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Dovish

EUR/USD: Will ECB Resume Rate Cuts Next Week? Futures markets are pricing in a US rate cut for September, with a 62% chance of a 25-basis point cut and a 38% chance of 50-basis points. The Fed’s dovish shift has helped the euro surge to its highest level in more than a year. Attention now shifts to the ECB’s 12 September rate decision. After cutting rates in June and pausing in July, analysts expect the ECB to resume easing amid slowing growth. However, ECB board member Isabel Schnabel, a key hawk, maintains that inflation concerns should take priority over growth concerns. For EUR/USD, bulls may target the December high of 1.1134 and July high of 1.1275, with support possibly near 1.1000.
by BlackBull_Markets
XAUUSD | Trade ideaDuring morning trading, the XAU/USD pair is holding around 2500.00. At the end of last week, gold demonstrated a confident upward trend. It was partly supported by expectations of the US Fed’s imminent transition to a “dovish” monetary policy cycle. Analysts have revised their estimates of a possible interest rate cut of 50 basis points, and now, its probability is no more than 28.0%. At the same time, the American regulator may adjust the value by –25 basis points at each of the three meetings scheduled this year, leading to a sharp reduction in the borrowing cost from the current 5.50%. Traders will discuss the possible steps of the financial authorities all week since the annual symposium in Jackson Hole will be held on Thursday, August 22. The representatives of the world’s central banks will speak, giving assessments of the current economic situation, as well as the timing of changes in monetary parameters. A day earlier, the US Fed will publish the minutes of the July meeting, which ended with the interest rate maintained at the current level. In addition, investors will pay attention to business activity data. The service PMI may fall from 55.0 points to 54.2 points, and the manufacturing PMI from 49.6 points to 49.4 points. Another factor supporting gold prices is the continuing risks of military conflicts in the Middle East and Eastern Europe. Despite conflicting reports in the media about the Iranian authorities’ imminent response to the death of Hamas political bureau chief Ismail Haniyeh, no active measures have been taken against official Israel so far, which, on the one hand, only increases uncertainty, preventing market participants from counting on the parties concluding a peace agreement.
OANDA:XAUUSDLong
by DCFX-TA
1
EUR/CHF: Navigating SNB Cut and French Election DynamicsHey Traders, In today's trading session, we are closely observing the EUR/CHF pair for a potential selling opportunity around the 0.95500 zone. This level is identified as a key support and resistance area, aligning with the ongoing downtrend. The pair is currently in a corrective phase, approaching the trend line near the 0.95500 level. Recent Developments: Swiss National Bank (SNB) Policy Adjustment: Yesterday, the SNB implemented a 25 basis points rate cut. This move typically signals a dovish monetary stance, which might initially weaken the Swiss Franc. French Elections: As we approach the French elections, demand for the Swiss Franc is anticipated to remain robust. Political uncertainty often drives investors towards safe-haven currencies like the CHF. Given these dynamics, we expect the recent SNB rate cut's impact on the Swiss Franc to be temporary. The heightened demand for the Franc amid electoral uncertainty should bolster its strength, making the 0.95500 zone a critical level to watch for potential selling opportunities in the EUR/CHF pair. Best Regards, Joe
Short
by JoeChampion
2
How Do Dovish and Hawkish Monetary Policies Affect Markets?How Do Dovish and Hawkish Monetary Policies Affect Markets? In the intricate dance of global finance, central banks play a leading role, their policies echoing through markets and economies. The terms "dovish" and "hawkish" encapsulate their strategies towards interest rates and money supply, each with profound implications for currency values and investor strategies. This FXOpen article explores how these stances offer valuable insights for traders in understanding the forex market’s movements and the broader economic landscape. Understanding Dovish vs Hawkish In the world of economics, central banks use monetary policy to navigate between stimulating growth and controlling inflation. This delicate balance is often characterised by two primary stances: dovish and hawkish. Understanding these policies is crucial for traders, as they significantly influence domestic economic conditions and the forex market. Dovish Meaning Central banks take a dovish monetary policy stance, aiming to stimulate the domestic economy. By lowering interest rates or keeping them low, central banks make borrowing cheaper, encouraging both businesses and consumers to take loans, invest, and spend. This increase in spending can lead to economic growth, but there's a catch: if the money supply increases too rapidly, it might outpace the economy's growth potential, leading to inflation. In terms of unemployment, dovish policies can lead to job creation as businesses expand. Credit conditions become more lenient, fostering an environment ripe for economic activity. Hawkish Meaning Conversely, a hawkish stance aims to temper inflation and stabilise the economy when it shows signs of overheating. By raising interest rates, central banks make borrowing more expensive, which can cool down excessive spending and investment. This tightening of credit conditions is intended to prevent inflation from rising too high, too quickly. While higher interest rates can attract foreign investment due to the promise of higher returns, leading to an appreciation of the domestic currency in the forex market, they can also dampen economic growth and increase unemployment rates as financing becomes costlier for businesses. Likewise, a stronger currency can affect exports by making them more expensive for foreign buyers, which is a critical consideration for traders analysing trade-heavy economies. Capital Flows and the Forex Market The interplay between these monetary policies and capital flows is a critical aspect for forex traders. All else being equal, dovish policies, while boosting local economies, can lead to capital outflows as investors search for higher yields, causing the domestic currency to depreciate against its counterparts. However, a dovish policy can increase the attractiveness of investing in local stock markets due to cheaper borrowing costs. On the other hand, hawkish policies attract foreign capital, appreciating the domestic currency, but potentially at the cost of slowing domestic economic growth. Hawks and Doves: The Balance The interplay between hawks and doves in central banking shapes the forex markets in profound ways. Traders meticulously analyse statements and policy directions from central banks and policymakers to gauge future price movements, which can be complemented by a wealth of trading tools in FXOpen’s free TickTrader platform. A shift from a dovish to a hawkish stance (or vice versa) can lead to swift and significant currency movements as markets reposition based on the anticipated impact on interest rates and economic growth. For instance, even the mere expectation of a shift towards a more hawkish policy can strengthen a country’s currency as traders anticipate higher future returns. Monetary Policy : Dovish Effect Low interest rates are expected to boost economic growth: - Low rates encourage consumers and businesses to borrow (credits/loans) - Cheap borrowing encourages consumers and businesses to invest and spend more - Expanded businesses lead to rising employment Risks: - High inflation if the money supply increases too rapidly - Capital outflow and weak domestic currency due to lower returns for investors Monetary Policy : Hawkish Effect High interest rates are used to control an overheating economy: - High interest rates lead to a reduction in borrowing - Expensive borrowing leads to lower spending and investment, which causes lower prices and potentially lower inflation - Higher rates lead to larger foreign investments due to higher returns, thus, stronger domestic currency Risks: - Slowing domestic economic growth due to reduced spending and investment - Higher unemployment due to expensive borrowing for businesses and, therefore, inability to expand Case Studies: USD/JPY Post-Pandemic The USD/JPY currency pair witnessed a remarkable, bullish run post-COVID-19 pandemic, significantly influenced by diverging inflationary trends and monetary policy responses in the United States and Japan. This period underscored the profound impact of interest rate differentials on forex markets. In the United States, a rapid acceleration of inflation was observed, with core inflation YoY increasing from 1.6% in March 2021 to an alarming 6.5% by March 2022. This inflationary surge compelled the Federal Reserve to initiate a series of aggressive rate hikes beginning in March 2022, escalating the benchmark interest rate from 0.25% to 0.5%. By July 2023, the US interest rate had surged to 5.5%, a clear indication of the Fed's commitment to quelling inflationary pressures. Japan's economic scenario depicted a starkly different picture. The same inflation metric in Japan rose modestly from -0.3% to 0.8% over the same timeframe. The Bank of Japan (BoJ) continued its long-standing policy of negative interest rates, aiming to stimulate economic growth and combat deflationary risks. This stark contrast in monetary policy trajectories between the two economies created a significant interest rate differential, fueling a strong bullish momentum in the USD/JPY pair. From March 1st 2022, when the Fed commenced its hiking campaign, the USD/JPY rose sharply from an opening of 115.084 to a peak of 151.943 in October 2022. This movement was primarily driven by the growing attractiveness of the dollar as US interest rates rose, offering higher returns to investors compared to the yen, which remained anchored by Japan's negative interest rate policy. How to Trade Based on Monetary Policy Using monetary policy to formulate trading ideas involves gauging central banks’ actions and their implications for the wider currency market. Traders who grasp the nuances of these policies can position themselves to take advantage of expected movements in the forex market. Here’s a focused approach to trading based on monetary policy decisions: 1. Following Central Bank Announcements and Meetings Central banks like the Federal Reserve, European Central Bank, and Bank of Japan regularly hold meetings to discuss monetary policy. The outcomes of these meetings, including interest rate decisions and policy statements, can significantly affect currency markets as they rapidly incorporate this new information. Traders mark these events on their calendars and prepare for increased volatility during and after announcements. 2. Analysing Policy Statements for Future Directions Central bank policy statements provide insights into the bank's view of the economy and its future policy direction. Phrases indicating concerns about inflation might suggest a hawkish stance, potentially leading to rate hikes. Conversely, mentions of economic risks could indicate a dovish tilt, with possible rate cuts. Understanding these subtleties can give traders clues about future currency movements. 3. Monitoring Economic Indicators Economic indicators like inflation rates, employment data, and GDP growth are closely watched by central banks and can influence their monetary policy decisions. Traders analyse these indicators to anticipate central banks' actions. For example, rising inflation above the central bank target might prompt a central bank to adopt a hawkish stance, potentially strengthening the currency. 4. Understanding Interest Rate Differentials Interest rate differentials between countries are a fundamental driver of currency movements. Currencies from countries with higher interest rates often attract more investment, leading to appreciation. Traders can use this knowledge to trade currency pairs, expecting appreciation in currencies from countries likely to raise rates and maintain higher rates compared to their trading partners. 5. Considering the Global Economic Context Monetary policy does not operate in a vacuum. Global economic conditions, geopolitical events, and market sentiment can all influence the effectiveness and impact of central bank actions. Traders must consider these factors, understanding that unexpected global events can quickly alter the expected effects of monetary policy decisions. Caveats to Hawkish and Dovish Monetary Policy While dovish and hawkish monetary policies wield significant influence over economic landscapes and forex markets, they come with nuances that traders and policymakers must navigate. A dovish stance, though effective for stimulating economic growth, can lead to unintended consequences like asset bubbles due to prolonged low interest rates, making economies vulnerable to inflation spikes. If not carefully managed, this environment might erode purchasing power and destabilise financial markets. Conversely, hawkish policies, designed to curb inflation by raising interest rates, might slow economic growth excessively or lead to higher unemployment rates. Such outcomes can strain consumer spending and investment, potentially tipping an economy into recession if overapplied. Moreover, the global interconnectedness of markets means that a policy shift in a major economy can have ripple effects, impacting emerging market currencies and potentially leading to capital flight from countries with lower interest rates. Traders must consider these broader implications, as central banks' shifts between dovish and hawkish stances can lead to volatility and unpredictability in currency values. The Bottom Line The interplay between dovish and hawkish monetary policies not only shapes the global economic narrative but also creates pivotal moments for forex traders. By meticulously analysing these stances, traders can navigate the forex market with greater acumen, anticipating shifts that could affect currency values. For those looking to leverage these insights into actionable strategies, opening an FXOpen account offers a gateway to applying this knowledge in the real-world arena of forex trading. FAQs What Is Dovish vs Hawkish? Dovish and hawkish are terms used to describe the monetary policy stance of central banks. A dovish policy focuses on stimulating economic growth by lowering interest rates and increasing the money supply, potentially leading to a weaker currency. Conversely, a hawkish policy aims to control inflation by raising interest rates and reducing the money supply, typically resulting in a stronger currency. These stances significantly influence currency values, affecting forex trading strategies. What Does Hawkish and Dovish Mean in the Forex Market? In the forex market, hawkish and dovish policies influence currency pairs' direction. A central bank's hawkish stance can lead to currency appreciation due to higher interest rates attracting foreign capital. On the other hand, a dovish stance might cause currency depreciation as lower interest rates decrease the currency's yield, prompting investors to seek higher returns elsewhere. Traders closely monitor these policy shifts to anticipate market movements. This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.
Education
by FXOpen
5
AUD/USD: Reversal Sell Opportunity Confirmed!!!On November 29 and 30, AUD/USD touched a crucial pivot point at the price of 0.66411, indicating a potential change in direction, especially as it aligns with a level of miring Support and Resistance, suggesting a Major downtrend. The bearish reversal signal on the daily candle following the pivot point touch adds confidence to the potential downturn. The recent dovish stance conveyed by the Reserve Bank of Australia (RBA) further adds pressure on AUD/USD. Technical Analysis: Pivot Point and Support/Resistance: The price hitting the pivot point at 0.66411 suggests a potential reversal, particularly at the miring Support and Resistance level. Bearish Reversal Signal: The formation of a bearish reversal pattern after touching the pivot point indicates weakness in the bullish momentum. Major Downtrend: The trendline illustrates that AUD/USD is currently experiencing a Major downtrend. Fundamental Analysis: Dovish RBA Stance: The dovish statement from the RBA can enhance the downward pressure on AUD/USD. Trading Scenario: Considering the above factors, traders may contemplate the following scenario: Wait for Correction: Exercise patience until the price undergoes a correction from the 0.66411 level. Sell Limit with Confirmation: Initiate a sell position after a correction, with confirmation of further downside. Confirmation could involve the formation of a bearish pattern. Target Take Profit: Set a take profit target around 0.64660, an area indicating the potential for further decline. Stop Loss: Safeguard the position by placing a stop loss above the nearest resistance level or above the high of the confirmation candle. It's crucial to continuously monitor market conditions, stay informed about the latest news, and practice prudent risk management. Trading always involves risks, and the final decision remains the responsibility of the trader.
Short
by fardycurry
2
Pure bearish trend Obviously across boards USD as the Quote currency have been on a bearish move due to the Hawkish nature of the dollar index ,interest rates etc From the point of Technicals on the chart I'm expecting price to touch the Immediate SUPPLY zone with a good PA we are good to short the pair But looking at the OB spotted above the currently S zone makes the immediate zone look like an IDM or an engineered Liquidity Putting that into consideration I would get in conservatively if I get a PA at the currently S zone and watch how price plays out to further look for more entry zones or otherwise
Short
by HoneypiesfxS
1
AUDJPYAUJPY broke up the descending channel . It has formed a short term uptrend. In order to buy I am waiting a break - retest of the resistance with a TP level close to the most recent solid resistance I spotted. Otherwise, if it breaks the current support zoen and retest it pointing down I will go vice versa. In general BoJ is more dovish while BoA is more aggressive in financial policies. This makes the AUD more attractive for faster profit comparing to Yen and this might drive to further push to the upside cause the pair is mainly bullish over the last months. Everything lays to the Break of structure mindset, just observations of where the price has/has no power to surpass and how can this action be depicted with big/ small body candles, wicks, velocity of price action etc. Some retracements are weak and the reversal is easy to be spotted. Other retracements are strong and many traders, included me, can be confused if the break & retest is not valid but in fact the setup might be proven right in the end (despite tight SL which is considered a wrong placed exit point.). It depends on what is the lot size, risk management, in which way someone wants to press him/herself, how much can afford to loose etc. News can whipsaw and create momentarily fakeouts and push to SL hits and drawdowns. The same applies with big players' games behind the closed doors during weekends. That's why I avoid to put tight SL because it is quite predictable and it is seen by brokers, banks etc. The above, make me avoid trading on Mondays and after 16:00 on Fridays. Hope that I help a bit! Goodl luck!
by The_Forex_Path
As policies continue to diverge…For readers who have been following us right from our first ever TradingView idea, you’ll recall our first ever trade idea on long USDCNH. It’s been a fun 5 months writing and sharing our thoughts with the community. Much has happened since April, but two critical things stayed the same. The US Federal Reserve remains hawkish, raising rates, while the PBoC remains dovish, continuing with its easing stance. The result? USDCNH trading beyond the 6.9 level, surpassing both our target levels. With the next Federal Reserve meeting coming up, we think it’s time to review this idea again. The CME FedWatch Tool allows us to gauge what market participants are expecting the Fed to do. The prevalent consensus seems to be that the Fed is likely to raise rates till the end of the year before holding rates at the 3.75 – 4.00 % level for the next year. On the other hand, the PBoC has continued to ease, cutting reserve requirement ratios & lowering its medium-term lending facility. With China still battling Covid via lockdowns, persistently low inflation numbers, and weak economic numbers, we see further easing on the cards from PBoC. Looking at the charts, the USDCNH pair has just completed a symmetrical triangle chart pattern. After breaking out to the upside and a brief pull-back, prices continued upwards with strong momentum. Using classical charting techniques, the target levels for the breakout can be set to the distance of the high and low of the symmetrical triangle and applied to the top of the triangle. With the target price of 7.1180, there is still upside for this trade. It seems that policy divergence will remain for these two major economies, which is likely to strengthen the USD and weaken the CNH further, driving up the USDCNH pair. Using technical to identify target levels where we will be comfortable, we think that there is room for more upside. Entry at 6.9500, stop at 6.8545. Target at 7.1180. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. Reference: www.cmegroup.com
Editors' picks
CME:CNH1!Long
by inspirante
11
Apple Overvaluation RiskAsset/equity valuations at extreme highs, clearly aligned with sharp price increases reflected in core inflation. Apple Valuations: PE 28.3x to Industry 15.6x & Market 16.8x PB 39.5x to Industry 1.4x & Market 1.9x PEG 7x All supported by dramatically high central bank balance sheets. Trendline with unsustainable rising prices reflecting an unhealthy dovish monetary policy where quantitative easing has propped up institutions and corporations at the expense of individuals, wages have not kept up and debt propagation has reached a culmination point. Major risk of total market correction on the horizon and the Federal Reserve regime will be forced to shift to a significantly more hawkish stance. Without a "Volker-esque" approach, a wage-price spiral will begin as runaway inflation strains consumers and the central banks are forced to re-evaluate their actions.
ECONOMICS:USCPCEPIShort
by R0MM3LL
Hawks vs Doves, the battle of CNH…CNH1! Birds of different feathers are likely not to flock together! As policy divergence continues between the US Fed (Hawkish) vs the PBoC (Dovish), we expect the Dollar to strengthen against the RMB on a macro level. On the technical side, we see a bullish RSI divergence (prices making lower lows while RSI making higher lows), suggesting that momentum is nearing the end and potentially reversing. We also note proximity to the long-term support level since 2014 as an additional bullish factor. Entry at 6.355, stop at 6.2955. Targets are 6.580 and 6.720. Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios.
Editors' picks
CME:CNH1!Long
by inspirante
13
USDZAR BuyTrading is not 100% knowing where the market will go to but it sometimes means with proper fund care you can enter special opportunities such as this one. Price is at Support deciding to break above its local minor resistance which gains my interest, I believe price may struggle to push ahead certain price ranges but confident that the Greenback will push ahead knocking out Sell Order. Entered Bullish in this trade at its exhaustion, left some key notes on this chart.
Long
by RiosTrades
1
AUDEURDespite the RBA setting a dovish when it comes to all things $AUD this spike in price action has caught my eye, enough for me to justify a pre-emptive move in the name of $AUD strength. Trump's impeachment at the house will not have an impact because the senate where Republicans hold the majority will not vote against their own political leader (well at least that is what the general consensus is); however this does not make Trump look good in the public eye and with elections around the corner this threatens his re-election prospects. Which is enough to garner a few smiles across the pacific in China, where a scenario of Trump not in office would surely improve Chinas seat at the table of negotiations.
Long
by AtacamaFund
Will the US Retail Sales result in a weak USD/JPY close?As we approach the weekly close, the US Retail Sales will catch the attention of traders, especially USD/JPY traders. While the outlook for the Japanese Yen hasn't in fact changed over the last week, since US inflation came in below 2% at 1.8% last Wednesday and market participants not seeing any further dovishness from the Fed into the yearly end, markets seem a little too biased towards a "wait-and-see" approach from the US central bank. That said, after USD/JPY pushed back towards 109.00/30, mainly driven by 10-year US-Treasury yields which took on bullish momentum in the first half of November while gaining over 20 basis points and driving the positive correlated USD/JPY higher, a disappointing US Retail Sales data set today could result in a weak weekly close in the USD/JPY. Retail Sales data is expected to come in at 0.2% (MoM) for the month of October after a disappointing data set for September at -0.3%, showing the first decline in retail trade since February, mainly due to lower sales at motor vehicles, building materials, hobbies and online purchases. So, any print below 0.2% and confirmation of the last Retail Sales prints leaves room for the Short-side in USD/JPY, which we also consider to be more attractive from a risk-reward-perspective with a first important target on the downside being found around 107.80/108.00. Ready to start trading the live markets? Then open a free account with Admiral Markets - 8,000+ instruments to choose from, some of the market's tightest typical spreads, and the world's #1 multi-asset trading platform. admiralmarkets.com/start-trading/ Disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Short
by Admiral_Markets