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GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mostly mixed signals from positioning data again, but with aggregate positioning still well below 1 standard dev from the 15-year mean GBP looks stretched. Even though the outlook for Sterling shifted to weak bearish from neutral, positioning means we are not too excited to chase the Pound lower from here. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy The BoJ kept all policy settings unchanged at their April meeting, which was in line with broad consensus expectations, but given the price action after the event did imply that a sizeable chunk of the market was expecting something more (us included). Due to the JPY weakness in recent weeks, markets wanted to see whether the bank would potentially increase their Yield Curve Control target band from 0.25%--0.25% to 0.50%--0.50%. But the bank decided to stick to their guns and maintain their ultra-easy policy despite the rapid depreciation of the JPY. The bank doubled down by saying they will conduct special open market operations on every working day as needed to keep the 10-year GBP capped at 0.25%. As expected, the bank reiterated their view that rates will stay low for the foreseeable future and won’t hesitate to add stimulus if the economy needs it. On the JPY, Gov Kuroda made familiar comments by saying they desire stable currency moves which reflect economic fundamentals. As a result of the bank’s inaction, all eyes will now be on the MoF to intervene if the rapid depreciation of the JPY continues. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is usually the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can affect the JPY in the short-term, safe-haven flows are typically more dominant. Even though the market’s overall risk tone saw a huge recovery and risk-on frenzy from the middle of 2020 to the end of 2021, recent developments have increased risks. With central banks tightening policy into an economic slowdown, risk appetite has soured. Even though that doesn’t change our med-term bias for the JPY, it does mean we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create strong directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in US yield differentials. Like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the market environment from both a risk and cycle point of view. With the Fed tilting more aggressive and targeting demand, we expect U10Y to push lower in weeks ahead (especially as inflation tops out). If that happens there could be mild upside risks for the JPY if US10Y corrects, but we shouldn’t look at that in isolation and also weigh it alongside risk sentiment and demand for the USD. 4. CFTC Analysis Another bullish signal from JPY positioning as net-shorts decreased across all three participants once again. With aggregate JPY positioning close to 2 standard deviationsfrom its 15-year mean, the risk to reward to chase the JPY lower from here is not very attractive. Last week saw some additional correction in JPY pairs, but without a more substantial reason for US10Y to push lower the attractiveness to buy the JPY is limited as well.
by thunderpips
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mostly mixed signals from positioning data again, but with aggregate positioning still well below 1 standard dev from the 15-year mean GBP looks stretched. Even though the outlook for Sterling shifted to weak bearish from neutral, positioning means we are not too excited to chase the Pound lower from here. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new med-term longs.
by thunderpips
Today’s Notable Sentiment ShiftsCAD/BoC – The Bank of Canada opened the door to a more aggressive pace of tightening at their June meeting, stating it was prepared to act “more forcefully” if needed to tame inflation, even as it went ahead with a historic second consecutive 50-basis-point rate hike, taking the Overnight Rate to 1.5%. The BoC reasoned that “the risk of elevated inflation becoming entrenched has risen. The Bank will use its monetary policy tools to return inflation to target and keep inflation expectations well-anchored.” They added that rates could go above the 2%-3% neutral range for a period, if needed.
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GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mostly mixed signals from positioning data again, but with aggregate positioning still well below 1 standard dev from the 15-year mean GBP looks stretched. Even though the outlook for Sterling shifted to weak bearish from neutral, positioning means we are not too excited to chase the Pound lower from here. 5. The Week Ahead It will be an extremely light week ahead for Sterling with no tier 1 data point, but we also have UK bank holidays on Thursday and Friday as well. All of that means that there will be very little to drive Sterling this week and given the thinner liquidity and lower volume it could be a choppy week. Sterling’s med-term outlook remains weak bearish , but the currency has been stretched to the downside at the index level. That means we are not too keen on looking for opportunities to short the currency until we see some upside we can use to sell in to. Brexit will be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless of stretched positioning. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy The BoJ kept all policy settings unchanged at their April meeting, which was in line with broad consensus expectations, but given the price action after the event did imply that a sizeable chunk of the market was expecting something more (us included). Due to the JPY weakness in recent weeks, markets wanted to see whether the bank would potentially increase their Yield Curve Control target band from 0.25%--0.25% to 0.50%--0.50%. But the bank decided to stick to their guns and maintain their ultra-easy policy despite the rapid depreciation of the JPY. The bank doubled down by saying they will conduct special open market operations on every working day as needed to keep the 10-year GBP capped at 0.25%. As expected, the bank reiterated their view that rates will stay low for the foreseeable future and won’t hesitate to add stimulus if the economy needs it. On the JPY, Gov Kuroda made familiar comments by saying they desire stable currency moves which reflect economic fundamentals. As a result of the bank’s inaction, all eyes will now be on the MoF to intervene if the rapid depreciation of the JPY continues. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is usually the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can affect the JPY in the short-term, safe-haven flows are typically more dominant. Even though the market’s overall risk tone saw a huge recovery and risk-on frenzy from the middle of 2020 to the end of 2021, recent developments have increased risks. With central banks tightening policy into an economic slowdown, risk appetite has soured. Even though that doesn’t change our med-term bias for the JPY, it does mean we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create strong directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in US yield differentials. Like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the market environment from both a risk and cycle point of view. With the Fed tilting more aggressive and targeting demand, we expect U10Y to push lower in weeks ahead (especially as inflation tops out). If that happens there could be mild upside risks for the JPY if US10Y corrects, but we shouldn’t look at that in isolation and also weigh it alongside risk sentiment and demand for the USD. 4. CFTC Analysis Another bullish signal from JPY positioning as net-shorts decreased across all three participants once again. With aggregate JPY positioning close to 2 standard deviationsfrom its 15-year mean, the risk to reward to chase the JPY lower from here is not very attractive. Last week saw some additional correction in JPY pairs, but without a more substantial reason for US10Y to push lower the attractiveness to buy the JPY is limited as well. 5. The Week Ahead For the week ahead, the focus will remain on the key drivers which is US10Y and more recently risk sentiment. With CPI starting to inch higher in Japan, there have been some speculation that the BoJ could make a move on policy in the months ahead. Until last week majority of participants expected a bigger YCC target band to be the preferred policy option, but after BoJ Kuroda’s comments last week it seems like a possible rate hike does not seem out of the question anymore. Any further hawkish comments from the BoJ will be closely watched in the sessions ahead. Given the move in yield differentials and commodity prices, the JPY had very little safe haven appeal as US10Y was making fresh cycle highs, but as US10Y have started to slow its assent, we’ve seen some classic safe haven demand for the JPY in the past few weeks. This means, apart from the regular focus on US10Y, we’ll also be paying attention to any sharp moves in risk sentiment as well. Apart from that, eyes will also be on any jawboning from Japanese officials where the BoJ has placed the ball firmly in the MoF’s court to try and curb JPY depreciation. With the recent safe haven demand seeing some inflows into the JPY, as well as the hawkish comments from the BoJ, it seems like jawboning might not be around the corner.
by thunderpips
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mostly mixed signals from positioning data again, but with aggregate positioning still well below 1 standard dev from the 15-year mean GBP looks stretched. Even though the outlook for Sterling shifted to weak bearish from neutral, positioning means we are not too excited to chase the Pound lower from here. 5. The Week Ahead It will be an extremely light week ahead for Sterling with no tier 1 data point, but we also have UK bank holidays on Thursday and Friday as well. All of that means that there will be very little to drive Sterling this week and given the thinner liquidity and lower volume it could be a choppy week. Sterling’s med-term outlook remains weak bearish , but the currency has been stretched to the downside at the index level. That means we are not too keen on looking for opportunities to short the currency until we see some upside we can use to sell in to. Brexit will be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless of stretched positioning. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new med-term longs. 4. The Week Ahead For the week ahead the focus will fall on the latest PMI releases and of course Friday’s NFP. From the start of the year the USD has been mostly supported on bad data as markets were pricing in a global slowdown in growth. However, the USD’s reaction change, to economic data (negative data impacting the USD negatively) has been important. We think this could be a first step for markets to start pricing in higher probabilities of a less aggressive Fed if negative data continues to build. For the past few months, the labour market data has been solid, not showing the same type of slowing as we’ve seen in other parts of the economy. This should not be much of a surprise as labour data is usually considered as a lagging indicator, meaning that a slowdown in the economy will take longer to show up in the labour market. Even though the data has been solid, we’ve already heard from very big Tech giants like Microsoft , Amazon, Twitter and Facebook that they are planning to slowdown hiring. If the slowdown starts showing up in the labour market, it could add additional pressure on the USD and US10Y . A surprise miss could create some risk positive price action and some USD downside which could offer some attractive short-term opportunities. Risk sentiment will be important to watch after last week’s recovery in risk assets. On the other hand, if the recent risk positive price action runs out of steam, it should be supportive for the USD. For now, the USD is still looking tactically stretched, so we would prefer to look for some short-term downside on a big miss in US economic data as opposed to entering new med-term longs.
by thunderpips
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet. However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mostly mixed signals from positioning data again, but with aggregate positioning still well below 1 standard dev from the 15-year mean GBP looks stretched. Even though the outlook for Sterling shifted to weak bearish from neutral, positioning means we are not too excited to chase the Pound lower from here. 5. The Week Ahead It will be an extremely light week ahead for Sterling with no tier 1 data point, but we also have UK bank holidays on Thursday and Friday as well. All of that means that there will be very little to drive Sterling this week and given the thinner liquidity and lower volume it could be a choppy week. Sterling’s med-term outlook remains weak bearish, but the currency has been stretched to the downside at the index level. That means we are not too keen on looking for opportunities to short the currency until we see some upside we can use to sell in to. Brexit will be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless of stretched positioning. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn (MBS) and pushing it up to the expected $60bn (treasuries) and $35bn (MBS) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new med-term longs. 4. The Week Ahead For the week ahead the focus will fall on the latest PMI releases and of course Friday’s NFP. From the start of the year the USD has been mostly supported on bad data as markets were pricing in a global slowdown in growth. However, the USD’s reaction change, to economic data (negative data impacting the USD negatively) has been important. We think this could be a first step for markets to start pricing in higher probabilities of a less aggressive Fed if negative data continues to build. For the past few months, the labour market data has been solid, not showing the same type of slowing as we’ve seen in other parts of the economy. This should not be much of a surprise as labour data is usually considered as a lagging indicator, meaning that a slowdown in the economy will take longer to show up in the labour market. Even though the data has been solid, we’ve already heard from very big Tech giants like Microsoft, Amazon, Twitter and Facebook that they are planning to slowdown hiring. If the slowdown starts showing up in the labour market, it could add additional pressure on the USD and US10Y. A surprise miss could create some risk positive price action and some USD downside which could offer some attractive short-term opportunities. Risk sentiment will be important to watch after last week’s recovery in risk assets. On the other hand, if the recent risk positive price action runs out of steam, it should be supportive for the USD. For now, the USD is still looking tactically stretched, so we would prefer to look for some short-term downside on a big miss in US economic data as opposed to entering new med-term longs.
by thunderpips
2
GBP/USD -27/5/2022-• After breaking down from the yearly descending channel, which was a signal of a strong momentum down, the Pound has been rallying for a while • The pair is trading inside a rising wedge, a reversal bearish pattern • Buyers tested the lower trend line of the channel, which is a typical move after a breakdown and apparently they gave up • Looks like today is going to be a doji candle, which signals exhaustion of the buyers • Breakdown from the rising wedge is likely in the coming days/weeks supported but the uncertainty around the world + disappointment from the BOE with regards to the future rate hikes • A successful breakdown targets the support levels highlighted on the charts: 1.24, 1.233 and 1.2160 respectively
Short
by RamziAbouAbdallah-CMT
GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mixed signals from positioning, but aggregate positioning (large specs, leveraged funds & asset managers) is still below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy The BoJ kept all policy settings unchanged at their April meeting, which was in line with broad consensus expectations, but given the price action after the event did imply that a sizeable chunk of the market was expecting something more (us included). Due to the JPY weakness in recent weeks, markets wanted to see whether the bank would potentially increase their Yield Curve Control target band from 0.25%--0.25% to 0.50%--0.50%. But the bank decided to stick to their guns and maintain their ultra-easy policy despite the rapid depreciation of the JPY. The bank doubled down by saying they will conduct special open market operations on every working day as needed to keep the 10-year GBP capped at 0.25%. As expected, the bank reiterated their view that rates will stay low for the foreseeable future and won’t hesitate to add stimulus if the economy needs it. On the JPY, Gov Kuroda made familiar comments by saying they desire stable currency moves which reflect economic fundamentals. As a result of the bank’s inaction, all eyes will now be on the MoF to intervene if the rapid depreciation of the JPY continues. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is usually the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can affect the JPY in the short-term, safe-haven flows are typically more dominant. Even though the market’s overall risk tone saw a huge recovery and risk-on frenzy from the middle of 2020 to the end of 2021, recent developments have increased risks. With central banks tightening policy into an economic slowdown, risk appetite has soured. Even though that doesn’t change our med-term bias for the JPY, it does mean we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create strong directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in US yield differentials. Like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the market environment from both a risk and cycle point of view. With the Fed tilting more aggressive and targeting demand, we expect U10Y to push lower in weeks ahead (especially as inflation tops out). If that happens there could be mild upside risks for the JPY if US10Y corrects, but we shouldn’t look at that in isolation and also weigh it alongside risk sentiment and demand for the USD. 4. CFTC Analysis A bullish signal from JPY positioning as net-shorts decreased across all three participants. With aggregate JPY positioning still close to 2 standard deviations away from a 15-year mean, the risk to reward to chase the currency lower from here is not very attractive. Last week saw some additional correction in JPY pairs, but without a more substantial reason for US10Y to push lower the attractiveness to buy the JPY is limited.
by thunderpips
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mixed signals from positioning, but aggregate positioning (large specs, leveraged funds & asset managers) is still below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new longs with price at new cycle highs.
by thunderpips
Today’s Notable Sentiment ShiftsGBP – Sterling eventually strengthened on Thursday, with GBPUSD briefly touching its highest level in three weeks, with the UK government’s latest measures to help alleviate a cost of living crisis seen supporting the economy in the short term. Commenting on the UK’s announcement, Macro Hive stated, “this (package of measures) is a good thing for growth in the short-term, … The UK government has so far been very tight with the purse strings and this should make the BoE’s job of tightening a bit easier as it provides a bit of an offset to the cost of living crisis.”
by thunderpips
4
GBPUSD:Correction over?!GBPUSD Intraday - We look to Sell at 1.2632 (stop at 1.2756) Although the bulls are in control, the stalling positive momentum indicates a turnaround is possible. Daily signals for sentiment are at overbought extremes. This is negative for short term sentiment and we look to set shorts at good risk/reward levels for a further correction lower. The hourly chart technicals suggests further upside before the downtrend returns. Preferred trade is to sell into rallies. Our profit targets will be 1.2300 and 1.2210 Resistance: 1.2800 / 1.3000 / 1.3160 Support: 1.2210 / 1.2000 / 1.1500 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre.
Short
by VantageMarkets
GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mixed signals from positioning, but aggregate positioning (large specs, leveraged funds & asset managers) is still below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. 5. The Week Ahead After last week’s busy data schedule, the calendar is much lighter this week with flash PMIs the only real event of note for Sterling. Retail Sales was an interesting print for the UK. Even though there is very little to celebrate with a -4.9% YY print, all four measures printed much higher than expected. With Sterling still so tactically stretched to the downside, a surprising positive beat in PMIs could offer some tradable upside for Sterling in the short-term. Sterling’s med-term outlook remains weak bearish , but the currency has been stretched to the downside at the index level, and another positive surprise could offer attractive upside. That also means that we won’t be too interested in getting back on the long side of EURGBP just yet. Brexit will also be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless ofstretched positive for the Pound. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy The BoJ kept all policy settings unchanged at their April meeting, which was in line with broad consensus expectations, but given the price action after the event did imply that a sizeable chunk of the market was expecting something more (us included). Due to the JPY weakness in recent weeks, markets wanted to see whether the bank would potentially increase their Yield Curve Control target band from 0.25%--0.25% to 0.50%--0.50%. But the bank decided to stick to their guns and maintain their ultra-easy policy despite the rapid depreciation of the JPY. The bank doubled down by saying they will conduct special open market operations on every working day as needed to keep the 10-year GBP capped at 0.25%. As expected, the bank reiterated their view that rates will stay low for the foreseeable future and won’t hesitate to add stimulus if the economy needs it. On the JPY, Gov Kuroda made familiar comments by saying they desire stable currency moves which reflect economic fundamentals. As a result of the bank’s inaction, all eyes will now be on the MoF to intervene if the rapid depreciation of the JPY continues. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is usually the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can affect the JPY in the short-term, safe-haven flows are typically more dominant. Even though the market’s overall risk tone saw a huge recovery and risk-on frenzy from the middle of 2020 to the end of 2021, recent developments have increased risks. With central banks tightening policy into an economic slowdown, risk appetite has soured. Even though that doesn’t change our med-term bias for the JPY, it does mean we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create strong directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in US yield differentials. Like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the market environment from both a risk and cycle point of view. With the Fed tilting more aggressive and targeting demand, we expect U10Y to push lower in weeks ahead (especially as inflation tops out). If that happens there could be mild upside risks for the JPY if US10Y corrects, but we shouldn’t look at that in isolation and also weigh it alongside risk sentiment and demand for the USD. 4. CFTC Analysis A bullish signal from JPY positioning as net-shorts decreased across all three participants. With aggregate JPY positioning still close to 2 standard deviations away from a 15-year mean, the risk to reward to chase the currency lower from here is not very attractive. Last week saw some additional correction in JPY pairs, but without a more substantial reason for US10Y to push lower the attractiveness to buy the JPY is limited. 5. The Week Ahead For the week ahead, the focus will remain on the key drivers which is US10Y and more recently risk sentiment, but CPI data could also be interesting. With CPI starting to inch higher in Japan, there have been some speculation that the BoJ could make a move on policy in the months ahead. Rate hikes seems out of the question at this stage but extending the yield curve control range would make sense. JP10Y have been staying very close to the upper range at 0.25%, and a higher-than-expected CPI print could put more pressure on the BoJ to act. Given the move in yield differentials and commodity prices, the JPY had very little safe haven appeal over recent weeks, but that was not the case in the past few weeks where we saw some classic safe haven demand for the JPY. This means, apart from the regular focus on US10Y , we’ll also be paying attention to any sharp moves in risk sentiment. Apart from that, eyes will also be on any jawboning from Japanese officials where the BoJ has placed the ball firmly in the MoF’s court to try and curb JPY depreciation. With the recent safe haven demand seeing some inflows into the JPY, that might give Japanese officials some solace and could mean more patience from their side regarding recent JPY weakness.
by thunderpips
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mixed signals from positioning, but aggregate positioning (large specs, leveraged funds & asset managers) is still below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. 5. The Week Ahead After last week’s busy data schedule, the calendar is much lighter this week with flash PMIs the only real event of note for Sterling. Retail Sales was an interesting print for the UK. Even though there is very little to celebrate with a -4.9% YY print, all four measures printed much higher than expected. With Sterling still so tactically stretched to the downside, a surprising positive beat in PMIs could offer some tradable upside for Sterling in the short-term. Sterling’s med-term outlook remains weak bearish , but the currency has been stretched to the downside at the index level, and another positive surprise could offer attractive upside. That also means that we won’t be too interested in getting back on the long side of EURGBP just yet. Brexit will also be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless ofstretched positive for the Pound. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new longs with price at new cycle highs. 4. The Week Ahead The USD had an interesting week, where negative data has seen a negative reaction to the USD. This was an important change as the USD has been mostly supported on bad data from the start of 2022 as markets were pricing in a global slowdown in growth. If this trend persists, and markets start pricing in higher probabilities of a less aggressive Fed on more negative data, that could spell some downside for the USD. That makes the Global S&P Flash PMI’s interesting for the USD in the week ahead. Apart from that, the week ahead is very light with the FOMC meeting minutes and Core PCE the main highlights. For the minutes, it’s unlikely that it provides new guidance after the huge amount of Fed speakers we’ve had after the meeting. For Core PCE , the print could be interesting for the USD. A surprise miss could create some risk positive price action and some USD downside which could offer some attractive short-term opportunities. Overall risk sentiment will be very important for the week ahead. Last week was a big capitulation week for risk and was further exacerbated by OpEx volatility . However, the strong recovery in risk assets, possibility driven by dealer and market-marker rebalancing was a promising sign. There is some speculation among analysts that the late-Friday push higher could mark the start of the next bear market going into Core PCE . Further risk off price action should be supportive for the USD, but as the USD is looking tactically stretched, we would prefer to look for some downside on any risk on catalysts.
by thunderpips
GBPUSD: Sterling highs capped!?GBPUSD Intraday - We look to Sell at 1.2637 (stop at 1.2760) Although the bulls are in control, the stalling positive momentum indicates a turnaround is possible. Daily signals for sentiment are at overbought extremes. This is negative for short term sentiment and we look to set shorts at good risk/reward levels for a further correction lower. The hourly chart technicals suggests further upside before the downtrend returns. Preferred trade is to sell into rallies. Our profit targets will be 1.2300 and 1.2210 Resistance: 1.2800 / 1.3000 / 1.3160 Support: 1.2210 / 1.2000 / 1.1500 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’). Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre
Short
by VantageMarkets
EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The ECB used the April meeting as a place holder meeting for the most part by not announcing any additional policy tweaks. The plans to phase out the APP into Q3 remained intact by reducing purchases from 40bln to 30bln in May and then down to 20bln in June. Markets were leaning towards a slightly more hawkish take from the bank (given recent inflation pressures), but the lack of conviction to remove the conditionality regarding the APP removal was seen as dovish. President Lagarde added to this dovish tone by explaining that Q3 has three months and IF the bank stops the APP, it could happen July, August or September. This was an important statement as the difference between a July and September end could mean the difference between a Q3 or Q4 rate hike. The president also added to the dovish tone by stressing that risks for the economic outlook are tilted to the downside and have recently intensified with geopolitical and virus-related challenges. When asked about policy normalization, the president made a strange comment by saying it is premature to think about monpol normalisation. As the bank is currently embarking on normalization this comment seemed out of place and reaffirmed the overall dovish take from the meeting. There were the usual sources releases after the presser which said policymakers see a July hike as still possible after Thursday's meeting, which provided some reprieve. With inflation >7% and growth slowing, the June meeting which accompanies staff economic projections will be critical for markets to solidify whether expectations of 1 or 2 hikes this year is correct or not. 2. Economic & Health Developments Growth differentials still favour the US over EU capital flows, but differentials have turned positive and remain positive against the UK. Given growing stagflation fears the ECB is in a tough spot, being forced to normalize policy to try and combat inflation but could as a result damage growth. Ongoing EU fiscal discussions to possibly allow ‘green bonds’ NOT to count against budget deficits remains in focus, alongside debt issuance for energy purchases. If approved, it will offer a flood of fiscal support which would be positive for the EUR and EU equities. 3. Geopolitics The EUR pushed lower aggressively after initial geopolitical scares but have been trying to carve out a base. Proximity to the war and the impact of sanctions remains a risk if the situation deteriorates. With lots of negatives already priced, chasing lows on bad news is not as attractive as chasing the EUR higher on good news. 4. CFTC Analysis Another bullish signal from recent positioning update as all three major categories saw net-long weekly changes. Price action has been constructive and seems like EURUSD is trying to carve out a base. Technically the momentum points lower but given how much bad news has been priced and recent hawkish ECB comments, we would prefer chasing longs on good news as opposed to chasing lower on bad news. 5. The Week Ahead Geopolitics, Flash PMI’s and risk sentiment will be key focus points for the EUR in the week ahead. If risk can stage some overdue recovery this week, the Dollar flows will be an important factor for the EUR. Any pullbacks in the DXY as a result of better risk sentiment should be supportive for the EUR and other majors. For the flash PMI’s, the question is whether the outlook from purchasing managers have been worse or better than expected. Any surprise beats in PMIs could offer the EUR a possible lift against the USD, especially after the recent hawkish ECB rhetoric and the fact that risk sentiment has been looking stretched on the bearish side. Geopolitics will also be eyed, both on the Russian and Brexit fronts. On the Russia side, it seems that most of the negativity from a possible oil embargo might have been priced, but any negative developments or retaliation from Russia against Finland and Sweden’s bid to join NATO can cause an increase in EUR risk premium and weigh on the single currency. For now, the increased threats of terminating the Brexit deal have been rightly seen as posturing, but if any side actually goes through with their recent threats that could open up a decent EURGBP buy opportunity. GBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet. However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mixed signals from positioning, but aggregate positioning (large specs, leveraged funds & asset managers) is still below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. 5. The Week Ahead After last week’s busy data schedule, the calendar is much lighter this week with flash PMIs the only real event of note for Sterling. Retail Sales was an interesting print for the UK. Even though there is very little to celebrate with a -4.9% YY print, all four measures printed much higher than expected. With Sterling still so tactically stretched to the downside, a surprising positive beat in PMIs could offer some tradable upside for Sterling in the short-term. Sterling’s med-term outlook remains weak bearish, but the currency has been stretched to the downside at the index level, and another positive surprise could offer attractive upside. That also means that we won’t be too interested in getting back on the long side of EURGBP just yet. Brexit will also be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless ofstretched positive for the Pound.
by thunderpips
1
GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet. However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mixed signals from positioning, but aggregate positioning (large specs, leveraged funds & asset managers) is still below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. 5. The Week Ahead After last week’s busy data schedule, the calendar is much lighter this week with flash PMIs the only real event of note for Sterling. Retail Sales was an interesting print for the UK. Even though there is very little to celebrate with a -4.9% YY print, all four measures printed much higher than expected. With Sterling still so tactically stretched to the downside, a surprising positive beat in PMIs could offer some tradable upside for Sterling in the short-term. Sterling’s med-term outlook remains weak bearish, but the currency has been stretched to the downside at the index level, and another positive surprise could offer attractive upside. That also means that we won’t be too interested in getting back on the long side of EURGBP just yet. Brexit will also be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless ofstretched positive for the Pound. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy The BoJ kept all policy settings unchanged at their April meeting, which was in line with broad consensus expectations, but given the price action after the event did imply that a sizeable chunk of the market was expecting something more (us included). Due to the JPY weakness in recent weeks, markets wanted to see whether the bank would potentially increase their Yield Curve Control target band from 0.25%--0.25% to 0.50%--0.50%. But the bank decided to stick to their guns and maintain their ultra-easy policy despite the rapid depreciation of the JPY. The bank doubled down by saying they will conduct special open market operations on every working day as needed to keep the 10-year GBP capped at 0.25%. As expected, the bank reiterated their view that rates will stay low for the foreseeable future and won’t hesitate to add stimulus if the economy needs it. On the JPY, Gov Kuroda made familiar comments by saying they desire stable currency moves which reflect economic fundamentals. As a result of the bank’s inaction, all eyes will now be on the MoF to intervene if the rapid depreciation of the JPY continues. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is usually the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can affect the JPY in the short-term, safe-haven flows are typically more dominant. Even though the market’s overall risk tone saw a huge recovery and risk-on frenzy from the middle of 2020 to the end of 2021, recent developments have increased risks. With central banks tightening policy into an economic slowdown, risk appetite has soured. Even though that doesn’t change our med-term bias for the JPY, it does mean we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create strong directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in US yield differentials. Like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the market environment from both a risk and cycle point of view. With the Fed tilting more aggressive and targeting demand, we expect U10Y to push lower in weeks ahead (especially as inflation tops out). If that happens there could be mild upside risks for the JPY if US10Y corrects, but we shouldn’t look at that in isolation and also weigh it alongside risk sentiment and demand for the USD. 4. CFTC Analysis A bullish signal from JPY positioning as net-shorts decreased across all three participants. With aggregate JPY positioning still close to 2 standard deviations away from a 15-year mean, the risk to reward to chase the currency lower from here is not very attractive. Last week saw some additional correction in JPY pairs, but without a more substantial reason for US10Y to push lower the attractiveness to buy the JPY is limited. 5. The Week Ahead For the week ahead, the focus will remain on the key drivers which is US10Y and more recently risk sentiment, but CPI data could also be interesting. With CPI starting to inch higher in Japan, there have been some speculation that the BoJ could make a move on policy in the months ahead. Rate hikes seems out of the question at this stage but extending the yield curve control range would make sense. JP10Y have been staying very close to the upper range at 0.25%, and a higher-than-expected CPI print could put more pressure on the BoJ to act. Given the move in yield differentials and commodity prices, the JPY had very little safe haven appeal over recent weeks, but that was not the case in the past few weeks where we saw some classic safe haven demand for the JPY. This means, apart from the regular focus on US10Y, we’ll also be paying attention to any sharp moves in risk sentiment. Apart from that, eyes will also be on any jawboning from Japanese officials where the BoJ has placed the ball firmly in the MoF’s court to try and curb JPY depreciation. With the recent safe haven demand seeing some inflows into the JPY, that might give Japanese officials some solace and could mean more patience from their side regarding recent JPY weakness.
by thunderpips
1
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet. However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Mixed signals from positioning, but aggregate positioning (large specs, leveraged funds & asset managers) is still below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. 5. The Week Ahead After last week’s busy data schedule, the calendar is much lighter this week with flash PMIs the only real event of note for Sterling. Retail Sales was an interesting print for the UK. Even though there is very little to celebrate with a -4.9% YY print, all four measures printed much higher than expected. With Sterling still so tactically stretched to the downside, a surprising positive beat in PMIs could offer some tradable upside for Sterling in the short-term. Sterling’s med-term outlook remains weak bearish, but the currency has been stretched to the downside at the index level, and another positive surprise could offer attractive upside. That also means that we won’t be too interested in getting back on the long side of EURGBP just yet. Brexit will also be in focus, where recent threats of terminating the Brexit deal has been rightly seen as posturing, but if any side goes through with their recent threats that could open up a decent EURGBP buy opportunity regardless ofstretched positive for the Pound. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn (MBS) and pushing it up to the expected $60bn (treasuries) and $35bn (MBS) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new longs with price at new cycle highs. 4. The Week Ahead The USD had an interesting week, where negative data has seen a negative reaction to the USD. This was an important change as the USD has been mostly supported on bad data from the start of 2022 as markets were pricing in a global slowdown in growth. If this trend persists, and markets start pricing in higher probabilities of a less aggressive Fed on more negative data, that could spell some downside for the USD. That makes the Global S&P Flash PMI’s interesting for the USD in the week ahead. Apart from that, the week ahead is very light with the FOMC meeting minutes and Core PCE the main highlights. For the minutes, it’s unlikely that it provides new guidance after the huge amount of Fed speakers we’ve had after the meeting. For Core PCE, the print could be interesting for the USD. A surprise miss could create some risk positive price action and some USD downside which could offer some attractive short-term opportunities. Overall risk sentiment will be very important for the week ahead. Last week was a big capitulation week for risk and was further exacerbated by OpEx volatility. However, the strong recovery in risk assets, possibility driven by dealer and market-marker rebalancing was a promising sign. There is some speculation among analysts that the late-Friday push higher could mark the start of the next bear market going into Core PCE. Further risk off price action should be supportive for the USD, but as the USD is looking tactically stretched, we would prefer to look for some downside on any risk on catalysts.
by thunderpips
GBPCHF:Flight to swiss safety?!GBPCHF Intraday - We look to Sell at 1.2251 (stop at 1.2324) Preferred trade is to sell into rallies. There is scope of mild buying but gains should be limited. A move higher faces tough resistance and we remain cautious on the upside potential Short term bias is mildly bearish. Our profit targets will be 1.2100 and 1.2050 Resistance: 1.2250 / 1.2300 / 1.2350 Support: 1.2150 / 1.2100 / 1.2050 Please be advised that the information presented on TradingView is provided to Vantage (‘Vantage Global Limited’, ‘we’) by a third-party provider (‘Signal Centre’) . Please be reminded that you are solely responsible for the trading decisions on your account. There is a very high degree of risk involved in trading. Any information and/or content is intended entirely for research, educational and informational purposes only and does not constitute investment or consultation advice or investment strategy. The information is not tailored to the investment needs of any specific person and therefore does not involve a consideration of any of the investment objectives, financial situation or needs of any viewer that may receive it. Kindly also note that past performance is not a reliable indicator of future results. Actual results may differ materially from those anticipated in forward-looking or past performance statements. We assume no liability as to the accuracy or completeness of any of the information and/or content provided herein and the Company cannot be held responsible for any omission, mistake nor for any loss or damage including without limitation to any loss of profit which may arise from reliance on any information supplied by Signal Centre.
Short
by VantageMarkets
2
EUR GBP - FUNDAMENTAL DRIVERSEUR FUNDAMENTAL BIAS: NEUTRAL 1. Monetary Policy The ECB used the April meeting as a place holder meeting for the most part by not announcing any additional policy tweaks. The plans to phase out the APP into Q3 remained intact by reducing purchases from 40bln to 30bln in May and then down to 20bln in June. Markets were leaning towards a slightly more hawkish take from the bank (given recent inflation pressures), but the lack of conviction to remove the conditionality regarding the APP removal was seen as dovish. President Lagarde added to this dovish tone by explaining that Q3 has three months and IF the bank stops the APP, it could happen July, August or September. This was an important statement as the difference between a July and September end could mean the difference between a Q3 or Q4 rate hike. The president also added to the dovish tone by stressing that risks for the economic outlook are tilted to the downside and have recently intensified with geopolitical and virus-related challenges. When asked about policy normalization, the president made a strange comment by saying it is premature to think about monpol normalisation. As the bank is currently embarking on normalization this comment seemed out of place and reaffirmed the overall dovish take from the meeting. There were the usual sources releases after the presser which said policymakers see a July hike as still possible after Thursday's meeting, which provided some reprieve. With inflation >7% and growth slowing, the June meeting which accompanies staff economic projections will be critical for markets to solidify whether expectations of 1 or 2 hikes this year is correct or not. 2. Economic & Health Developments Growth differentials still favour the US over EU capital flows, but differentials have turned positive and remain positive against the UK. Given growing stagflation fears the ECB is in a tough spot, being forced to normalize policy to try and combat inflation but could as a result damage growth. Ongoing EU fiscal discussions to possibly allow ‘green bonds’ NOT to count against budget deficits remains in focus, alongside debt issuance for energy purchases. If approved, it will offer a flood of fiscal support which would be positive for the EUR and EU equities. 3. Geopolitics The EUR pushed lower aggressively after initial geopolitical scares but have been trying to carve out a base. Proximity to the war and the impact of sanctions remains a risk if the situation deteriorates. With lots of negatives already priced, chasing lows on bad news is not as attractive as chasing the EUR higher on good news. 4. CFTC Analysis Very bullish signal from recent positioning update as all three major categories saw sizeable net-long weekly changes, especially for Large Specs and Asset Managers. But, looking at the price action it seems these participants increased long EUR exposure at the worst possible time with price dipping below key support at 1.05. Technically the momentum points lower but given how much bad news has been priced and recent hawkish ECB comments, we would prefer chasing long on good news as opposed to chasing lower on bad news. GBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Overall bearish signal as aggregate net-short positioning increased, pushing aggregate positioning (large specs, leveraged funds & asset managers) further below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from Neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. Not with both price action and positioning looking tactically stretched.
by thunderpips
1
GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Overall bearish signal as aggregate net-short positioning increased, pushing aggregate positioning (large specs, leveraged funds & asset managers) further below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from Neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. Not with both price action and positioning looking tactically stretched. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy The BoJ kept all policy settings unchanged at their April meeting, which was in line with broad consensus expectations, but given the price action after the event did imply that a sizeable chunk of the market was expecting something more (us included). Due to the JPY weakness in recent weeks, markets wanted to see whether the bank would potentially increase their Yield Curve Control target band from 0.25%--0.25% to 0.50%--0.50%. But the bank decided to stick to their guns and maintain their ultra-easy policy despite the rapid depreciation of the JPY. The bank doubled down by saying they will conduct special open market operations on every working day as needed to keep the 10-year GBP capped at 0.25%. As expected, the bank reiterated their view that rates will stay low for the foreseeable future and won’t hesitate to add stimulus if the economy needs it. On the JPY, Gov Kuroda made familiar comments by saying they desire stable currency moves which reflect economic fundamentals. As a result of the bank’s inaction, all eyes will now be on the MoF to intervene if the rapid depreciation of the JPY continues. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is usually the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can affect the JPY in the short-term, safe-haven flows are typically more dominant. Even though the market’s overall risk tone saw a huge recovery and risk-on frenzy from the middle of 2020 to the end of 2021, recent developments have increased risks. With central banks tightening policy into an economic slowdown, risk appetite has soured. Even though that doesn’t change our med-term bias for the JPY, it does mean we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create strong directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in US yield differentials. Like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the market environment from both a risk and cycle point of view. With the Fed tilting more aggressive and targeting demand, we expect U10Y to push lower in weeks ahead (especially as inflation tops out). If that happens there could be mild upside risks for the JPY if US10Y corrects, but we shouldn’t look at that in isolation and also weigh it alongside risk sentiment and demand for the USD. 4. CFTC Analysis Increase in Large Spec & Asset Manager net-shorts, but some reduction from Leveraged Fund net-shorts. With aggregate JPY positioning still close to 2 standard deviations away from a 15-year mean, the risk to reward to chase the currency lower from here is not very attractive. Last week saw some overdue correction in JPY pairs, but without a more substantial reason for US10Y to push lower the attractiveness to buy the JPY is limited.
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GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Overall bearish signal as aggregate net-short positioning increased, pushing aggregate positioning (large specs, leveraged funds & asset managers) further below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from Neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. Not with both price action and positioning looking tactically stretched. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy At the May meeting, the Fed delivered on hawkish expectations regarding rates by hiking the Fed Funds Rate by 50bsp and also confirmed that the committee expects further 50bsp hikes to be appropriate. The fed also stuck to a familiar hawkish tone by downplaying the prospects of an imminent recession by explaining that even though the economy contracted in Q1, that household spending and business investment remained strong. The Chair also stuck to their guns regarding the rate path by suggesting that they think reaching neutral (currently estimated at 2.4%) before year-end would be appropriate and will assess the need for further hikes when they get there. There were however some less hawkish elements which saw a very classic ‘sell-the-fact’ reaction in major asset classes. The first one was on the Quantitative Tightening front where the bank decided on a phased approach for balance sheet reduction by starting the monthly caps at 30bn (treasuries) and 17.5bn ( MBS ) and pushing it up to the expected $60bn (treasuries) and $35bn ( MBS ) over a three-month timeframe. The second less hawkish element was comments from Chair Powell who took 75bsp hikes off the table saying the committee was not actively considering rate moves of that size. Interestingly, it seems STIR markets did not really believe the Fed as the probability of a 75bsp hike stood at >70% directly following the presser. All-in-all, the meeting provided a short-term ‘sell-the-fact’ opportunity, but also cemented the view that despite signs of a slowing economy and despite clear stress in financial markets, the Fed is sticking to their aggressive tightening for now. 2. Global & Domestic Economy As the reserve currency, the USD’s global usage means it’s usually inversely correlated to the global economy and global trade. The USD usually appreciates when growth & inflation slows (disinflation) and depreciates when growth & inflation accelerates (reflation). Thus, current expectations of a cyclical slowdown are a positive driver for the Dollar. Incoming data will be watched in relation to the ‘Fed Put’ as there are many similarities between now and 4Q18, where the Fed were also tightened into a slowdown. If growth data slows and the Fed stays hawkish it’s a positive for the USD, however if the Fed pivots dovish that’ll be a negative driver for the USD. 3. CFTC Analysis Aggregate USD positioning remains close to 1 standard deviation above the mean, and close to prior tops where the USD topped out in previous cycles. That does not change the bullish outlook for the USD in the med-term but means that we would wait for pullbacks before initiating new longs with price at new cycle highs.
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GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BEARISH 1. Monetary Policy At their May meeting, the BoE delivered on expectations by raising the bank rate by 25bsp to 1.0%. There was an initial hawkish surprise as the vote split was 9-0 (no dissent from Cunliffe) and 3 of the 9 MPC members voted for a 50bsp move at the meeting. However, the hawkish reaction soon faded as it was also revealed that 2 of the 6 members who voted for a hike thought that this marked the end of the current hiking cycle. The dovishness didn’t stop there though as the BoE revised up their forecasts for peak inflation to >10% which added to the stagflation fears as the bank also saw possible GDP contraction in 2023. Furthermore, the bank took their first real stab at overly aggressive STIR pricing for the 2022 rate path by saying the current path would imply a big undershoot of their 2% inflation target in 2023 and was later backed up by Governor Bailey who said even though he thought rates should continue to rise he didn’t agree with those who think the MPC should be raising interest rates by a lot more. As the bank rate was raised to 1.0%, the markets expected some clarity from the bank on their plans to reduce the balance sheet . However, the bank decided to play for more time and said the bank will provide an update on their plans at the August meeting, pushing back expectations of active QT from Q2 to Q3. As a result of the overall dovish tone, Sterling fell to its lowest levels since 1Q21. The meeting confirmed market calls that the bank would look to hold rates steady after reaching 1.50%. 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 continues to look too aggressive even after the BoE’s recent push back. This means downside risks for GBP if growth data push lower and/or the BoE continue to push their recent dovish tone. 3. Political Developments Political uncertainty is usually GBP negative, so the PM’s future remains a risk. If distrust grows question remains on whether a no-confidence vote can happen (if so, short-term downside is likely), and whether he can survive the vote (a win should be GBP positive and a loss GBP negative). The Northern Ireland protocol remains a focus, with previous UK threats to trigger Article 16 and EU threats to terminate the Brexit deal if they do. Markets have rightly ignored this as posturing, but any actual escalation can see sharp GBP downside. 4. CFTC Analysis Overall bearish signal as aggregate net-short positioning increased, pushing aggregate positioning (large specs, leveraged funds & asset managers) further below 1 standard dev from the 15-year mean. Even though the outlook for Sterling shifted to weak bearish from Neutral following the recent BoE meeting, we don’t want to chase the GBP lower from here. Not with both price action and positioning looking tactically stretched. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy The BoJ kept all policy settings unchanged at their April meeting, which was in line with broad consensus expectations, but given the price action after the event did imply that a sizeable chunk of the market was expecting something more (us included). Due to the JPY weakness in recent weeks, markets wanted to see whether the bank would potentially increase their Yield Curve Control target band from 0.25%--0.25% to 0.50%--0.50%. But the bank decided to stick to their guns and maintain their ultra-easy policy despite the rapid depreciation of the JPY. The bank doubled down by saying they will conduct special open market operations on every working day as needed to keep the 10-year GBP capped at 0.25%. As expected, the bank reiterated their view that rates will stay low for the foreseeable future and won’t hesitate to add stimulus if the economy needs it. On the JPY, Gov Kuroda made familiar comments by saying they desire stable currency moves which reflect economic fundamentals. As a result of the bank’s inaction, all eyes will now be on the MoF to intervene if the rapid depreciation of the JPY continues. 2. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is usually the primary driver. Economic data rarely proves market moving, and although monetary policy expectations can affect the JPY in the short-term, safe-haven flows are typically more dominant. Even though the market’s overall risk tone saw a huge recovery and risk-on frenzy from the middle of 2020 to the end of 2021, recent developments have increased risks. With central banks tightening policy into an economic slowdown, risk appetite has soured. Even though that doesn’t change our med-term bias for the JPY, it does mean we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create strong directional moves in the JPY, as long as yields play their part. 3. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares a strong inverse correlation to moves in US yield differentials. Like most correlations, the strength of the inverse correlation between the JPY and US10Y isn’t perfect and will ebb and flow depending on the market environment from both a risk and cycle point of view. With the Fed tilting more aggressive and targeting demand, we expect U10Y to push lower in weeks ahead (especially as inflation tops out). If that happens there could be mild upside risks for the JPY if US10Y corrects, but we shouldn’t look at that in isolation and also weigh it alongside risk sentiment and demand for the USD. 4. CFTC Analysis Increase in Large Spec & Asset Manager net-shorts, but some reduction from Leveraged Fund net-shorts. With aggregate JPY positioning still close to 2 standard deviations away from a 15-year mean, the risk to reward to chase the currency lower from here is not very attractive. Last week saw some overdue correction in JPY pairs, but without a more substantial reason for US10Y to push lower the attractiveness to buy the JPY is limited.
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