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GBP CHF - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for both the doves and the hawks. The QE vote split was more dovish (7-1) with BoE’s Saunders the only dissenter, while upgrades to growth and inflation were positive, even though price pressures is still views as mostly ‘transitory’. Reasons for a patient stance was the uncertainty surrounding the virus at the time as well as waiting for the end of the furlough scheme to assess the impact on the labour market. Thus, the bank will be in wait-and-see mode until at least Oct or Nov. The other important change was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing its balance sheet . Market participants are mixed about what this means (it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other hand it means rates can stay lower for longer which is a negative). However, all in all the most important take away was the continued optimism about the economy despite virus uncertainty and comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies and has been a positive input for GBP. However, a lot of these positives are arguably already reflected in the price which means a continuation of the recent misses in economic data could make further solid gains more difficult for the GBP to maintain. The other factor to watch is potential tightening of the fiscal taps by the government with proposals of higher National Insurance taxes to fund the government’s planned social care overhaul. For now, this doesn’t change the med-term outlook, but if the proposed tax hikes are enough to see expectations of robust consumer spending being paired back that could be a strong med-term headwind for the Pound. 4. Political Developments Remember Brexit? Yeah, me neither, but recent rhetoric between the UK and EU hasn’t gone in a very positive direction with the UK side explaining to the EU that they are looking at all the options on the table (including article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 31 August) showed a positioning change of +1845 with a net non-commercial position of -14900. The recent flush lower in positioning means current levels for GBP still look attractive for med-term buyers. There are med-term risks on the horizon as we’ve explained above but we maintain med-term longs from 1.3700 and will look to add more incremental longs in the weeks ahead. CHF FUNDAMENTAL BIAS: BEARISH 1. Developments surrounding the global risk outlook. As a safe-haven currency, the market's risk outlook is the primary driver for the CHF. Swiss economic data rarely proves market moving; and although SNB intervention can have a substantial impact on CHF, its impact tends to be relatively short-lived. Additionally, the SNB are unlikely to adjust policy anytime soon, given their overall bearish tone and a preference for being behind the ECB in terms of policy decisions. The market's overall risk tone is improving with coronavirus vaccines being rolled out as well as the unprecedented amount of monetary policy accommodation and fiscal support from governments. Of course, risks remain as many countries are now battling third waves of the virus. As such, there is still a degree of uncertainty and risks to the overall risk outlook which could prove supportive for the CHF should negative factors for the global economy develop; however, on balance the overall risk outlook is continuing to improve and barring any major meltdowns in risk assets the bias for the CHF remains bearish . 2. SNB Intervention Despite the negative drivers, the CHF has remained surprisingly strong over the past couple of weeks. This divergence from the fundamental outlook doesn’t make much sense, but the CHF often has a mind of its own and can often move in opposite directions from what short-term sentiment or its fundamental outlook suggests, thus be careful when trading the CHF and always keep the possibility of SNB intervention in mind. In a recent note ING investment provided their rationale for the recent strength in the CHF and suggests that the lower inflation in Switzerland compared to the EU means the real trade-weighted CHF is trading too cheap. Furthermore, the ECB’s bond buying has meant that their balance sheet is expanding more rapidly compared to that of the SNB, which could have been reasons why the SNB did not see the need for any meaningful intervention lately. However, as intervention is always the possibility it’s a risk to always keep in mind when trading the CHF. 3. CFTC Analysis Latest CFTC data for the CHF (updated until 31 August) showed a positioning change of -119 with a net non-commercial position of +3975. The CHF positioning continued to unwind some of its recent surprising strength over the past few weeks. The CHF still the third largest net-long positioning among the majors, which is at odds with the current fundamental bearish outlook for the currency. At the current level of positioning, one has to argue that the CHF offers attractive levels to sell into, especially versus the NZD which will is expected to offer very attractive carry yield if the RBNZ moves ahead with their planned hike projections. However, there might have been idiosyncratic factors providing support for the CHF, and any drastic escalation in risk off tones could still continue to provide support for the safe-haven currency.
by thunderpips
7
GBP AUD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for both the doves and the hawks. The QE vote split was more dovish (7-1) with BoE’s Saunders the only dissenter, while upgrades to growth and inflation were positive, even though price pressures is still views as mostly ‘transitory’. Reasons for a patient stance was the uncertainty surrounding the virus at the time as well as waiting for the end of the furlough scheme to assess the impact on the labour market. Thus, the bank will be in wait-and-see mode until at least Oct or Nov. The other important change was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing its balance sheet . Market participants are mixed about what this means (it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other hand it means rates can stay lower for longer which is a negative). However, all in all the most important take away was the continued optimism about the economy despite virus uncertainty and comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies and has been a positive input for GBP. However, a lot of these positives are arguably already reflected in the price which means a continuation of the recent misses in economic data could make further solid gains more difficult for the GBP to maintain. The other factor to watch is potential tightening of the fiscal taps by the government with proposals of higher National Insurance taxes to fund the government’s planned social care overhaul. For now, this doesn’t change the med-term outlook, but if the proposed tax hikes are enough to see expectations of robust consumer spending being paired back that could be a strong med-term headwind for the Pound. 4. Political Developments Remember Brexit? Yeah, me neither, but recent rhetoric between the UK and EU hasn’t gone in a very positive direction with the UK side explaining to the EU that they are looking at all the options on the table (including article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 31 August) showed a positioning change of +1845 with a net non-commercial position of -14900. The recent flush lower in positioning means current levels for GBP still look attractive for med-term buyers. There are med-term risks on the horizon as we’ve explained above but we maintain med-term longs from 1.3700 and will look to add more incremental longs in the weeks ahead. AUD FUNDAMENTAL BIAS: NEUTRAL 1. The country’s economic and health developments There are three key factors that created recent uncertainty for Australia’s med-term outlook: The virus situation where most recent data have shown further increases in case numbers and no sign of restrictions lifting anytime soon. A Q3 GDP contraction is priced in and has pushed back tapering & hike expectations. Then there is China, where we’re watching the health of the economy after the slowdown has been bigger and faster than most had anticipated, also causing the PBoC to do a 0.5% RRR cut a few weeks ago. China is Australia’s biggest trade partner and the 2nd largest contributor to global GDP so it’s an important driver for AUD to keep on the radar. Politically, the risk of further tariffs and bans on Australian goods is also something to keep on the radar. Iron Ore is Australia’s biggest export (24%), and the almost 40% drop from YTD highs in the past few weeks is expected to negatively impact the country’s terms of trade. It’s true that the 19% rise in Coal prices (18% of exports) from the start of August has taken some of the sting out of the Iron Ore drop, but it’s not been enough to avoid a negative impact on overall terms of trade. 2. The Monetary Policy outlook for the RBA The RBA surprised markets with their previous meeting by not announcing a delay to their September tapering as most participants had expected. They kept their planned QE tapering of A$1bln in place for Sep until mid-Nov where they still plan to decide the future of their QE program. The meeting minutes pressured AUD this week as it showed that the board considered the case for delaying the tapering. This was interesting because the bank seemed content about the economic outlook during their statement. With the minutes showing that a possible delay in tapering was on the cards, attention turns to this week’s upcoming meeting where consensus expects the bank to announce a delay in their planned September tapering due to the escalation in the country’s virus situation. 3. Developments surrounding the global risk outlook. As a high-beta currency, AUD has benefited from the market's improving risk outlook over recent months as participants moved out of safehavens and into riskier, higher-yielding assets. As a pro-cyclical currency, the AUD enjoyed upside alongside other cyclical assets going into what majority of market participants think was an early post-recession recovery phase. As long as expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the AUD in the med-term, but the recent short-term jitters and risk off flows once again showed us why risk sentiment is also a very important short-term driver for the currency. 4. CFTC Analysis Latest CFTC data for the AUD (updated until 31 August) showed a positioning change of -3478 with a net non-commercial position of -60078. The AUD’s outperformance this week was mostly due to stretched net-shorts getting an overdue squeeze higher. The positive data and risk sentiment helped, but the moves were typical squeeze behaviour. Keep in mind that the bulk of the AUD’s upside took place from Wednesday, so the most recent CFTC data won’t reflect that. Thus expect a sizeable reduction in net-shorts with next week’s data.
by thunderpips
3
GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for both the doves and the hawks. The QE vote split was more dovish (7-1) with BoE’s Saunders the only dissenter, while upgrades to growth and inflation were positive, even though price pressures is still views as mostly ‘transitory’. Reasons for a patient stance was the uncertainty surrounding the virus at the time as well as waiting for the end of the furlough scheme to assess the impact on the labour market. Thus, the bank will be in wait-and-see mode until at least Oct or Nov. The other important change was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing its balance sheet . Market participants are mixed about what this means (it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other hand it means rates can stay lower for longer which is a negative). However, all in all the most important take away was the continued optimism about the economy despite virus uncertainty and comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies and has been a positive input for GBP. However, a lot of these positives are arguably already reflected in the price which means a continuation of the recent misses in economic data could make further solid gains more difficult for the GBP to maintain. The other factor to watch is potential tightening of the fiscal taps by the government with proposals of higher National Insurance taxes to fund the government’s planned social care overhaul. For now, this doesn’t change the med-term outlook, but if the proposed tax hikes are enough to see expectations of robust consumer spending being paired back that could be a strong med-term headwind for the Pound. 4. Political Developments Remember Brexit? Yeah, me neither, but recent rhetoric between the UK and EU hasn’t gone in a very positive direction with the UK side explaining to the EU that they are looking at all the options on the table (including article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 31 August) showed a positioning change of +1845 with a net non-commercial position of -14900. The recent flush lower in positioning means current levels for GBP still look attractive for med-term buyers. There are med-term risks on the horizon as we’ve explained above but we maintain med-term longs from 1.3700 and will look to add more incremental longs in the weeks ahead. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. The rangebound price action in US10Y from July has meant our conviction in JPY shorts has reduced versus the US Dollar , and until US10Y can convincingly break higher and take out it’s recent range highs we will stay more patient with USDJPY longs. 3. CFTC Analysis Latest CFTC data for the JPY (updated until 31 August) showed a positioning change of +3541 with a net non-commercial position of -63130. With positioning still the largest net-short among the majors we want to be careful of the risks going into September which is historically the worse performing month for equities. That alone doesn’t mean we are expecting equities to push lower but given the frothy price action over recent weeks (haven’t seen a 5% correction in the S&P500 in 11 months) as well as seasonality and the growing chorus of participants calling for a bigger correction, we don’t want to ignore the possibility of some increased volatility this month. That doesn’t mean we start buying the JPY of course, it just means that if we do see some jitters creeping in for risk assets it is expected to be positive for the JPY, and with the biggest net-short for the majors there is a lot of downside in the JPY that can be unwound in such a scenario.
by thunderpips
GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for both the doves and the hawks. The QE vote split was more dovish (7-1) with BoE’s Saunders the only dissenter, while upgrades to growth and inflation were positive, even though price pressures is still views as mostly ‘transitory’. Reasons for a patient stance was the uncertainty surrounding the virus at the time as well as waiting for the end of the furlough scheme to assess the impact on the labour market. Thus, the bank will be in wait-and-see mode until at least Oct or Nov. The other important change was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing its balance sheet. Market participants are mixed about what this means (it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other hand it means rates can stay lower for longer which is a negative). However, all in all the most important take away was the continued optimism about the economy despite virus uncertainty and comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies and has been a positive input for GBP. However, a lot of these positives are arguably already reflected in the price which means a continuation of the recent misses in economic data could make further solid gains more difficult for the GBP to maintain. The other factor to watch is potential tightening of the fiscal taps by the government with proposals of higher National Insurance taxes to fund the government’s planned social care overhaul. For now, this doesn’t change the med-term outlook, but if the proposed tax hikes are enough to see expectations of robust consumer spending being paired back that could be a strong med-term headwind for the Pound. 4. Political Developments Remember Brexit? Yeah, me neither, but recent rhetoric between the UK and EU hasn’t gone in a very positive direction with the UK side explaining to the EU that they are looking at all the options on the table (including article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 31 August) showed a positioning change of +1845 with a net non-commercial position of -14900. The recent flush lower in positioning means current levels for GBP still look attractive for med-term buyers. There are med-term risks on the horizon as we’ve explained above but we maintain med-term longs from 1.3700 and will look to add more incremental longs in the weeks ahead. USD FUNDAMENTAL BIAS: NEUTRAL 1. The global risk outlook. Global economic data continues to surprise lower and should continue to struggle to surprise to the upside after the pandemic rebound. As the USD usually moves inversely to global growth that should be supportive for the USD. 2. The Monetary Policy outlook for the FED In July the FOMC noted that the economy has made progress toward their goals, and they’ll continue to assess progress in coming meetings. They also took a more sanguine view of the virus situation by removing prior comments that sectors affected by the pandemic ‘remain weak but have shown improvement’ and instead replaced it with ‘sectors most affected by the pandemic have shown improvement but have not fully recovered’. This was initially seen as less dovish, but Powell used his usual dovish tone to correct any ‘hawkish’ takes by stressing that employment still has a ‘ways to go’ and noted that there was still "some ground to cover" when it comes to the labour market. He also reiterated that any decision to announce tapering will be done well in advance. For now, markets are looking at the incoming data to decide whether tapering will be announced at the Jackson Hole Symposium or in the fall. This past week we some interesting comments from Fed’s Waller who tilted their language and stance towards Bullard and Kaplan in expecting that two more solid employment prints (800K-1M) would mean substantial further progress has been met and tapering could then start at a faster pace. This was bullish for the USD, but the more important and market moving comments came from Fed’s Clarida who has seemingly moved into the Neutral camp (previously dovish) by saying he agrees with the median Fed projections of a first hike by early 2023 and more importantly his comments about inflation has moved away from the sanguine view expressed by the doves and is more concerned about current price pressures. This shift saw Dollar upside with all eyes on the Sep NFP to see whether markets will expect Sep or Dec to be the official tapering announcement meeting. 3. Real Yields Despite recent divergence between the USD and US real yields, we still think further downside in real yields will be a struggle so close to new cycle lows and that the probability is skewed higher given the outlook for growth, inflation and tapering and should be supportive for the USD. 4. Economic Data This week was all about NFP…where the miss showed just how difficult it’s been for economists to forecast where post-pandemic labour prints will land. Even though the headline NFP saw a monster miss (235K vs consensus of 750K), the data under the hood wasn’t all that bad with average earnings printing at 0.6% (above max forecasts), and the Unemployment rate still falling to 5.2% from 5.4% and participation staying flat at 61.7%. Thus, with the overall outcome being more of a mixed bag, the only thing the print has done is give the Fed time to kick the can down the road for another month. 5. CFTC Analysis Latest CFTC data for the USD (updated until 31 August) showed a positioning change of 328 with a net non-commercial position of +20690. For now, with the fundamental outlook still neutral, and with positioning at current levels the incoming data will remain the key driver for the USD’s short-term volatility, with Fed Speak and the upcoming CPI on Sep 14th and FOMC on the 22nd the main events to keep on the radar.
by thunderpips
GBP boiling upGBP has been in an intermediate downtrend for 5 months. You all know I am a strong believer in Elliott Wave theory. GBP has now painted and almost concluded a flat formation. This is the corrective wave after the 3rd impulsive wave we have witnessed until march 2020. You can appreciate all of these by following my guidelines in the chart. I am now expecting GBP to retrace one last time to around 1.366 before starting a good bullish rally. Different indicators such as Stoch RSI, RSI, KST, CMO are turning bullish, with the weekly looking prime. You can appreciate my targets level from this chart with 1.55 as a final target for the last impulsive wave (it will take months to reach this level). I will follow this chart with the 4h timeframe chart for the short term move. FOLLOW ME, SHARE, LIKE, and COMMENT
Long
by CFcryptoTA
GBP CHF - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact . The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet . Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -21396 with a net non-commercial position of -16745. The big push lower in positioning means current levels for GBP still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound two weeks ago, and this week’s flash PMI’s didn’t help either, but med-term outlook remains bullish and thus positioning attractive at these levels. CHF FUNDAMENTAL BIAS: BEARISH 1. Developments surrounding the global risk outlook. As a safe-haven currency, the market's risk outlook is the primary driver for the CHF. Swiss economic data rarely proves market moving; and although SNB intervention can have a substantial impact on CHF, its impact tends to be relatively short-lived. Additionally, the SNB are unlikely to adjust policy anytime soon, given their overall bearish tone and a preference for being behind the ECB in terms of policy decisions. The market's overall risk tone is improving with coronavirus vaccines being rolled out as well as the unprecedented amount of monetary policy accommodation and fiscal support from governments. Of course, risks remain as many countries are now battling third waves of the virus. As such, there is still a degree of uncertainty and risks to the overall risk outlook which could prove supportive for the CHF should negative factors for the global economy develop; however, on balance the overall risk outlook is continuing to improve and barring any major meltdowns in risk assets the bias for the CHF remains bearish . Despite the negative drivers, the CHF has remained surprisingly strong over the past couple of weeks. This divergence from the fundamental outlook doesn’t make much sense, but the CHF often has a mind of its own and can often move in opposite directions from what short-term sentiment or its fundamental outlook suggests, thus be careful when trading the CHF and always keep the possibility of SNB intervention in mind. In a recent note ING investment provided their rationale for the recent strength in the CHF and explained that the lower inflation in Switzerland compared to the EU means the real trade-weighted CHF is actually trading too cheap. Furthermore, the ECB’s bond buying has meant that their balance sheet is expanding more rapidly compared to that of the SNB, and without any meaningful FX intervention the CHF runs the risk of slowly creeping higher, especially versus the EUR. 2. CFTC Analysis Latest CFTC data for the CHF (updated until 17 August) showed a positioning change of -1543 with a net non-commercial position of +4094. The CHF positioning continued to unwind some of its recent surprising strength over the past few weeks. The CHF still the third largest net-long positioning among the majors, which is at odds with the current fundamental bearish outlook for the currency. At the current level of positioning, one has to argue that the CHF offers attractive levels to sell into, especially versus the NZD which will is expected to offer very attractive carry yield if the RBNZ moves ahead with their planned hike projections. However, there might have been idiosyncratic factors providing support for the CHF, and any drastic escalation in risk off tones could still continue to provide support for the safe-haven currency.
by thunderpips
3
GBP AUD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact . The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet . Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -21396 with a net non-commercial position of -16745. The big push lower in positioning means current levels for GBP still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound two weeks ago, and this week’s flash PMI’s didn’t help either, but med-term outlook remains bullish and thus positioning attractive at these levels. AUD FUNDAMENTAL BIAS: NEUTRAL 1. The country’s economic and health developments The key factors that have created uncertainty for the med-term outlook for the AUD are The virus situation rising cases prompted new lockdowns with the military being deployed in parts of the country to help reinforce lockdown rules. A Q3 contraction is largely expected and pushed back rate hike expectations to 2023. On the China front, we’re watching Iron Ore prices that have fell over 30% from their 2021 highs with China’s economic slowdown and attempts at reducing emissions by raising steel product tariffs touted as main drivers. As Iron Ore is almost 24% of Australia’s exports and over 80% of that goes to China it’s an important one to keep track of as further downside should negatively impact Australia’s terms of trade. Staying with China, the health of the Chinese economy is still in focus after the PBoC’s recent 0.5% RRR cut. The easing has raised concerns about a bigger-than-expected slowdown and as Australia’s biggest trade partner and the second largest contributor to global GDP it’s an important driver to keep on the radar. Politically, the risk of further tariffs and bans on Australian goods is also something to keep on the radar. 2. The Monetary Policy outlook for the RBA The RBA surprised markets with their previous meeting by not announcing a delay to their September tapering as most participants had expected. They kept their planned QE tapering of A$1bln in place for Sep until mid-Nov where they still plan to decide the future of their QE program. The meeting minutes pressured AUD this week as it showed that the board considered the case for delaying the tapering This was interesting because the bank seemed very content about the economic outlook during their statement. But the minutes showed that a possible delay was on the cards, and if they were already concerned at the meeting the recent escalation should provide even more angst and could still see a delay in the tapering taking place. 3. Developments surrounding the global risk outlook. As a high-beta currency, AUD has benefited from the market's improving risk outlook over recent months as participants moved out of safehavens and into riskier, higher-yielding assets. As a pro-cyclical currency, the AUD enjoyed upside alongside other cyclical assets going into what majority of market participants think was an early post-recession recovery phase. As long as expectations for the global economy remains positive the overall positive outlook for risk sentiment should be supportive for the AUD in the med-term, but the recent short-term jitters and risk off flows once again showed us why risk sentiment is also a very important short-term driver for the currency. 4. CFTC Analysis Latest CFTC data for the AUD (updated until 24 August) showed a positioning change of -6233 with a net non-commercial position of -56600. Another big reduction in net-shorts for the AUD, and even though our bias for the AUD remains neutral, the speed of the recent build up in net- short positioning is still looking stretched at 3.02 deviation on a 1-year lookback and a 2.10 deviation on a 6-month lookback, thus watch out for mean reversion squeezes higher on good news.
by thunderpips
GBP CHF - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact . The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet . Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic development s Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -21396 with a net non-commercial position of -16745. The big push lower in positioning means current levels for GBP still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound two weeks ago, and this week’s flash PMI’s didn’t help either, but med-term outlook remains bullish and thus positioning attractive at these levels. CHF FUNDAMENTAL BIAS: BEARISH 1. Developments surrounding the global risk outlook. As a safe-haven currency, the market's risk outlook is the primary driver for the CHF. Swiss economic data rarely proves market moving; and although SNB intervention can have a substantial impact on CHF, its impact tends to be relatively short-lived. Additionally, the SNB are unlikely to adjust policy anytime soon, given their overall bearish tone and a preference for being behind the ECB in terms of policy decisions. The market's overall risk tone is improving with coronavirus vaccines being rolled out as well as the unprecedented amount of monetary policy accommodation and fiscal support from governments. Of course, risks remain as many countries are now battling third waves of the virus. As such, there is still a degree of uncertainty and risks to the overall risk outlook which could prove supportive for the CHF should negative factors for the global economy develop; however, on balance the overall risk outlook is continuing to improve and barring any major meltdowns in risk assets the bias for the CHF remains bearish . Despite the negative drivers, the CHF has remained surprisingly strong over the past couple of weeks. This divergence from the fundamental outlook doesn’t make much sense, but the CHF often has a mind of its own and can often move in opposite directions from what short-term sentiment or its fundamental outlook suggests, thus be careful when trading the CHF and always keep the possibility of SNB intervention in mind. In a recent note ING investment provided their rationale for the recent strength in the CHF and explained that the lower inflation in Switzerland compared to the EU means the real trade-weighted CHF is actually trading too cheap. Furthermore, the ECB’s bond buying has meant that their balance sheet is expanding more rapidly compared to that of the SNB, and without any meaningful FX intervention the CHF runs the risk of slowly creeping higher, especially versus the EUR. 2. CFTC Analysis Latest CFTC data for the CHF (updated until 17 August) showed a positioning change of -1543 with a net non-commercial position of +4094. The CHF positioning continued to unwind some of its recent surprising strength over the past few weeks. The CHF still the third largest net-long positioning among the majors, which is at odds with the current fundamental bearish outlook for the currency. At the current level of positioning, one has to argue that the CHF offers attractive levels to sell into, especially versus the NZD which will is expected to offer very attractive carry yield if the RBNZ moves ahead with their planned hike projections. However, there might have been idiosyncratic factors providing support for the CHF, and any drastic escalation in risk off tones could still continue to provide support for the safe-haven currency.
by thunderpips
2
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -21396 with a net non-commercial position of -16745. The big push lower in positioning means current levels for GBP still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound two weeks ago, and this week’s flash PMI’s didn’t help either, but med-term outlook remains bullish and thus positioning attractive at these levels. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. 3. CFTC Analysis Latest CFTC data for the JPY (updated until 17 August) showed a positioning change of -3463 with a net non-commercial position of -66671. With positioning still the largest net-short among the majors we want to be very careful of the risks going into NFP next week. If NFP sparks concerns about potential faster tapering that could see risk assets push lower supporting the JPY as a safe haven. However, do keep the inverse correlation to US10Y in mind, because any expectations of faster tapering should support US10Y which should pressure the JPY.
by thunderpips
2
EURGBP: Preparing For The Next Move! Our Plan: 🇪🇺🇬🇧 EURGBP keeps being very bullish from 10th of August. Being bullish biased, I am looking for an opportunity to catch the next bullish wave. On focus is a double bottom formation on 4H. Its lows are lying on a daily support cluster. To buy with confirmation I will wait for its neckline breakout. 0.857 - 0.8575 is the zone that must be broken. Wait for a 4H candle close above that. Then buy aggressively or on a retest. Initial goal will be 0.8615 In case of a new lower low formation on 4H, the setup will be invalid. ❤️Please, support this idea with a like and comment!❤️
Long
by VasilyTrader
16
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact . The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet . Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 5. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -2419 with a net non-commercial position of +4651. The downside in the USD after the bad sentiment report wasn’t enough to see a further build in Sterling net-longs. Current levels for Sterling still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound and in the week ahead Monday’s flash PMI will be important. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. 3. CFTC Analysis Latest CFTC data for the JPY (updated until 17 August) showed a positioning change of -2551 with a net non-commercial position of -63208. The big net-short created some additional momentum to the upside for the JPY this week as risk sentiment soured and demand for safe havens rose. With positioning still the largest net-short among the majors we want to be very careful of the risks going into the Jackson Hole symposium next week. If the symposium doesn’t provide any hints of tapering though it could open up some opportunities in the battered currency pairs like NZDJPY and CADJPY etc.
by thunderpips
4
GBP USD BUY (POUND STERLING - US DOLLAR)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -2419 with a net non-commercial position of +4651. The downside in the USD after the bad sentiment report wasn’t enough to see a further build in Sterling net-longs. Current levels for Sterling still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound and in the week ahead Monday’s flash PMI will be important. USD FUNDAMENTAL BIAS: NEUTRAL 1. The global risk outlook. Global economic data continues to surprise lower and should continue to struggle to surprise to the upside after the pandemic rebound. As the USD usually moves inversely to global growth that should be supportive for the USD. 2. The Monetary Policy outlook for the FED In July the FOMC noted that the economy has made progress toward their goals, and they’ll continue to assess progress in coming meetings. They also took a more sanguine view of the virus situation by removing prior comments that sectors affected by the pandemic ‘remain weak but have shown improvement’ and instead replaced it with ‘sectors most affected by the pandemic have shown improvement but have not fully recovered’. This was initially seen as less dovish, but Powell used his usual dovish tone to correct any ‘hawkish’ takes by stressing that employment still has a ‘ways to go’ and noted that there was still "some ground to cover" when it comes to the labour market. He also reiterated that any decision to announce tapering will be done well in advance. For now, markets are looking at the incoming data to decide whether tapering will be announced at the Jackson Hole Symposium or in the fall. This past week we some interesting comments from Fed’s Waller who tilted their language and stance towards Bullard and Kaplan in expecting that two more solid employment prints (800K-1M) would mean substantial further progress has been met and tapering could then start at a faster pace. This was bullish for the USD, but the more important and market moving comments came from Fed’s Clarida who has seemingly moved into the Neutral camp (previously dovish) by saying he agrees with the median Fed projections of a first hike by early 2023 and more importantly his comments about inflation has moved away from the sanguine view expressed by the doves and is more concerned about current price pressures. This shift saw Dollar upside with all eyes on the Sep NFP to see whether markets will expect Sep or Dec to be the official tapering announcement meeting. 3. Real Yields Despite recent divergence between the USD and US real yields, we still think further downside in real yields will be a struggle so close to new cycle lows and that probability is skewed higher from here given the outlook for growth, inflation and tapering and should support the USD. 4. Economic Data Retail sales came in below consensus but given the price action it was clear that majority of participants were looking for a much worse number following the colossal drop in the Univ Mich Sentiment report the week before. However, the USD was also supported by the jittery and risk off flows in the markets and was further aided by the Fed’s minutes which confirmed that the median view of the board has shifted towards earlier tapering. In the week ahead all eyes will be on the Jackson Hole Symposium to see whether the market gets an unofficial tapering announcement nod from Fed Chair Powell which if it happens will open up the possibility of an official announcement at the Sep meeting. 5. CFTC Analysis Latest CFTC data for the USD (updated until 17 August) showed a positioning change of -115 with a net non-commercial position of +19211. For now, with the fundamental outlook still neutral, and with positioning at current levels the incoming data will remain the key driver for the USD’s short-term volatility, with the Jackson Hole and GDP this week the main events to keep on the radar.
by thunderpips
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling to maintain. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis Latest CFTC data for the GBP (updated until 17 August) showed a positioning change of -2419 with a net non-commercial position of +4651. The downside in the USD after the bad sentiment report wasn’t enough to see a further build in Sterling net-longs. Current levels for Sterling still look attractive for med-term buyers, especially with the positioning seeing quite a flush lower in the past few weeks. The miss in both retail sales and inflation last week did see some additional pain on the Pound and in the week ahead Monday’s flash PMI will be important. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y. However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow depending on the type of market environment from a risk and cycle point of view. 3. CFTC Analysis Latest CFTC data for the JPY (updated until 17 August) showed a positioning change of -2551 with a net non-commercial position of -63208. The big net-short created some additional momentum to the upside for the JPY this week as risk sentiment soured and demand for safe havens rose. With positioning still the largest net-short among the majors we want to be very careful of the risks going into the Jackson Hole symposium next week. If the symposium doesn’t provide any hints of tapering though it could open up some opportunities in the battered currency pairs like NZDJPY and CADJPY etc.
by thunderpips
GBP/USD analysis with mixed signals!Hey tradomaniacs, I`m currently waiting for the FED to give the market more fundamental impulses. Looking at GBP/USD bigger picture we can currently see a mix of bullish and bearish signs. The primary trend is currently moving sideways and has formed an S/H/S-Pattern, which is usually a trend-reversal-pattern. Additionally we see a breakout below the primary trendline but so far no break below the neck-zone of the S/H/S-Pattern. The often respected 200 Moving Average has supported price aswell as you can see at at recent fakeout below support, which is a bullish sign showing absoprtion after attracting bears to sell the S/H/S. A potential lower high could cause a continuation to the upside, but as long as the FED it likely to announce a tapering until mid 2022 (not later than than september and according to MM) I will stay very cautious with longs. Need more clarity and confluence before I execute any trades here. ;-) We either need the S/H/S to get triggered or invalidated! LEAVE A LIKE AND A COMMENT - I appreciate every support! =) Peace and good trades Irasor Wanna see more? Don`t forget to follow me
by Trading2ez
6
GBP JPY BUY (POUND STERLING - JAPANESE YEN)GBP FUNDAMENTAL BIAS: BULLISH 1. Virus Situation The successful vaccination program has allowed the UK to open up faster and sooner than peers & provides a favourable environment for GBP. 2. The Monetary Policy outlook for the BOE The BoE meeting on 5 August provided a flurry of comments with something for the doves and the hawks. The QE vote split was a tad more dovish with a 7-1 split with BoE’s Saunders to only dissenter, while the upgrades to growth and inflation were positive but with similar comments of ‘transitory’ price pressures muting any real market impact. The reasons for the bank to remain patient right now in terms of policy normalization is the current uncertainty surrounding the virus and of course the bank waiting for the end of the furlough scheme to assess the impact on the labour market. That means, that the bank would arguably be in wait-and-see mode until at least October or November. The other change that was important to take note of was the reduction in the bank’s QT threshold from 1.5% to 0.5%, with the bank looking at a bank rate of 0.5% to stop reinvesting maturing assets and a rate of 1.0% to start selling assets and reducing the balance sheet. Market participants are mixed about what this means for the bank as on the one end it’s positive since the bank has enough confidence to lower the balance sheet even while rates are low, but on the other end it also means that rates can stay lower for much longer which is more negative. Arguably the most important comments to take away was their continued optimism about the economy despite the uncertainty as well as their comments that modest tightening will be required. 3. The country’s economic developments Hopes of a fast economic recovery has seen the BOE and IMF upgrade GDP projections for the UK which has widened the growth differentials between other major economies by quite a bit. As the economy continues to rebound this should continue to be supportive for GBP as long as the data reflects that. Something to be mindful of is that a lot of these positives are arguably reflected in the price. Thus, if we start to see some disappointing data, that could mean that decent upside would be more difficult for Sterling. 4. Political Developments Remember Brexit? Yeah, me neither, but this week the rhetoric between the two sides continued to go in the wrong direction with the UK side explaining to the EU that they are looking at all the options on the table (include article 16) if they can’t reach an agreement with the EU regarding the Northern Ireland Protocol. For now, Sterling has looked through all the rigmarole and should continue to do so as long as the cans are kicked down the road. 4. CFTC Analysis GBP saw another sizable build in positioning (+7156) with the most recent CFTC data updated until 10 August. The build excluded the huge pop higher after the Dollar’s flush lower on Friday following weak consumer sentiment data. Current levels for Sterling still look attractive for medterm buyers, especially with the positioning seeing quite a flush lower in the past few weeks. With a light calendar ahead for Sterling this week, we are mostly likely going to see majority of influence coming from movement in the USD. JPY FUNDAMENTAL BIAS: BEARISH 1. Safe-haven status and overall risk outlook As a safe-haven currency, the market's risk outlook is the primary driver of JPY. Economic data rarely proves market moving; and although monetary policy expectations can prove highly market-moving in the short-term, safe-haven flows are typically the more dominant factor. The market's overall risk tone has improved considerably following the pandemic with good news about successful vaccinations, and ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. Of course, there remains many uncertainties and many countries are continuing to fight virus waves, but as a whole the outlook has kept on improving over the past couple of months, which would expect safe-haven demand to diminish and result in a bearish outlook for the JPY. 2. Low-yielding currency with inverse correlation to US10Y As a low yielding currency, the JPY usually shares an inverse correlation to strong moves in yield differentials, more specifically in strong moves in US10Y . However, like most correlations, the strength of the inverse correlation between the JPY and US10Y is not perfect and will ebb and flow dependent on the type of market environment from a risk and cycle point of view. In the past week we saw a perfect environment for downside in the JPY versus the USD after the solid ISM Services, NFP and Fed comments from the week before and provided a good opportunity to trade the USDJPY higher going into the CPI print. However, we took profit when Core CPI MM came in slightly softer. After the print the Dollar softened (also driven by strong pre-positioning), and the move was exacerbated on Friday when yields saw some chunky downside as well. The med-term outlook remains down for the JPY, but it’ll be important for us to see whether yields can keep up its upside momentum and of course we’ll need to keep an eye on overall risk sentiment as well, especially heading deeper into August and its typical summertime volatility . 3. CFTC Analysis The JPY remains the biggest net short among the majors with yet another sizable increase in net-shorts (-5467) with the latest CFTC data updated until Tuesday 10 August. The JPY has failed to take much advantage of the wash out in treasury positions and a drop to 1.12% in US10Y over the past few weeks. The flush lower in both US10Y and the USD on Friday saw some mild reprieve for the JPY as USDJPY rotated back towards key levels of technical support after a solid run higher at the start of the week. The bias for the JPY remains driven by the overall risk sentiment and movements in US10Y , which means seeing how the market decides to trade after Friday’s surprisingly big drop in US consumer sentiment will be important for the JPY as any big risk off flows should provide support for the currency in the short-term, while a recovery in yields and overall sentiment should put pressure on the safe-haven.
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Today’s Notable Sentiment ShiftsUSD – The dollar advanced against a basket of currencies on Thursday, after data showed producer prices posted their largest annual increase in more than a decade in the 12 months through July, suggesting inflation pressures remain strong. Action Economic summarized today’s and yesterday’s reports, stating that “today’s huge upside PPI surprise follows yesterday’s solid but moderating CPI gains, leaving a mix that will keep inflation concerns alive even as economists will continue to expect a slowing in monthly price gains into year-end.” GBP – Sterling edged lower on Thursday as analysts expected the Bank of England to make no imminent moves in its monetary policy after official data showed Britain’s economy grew in line with expectations in the second quarter. Equiti Capital argues that “for sterling while the economic landscape continues to provide solid support, it does suggest further topside progress will be slow, It is quite likely that the pace of growth has already peaked.”
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