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Macroeconomic Analysis And Trading Ideas

EURGBP - the case study on central bank action Everywhere we look we see a market has now priced in such an aggressive hiking cycle in the coming 12-36 months – in the US the markets are pricing 5 hikes over the coming 12 months – in the UK we see this also at 5 hikes, Canada 6.4 hikes, Australia 4.6 hikes, NZ 7.5 hikes and even in Europe the market is eyeing 35bp of hikes over 12 months. The elephant in the room though comes in the form of balance sheet runoff or ‘QT’ and we know this is being widely discussed by the Fed, BoE, and Bank of Canada. Taking away the punchbowl while also raising rates is fraught with dangers and it fully justifies the rise in implied volatility this year. With rate settings in mind, we look ahead at both the BoE (23:00 AEDT) and ECB meeting (23:45 AEDT) and this makes EURGBP very interesting as a trading instrument – I can already see EURGBP 1-day implied volatility pushing to the 12-month high, so traders are expecting movement. As we know the job of a trader is to manage risk, and this can mean shying away from exposures over a volatility catalyst, such as a central bank meeting. However, if both banks are coming out with policy statements at similar times when much is priced into the rates curve, then it could lead to some interesting price action. In times like this the best situation is not to prophecies but to react – on the daily we see the Bollinger Bands (BB) narrowing as price consolidates – I like to see this before the facts change and capital starts to flow in one direction – here we would see a more explosive move, and in a bearish example, ideally where price prints a lower low, taking out support at 0.8304, before starting a bearish trend where the BB widen and price holds below the 5-day EMA – a basic momentum strategy but can offer definition to a rules-based system. Of course, we could see price move higher, taking out the recent 0.8359 swing high before moving into the top BB and potentially starting a more bullish trend, with price hugging the upper band and finding buyers into the 5-day EMA. Firstly, the BoE is fully expected to hike at this meeting - it is 98% priced, so buying GBP in anticipation of a rate hike purely at this meeting seems like a poor trade – although the BoE has surprised in the past two meetings, so there is always an air of unpredictability. The question should be whether they hike and subsequently show urgency and guide to another in March or May (there is no April meeting). We should also hear more about reducing its balance sheet (QT). The ECB won’t change policy at this meeting, but the market is keen to hear if the bank remains relatively dovish, or we see a more hawkish turn from the bank, especially after such lofty EU inflation print (5.1% headline, 2.3% core). The odds have clearly risen that the bank opens the door to normalising policy and Christine Lagarde potentially tells us that she cannot rule out a hike this year. This would move the bank closer to market pricing and justify a long EUR position. Of course, the ECB may hit a cautionary note, remaining dovish and pushing back on market pricing. Depending on the BoE actions may push EURGBP through 0.8304. The playbook is set, but this is a strategy I like to adopt to capture a moving market.
by Pepperstone
Bitcoin (BTC/USD) Daily Chart Analysis For January 14, 2021Technical Analysis and Outlook: Bitcoin price only just managed to hold on to the significant support of Outer Coin Dip $40,000, and Key Sup $40,700 - With the price moving up to $43,900, and for now, it is holding about $43,000 level. The current course designates an up move to the Outer Coin Rally $46,350 and most likely Mean Res $47,700 and the near future $50,950 - thereby pending potential retest of the Mean Sup $41,500.
BITSTAMP:BTCUSD
by TradeSelecter
2
The Pound Is Rising on Additional Interest Rate Hike ExpectationThe Bank of England (BoE) has unexpectedly lifted its interest rates to 0.25% from 0.1%, which is the rate at which rates have been set for the last three years without any changes. The move was made on Thursday as inflation in the United Kingdom jumped to 5.1% year-on-year in November from 4.2% a month before. Moreover, the BoE indicated in its statement that inflation would continue to expand to 6% by April 2022, well above its 2% target. The United Kingdom has become the first developed country that has hiked interest rates. Investors suggest that monetary policymakers are ready to make an additional interest rate hike by 25 basis points to 0.5% next February. The Federal Reserve (Fed) announced this week that it would increase its tapering to $30 billion a month starting mid-January from $15 billion, where it stands at the moment. This could mean an end to its bond-buying program in March 2022. According to the Fed’s dot-plot chart the American monetary watchdog may raise interest rates three times next year and another three times in 2023. What could this particularly mean? In the first place the U.S. Dollar would be a leading party to the European single currency as the European Central bank (ECB) noted on Thursday it will continue with its stimulus bond buying program beyond April 2022. However, some spikes of the Euro should not be excluded. The Pound becomes a leader vs the Greenback, while not only receiving technical reasons for a rally, but fundamental ones too. Once again, I have to note that the Cable is moving alongside the “falling wedge” reversal pattern that may push the Cable to 1.3800. The resistance line of this wedge was broken last Friday, and last Thursday the Cable received additional reasons for the rise finishing the day above EMA13 and EMA21 on the daily timeframe chart. The Pound may receive an additional spin as the “morning star” pattern would be completed this week. The next target for the Cable would be 1.3400-1.3450 that is a resistance of the December 2020 and the September 2021 lows. The closest support level is at 1.3280-1.3285, where it would be certainly interesting to open buy positions.
Long
by scavoanastasiia
The Central Banks Week Will Seal the end of the YearThe last important week for markets has started as the major monetary policymakers are going to hold their last meetings of the year this week. The decisions made by the Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE) will add a final touch to the very successful recovery year which remains clouded by the still developing pandemic. Investors are preparing for the Fed to begin to tackle blistering inflation on a wide scale. Inflation has managed to set another record at 6.8% year-on-year for the month of November. The consumer price index has remained above the 2% target for the ninth consecutive month. So, the Fed must discuss additional tapering this Wednesday and the market is ready for such a scenario. I expect investors’ reaction to such a decision from the Fed to be muted. The end of tapering would allow the Fed to hike its interest rates in the second half of 2022. I have also recently written that the U.S. stock indices have strong chances of ending the year in the green zone, and the closing of the last week of the year may see the Dow Jones index adding some 4.02% and the fact that the S&P 500 broad market index has risen by 3.82% confirms that idea. If there are no surprises at the end of the year, we may expect a mini rally, pushing stock indices to new all-time highs. The ECB and the BoE would hardly rush ahead of the Fed. Some ECB members are expressing caution to delay the decision of any tapering for the next meeting that is scheduled for February 3, saying that there is still not enough information on the new Omicron variant and its impact on the economy. The emerging Omicron variant restored travel restrictions in the European Union and enforced EU nations to decide about mandatory vaccination for everybody. This will be discussed by the EU leaders on December 16. The BoE will have its meeting on the same day as the ECB. The British monetary policymaker is less likely to hike its interest rates now that the Omicron variant has emerged. Still investors consider there is a 65% chance of such a possibility. GBPUSD returned above 1.32 at the end of the previous week forming a reversal “morning star” candlestick pattern. If we consider the decline of the last two months, then we may suggest that we have a descending wedge, which is also a reversal pattern. The resistance of this pattern was already broken last Friday and may indicate further strengthening of the Cable. The nearest targets are at 1.3375 and 1.3480-1.3500. However, if the BoE would dare to be the first to switch to the monetary tightening policy, the Pound may soar to 1.3800 in the mid-term perspective.
by scavoanastasiia
Bitcoin (BTC/USD) Daily Chart Analysis For December 4, 2021Technical Analysis and Outlook: BANG! The bitcoin price has plummeted by around $15,000 over the 24 hours. As of 08:16 GMT today, it was trading at approximately $47,580, down 16.14%, having plummeted by 31.6% from this year's all-time high of $69,000, which it attained on November 10 this year. We are looking at this significant bitcoin market pullback as a "breather" following reaching this low-level price. Notwithstanding, it is possible to see an escalating rally pending Outer Coin Dip 42,500 confirmation (Trade Selecter System BARC) and Key Sup $40,700, which is the potential leading platform (or sooner) for the considerable rebound.
BITSTAMP:BTCUSD
by TradeSelecter