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EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Accelerating policy normalization in deed, but just don’t call it that. The March ECB meeting saw the ECB surprise markets by speeding up their normalization pace with the APP set to increase to EUR 40bln in April and then lowered to EUR 30bln in May and EUR 20bln in June, with an aim of ending APP in Q3. This was quite a shift, and alongside 2024 HICP expected at 1.9% it meant a hike for 2022 is still on the table. However, even though the statement was hawkish, the ECB tried very hard to come across as dovish as possible, no doubt trying to get a soft landing. The bank broke the link between APP and rates by saying hikes could take place ‘some time’ after purchases end (previously said ‘shortly’ after they end). President Lagarde also stressed that the Ukraine/Russia war introduced a material risk to activity and inflation (and it’s too early to know what the full impact of this will be). As a result, she stresses more than once that their actions with the APP should not be seen as accelerating but rather as normalizing (pretty sure going from open-ended QE to done in the next quarter is accelerating but maybe owls play by the different rules). To further add dovishness Lagarde also said that the war in Ukraine means risks are now again titled to the downside, compared to ‘broadly balanced’. After the meeting STIR markets and bund yields jumped to price in close to 2 hikes by year-end again, but the dovish push back from Lagarde saw the EUR come under pressure, failing to benefit from higher implied rates. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. Geopolitics Even though the EUR, through Western sanctions, have dodged potential weakness from the CBR selling the EUR to prop up the RUB, the single currency was not immune for long. It held up okay initially, but as proximity risk to the war and economic risk from supply constraints and sanctions grew, the risk premium ballooned, sending EUR risk reversals sharply lower and implied volatility higher. With very big moves lower already, chasing the lows aren’t very attractive, but picking bottoms is equally dangerous without clear catalysts. 3. CFTC Analysis Friday’s CFTC data did not show what we expected. Despite the big falls in the EUR and a very big reduction in Asset Manager net-longs, leverage funds reduced net-shorts on the EUR. Unless they reduced shorts in anticipation of a bounced from stretched lows the update does not make much sense right now. Regardless of positioning though, the best way to trade the EUR from these levels is with a clear catalyst. 4. The Week Ahead For the week ahead it’ll be very quiet on the data front, with all the focus for the EUR still on the geopolitical situation, where any escalation in tensions is expected to weigh on the EUR while de-escalations are expected to provide support. Apart from that, given the liquidity of the EURUSD and EURGBP currency pairs, as well as the EUR’s close to 60% weighting in the DXY , the upcoming FOMC and BoE policy decisions could end up being the biggest drivers for the EUR apart from geopolitics. The hurdle is quite high for the Fed to really surprise markets on the hawkish side (certainly possible for them to do so though), which means unless markets price in even more hikes for the Fed and unless the geopolitical situation deteriorates very drastically, the strong USD upside might run out of short-term steam which would be supportive for the EUR. When it comes to the BoE though, the recent amount of downside priced in for the GBP in such a short space of time and the recent dovish tones from the bank, means the bar is very low for a less dovish reaction from the GBP. Why is this important for the EUR? Given the liquidity of the EURGBP pair any major momentum in EURGBP can affect the EUR and GBP pairs in general so worth keeping on the radar. GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April ( prev . 6.0%) & 5.21% in 1-year ( prev . 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation . Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Friday’s most recent CFTC data showed GBP positioning deteriorated across market participants with big netshort increases for large specs and asset managers, while leveraged funds were more reserved in their reduction of their Sterling net-long (biggest amongst the majors). Who needs to capitulate among these? Given how stretched the recent downside has been, leveraged funds might be better positioned going into the BoE. 5. The Week Ahead For the week ahead the data focus will fall on the incoming labour report, with more focus on the wage component as opposed to the headline jobs print. The bank is concerned about second-round effects, so much so that Governor Bailey has in previous weeks said that workers should not demand exuberant increases. We also saw from the Bank’s Agents report suggesting there are signs of significant wage increases this year. Thus, goes without saying that wages will be important. Even though higher wages could see short-term GBP upside, what it means med-term is arguably more negative as it adds to further stagflation fears. For the BoE meeting, markets are fully pricing in a 25bsp hike which means all the focus will fall on the tone and language. The bank’s commitment to lower inflation will be in focus, especially as it relates to growth. Recall that at the Feb policy press conference and the MPC hearing, the bank was already concerned about what higher inflation and higher rates would mean for the growth outlook. That has now arguably been exacerbated by the Ukraine/Russia war. The one risk to the meeting is from the hawkish side, where the GBP’s drop is something, they would have noticed. As lower currency valuation feeds into higher inflation , they could sound less dovish, but at this stage that would seem like an unproductive way of easing inflationary pressures (but not something to completely reject as an option). Our baseline is for a continued dovish tone, but unless they come across even more dovish than before, the recent stretched downside in the GBP could offer some short-term relief higher.
by thunderpips
EURGBP looking up? 🦐EURGBP on the daily chart after the perfect test of the monthly support sharply inverted the trend and is now breaking the descending trendline. I can see the price testing the daily resistance and possibly breaking above. How can we approach this scenario? Being Friday might be risky to open a position in the US session but i will monitor the market to check a possible break above the 0.84250 area. In that case i will move on the 4h timeframe to check for a potential entry according to the Plancton's strategy rules. ––––– Follow the Shrimp 🦐 Keep in mind. 🟣 Purple structure -> Monthly structure. 🔴 Red structure -> Weekly structure. 🔵 Blue structure -> Daily structure. 🟡 Yellow structure -> 4h structure. ⚫️ Black structure -> <4h structure. Here is the Plancton0618 technical analysis , please comment below if you have any question. The ENTRY in the market will be taken only if the condition of the Plancton0618 strategy will trigger.
Long
by InkyGrip
2
EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics Even though the EUR, through Western sanctions, have dodged potential weakness from the CBR selling the EUR to prop up the RUB, the single currency was not immune for long. It held up okay on Monday and Tuesday, but as proximity risk to the war and economic risk as a result of sanctions grew, the risk premium ballooned, sending EUR risk reversals tanking lower while implied volatility jolted higher. With very big moves lower already, chasing the lows aren’t very attractive, but picking bottoms is equally dangerous. 4. CFTC Analysis Last week we looked at the big amount of bullish sentiment built up for the EUR over the past 3 months, and we think a lot of those new bulls were caught with their pants down the past week, forcing huge capitulations as the EUR went into free fall across the board. Keep in mind the release date of the COT data means this week’s release won’t show the extent of unwinding until next week, so flying blind is an understatement here. 5. The Week Ahead The ECB will be the main scheduled risk event for the EUR this week, alongside further unscheduled war news of course. For the ECB, there is not a lot of conviction that the bank will announce a policy recalibration at this week’s meeting. Even though the latest HICP saw yet another bigger-than-expected jolt higher, the geopolitical situation adds a lot of risk. With three separate ECB members (Stournaras, Centeno, Rehn) specifically mentioning stagflation as a growing risk, that shows us that the focus has shifted for some. However, the bank will have a really tough time this week as they will need to juggle between trying to downplay tightening financial conditions in the midst of a potentially big hit to the economy, while also trying to convince markets that they will sort out the current inflation challenge (with ECB’s Lane saying staff economic projections were revised in order to take the Russian invasion into account). On the Russia/Ukraine side, the market priced in a ton of risk premium last week, with EUR risk reversals falling off a cliff and reaching levels last seen during the Covid crash in 2020 and the EU sovereign debt crisis in 2012. With so much bad news priced in the EUR might struggle to continue its move lower without really substantial bad news, but at the same time with the big risk premium any good news could see exacerbated upside. GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April ( prev . 6.0%) & 5.21% in 1-year ( prev . 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation . Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Even though recent data started to look more constructive for Sterling from a sentiment point of view, the CFTC data remains a mix bag with no clear consensus view, and nothing really stretched by any means. Interestingly, it seems like Leveraged Funds chose the worse time to move GBP into the biggest net long as the currency took a really big knock last week alongside the EUR. 5. The Week Ahead It’s a very light week on the data front for Sterling with no major data points to watch out for. That means that the biggest focus for the Pound will fall to the ongoing geopolitical uncertainty. Given their proximity to the actual war front, as well as the direct impact of sanctions on their economies, the EUR and GBP saw some very sizeable downside last week. Comparing implied volatility across the G10, the moves higher in the EUR and GBP were worrisome spikes as risk premiums continued to build. This has added another layer of risk on to Sterling, with the BoE’s recent dovish tone already causing some downside risk before the geopolitical risks came into focus. As always, we need to keep price action in mind, and with the amount of downside priced into currencies like the GBP and EUR in such a short space of time, we do want to be mindful of some mean reversion at some stage.
by thunderpips
2
EURGBP testing a monthly support 🦐EURGBP on the 4h chart is currently testing the strong support area at the 0.83000 level. The price after a false breakout of the confluence between the structure and the weekly descending trendline retraced at the 0.618 Fibonacci level. How can we approach this scenario? The increasing volatility can provide some unexpected moves, especially in the areas of a strong structure. We will monitor the price for a possible new break below the area and in that case, we will look for the Plancton academy rules and set a nice short order. ––––– Follow the Shrimp 🦐 Keep in mind. 🟣 Purple structure -> Monthly structure. 🔴 Red structure -> Weekly structure. 🔵 Blue structure -> Daily structure. 🟡 Yellow structure -> 4h structure. ⚫️ Black structure -> <4h structure. Here is the Plancton0618 technical analysis , please comment below if you have any question. The ENTRY in the market will be taken only if the condition of the Plancton0618 strategy will trigger.
Short
by InkyGrip
EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics Even though the EUR, through Western sanctions, have dodged potential weakness from the CBR selling the EUR to prop up the RUB, the single currency was not immune for long. It held up okay on Monday and Tuesday, but as proximity risk to the war and economic risk as a result of sanctions grew, the risk premium ballooned, sending EUR risk reversals tanking lower while implied volatility jolted higher. With very big moves lower already, chasing the lows aren’t very attractive, but picking bottoms is equally dangerous. 4. CFTC Analysis Last week we looked at the big amount of bullish sentiment built up for the EUR over the past 3 months, and we think a lot of those new bulls were caught with their pants down the past week, forcing huge capitulations as the EUR went into free fall across the board. Keep in mind the release date of the COT data means this week’s release won’t show the extent of unwinding until next week, so flying blind is an understatement here. 5. The Week Ahead The ECB will be the main scheduled risk event for the EUR this week, alongside further unscheduled war news of course. For the ECB, there is not a lot of conviction that the bank will announce a policy recalibration at this week’s meeting. Even though the latest HICP saw yet another bigger-than-expected jolt higher, the geopolitical situation adds a lot of risk. With three separate ECB members (Stournaras, Centeno, Rehn) specifically mentioning stagflation as a growing risk, that shows us that the focus has shifted for some. However, the bank will have a really tough time this week as they will need to juggle between trying to downplay tightening financial conditions in the midst of a potentially big hit to the economy, while also trying to convince markets that they will sort out the current inflation challenge (with ECB’s Lane saying staff economic projections were revised in order to take the Russian invasion into account). On the Russia/Ukraine side, the market priced in a ton of risk premium last week, with EUR risk reversals falling off a cliff and reaching levels last seen during the Covid crash in 2020 and the EU sovereign debt crisis in 2012. With so much bad news priced in the EUR might struggle to continue its move lower without really substantial bad news, but at the same time with the big risk premium any good news could see exacerbated upside. GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April (prev. 6.0%) & 5.21% in 1-year (prev. 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation. Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Even though recent data started to look more constructive for Sterling from a sentiment point of view, the CFTC data remains a mix bag with no clear consensus view, and nothing really stretched by any means. Interestingly, it seems like Leveraged Funds chose the worse time to move GBP into the biggest net long as the currency took a really big knock last week alongside the EUR. 5. The Week Ahead It’s a very light week on the data front for Sterling with no major data points to watch out for. That means that the biggest focus for the Pound will fall to the ongoing geopolitical uncertainty. Given their proximity to the actual war front, as well as the direct impact of sanctions on their economies, the EUR and GBP saw some very sizeable downside last week. Comparing implied volatility across the G10, the moves higher in the EUR and GBP were worrisome spikes as risk premiums continued to build. This has added another layer of risk on to Sterling, with the BoE’s recent dovish tone already causing some downside risk before the geopolitical risks came into focus. As always, we need to keep price action in mind, and with the amount of downside priced into currencies like the GBP and EUR in such a short space of time, we do want to be mindful of some mean reversion at some stage.
by thunderpips
Today’s Notable Sentiment ShiftsEUR – The euro extended recent declines and hit its lowest since 2016 against GBP on Thursday as investors became increasingly concerned about the impact of rising oil prices following Russia’s invasion of Ukraine. Commenting on the rise in oil prices, Wester Union noted that “the Ukraine crisis has really lit a fire under oil, and we’re showing how that’s really becoming a source of significant weakness for the euro and a major source of strength for commodity currencies.”
by thunderpips
1
EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Geopolitics The Russian invasion of Ukraine opens up a lot of uncertainty for the EUR. On one hand, the decision to ban certain Russian banks from SWIFT was expected to impact the EU negatively, but the decision to freeze CBR assets means the expected FX reserve sales of Euros (to try and prop up the RUB) might not happen. The other consideration is energy, with the SWIFT bans, any restrictions on energy sales from Russia would put pressure on already high inflation and increases stagflation risks of higher inflation but falling growth. That does cloud the med-term outlook for the EUR and means we are happy to hold onto a neutral bias for now. 4. CFTC Analysis Participants are building into EUR longs. Large specs have seen 9/10 week of net increases in longs, asset managers have seen 10/12 weeks of net increase in longs and leveraged funds have reduced net shorts for 11 weeks in a row now. It’s safe to say that the sentiment for the EUR has improved given positioning data. However, the risk here is also that a lot of new bullish sentiment could have built up at the wrong time. 5. The Week Ahead It’ll be a difficult juggle for the EUR next week amid very important econ data and geopolitics. Monday’s open can be messy, as further sanctions on Russia over the weekend is a negative for the EUR but freezing assets from the CBR could mean less chance of dumping EUR reserves to prop up the RUB. Also keep USD liquidity squeezes in mind as a big drain on USD liquidity could see the Fed opening up swaps and could end up pressuring the USD & supporting the EUR. On the data side there will be a lot of focus on Wednesday’s HICP print. The upward surprise in Jan’s HICP was enough to see unanimous concern among the GC according to Pres Lagarde. This past week, ECB’s Lane said the Ukraine crisis presents a big risk to much higher inflation for 2022, and that comes amid already much steeper upwards projections to staff forecasts. Thus, an upward surprise to this week’s data would put more pressure on the ECB to go ahead with a possible policy recalibration at the upcoming March meeting and should be a positive input for the EUR (despite the geopolitical risks). Market implied rate expectations have dropped to just above 30bsp, which means an upside surprise in price pressures can spark some higher repricing. With so many negatives priced into the EUR over the past few months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. GBP FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April ( prev . 6.0%) & 5.21% in 1-year ( prev . 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation . Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces stagflation risk, as price pressures stay sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower, inflation stay sticky, or the BoE continue to push their recent dovish tone. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis Even though recent data started to look more constructive for Sterling from a sentiment point of view, the CFTC data remains a mix bag with no clear consensus view, and nothing really stretched by any means. 5. The Week Ahead The past week, our expectations for downside risks for Sterling materialized amid geopolitical risks but the bigger focus for us was the BoE’s hearing where the MPC struck a similar dovish tone like we saw during the press conference of the February policy decision. With close to 6 hikes already priced (possible peak hawkishness scenario), and growth expected to slow, and the BoE looking to stick to their recent dovish tones, that means the med-term risks for downside has become greater than that of further upside, and as a result we have decided to shift our currency bias to neutral from weak bullish . In the week ahead, there is very little important data on the schedule, but we do have speeches from BoE’s Saunders and Mann to watch out for. Apart from that, the ongoing geopolitical situation will be important to watch as last week’s sanctions saw outsized pressure on Sterling compared to the likes of the EUR. However, if the RUB sees enough downside and sparks deeper financial stability concerns then all European currencies are expected to be sensitive to the fallout and something to remember for the week ahead.
by thunderpips
EURGBP an unbeatable bear? 🦐EURGBP on the daily chart is currently testing the string support area at the 0.83000 level. The price after a few test over the confluence between the structure and the weekly descending trendline retraced at the 0.618 Fibonacci level and tested a daily resistance level before turning again to the support. How can we approach this scenario? The increasing volatility can provide some false breakout, especially in the areas of a strong structure. We will monitor the price for a possible break below the area and in that case, we will move on the 4h timeframe to look for the Plancton academy rules and set a nice short order. ––––– Follow the Shrimp 🦐 Keep in mind. 🟣 Purple structure -> Monthly structure. 🔴 Red structure -> Weekly structure. 🔵 Blue structure -> Daily structure. 🟡 Yellow structure -> 4h structure. ⚫️ Black structure -> <4h structure. Here is the Plancton0618 technical analysis , please comment below if you have any question. The ENTRY in the market will be taken only if the condition of the Plancton0618 strategy will trigger.
Short
by InkyGrip
EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish sums up the ECB’s Feb decision. The initial statement was in line with Dec guidance and offered verylittle surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the nearterm and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Funding Characteristics As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially against high yielding EM. As more central banks start normalizing policy and rate differentials widen, the EUR’s use as a funding currency could add additional pressure in the med-term , but if rates start moving closer to 0% in line with rate expectations that could change some of that funding attractiveness. 4. CFTC Analysis It looks like the sentiment for the EUR has not only changed for large speculators or asset managers (both hold net-longs), but the past week’s data has also showed a reduction in net-short for leveraged funds as well. We think there is more room for the EUR to gain if the ECB makes a policy pivot in March, until then we’re patient. 5. The Week Ahead Very quiet week on the data side for the EUR with Markit Flash PMI’s on Monday the only real highlight. It’s been a while since PMI data has been market-moving for the EUR, but after the ECB’s Feb meeting and the focus on a possible policy recalibration at the March meeting the incoming data will carry more weight. The bigger focus will of course be on the incoming HICP print on March 2nd. Turing to the PMI’s, it might not be enough to fully convince markets of what decision the ECB will take at their March meeting, but a very solid beat across the board can be enough to spark some short-term upside in the EUR after the ECB’s recent comments as well as ongoing Russia/Ukraine tensions have weighed on the single currency. With so many negatives priced into the EUR over the past couple of months, we still hold to the view that the EUR could perform well relative to the USD and GBP if the ECB tilts more hawkish as we’ve arguably been getting very close to a state of peak hawkishness for the Fed and BoE. So, a solid beat in both German and French flash PMI’s might be worth a potential short-term trade in the EUR, but as always lets wait for the data to confirm. The other factor to watch is the ongoing tensions between Russia and Ukraine, where the idea of possible military conflict on the doorstep has seen some risk premium built into the EUR this past week, and further escalation or de-escalation will be in focus for the EUR (escalation expected to pressure the EUR and deescalation expected to be supportive). GBP FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April (prev. 6.0%) & 5.21% in 1-year (prev. 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation. Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments Even though growth estimates for the UK remain on solid footing, not everyone shares that optimism (Refinitiv polling data). With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces a risk of stagflation, with inflation staying sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower and inflation data stay high or even accelerate from here. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis With the most recent CFTC data is seems like leveraged funds have once again added to their net-longs for the Pound, and this is also the 2nd week where asset managers have reduced net-shorts, and large speculators are in positive territory. It seems sentiment is improving based on the recent positioning data alone. 5. The Week Ahead Very quiet data week scheduled for the GBP. The one event to watch though, and one that we think carries some downside risks to it is the Monetary Policy Report Hearings coming up on Wednesday. During these hearings the Governor and members of the MPC testify before the Treasury Committee. The Fed’s tone after the Feb policy decision means there is some downside risk to Sterling going into the hearing. Recall that Sterling struggled to maintain upside following the decision, despite seeing 4 of the 9 members voting for a 50bsp hike and despite big upgrades to the inflation outlook. The reason for this was the clear dovish tone exhibit by the Governor and Deputy Governor during the press conference, where they clearly tried to downplay the hawkish elements and stressed that their decision to hike rates was not based on the economy doing really well but rather because they think action was required to push inflation lower. With STIR markets pricing in close to 6 hikes for the BoE for the rest of the year, any further dovish push back from the bank during the hearing can see some of that froth priced out and can weigh on Sterling and gilt yields. We’ll be looking for any specific mention and push back against the current market implied rate path, and also for any potential clarity regarding the balance sheet with Chief Economist Pill recently saying the option to start selling gilts outright (QT) is not a done deal and is still a point of consideration. Thus, given the tone used at the presser as well as recent comments from the likes of Pill means there is downside risk for GBP going into the hearing.
by thunderpips
1
EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy Hawkish! This sums up the Feb ECB policy meeting. The initial statement was in line with Dec guidance and offered very little surprises (which was initially seen as dovish). However, during the press conference President Lagarde explained that the upside surprises in CPI in Dec and Jan saw unanimous concern around the GC in the near-term and surprised markets by not repeating Dec language which said a 2022 rate hike was unlikely (which immediately saw STIR markets price in a 10bsp hike as soon as June). The president also made the March meeting live, by stating that they’ll use the March meeting to decide what the APP will look like for the rest of 2022 (which markets took as a signal that the APP could conclude somewhere in 2H22. After the meeting we had the customary sources comments which stated that the ECB is preparing for a potential policy recalibration in March (with some members wanting to change policy at today’s meeting already) and added that it is sensible not to exclude a 2022 hike as a possibility and also stated that the ECB is considering possibly ending the APP at the end of Q3 (which would put a Q4 hike in play). Furthermore, sources stated that if inflation does not ease, they’ll consider adjusting policy in March (which means incoming inflation data will be critical). The shift is stance and tone were significant for us to change the bank’s overall policy stance to neutral and to adjust the EUR’s fundamental bias from dovish to neutral as well. Incoming inflation data will be key from here. 2. Economic & Health Developments Recent activity data suggests the hit from lockdowns weren’t as bad as feared, the Omicron restrictions weighed on growth. Differentials still favour the US and UK above the EZ. The big focus though is on the incoming inflation data after the ECB’s recent hawkish pivot at their Feb meeting. On the fiscal front, attention is on ongoing discussions to potentially allow purchases of ‘green bonds’ NOT to count against budget deficits. If approved, this can drastically change the fiscal landscape and would be a positive for the EUR and EU equities. 3. Funding Characteristics As a low yielder (like JPY & CHF), the EUR has been a funding choice among carry trades, especially against high yielding EM. As more central banks start normalizing policy and rate differentials widen, the EUR’s use as a funding currency could add additional pressure in the med-term, but if rates start moving closer to 0% in line with rate expectations that could change some of that funding attractiveness. 4. CFTC Analysis The big gain in large speculator net-longs was mostly belated upside from the Feb ECB meeting as the reference weeks was only included in Friday’s update. Even though we think the number of negatives priced for the EUR can still see some upside, the corroborated comments from various ECB members to push back against the market’s hawkish take did take us out of our remaining EURGBP long and means we are staying patient with the EUR until we get more clarity on the data front or additional hawkish comments from the ECB. 5. The Week Ahead Very quiet week ahead on the data front for the Eurozone with German ZEW data the only data point of note. After the ECB’s Feb meeting, we’ve had both President Lagarde and ECB’s Villeroy trying to reign in some of the aggressive moves in European bond yields. Even though their push back against the market’s hawkish interpretation of the Feb press conference, we can see STIR markets are still comfortable in pricing in 50bsp of tightening for the ECB by year-end. Thus, even though the EUR caught some downside as a result of the push back, as long as market expectations for rate hikes and a possible March policy recalibration remains intact, that should put a short-term floor under the EUR, at least until we get the next batch of HICP data on the 2nd of March. This also means that incoming ECB speak in the week ahead will probably be the most important driver, with further hawkish comments arguably being able to see outsized moves in the EUR as opposed to dovish comments. GBP FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy Hawkish surprise with a hint of dovish undertones sums up the Feb BoE decision. The bank announced the start of passive QT and hiked rates by 25bsp as expected, but the vote split was unanimous (9-0) but with a big hawkish surprise being 4 MPC members voting for a 50bsp hike. Inflation forecasts saw a big upward revision to a 7.25% peak by April ( prev . 6.0%) & 5.21% in 1-year ( prev . 3.40%). This initial hawkish statement saw immediate strength for GBP but during the press conference the BoE tried their best to get a dovish landing. Gov Bailey started his opening remarks by noting that the MPC’s decision to hike was not because the economy was strong but only because higher rates were necessary to return inflation to target, and even though he opened the door for further hikes he added that markets should not assume rates are on a long march higher. He also acknowledged the stagflation fears recently voiced by some market participants by saying that policy faces a trade-off between weakening growth and higher inflation . Despite the dovish nuances, STIR markets still price an implied cash rate of 1.0% by May which would mean a 25bsp in both March and May (1.0% is the level the BoE previously said they would being outright Gilt selling). Overall, the statement was hawkish, but the clear dovish undertones from the BoE was a bit surprising and also a bit worrisome for the future outlook. 2. Economic & Health Developments Even though growth estimates for the UK remain on solid footing, not everyone shares that optimism (Refinitiv polling data). With inflation the main reason for the BoE’s recent rate hikes, there is a concern that the UK economy faces a risk of stagflation, with inflation staying sticky while growth decelerates. That also means that current market expectations for rates looks way too aggressive and means downside risks for GBP should growth data push lower and inflation data stay high or even accelerate from here. 3. Political Developments Domestic political uncertainty usually leads to higher risk premiumsfor GBP, so the fate of PM Johnson remains a focus. Fallout from the heavily redacted Sue Gray report was limited but with growing distrust from within his party the question remains whether a vote of no-confidence will happen (if so, that could see short-term downside), and then focus will be on whether the PM can survive an actual vote of no-confidence, where a win should be GBP positive and negative for GBP if he loses. The Northern Ireland protocol is still in focus with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have rightly ignored this as posturing, but any actual escalation can see sharp downside for GBP. 4. CFTC Analysis The confusion from last week’s COT data for Sterling has not been resolved with the recent print, showing a very sizeable increase in net-longs just as the GBP saw quite a jolt lower. With the recent ups and downs in CFTC data for Sterling it might be best not to make too much of the swings until they form a steady trend. 5. The Week Ahead In the UK we have an important batch of Jan data with jobs, CPI and retail sales. For jobs, the focus will fall predominantly on wages with the BoE voicing concerns that domestic cost pressures have been driven by a tight labour market. Thus, a big miss or beat in earnings can create short-term volatility for Sterling. For CPI , consensus expects the MM measures to contract while YY headline is expected flat and a slight increase for YY Core. It’s important to keep in mind that the BoE have projected a CPI peak of 7.25% in April and a print around 6% for Feb and March, which means it would take a number north of 6% to spark more concerns from the BoE. For Retail Sales, consensus expects a bounce in Jan of 0.6%, up from the dismal Dec print of -3.7%. Analysts point to a ‘post-Black Friday’ pullback and Omicron as the main culprits for the miss in Dec, which means a bounce in Jan should make sense if that was the case. With growing ‘stagflation’ concerns for the UK among market participants, a further miss would not bode well for the growth outlook.
by thunderpips
4