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GBP USD - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BULLISH 1. Monetary Policy They did it again! After leading markets to believe that a Dec rate hike was unlikely, the BoE wrong footed markets again by announcing a 15bsp hike. Recall we had external member Saunders (who voted for a hike in Nov) suggest there could be benefits in waiting before moving on rates BoE’s Mann a few days before the meeting saying it was premature to even talk about the timing of hikes let alone the magnitude, but of course both of them ended up voting for a hike in the end with a surprising 8-1 vote split (BoE’s Tenreyro the only dissenter). The bank lost even more of the little credibility it had left, but in the end, they did the right thing (in my opinion at least) as they stayed data dependent and hiked given a flurry of much better-than-expected econ data in the run up to the meeting. The consensus view among the MPC was that current price pressures warranted tighter policy in the near-term, with inflation expected to peak close to 6% in April (up from previous projections). One negative was of course growth, which is expected to push lower given the new Omicron wave. The Dec decision was a hawkish development for the GBP, but of course Omicron and incoming econ data will be key considerations for the rate outlook going forward (25bsp hike fully priced for March). 2. Economic & Health Developments Even though activity data has been slowing, the economy is not expected to fall off a cliff by any means. Growth expectations by the IMF/OECB still sees solid growth differentials, but not everyone shares that optimism (as polling data from Refinitiv reveals). Even though we think the solid economic data running into Dec were enough to convince the BoE to hike, the overall rate trajectory already priced into money markets seem very overambitious. As long as the incoming data remains firm it should keep the odds of additional tightening on the table, but we should be mindful of potential unwinding if data starts painting a bleaker picture. 3. Political Developments Even though Brexit isn’t the focus it used to be, some issues, such as the Northern Ireland protocol, remains in the loop with neither side willing to budge. As usual, we’ve had heated rhetoric from both sides with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, markets have ignored this as political posturing, but of course any actual escalation (such as an actual triggering of Article 16) could drastically see some sharp risk premium built into the GBP. Furthermore, political uncertainty surrounding PM Johnson opens up another can of worms as GBP usually doesn’t like domestic political uncertainty. That means the upcoming Sue Gray report this week will be a key focus, where damaging results for the PM could prove GBP negative and vice versa if it shows the PM was not at fault. Apart from the report, the question remains on whether there will be enough MP’s who opt for a vote of no-confidence (if so that could see short-term downside), but after that the question will be on whether the PM can survive an actual vote of no-confidence, where a win for the PM is expected to the GBP positive and negative if he loses. 4. CFTC Analysis Latest CFTC data showed a positioning change of +28919 with a net non-commercial position of -247. Short bets continue to be unwound for Sterling as large speculators have seen a huge reduction in net-shorts and pushing GBP to neutral. Even though that’s a positive, this week’s political developments will be front of mind and close to neutral positioning means it’s a fair fight higher and lower depending on the outcome. 5. The Week Ahead As always, the FOMC will be in focus for most major currencies given its potential impact on global asset classes and will thus be in focus for Sterling. Apart from that, the biggest focus point will be the political developments, which means attention will be placed on the findings of the Sue Gray report, and after that any subsequent actions against the PM (whether he has to face a vote of no confidence, and of course if he does whether he will have enough support to survive it). As Sterling is usually sensitive to domestic pollical uncertainty, any quick resolution will arguably be the best outcome for Sterling, while a messy and uncertain outcome could see some risk premium built into the Pound. USD FUNDAMENTAL BIAS: BULLISH 1. Monetary Policy The Fed turned a lot more hawkish than expected in Dec. They doubled the pace of tapering to $30 billion per month which will see QE concluded by March 2022 as was widely expected. Surprisingly though the Summary of Econ Projections showed the median dot plot pencilled in 3 hikes for 2022 (up from the previous 1), confirming Fed Fund Future expectations. Fed Chair Powell explained they hadn’t decided whether to pause between the end of tapering and a first hike but reiterated that rates will likely only rise when QE has concluded. Another positive shift was Powell’s comments that they could raise rates before full employment has been met due to high inflation , and stated that with inflation above target, they cannot wait too long to get to maximum employment as current inflation levels is seen as a threat to max employment. The hawkish tilt went further to note that the bank started discussing the balance sheet but said no decisions were made on when QT might commence. Even though the dots projected 3 hikes for 2022, the updated rate trajectory only showed 1 additional hike over the forecast horizon, which combined with a lower terminal rate was less hawkish than some had feared. Nonetheless, the meeting marked a material hawkish shift from the Fed, putting it on par with the likes of the RBNZ. The meeting minutes also revealed that the QT discussion saw majority of members thinking it appropriate to start QT soon after rate lift off and another more hawkish tilt than expected from the Fed. 2. Global Risk Outlook The growth & inflation outlook for the US and the globe will be key for the USD. The USD is often inversely correlated to global growth & inflation , doing bad during reflationary environments (growth and inflation accelerating), while the USD usually does well in disinflationary environments (growth and inflation decelerating). Thus, with expectations that both growth and inflation will decelerate this year, both in the US and the globe, that should be a positive input for the USD in the med-term . However, incoming data will also be important to see how the Fed responds to it, where a worsening outlook that deteriorates much faster than expected could see a dovish pivot from the Fed which could mean downside for the USD if money markets start pricing out hikes (especially with markets now expected just over 4 hikes for 2022). 3. CFTC Analysis Latest CFTC data showed a positioning change of -1458 with a net non-commercial position of +36434. The shortterm unwinding of stretched USD longs played out exactly as expected but was also short-lived in the midst of the recent strong risk off moves in certain parts of the market. Surprisingly, the big flush lower in the USD has not showed up in the CFTC data as expected with very little change to the overall positioning. In the current context, the stretched long positioning makes the USD vulnerable in the event that the Fed does not deliver the very hawkish tone expected of them in this week’s upcoming FOMC meeting. 4. The Week Ahead For the USD the big focus this week will be overall risk sentiment and the first FOMC meeting for 2022 on Wednesday, followed by Friday’s Core PCE and Employment Cost index prints. The latter will of course be important given the inflation outlook with more emphasis recently on the odds of a possible wage spiral affect. However, the main event will be the FOMC, where the meeting is expected to serve as a signalling meeting to pave the way for a 25bsp hike in March and to provide more clarity on the bank’s balance sheet plans. With a March hike sitting close to a 90% probability, and markets already fully pricing in 4 hikes this year, the bar has been set quite high for a hawkish surprise. However, there are also some participants that think the recent econ data ( CPI YY >7% and Unemployment <4%) justifies an early end to the Fed’s QE program instead of allowing tapering to run it’s planned course until March. That would certainly give a more hawkish feel to the meeting and could see markets pricing in an even earlier and faster pace of QT if confirmed. But, if the Fed does not deliver on an early end to QE , and does not offer a strong enough signal that the 4 hikes priced by the market is justified, we could be in store for some moderation in the rise in yields and the USD and could also prove to be supportive for equities which ended last week in quite bad shape.
by thunderpips
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Today’s Notable Sentiment ShiftsGBP – Sterling edged up on Wednesday, hitting a 23-month high against EUR after higher-than-expected inflation data added to pressure on the Bank of England to raise interest rates next month. Commenting on GBP price action and its outlook. Bank of America notes that “an awful lot is priced for the BoE cycle – yet we think it is too early to ‘fade’ the GBP rally on a fully-priced BoE cycle – just in the same way it is too early to fade the dollar rally.” CAD – The Canadian dollar edged higher on Wednesday as oil prices rose and CPI data showed a 30-year high for inflation, supporting the growing argument for the BoC to hike interest rates as soon as next week. Commenting on the report, one of TD Securities chief analysts noted that “the increase in the core metrics does catch my eye… This probably does incrementally ratchet up pressure on the BoC to start lifting rates sooner than later.”
by thunderpips
3
Today’s Notable Sentiment ShiftsGBP – Sterling fell to its lowest level in a week on Tuesday as speculation about the fate of Boris Johnson’s premiership weighed on the heavily bought currency. Although it’s unclear exactly how much of an impact UK political uncertainty could have, CIBC explains that “the first reaction from investors from outside the local market is ‘sell first and ask questions later’.” CAD – The Canadian dollar has remained well supported by ongoing strength in oil prices, as WTI climbed to its highest level since 2014 and as investors bet that the Bank of Canada would raise interest rates as soon as next week.
by thunderpips
3
GBP/USD Sell Opportunity The pound has been dropping since June 2021. In the last six months, the pound has not been able to break the trendline resistance and support the trendline. Currently, the GBP/USD is hovering close to trendline resistance. More than 450+ pips have risen from trendline support in the last 20 days. That's why I am expecting that market may have some corrections. We should not sell if only the market stays at the resistance level. We can keep in sell mode from the resistance level only when the market creates a bearish pattern. We will enter a sell position only when the GBP/USD creates a bearish pattern from the trend line resistance. If the GBP/USD closes below the current level of 1.3472, we can think of the sell position as well. Because breaking below the 1.3472 will confirm immediate support trendline breakout, or if we see the pound tested 1.3610 / 20 rate, we can also execute our sell order with 80/100 pips stops.
Short
by Gold_Trading_Expert
2
GBP JPY - FUNDAMENTAL DRIVERSGBP FUNDAMENTAL BIAS: WEAK BULLISH Monetary Policy They did it again! After leading markets to believe that a Dec rate hike was looking unlikely the bank surprised by announcing a 15bsp rate hike. Recall we had external member Saunders (who voted for a hike in Nov) suggested there could be benefits in waiting before moving on rates until some of the uncertainty from Omicron dissipates. We also had BoE’s Mann a few days before the meeting saying it was premature to talk about hikes but ended up voting for a hike with an 8-1 vote split and BoE’s Tenreyro the only dissenter. The bank lost a lot of the credibility that it had left, but in the end, they did the right thing (in my opinion at least) to stay data dependent and hike given the recent flurry of much better-thanexpected econ data. The consensus view was that current price pressures warranted tighter policy in the near-term, with inflation expected to peak close to 6% in April (up from previous projections). One negative was of course growth which is expected to push lower given the Omicron variant and associated restrictions. For now, the bank’s move is a hawkish development for the GBP, with Omicron and incoming data key considerations for the rate outlook going forward (a 25bsp hike is fully priced for March). Economic & Health Developments Even though activity data has been slowing, the economy is not expected to fall off a cliff by any means. Growth expectations for 2022 still places the UK in front of the G7 which means growth differentials are still favourable for the GBP. It seems like the solid economic data (beats for CPI, Jobs, Retail Sales) were enough to convince the BoE to hike, and as long as the data remains firm it should keep the odds of additional tightening on the table. Focus now turns to Omicron to see how it impacts incoming data and affects the rate outlook going into 2022. Political Developments Even though a Brexit deal was reached last year, some issues like the Northern Ireland protocol remains, and with neither side willing to budge it seems like these issues are here to stay for now. There has been heated rhetoric from both sides with the UK threatening to trigger Article 16 and the EU threatening to terminate the Brexit deal if they do. For now, these are just threats, but any actual escalation could increase the odds of seeing so risk premium built into Sterling. Furthermore, political uncertainty surrounding PM Johnson and the lack of trust from his own party opens up another can of worms for Sterling (the currency usually doesn’t perform well when the future of a PM is brought into doubt), and that remains a driver to watch in the sessions ahead. CFTC Analysis Latest CFTC data showed a positioning change of +11548 with a net non-commercial position of -39171. It seems like both price action and positioning has caught up with the BoE’s hike in December with Sterling putting in a decent week of gains and positioning also seeing a sizeable reduction in net-shorts. The Week Ahead In the week ahead it’s quiet on the data front for the UK once again with GDP the only real data point of concern but we are not expecting much from it. Arguably one of the bigger drivers for the GBP will be what happens to overall risk sentiment as well as the USD. As a currency with a slightly higher beta, the Pound can be sensitive to overall risk sentiment so keeping track of how equities markets are doing will be important. Furthermore, even though we maintain a bullish view on Sterling, the recent run higher has been rather one-sided, and we are inching closer towards some very key technical resistance levels around 1.3600. One possible trigger that could see GBPUSD break through that though is Wednesday’s US CPI. After the push lower on Friday, the DXY broke through key support, and a big miss in CPI which means less need for very aggressive Fed policy is not a good look for the USD. JPY FUNDAMENTAL BIAS: BEARISH 1. Monetary Policy At their Dec meeting the BoJ kept policy mostly unchanged apart from unanimously voting to scale back emergency pandemic relief funding from March which includes tapering corporate bond and commercial paper buying, but they did also vote to extend a portion of the pandemic relief loan scheme to March for smaller firms. As always, the BoJ said they are ready to add additional stimulus and easing steps as the economy needs it. The bank reiterated that even though the economy has picked up it does still remain in a severe situation due to the COVID-19. The bank remains dovish and is unlikely going to change anytime soon. 2. 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 for the JPY; and although monetary policy expectations can still prove marketmoving 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 ongoing monetary and fiscal policy support paved the way for markets to expect a robust global economic recovery. As the Fed and other banks start to normalize, we do need to remember that it means those fiscal and monetary policy support is being reduced, which could mean a lot more volatility for markets in the weeks and months ahead. Even though that doesn’t mean our med-term bias for the JPY has changed, it simply means that we should expect more risk sentiment ebbs and flows this year, and the heightened volatility can create some fantastic 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 yield differentials, more specifically in strong moves in US10Y . However, 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 type of market environment from both a risk and cycle point of view. With the Fed tilting more aggressive, we think that opens up more room for curve flattening to take place with US02Y likely pushing higher while US10Y underperform. In this environment we do see some mild upside risks for the JPY, but we should not look at the influence from yields in isolation and also weigh it up alongside underlying risk sentiment and price action in the USD of course. 4. CFTC Analysis Latest CFTC data showed a positioning change of -9160 with a net non-commercial position of -62262. Even though the JPY’s med-term outlook remains bearish , the big net-shorts for both large speculators and leveraged funds always increases the odds of more punchy safe haven flows and mean reversion when risk sentiment deteriorates. However, despite risk sentiment taking a hit in the past trading week, the JPY has remained pressured as the move in US yields kept any JPY rallies in check. 5. The Week Ahead In the week ahead the biggest focus for the JPY will be on overall risk sentiment with the big rally in risk sentiment going into the last few trading days of the year with S&P futures managing to squeeze out another all-time high and Nasdaq futures getting very close to doing the same. The big amount of upside has been mostly attributed to equities taking the path of least resistance ( med-term bias remains tilted higher) and moves was probably exacerbated by thinner liquidity and lower volumes. If that momentum can continue at the start of the new year, we can expect to see further downside for the safe haven JPY and will be a key focus for the currency for the week ahead. Apart from that, keeping an eye on US yields will be important as always.
by thunderpips
11
GBPJPY Short after two patternsHi All So GBPJPY after more than 600 pips up move with no fall of 60 pips. Now he is at a strong Bollinger Band resistance and Fibonacci resistance. At the small time frame you can see in the photo there are 2 patterns, the first break to the upside and get very nice support from the 2 trendlines that were touching each other on the same price, now because of the big time frame resistance, I expect that this uptrend line resistance will work and the price will drop to retest the support and even to break it to the downside. Also since 2010 was only 1 time (2019) that price by the first day of the year didn't go the opposite direction of the last day of the year, so on Friday (end of 2021) we end as a blue candle, so the first trading day of 2022 supposed to be red. Just showing my options .
Short
by StudyWallStreet
3