trader Sentiment – AUD/USD Price Chart

Aussie Trader Sentiment - Australian Dollar vs US Dollar Price Chart - AUD/USD Technical Outlook

  • A summary of IG Client Sentiment shows traders are net-long AUD/USD – the ratio stands at +1.11 (52.6% of traders are long) – weak bearish reading
  • Traders have remained net-long since July 19th; price has moved 1.5% lower since then
  • Long positions are 5.6% higher than yesterday and 9.5% lower from last week
  • Short positions are2.0% higher than yesterday and 13.9% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in Aussie retail positioning are impacting trend- Learn more about sentiment!

Key Australia / US Data Releases

Australia / US Data Releases - AUD/USD Economic Calendar

Economic Calendarlatest economic developments and upcoming event risk.

Active Trade Setups

– Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

US Dollar Rally Curtailed Ahead of September Fed Meeting – Levels for DXY & USD/JPY

US Dollar Forecast Overview:

  • Ahead of time, market participants have entered their typical pre-FOMC drift trading habits, with volatility cooling in the 24-hours leading into the Fed meeting.
  • Fed funds are pricing in an 100% chance of a 25-bps rate cut in September and a 78% chance of 50-bps of rate cuts by the end of the year. However, odds of a 50-bps rate cut in September have dropped from over 50% to 13% over the past two weeks.
  • Retail trader positioning warns that the current USDJPY price trend may soon reverse higher despite the fact traders remain net-long.

Looking for longer-term forecasts on the US Dollar? Check out the DailyFX Trading Guides.

FX markets are gearing up for another important Federal Reserve rate decision on September 18. Ahead of time, market participants have entered their typical pre-FOMC drift trading habits, with volatility cooling in the 24-hours leading into the Fed meeting.

The sense of calm in markets, outside of the random news headline, is effectively the “eye of the storm”: we know that more volatility is coming; it’s a matter of when, not if. And to this end, there have been meaningful shifts in US Treasury yields and the US Dollar (via the DXY Index) as investors get ready to ride out the storm that is the September Fed meeting.

US Treasury Yield Curve Inversion Slowly Abating

With the US-China trade war ina short-term truce, US Treasury yields have been able to recover ground in recent weeks. In fact, the scope and scale of the US Treasury yield rally since the start of September has seen the US yield curve move out of inversion territory at key points; it would stand to reason that near-term US recession odds are dropping as well.

US Treasury Yield Curve: 1-month to 30-years (September 17, 2019) (Chart 1)

us treasury yield, us treasury yield curve, us yield curve

While the 2s10s spread has moved in and out of inversion territory in recent weeks, the two key spreads of the US Treasury yield curve – the 3m5s and 3m10s – have been inverted for several weeks now. As a result, US recession odds increased over the summer. But with the US-China trade war in a state of truce as of the start of September, focus is now on the reduced potential for further aggressive monetary stimulus from the Federal Reserve.

The Fed Rate Cut Cycle Not What It Once Was

Fed funds are pricing in an 100% chance of a 25-bps rate cut in September and a 78% chance of 50-bps of rate cuts by the end of the year. However, odds of a 50-bps rate cut in September have dropped from over 50% to 13% over the past two weeks, per Fed funds futures.

Federal Reserve Interest Rate Expectations (September 17, 2019) (Table 1)

fed rate, interest rate, fed interest rate, fed rate expectations, usd rate expectations, federal reserve rate cut odds, fed rate cut odds, fed rate hike odds

Now, Fed funds futures are suggesting that, if there isn’t a 50-bps rate cut in September, then there is a 53% chance of another 25-bps rate cut at the October Fed meeting. Beyond that, there is a 31% chance of another rate cut in December; if not, then markets are favoring January 2020 for another policy move (52% chance).

Eurodollar Contracts Agree with Fed Rates About Cut Cycle

We can measure whether a rate cut is being priced-in using Eurodollar contracts by examining the difference in borrowing costs for commercial banks over a specific time horizon in the future. Eurodollar contracts continue to be closely aligned with Fed funds regarding the scope and scale of the Fed rate cut cycle.

The chart below showcases the difference in borrowing costs – the spreads – for the continuous front month/January 20 (orange) and the continuous front month/June 20 (blue), in order to gauge where interest rates are headed in the December 2019 Fed meeting and the June 2020 Fed meeting.

Eurodollar Contract Spreads – Continuous Front Month/January 20 (Orange), September 19/January 20 (Green), Continuous Front Month/June 20 (Blue) (March 2019 to September 2019) (Chart 2)

fed rate, interest rate, fed interest rate, fed rate expectations, usd rate expectations, federal reserve rate cut odds, fed rate cut odds, fed rate hike odds

Based on the Eurodollar contract spreads, a 25-bps rate cut is fully discounted at the September Fed meeting. Yet beneath the surface, there have been significant swings in expectations: on September 4, there was a 56% chance of a 50-bps rate cut at the September Fed meeting; now, there is a 0% chance. If there is a 25-bps rate cut at the September Fed meeting, Fed funds are discounting a 56% chance of a final 25-bps rate cut by the end of the year.

DXY PRICE INDEX TECHNICAL ANALYSIS: DAILY CHART (September 2018 to September 2019) (CHART 3)

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In our last DXY Index technical forecast update, it was noted that “Even though the yearly high was established on September 3, the DXY Index’s daily candle that day proved to be an inverted hammer/shooting star; a concerning development for bulls. Indeed, price action has been uneven in the ensuing days, with the DXY Index returning to the 61.8% retracement of the 2017 high/2018 low range at 97.87.

To this end, DXY Index’s topside progress has been minimal, trading at 98.37 at the time this report was written. Momentum continues to deteriorate, with the DXY Index shifting below the daily 8-, 13-, and 21-EMA envelope. Daily MACD continues to trend lower (albeit in bullish territory), while Slow Stochastics have extended their decline into bearish territory. A break of the September low at 97.86 would suggest a more serious near-term topping effort is taking shape.

DXY INDEX PRICE TECHNICAL ANALYSIS: WEEKLY CHART (September 2018 to September 2019) (CHART 4)

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The big picture for the US Dollar (via the DXY Index) is potentially troublesome, especially if the triangle’s bullish breakout attempt proves to be a failure after running up to a fresh 2019 high in the first week of September. A recalibration of the trendline support to account for recent price action suggests that the multi-month bearish rising wedge is still in play, leaving open the potential for major downside for the DXY Index.

For the time being, however, if US Treasury yields are able to continue their run higher, then the most sensitive pair to shifts in US yields, USDJPY, will likely remain active. Rising US Treasury yields tend to help USDJPY more than other pairs given that the Bank of Japan keeps its rates held near 0%; USDJPY interest rate differentials are effectively determined by the USD-side of the equation alone.

USDJPY RATE TECHNICAL ANALYSIS: DAILY CHART (September 2018 to September 2019) (CHART 5)

usdjpy price forecast, usdjpy technical analysis, usdjpy price chart, usdjpy chart, usdjpy price

Our most recent USDJPY technical forecast update holds true after little meaningful price action in recent days. “USDJPY has made several significant technical progressions to the topside, breaking the June low and 76.4% retracement of the 2018 to 2019 high/low range near 106.78/97, as well as the descending trendline from the April 24 and July 10 swing highs.

Having closed above the descending trendline from the April 24 and July 10 swing highs, USDJPY rates have two key resistance bands overhead: the 61.8% retracement of the 2018 to 2019 high/low range near 108.42; and the January 30 swing low at 108.50. A move through 108.42/50 would increase the likelihood that USDJPY rates would return to a 30-pip area around the May 10 swing low and August 1 bearish outside engulfing bar high near 109.02/32. A move below the weekly low at 107.45 would suggest a false breakout has transpired in USDJPY.

IG Client Sentiment Index: USDJPY RATE Forecast (September 17, 2019) (Chart 6)

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USDJPY: Retail trader data shows 51.9% of traders are net-long with the ratio of traders long to short at 1.08 to 1. In fact, traders have remained net-long since May 3 when USDJPY traded near 111.62; price has moved 3.1% lower since then. The number of traders net-long is 1.0% higher than yesterday and 13.6% lower from last week, while the number of traders net-short is 11.1% higher than yesterday and 23.6% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USDJPY price trend may soon reverse higher despite the fact traders remain net-long.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher Vecchio, e-mail at cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

View our long-term forecasts with the DailyFX Trading Guides

https://www.dailyfx.com/free_guide-tg.html?ref-author=Vecchio

Japanese Yen Price Outlook: USD/JPY Breakout at Resistance- FOMC Levels

The US Dollar has rallied more than 3.6% against the Japanese Yen since the August lows / yearly lows with price now approaching broader downtrend resistance ahead of tomorrow’s highly anticipated FOMC interest rate decision. These are the updated targets and invalidation levels that matter on the USD/JPY weekly price chart. Review my latestWeekly Strategy Webinar for an in-depth breakdown of this USD price setup and more.

New to Forex Trading? Get started with this Free Beginners Guide

Japanese Yen Price Chart – USD/JPY Weekly

Japanese Yen Price Chart - USD/JPY Weekly - US Dollar vs Japanese Yen Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; USD/JPY on Tradingview

Notes: In my last USD/JPY Price Outlook we identified a, “clean weekly opening range just below downtrend resistance and we’re looking for the break for guidance on our near-term directional bias.” A topside breach days later saw price mount a multi-week advance with USD/JPY now approaching channel resistance / the 50% retracementof the yearly range at 108.42.

Note that a weekly momentum trigger is being tested in RSI – a topside breach there with a weekly close above this is resistance zone in price is needed to keep the immediate rally viable targeting subsequent resistance objectives at the 61.8% retracement / yearly open at 109.36/68. Initial support rests with the low-week close at 106.25 – weakness (on a close basis) below this threshold would mark resumption of the broader down trend and risk another test of the lows.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Bottom line: USD/JPY is testing downtrend resistance here and puts the immediate advance at risk while below 108.42. From a trading standpoint, a good spot to reduce long-exposure / raise protective stops. A topside breach looks for a larger reaction at 109.36/68. IF price breaches this zone on FOMC BUT settles back to close the day below, look to fade strength towards 107and beyond. I’ll publish an updated USD/JPY Technical Outlook once we get further clarity on the near-term price action.

Japanese Yen Trader Sentiment – USD/JPY Price Chart

Japanese Yen Trader Sentiment - USD/JPY Price Chart - US Dollar vs Japanese Yen Trade Outlook

  • A summary of IG Client Sentiment shows traders are net-long USD/JPY – the ratio stands at +1.09 (52.2% of traders are long) – neutral reading
  • Traders have remained net-long since May 3rd; price has moved 3.3% lower since then
  • Long positions are 2.7% higher than yesterday and 10.7% lower from last week
  • Short positions are 15.0% higher than yesterday and 27.0% higher from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.

See how shifts in USD/JPY retail positioning are impacting trend- Learn more about sentiment!

Previous Weekly Technical Charts

— Written by Michael Boutros, Technical Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

Brexit Glossary – Brexit Jargon and Terms Explained

Brexit Glossary – Brexit Jargon and Terms Explained

As the Brexit saga continues, so too does the complexity of the terminology surrounding the UK’s stated mission to leave the EU. To better understand the jargon and common Brexit terms – and help improve your trading decisions – our glossary provides a basic overview of Brexit from A to Z.

On June 23, 2016 the United Kingdom and Gibraltar voted in a referendum to decide if the country should remain a member of or leave the European Union (EU). The result saw the UK vote to leave the EU by 51.9% to 48.1%.

The UK started the withdrawal process on March 29, 2017 and was due, originally, to leave the EU on March 29, 2019 at 22.00 GMT when the two-year Brexit negotiation period finished. As it stands, Brexit negotiations are still ongoing, and an end date is unclear.

Brexit Glossary - Brexit Jargon and Terms Explained

Brexit Jargon to Bookmark

  • Article 50 – Treaty on European Union (TEU)

Article 50 of the Lisbon Treaty is the legal and political process whereby any European Union member state may decide to leave the Union in accordance with its own constitutional requirements.

  • Backstop

The backstop – or Irish backstop – is part of the Withdrawal Agreement that aims to prevent a hard border in Ireland after the UK leaves the EU and is intended to protect the Good Friday Agreement. The backstop would see all the UK enter a single customs territory with the EU and not able to leave until the EU approved any new workable border solution.

What is the Brexit Backstop and How Does it Impact the British Pound?

  • Brexit

An abbreviation for ‘British Exit’ from the European Union.

  • Customs Union

The EU Customs Union is a binding agreement between all EU member states which applies the same duties and tariffs on goods entering the EU and that member states agree not to impose additional duties or tariffs on goods travelling within the union, clearing the path for free trade.

  • Divorce Bill

The divorce bill or Brexit settlement bill is the amount of money the UK is expected to pay the EU to settle all outstanding liabilities when the UK leaves. The overall figure is expected to be around GBP39 billion, but UK lawyers have said the figure may be as low as GBP7 billion if the UK leaves the EU without a deal.

Brexit Glossary - Brexit Jargon and Terms Explained

  • European Council (EC)

The European Council is made up of the heads of state or government from all EU countries, the European Council President and the European Commission President. The European council meets four times and a year and represents the EU to the world.

  • European Union (EU)

The European Union is a political and economic union between 28 EU countries (including the UK) and is the largest trading block in the world covering an estimated population in excess of 513 million people. EU policies ensure the free movement of people, goods, services and capital – the Four Pillars within the block.

  • Free Trade Agreement

Defined by the World Trade Organisation as an agreement between countries that removes tariffs and other restrictions on goods traded between them. Free Trade Agreements differ from customs unions in that they remove tariffs between themselves but do not apply the same tariffs to goods imported from other countries.

  • Good Friday Agreement

The Good Friday Agreement, or Belfast Agreement, was a peace treaty agreed between the British and Irish governments toend 30 years of violence.As part of this agreement, all border security barriers and checkpoints were removed. However, after the UK leaves the EU (Brexit), the only land border between the twowould be between Northern Ireland and the Irish Republic, a situation unacceptable to both the UK and the EU.

  • Hard Brexit (No Deal Brexit)

In a Hard Brexit, the UK would not allowfor freedom of movement of EU nationals, contribute to the EU budget nor be subject to the rules of the European Court of Human Justice. The UK would look to sign a new trade deal with the EU, but if that was unavailable a very likely scenario the UK would revert to trading under World Trade Organisation (WTO) rules. The UK would be able to negotiate its own trade deals.

  • Soft Brexit

In a Soft Brexit, the UK would stay/be part of either the Single Market and/or the European Customs Union. The UK would have to contribute to the EU budget, allow free movement of EU citizens and be subject to the rules of the European Court of Human Justice if it remained in the Single Market. The UK would be unable to negotiate any of its own trade deals if a part of the Customs Union.

Brexit Glossary - Brexit Jargon and Terms Explained

  • Lisbon Treaty

The Lisbon Treaty came into force on December 1, 2009 and amended the two existing treaties, the Treaty of European Union and the Treaty on the Functioning of the European Union to allow the necessary changes to be made for a fully functioning and enlarged European Union of 27 member states.

  • Meaningful Vote

Section 13 of the government’s EU Withdrawal Act states that the UK government will not be able to ratify the Withdrawal Agreement unless Parliament is given a vote on the deal. There were three meaningful votes on Theresa May’s Withdrawal Agreement – January 15, 2019, March 12, 2019 and March 29, 2019. All three votes were defeated.

  • Passporting

If a firm is authorised to undertake certain business activities by the regulator of one EU member state, it can apply for a passport to enact business with other EU member states without the need for further authorisation.

  • Prorogation

Prorogation is the period between the end of a session of Parliament and the State Opening of Parliament the begins the next session. The State Opening is the formal start of the parliamentary year with the Queen’s Speech setting out the governments agenda for the coming session, outlining policies and legislation. UK PM Boris Johnson prorogued parliament for five weeks from September 9 until October 14.

  • Regulatory Alignment

The degree to which UK and EU trade rules will be similar or the same post-Brexit. When/if the UK leaves the EU, it will be considered a ‘third country’ and would create a land border between the UK and the EU. This border would be between Northern Ireland and the Irish Republic.

  • Single Market

The single market refers to the European Union as one territory without any borders or obstacles to the free movement of goods and services. The EU single market accounts for over 500 million consumers and 21 million small and medium sized enterprises.

Which Countries Might Want to Leave the EU After Brexit – Analysis

  • Transition Period

A period of time after the UK leaves the EU, when all current UK-EU arrangements are wound down to allow for a smooth transition between the two parties. During the transition period the EU will continue to treat the UK as a member state. Under the current Withdrawal Agreement, the transition period lasts until December 31, 2020.

Brexit Glossary - Brexit Jargon and Terms Explained

  • Withdrawal Agreement

The Withdrawal Agreement sets out the terms of the UK’s departure from Europe and is designed to facilitate an orderly withdrawal and legal certainty once EU laws and treaties no longer apply to the UK. The Withdrawal Agreement endorsed by Theresa May and by the EU27 has been rejected three times by the UK Parliament.

  • World Trade Organisation (WTO)

The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. WTO agreements are negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments to ensure that global trade flows as smoothly, predictably and freely as possible.

Brexit Glossary - Brexit Jargon and Terms Explained

  • Yellowhammer

Operation Yellowhammer is the UK government’s contingency planning, covering 12 key areas of risk, for its response to the most severe short-term disruptions under a no-deal Brexit.

Stay up to date with all the Latest Brexit News, and how it impacts various financial markets.

US Dollar Funding Pressure May Spark Fed Action – US Market Open

MARKET DEVELOPMENT – US Dollar Funding Pressure May Spark Fed Action

DailyFX 2019 FX Trading Forecasts

USD: Over the past 24 hours eyes have been on short term interest rates after repo rates surged to its highest level this year in yesterday’s session as corporates withdraw cash in order to make quarterly tax payments, which had also coincided with the settlement of coupon bearing treasuries. However, this morning looks to be more of the same with repo rates surging 10%, highest level in several years, which in turn could prompt the Fed to cut the IOER yet again this week in order to ease US Dollar funding pressures or announce repo operations if funding pressures become more material. Repo and reverse repo agreements

US Dollar Funding Pressure May Spark Fed Action - US Market Open

EUR: Marginal gains for the Euro this morning, up 0.2% against the USD. An improvement from worse to bad in the German ZEW survey data has also provided a helping hand for the Euro, in which institute noted that while the outlook remains negative, the bounce back had stemmed from the fact that strong fears over a sharp trade war escalation did not come to pass. Elsewhere, sizeable option expiries have kept EUR/USD relatively rangebound with 2.3yards between 1.1000-1.1050.

SEK: On September 5th, the Riksbank’s announced its decision to maintain its guidance that it will raise rates at the turn of the year had been questioned by market participants amid the underperformance in the Swedish economy. Following today’s meeting minutes, it also appears to have been questioned by the rate setters themseleves with Per Jansson expressing conerns over inflation, therefore casting doubts on the central banks forecast. These doubts are likely to have grown louder after today’s labour market report, showing that the unemployment rate rose above expectations to 7.1% and 7.4% on a seasonal adjusted basis, which is notably above the Riksbank’s 2019 forecast 6.6%. Consequently, SEK is the underperformer in the G10 complex with weakness likely to remain appropiate amid a potential for the Riksbank to rethink their outlook.

US Dollar Funding Pressure May Spark Fed Action - US Market Open

US Dollar Funding Pressure May Spark Fed Action - US Market Open

Source: DailyFX

WHAT’S DRIVING MARKETS TODAY

  1. Sterling (GBP) Price Outlook: Brexit, Prorogation and BoE All in The Mix” by Nick Cawley, Market Analyst
  2. EURUSD, EURAUD, Gold Price Charts & More” by Paul Robinson, Currency Strategist
  3. CAD Bullish Positions Double, GBP/USD Shorts Rise, US Dollar Longs Slashed – COT Report” by Justin McQueen, Market Analyst
  4. Using FX To Effectively Trade Global Market Themes at IG” by Tyler Yell, CMT , Forex Trading Instructor

— Written by Justin McQueen, Market Analyst

To contact Justin, email him at Justin.mcqueen@ig.com

Follow Justin on Twitter @JMcQueenFX

Canadian Dollar Price Outlook: USD/CAD Bounce Runs into Resistance

Canadian Dollar Price Outlook Talking Points:

  • USD/CAD is testing a zone of resistance as taken from support that held from mid-March to mid-June, running from 1.3250-1.3300.
  • The pair put in a pronounced downside move earlier this month on the back of the Bank of Canada rate decision. But after a key zone of support came into play, prices have since bounced into the current zone of resistance.
  • DailyFX Forecasts are published on a variety of markets such as Gold, the US Dollar or the Euro and are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introductory primer to the Forex market, check out our New to FX Guide.

USD/CAD Drive to Support, Bounce to Resistance

A little over half-way through September and it’s been a very busy outing for the US Dollar. Riding a wave of strength into the month only to reverse after US traders returned after Labor Day, the Greenback ran into support last week. That support held into this week and yet another bounce developed ahead of tomorrow’s widely-watched FOMC rate decision. The FOMC is expected to cut rates at tomorrow’s meeting, but the larger focus will be on the accompanying context, namely the dot plot matrix contained in the Summary of Economic Projections, looking for clues as to how aggressive the bank might be with rates in Q4 and 2020.

In USD/CAD, those recent themes in the US Dollar have been showing in an exaggerated manner, helped by a BoC rate decision earlier this month that saw the Bank of Canada avoid the topic of rate cuts. That added a dose of CAD strength to USD/CAD, which had already run into a key area of resistance in late-August, taken from a prior support zone consisting of a few different Fibonacci levels. That drove price action in USD/CAD all the way down to a key support zone around another Fibonacci level at 1.3132 that came into play last week, helping to cauterize the bearish move.

USD/CAD Four-Hour Price Chart

usdcad usd cad four hour price chart

Chart prepared by James Stanley; USDCAD on Tradingview

Since that support came into play, prices in USD/CAD have bounced back into another key zone, taken from the 1.3200-1.3250 area on the chart. This zone had functioned as support for a three-month-period earlier this year, from mid-March to mid-June. The big question now – can sellers hold this retracement at bay around this key zone to push down to fresh lower-lows in USD/CAD?

USD/CAD Daily Price Chart

usdcad usd cad daily price chart

Chart prepared by James Stanley; USDCAD on Tradingview

USD/CAD Strategy Moving Forward

At this stage, USD/CAD may remain as one of the more attractive venues for a return of USD-weakness and given a continued hold below the Friday high around 1.3288, the door can remain open for bearish swing and longer-term strategies, with similar targets as the setup investigated a couple of weeks ago, taken from 1.3200 and 1.3132. If that second area can give out on a recurrent approach, deeper profit target potential can go down towards the 1.3000 psychological level that proved so tough to break in July. Shorter-term approaches may be able to focus on themes of strength, and that is looked at below.

USD/CAD Eight-Hour Price Chart

usdcad usd cad eight hour price chart

Chart prepared by James Stanley; USDCAD on Tradingview

On a shorter-term basis, USD/CAD is holding trend-line support. This may not be the most attractive venue for themes of USD-strength given the recent penchant for CAD-strength but, for traders that do want to push that theme, the item of importance is a hold above the 1.3230 swing-low, at which point short-term targets can be directed towards the 1.3275 area, and if that’s met, break-even stops can be utilized to look for additional topside drive.

USD/CAD Hourly Price Chart

usdcad usd cad hourly price chart

Chart prepared by James Stanley; USDCAD on Tradingview

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts have a section for each major currency, and we also offer a plethora of resources on Gold or USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers an abundance of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

Market Sentiment Positive Despite Oil Price Surge | Webinar

Market sentiment analysis:

  • Traders have become more optimistic despite the weekend attacks on an oil processing facility and an oil field in Saudi Arabia.
  • That’s helping world stock markets and “risk on” currencies.

Risk on now the dominant market theme

Market sentiment is broadly positive despite Saturday’s attacks on Saudi Aramcos oil processing facility at Abqaiq and the nearby Khurais oil field that led to a huge rise in the prices of crude oil. Rather than prompting a jump in demand for safe havens such as gold, stock markets are buoyant, as are risk-on currencies.

EURUSD Price Chart, Two-Hour Timeframe (August 30 – September 17, 2019)

Latest EURUSD price chart.

Chart by IG (You can click on it for a larger image)

In this webinar, I looked at the trends in the major currency, commodity and stock markets, at the forward-looking data on the economic calendar this week, at the new IG Client Sentiment page on the revamped DailyFX website, at the new IG Client Sentiment reports that accompany it and at the DailyFX Trading Global Markets Decoded podcasts, such as this one.

Resources to help you trade the markets:

Whether you are a new or an experienced trader, at DailyFX we have many resources to help you:

— Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex