Daily analysis 08/26/2024

26. 8. 2024 - Josef Brynda

Latest news

• Powell signals September rate cut at Jackson Hole conference. Markets now expect at least a 25bps cut, with possibility of 50bps.
• ECB expected to cut rates by less than 25bps in September. Euro movements likely tied to USD fluctuations.
• Euro remains resilient despite poor German PMI. ECB still more concerned about inflation than growth.
• CFTC data shows massive US dollar selling, suggesting possible short-term consolidation
• Euro and sterling longs increase, while CHF sees added short positions
• FX Scorecard indicates sustained bearish momentum for US dollar.
• Bank of Japan's Ueda suggests potential rate hike if economic conditions improve.
• Nvidia earnings report expected Wednesday, projecting 113% YoY revenue growth.
• US Treasuries surge after Powell's dovish comments, 2-year yield drops 9bps.
• Crude oil prices rise due to Middle East tensions, Brent nears USD 80.
• Gold pushes higher following Fed's shift towards rate cuts.
• Equities start week quietly after strong gains, focus on Nvidia earnings.
• European and UK bond yields drop on expectations of rate cuts.
• US dollar weakens in Asia following Powell's dovish message.
• Soybeans attempt bounce as traders monitor US Midwest heatwave.
• German IFO data in focus as manufacturing sector remains weak.
• Nvidia earnings crucial for risk sentiment and potential US dollar movement.
• NZD and SEK outperform on soft-landing hopes, while AUD and CAD underperform.
• Silver outperforms gold in commodity markets.
• JPY and NZD maintain bullish momentum.
• CFTC data shows US dollar net long positioning at lowest since March 2024.

News summary

• Federal Reserve Chair Jerome Powell's speech at the Jackson Hole conference has significantly impacted financial markets. Powell signaled a potential rate cut in September, with markets now pricing in at least a 25 basis point reduction and even considering the possibility of a 50 basis point cut. This dovish stance has led to a surge in US Treasuries, with the 2-year yield dropping 9 basis points. The US dollar has weakened considerably, with CFTC data showing massive selling and net long positioning at its lowest since March 2024.
• In contrast, the European Central Bank (ECB) is expected to be more cautious, with less than a 25 basis point cut anticipated in September. The euro has shown resilience despite poor German PMI data, as the ECB remains more focused on inflation concerns than growth issues. The Bank of Japan has taken a different approach, with Governor Ueda suggesting a potential rate hike if economic conditions improve.
• In the commodity markets, crude oil prices have risen due to Middle East tensions, with Brent approaching $80 per barrel. Gold has also pushed higher following the Fed's shift towards rate cuts, while silver has outperformed gold. Agricultural commodities are seeing movement, with soybeans attempting a bounce as traders monitor a heatwave in the US Midwest.
• Based on these developments, we can expect continued weakness in the US dollar across major currency pairs. The EUR/USD pair is likely to maintain its upward trajectory, potentially testing higher levels if the ECB remains relatively hawkish compared to the Fed. However, the euro's gains may be limited by ongoing concerns about European economic growth, particularly in Germany.
• The Japanese yen (JPY) could see significant strength due to the combination of a dovish Fed, potential BOJ hawkishness, and its safe-haven status amid geopolitical tensions. The CAD may underperform other commodity currencies due to the Bank of Canada's more aggressive rate cut expectations.
• The NZD is likely to continue outperforming on soft-landing hopes, while the Australian dollar (AUD) may face headwinds due to concerns about Chinese economic growth.
• Traders should closely monitor upcoming events, particularly Nvidia's earnings report and German IFO data, as these could significantly impact risk sentiment and currency movements. Additionally, any escalation in Middle East tensions could drive further safe-haven flows.
• Overall, the forex market is poised for increased volatility as central bank policies diverge and economic data continues to shape expectations for future rate movements.

What It Would Take for the U.S. Dollar To Collapse

23. 8. 2024 - Josef Brynda

Imagine waking up to a world where the U.S. dollar (USD), the bedrock of global finance, has collapsed. This scenario may seem far-fetched, but it's a narrative often found on dubious platforms pushing gold, crypto, and extremist political views, and it occasionally creeps into mainstream discourse. The greenback has always had its external foes during the long period of its dominance—from the communist bloc and anti-colonialists to contemporary adversaries like China, Russia, and other emerging powers. Meanwhile, critics argue that mounting inflation, the rising U.S. federal deficit, and government entitlements could bring down the USD's dominance from within.

Daily analysis 08/23/2024

23. 8. 2024 - Josef Brynda

Latest news

• Futures are pointing to a positive opening. Focus on Powell's speech.
• Gold dips, crude struggles near support and wheat tanks.
• European and U.S. bond yields rise amid strong PMI data.
• Fed Officials Argue for Gradual Pace of Cuts Starting Soon.
• US S&P Global Flash Manufacturing PMI surprisingly declined to 48.0, while Services rose to 55.2.
• Eurozone PMI exhibited similar trends with manufacturing weaker at 45.6 in August from 45.8.
• UK PMI offered more good news for the economy with growth remaining strong while price pressures are slowing.
• Intuit reported better-than-expected earnings results and announced guidance above consensus.
• Japanese equities are up despite hawkish comments from BOJ Ueda.
• European sovereign markets fell on Thursday as stronger-than-expected euro-area PMI figures led to a reduction in expectations for rate cuts from the ECB.
• The Bloomberg Commodity Total Return Index trades flat on the week.
• Crude oil is heading for a weekly loss as falling product prices point to soft demand.
• The US dollar snapped four days of losses to reverse higher as US economic data continued to rule out the case for a larger rate cut from the Fed.
• Kansas Fed President Schmid wants more data before supporting rate cuts.
• Boston Fed's Susan Collins said rate cuts should be 'gradual and methodical'
• US jobless claims came in as expected, while manufacturing activity slowed more than anticipated
• EURUSD found support near 1.11 but could weaken if Powell confirms gradual rate cuts.
• UK economy has been performing better than major peers, benefiting the pound
• US crude rebounded near the $72pb level on hopes of rate cuts boosting global oil demand.
• Powell's speech could bring last-minute volatility to an otherwise calm week.

News summary

• The financial markets are currently in a state of anticipation as investors await Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium. Recent economic data and statements from Fed officials have painted a complex picture, influencing various asset classes and currencies.
• U.S. economic indicators have been mixed, with manufacturing PMI declining unexpectedly while services PMI rose. Jobless claims came in as expected, but manufacturing activity slowed more than anticipated. These conflicting signals have led to uncertainty regarding the Fed's future rate decisions. However, if the markets interpret this data as a sign of economic slowdown, it could lead to a weakening of the dollar
• The pound has been performing well due to the UK's relatively strong economic performance. It may continue to show resilience against other major currencies.
•  With crude oil heading for a weekly loss due to soft demand, the CAD might face some headwinds. However, its performance will also depend on the overall USD trend.
• Markets are now pricing in a 76% chance of the Fed cutting rates by 25 basis points (bps) at its September meeting, the CME FedWatch tool showed, with traders backing away from bets on a big 50 bps cut.
• British consumer confidence held at an almost three-year high in August, bolstered by improving sentiment around personal finances and major purchases, according to a survey that added to positive signals in the wider economy.
• The euro and sterling are trading near 13-month highs against the dollar, indicating relative strength in these currencies compared to the greenback.
• In the very short term, the dollar may see some strength, especially if Powell's speech is perceived as less dovish than expected anf for example, this suggests that the services sector is not slowing down. However, over the medium to long term, the dollar is likely to face gradual downward pressure as the market anticipates and then experiences the beginning of a rate cut cycle. The pace of this decline will depend on the Fed's actual policy decisions, incoming economic data, and global economic conditions.

The impact of Federal Resrve Interest Rate Change

22. 8. 2024 - Josef Brynda

Why does the Federal Reserve cut interest rates when the economy begins to struggle? The theory is that by cutting rates, borrowing costs decrease, and this prompts businesses to take out loans to hire more people and expand production. The logic works in reverse when the economy is hot.

When interest rates change, there are real-world effects on the ways that consumers and businesses can access credit to make necessary purchases and plan their finances. It even affects some life insurance policies.

Here, we take a look at the impact on various parts of the economy when the Fed changes interest rates, from lending and borrowing to consumer spending to the stock market. This article explores how consumers pay more for the capital required to make purchases and why businesses will face higher costs tied to expanding their operations and funding payrolls when the Fed changes rates. But the preceding entities are not the only ones that suffer due to higher costs, as this article explains.

Daily analysis 08/22/2024

22. 8. 2024 - Josef Brynda

Latest news

• US employment falls by 818,000 in latest government revision
• Fed minutes point to 'likely' rate cut coming in September
• Zoom lifts revenue forecast on growing demand for AI tools
• Ford is pulling back on EV spending
• FOMC July minutes suggest potential rate cut in September
• BLS payrolls revised lower by 818,000, the biggest downward revision since 2009
• Markets remain sensitive to incoming labor market data
• Target shares rose 10% after lifting profit outlook
• Snowflake shares fell 8% in extended trading
• Agilent Technologies' shares rose 2% in extended trading
• Bavarian Nordic in focus after beating Q2 estimates
• U.S. Treasuries rallied after payroll revision news
• Strong demand in 20-year U.S. Treasury auction
• German yield curve bull steepened
• UK gilt gains focused in mid-curve
• Gold trades near USD 2,500, showing signs of exhaustion
• Silver outperforms gold but yet to challenge USD 30
• Crude trades near key support levels
• US natural gas futures trade lower ahead of weekly storage report
• Sterling rises against euro following weak French and German manufacturing PMI data
• Dollar recovers marginally after hitting near eight-month low
• Bank of Japan could raise interest rates to 0.5% as soon as October
• Eurozone composite PMI rises to 51.2 in August, beating expectations
• Eurozone bond yields edge higher following PMI data
• Focus on upcoming eurozone, UK, and US PMI data
• Fed Chair Powell's speech on Friday is highly anticipated
• Investors expect potential rate cuts following FOMC minutes and payroll revision

News summary

• Based on these developments, the U.S. dollar is likely to face downward pressure due to the significant downward revision in employment figures and the Federal Reserve's hints at a potential rate cut in September. However, the dollar has shown a marginal recovery after hitting a near eight-month low. The euro may see mixed movements, with positive factors including the better-than-expected Eurozone composite PMI, while negative influences come from weak French and German manufacturing PMI data. A slight support might come from Eurozone bond yields edging higher.
• The Canadian dollar's movement might be influenced by crude oil trading near key support levels, as Canada is a major oil exporter. Its movement will also be closely linked to the general trend of the USD. Sterling could see some strength, as it has risen against the euro following weak French and German manufacturing PMI data. Additional support might come from UK gilt gains focused in the mid-curve.
• Fed Chair Powell's speech on Friday is highly anticipated and could cause significant forex market reactions. Investors' expectations of potential rate cuts following FOMC minutes and payroll revision may lead to further dollar weakness.
• The latest economic data and market developments paint a complex picture. U.S. employment figures were revised downward by 818,000, marking the largest revision since 2009. Federal Reserve minutes suggest a potential rate cut in September. Zoom raised its revenue forecast due to growing demand for AI tools, while Ford is reducing its spending on electric vehicles. Target shares rose 10% after improving its profit outlook, while Snowflake shares fell 8% in extended trading. U.S. Treasuries rallied following the payroll revision news. Gold is trading near $2,500, showing signs of exhaustion, while silver outperforms but hasn't yet challenged $30. The Bank of Japan might raise interest rates to 0.5% as early as October. Eurozone's composite PMI rose to 51.2 in August, surpassing expectations.

Dollar hits year low versus euro as traders await data and Powell

21. 8. 2024 - Josef Brynda

The dollar edged higher on Wednesday after falling to its lowest level against the euro this year as investors waited for revisions to U.S. employment data and a speech by Federal Reserve Chair Jerome Powell.

The euro climbed EURUSD to $1.1132, the highest since December, as investors increased their bets on Fed rate cuts this year, dragging down U.S. bond yields and weighing on the dollar. It was last down 0.1% at $1.1119 as the dollar found a footing.

Daily analysis 08/21/2024

21. 8. 2024 - Josef Brynda

Latest news

• Recent Dollar Weakness and Market Expectations
• The "Dollar Smile" Theory and Current Market Positioning
• Fed Chair Powell's speech at Jackson Hole will be closely watched by forex traders.
• Upcoming economic data releases will be crucial for forex traders
• Potential for Dollar Rebound and Impact on Other Currencies
• Gold Hits New Record High as Dollar Weakens and Rate Cut Expectations Grow
• US Dollar Index Hits Year-to-Date Lows Below 102
• Gold Surges to Record High of $2,531 Amid Global Economic Concerns
• Canadian Inflation Cools to 2.5% YoY, Boosting Rate Cut Expectations
• Crude Oil Prices Decline on Chinese Demand Worries and Gaza Ceasefire Hope
• Swedish Krona Gains Despite Riksbank's Dovish 25bps Rate Cut
• RBA Minutes Reveal Cautious Stance on Interest Rates
• Wall Street Closes Lower in Volatile Trading Session
• Treasury Yields Fall on Weak Employment Data and Dovish Canadian Inflation
• Major Currencies Mixed as Markets Await Jackson Hole Symposium
• Fed Chair Powell's Jackson Hole Speech in Focus Amid Rate Cut Speculations

News summary

• The US Dollar Index has fallen below 102, reaching year-to-date lows. This weakness is driven by changing market expectations for the Federal Reserve's interest rate path and concerns about the US economic outlook. Markets anticipate a dovish stance from Fed Chair Jerome Powell at the upcoming Jackson Hole Symposium, with expectations of a more accommodative monetary policy. Additionally, potential revisions to US payroll data and political shifts are contributing to the dollar's decline. While there's potential for a short-term rebound if market expectations for Fed rate cuts prove excessive, the overall trend remains bearish for the USD.
• Dollar Firms After Three-Day Decline Ahead of Key Economic Events
  The US dollar trades slightly higher following a three-day decline that took it to a year-low. Markets are settling ahead of crucial events, including PMIs and Fed Chair Powell's speech at Jackson Hole symposium
• Gold reached a fresh record high of $2,531, driven by global debt concerns, central bank reserves shifting to gold, and expectations of a US rate-cutting cycle. Silver outperforms due to recovering industrial metal sector, with copper holding above $4.2.
• Canadian Inflation Slows, Reinforcing Rate Cut Expectations
  Canada's July inflation slowed to 2.5% YoY, with core measures also cooling. This signals the Bank of Canada can maintain its rate-cutting path, with markets expecting three more cuts this year.
• Crude Oil Prices Fall on Chinese Demand Concerns and Gaza Ceasefire Hopes
  Oil prices continue to decline due to worries about Chinese demand, as apparent oil demand fell 8.8% y/y in July. Increased hopes for a Gaza ceasefire also contribute to bearish sentiment. 
• The Swedish krona strengthened despite a dovish 25bps rate cut by the Riksbank. Markets have fully priced in the extent of easing from Sweden's central bank, with two to three more cuts expected this year.
• The Reserve Bank of Australia's August meeting minutes showed discussions on further tightening, but a stronger case for maintaining the cash rate at 4.35%. The board consensus favors holding rates high for an extended period.
• US Equities Close Lower Amid Volatility and Mixed Corporate News
  Wall Street traded slightly lower in a volatile session, with energy and material stocks declining while health and consumer staples gained. Notable corporate news included Lowe's missing revenue expectations and Boeing grounding its 777x test fleet.
• Treasury Yields Fall on Weak Employment Data and Dovish Canadian Inflation
  US Treasuries rallied on weak Philadelphia Fed employment data and softer Canadian inflation, boosting expectations for potential rate cuts. The 10-year yield ended around 3.81%, with the 2-year yield dipping below 4%.
• Major Currencies Mixed Against Dollar as Markets Await Key Events
  The British pound and Euro rose against the dollar, while the Japanese yen and Australian dollar weakened. Markets are cautious ahead of the Jackson Hole symposium and the release of FOMC minutes.
• Short-term rebound potential: If market expectations for Fed rate cuts prove excessive, there could be a short-term dollar rebound. Overall, while there's potential for short-term fluctuations, the prevailing trend and market sentiment suggest continued pressure on the US dollar, at least until there's a significant shift in economic data or Fed policy stance.

Daily analysis 08/19/2024

19. 8. 2024 - Josef Brynda

Latest news

• Equities Start Week on Muted Note
• Yen Surges 1% as Strength Rally Continues
• Gold Reaches Record High, Hitting $2500 Target
• U.S. Treasuries Dip Following Strong Consumer Sentiment Data
• University of Michigan Consumer Sentiment Beats Expectations
• UK Retail Sales Rebound in July
• Preliminary August PMI Figures Awaited for Europe and US
• Fed's Powell to Set Stage for Rate Cuts at Jackson Hole
• Chicago Fed President Goolsbee Reiterates Cautious Tone
• Markets Positioned for September Fed Rate Cut
• Copper Holds Gains Despite End to Chile Strike
• Crude Oil Steady Amid Gaza Peace Talks and China Demand Concerns
• Dollar Index Hits Seven-Month Low
• Sterling and Australian Dollar Gain on Easing Expectations
• Euro Touches Highest Level of 2024 Amid Dollar Weakness
• Australian and New Zealand Dollars Hit One-Month Highs
• Analysts Eye Potential for Further Euro Gains if EUR/USD Breaks 1.11 Level
• M&A Activity Potentially Boosting Demand for Sterling

News summary

• The overall sentiment appears bearish for the US dollar. Several factors point to potential dollar weakness. The Dollar Index hitting a seven-month low indicates broad-based dollar weakness. Fed's Powell is expected to set the stage for rate cuts at Jackson Hole, which typically weakens the dollar. Markets are positioned for a September Fed rate cut, further pressuring the dollar. Strong consumer sentiment data has not been enough to boost the dollar significantly.
• The euro touching its highest level of 2024 suggests continued strength. If EUR/USD breaks above 1.11, further gains are possible. Prediction: EUR/USD likely to test 1.12-1.13 levels in the near term.
• Sterling gains on UK retail sales rebound and easing expectations. M&A activity potentially boosting demand for the pound.
• The Bank of England is seen as potentially more hawkish than the ECB. Markets are positioning for potential rate cuts from both central banks, but the timing and pace may differ.
• Australian and New Zealand Dollars Hit One-Month Highs. The strength in commodity-linked currencies reflects improved risk sentiment and potentially better global growth prospects.
• The forex market appears to be in a risk-on mode, with commodity currencies and the euro gaining against the dollar. The upcoming Jackson Hole symposium and PMI data releases will be crucial in determining near-term trends. The dollar's weakness may persist if the Fed maintains a dovish stance and global economic data improves.
• Traders should watch for any shifts in Fed rhetoric or unexpected economic data that could alter these predictions. The ongoing geopolitical situations, such as Gaza peace talks and China's economic performance, could also influence currency movements, particularly for commodity-linked currencies.