Connect with us

Forex

BOC, RBA, & RBNZ Rate Expectations; AUD, CAD, NZD Positioning Update

Published

on


Central Bank Watch Overview:

  • The BOC and RBA are likely to stay on hold for the foreseeable future; traders may disregard quirks in the overnight index swaps curves suggesting otherwise in the near-term, given commentary from central bank governors.
  • The RBNZ, on the other hand, seems poised to move into negative interest rate territory in the first half of 2021.
  • Retail trader positioningsuggests that the commodity currencies are on mostly neutral footing.

Bank of Canada Holds the Course

The Bank of Canada’s October rate decision is not for a few more weeks, but little is expected to transpire. While the Canadian economy has seen the recovery accelerate in recent months, there’s still not enough confidence about the state of the US economy – Canada’s largest trading partner, from which 20% of Canadian GDP is derived – for policymakers to head back towards any sense of normalization.

Bank of Canada Interest Rate Expectations (OCTOBER 15, 2020) (Table 1)

Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; AUD, CAD, NZD Positioning Update

As it were, at the end of April, there was a 55% chance of a 25-bps interest rate cut in December 2020, according to Canada overnight index swaps. In mid-August, there was a 17% chance. Now, there is a 4% chance. At present time, it would appear that the Bank of Canada’s efforts along the interest rate front are finished. Further to this point, we maintain that “if the BOC does anything else, it may not be to cut interest rates to zero – or to negative territory. While negative rates are a potential for other major currencies (see: RBNZ and the New Zealand Dollar), the Canadian Dollar is not weighed down by this consideration at present time.”

IG Client Sentiment Index: USD/CAD Rate Forecast (OCTOBER 15, 2020) (Chart 1)

Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; AUD, CAD, NZD Positioning Update

USD/CAD: Retail trader data shows 74.11% of traders are net-long with the ratio of traders long to short at 2.86 to 1. The number of traders net-long is 25.20% lower than yesterday and 8.64% lower from last week, while the number of traders net-short is 18.53% lower than yesterday and 24.33% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/CAD trading bias.

Reserve Bank of Australia Looks at a Rate Cut

The Reserve Bank of Australia’s October policy meeting proved to be significant: it has been suggested that the RBA could produce a rate cut as soon as November. But for the negative interest rate fans out there, now’s not the time to get excited: the RBA has signaled its willingness to cut the main rate by 15-bps, bringing it down to 0.1% from 0.25%.

RESERVE BANK OF AUSTRALIA INTEREST RATE EXPECTATIONS (OCTOBER 15, 2020) (TABLE 2)

Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; AUD, CAD, NZD Positioning Update

According to Australia overnight index swaps, there is a 72% chance of a rate cut at the November RBA meeting. It’s worth noting that the rate cut is consistent with RBA Governor Lowe’s previous comments, which suggested that the central bank is not ready to move rates into negative territory. We thus maintain that “it’s worth repeating: the RBA has said that it will target the three-year bond yield at 0.25% – the same rate as the overnight cash rate – which is a reasonable assumption that the RBA will keeping its overnight cash rate at 0.25% or lower for at least the next three years. Nothing has changed to alter this line of thinking.” To this end, a cut in the main rate to 0.1% fits within our expectations.

IG Client Sentiment Index: AUD/USD Rate Forecast (OCTOBER 15, 2020) (Chart 2)

Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; AUD, CAD, NZD Positioning Update

AUD/USD: Retail trader data shows 50.73% of traders are net-long with the ratio of traders long to short at 1.03 to 1. In fact, traders have remained net-long since Oct 01 when AUD/USD traded near 0.72, price has moved 1.42% lower since then. The number of traders net-long is unchanged than yesterday and 7.26% higher from last week, while the number of traders net-short is 21.08% lower than yesterday and 31.73% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.

Our data shows traders are now net-long AUD/USD for the first time since Oct 01, 2020 when AUD/USD traded near 0.72. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias.

Reserve Bank of New Zealand Hot on Negative Rates

We’ve heard hints about it for months. At the end of June, in an interview, RBNZ Governor Orr said the following when questioned about negative interest rates becoming policy: “We could…we’ve been saying to banks, ‘get your act together, be prepared, make sure you’re able to put a negative sign in front of your wholesale interest rates if we need to go there’.” It’s still the case that the RBNZ overnight index swaps curve reflects a belief that negative interest rates are around the corner.

RESERVE BANK OF NEW ZEALAND INTEREST RATE EXPECTATIONS (OCTOBER 15, 2020) (Table 3)

Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; AUD, CAD, NZD Positioning Update

The RBNZ overnight index swaps (OIS) curve is suggesting that the main interest rate will fall to 0% by April 2021 (>100% chance), and that negative interest rates will emerge by May 2021 (65% chance).

IG Client Sentiment Index: NZD/USD Rate Forecast (October 15, 2020) (Chart 3)

Central Bank Watch: BOC, RBA, & RBNZ Rate Expectations; AUD, CAD, NZD Positioning Update

NZD/USD: Retail trader data shows 36.82% of traders are net-long with the ratio of traders short to long at 1.72 to 1. The number of traders net-long is 24.72% lower than yesterday and 11.30% lower from last week, while the number of traders net-short is 25.53% lower than yesterday and 26.00% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests NZD/USD prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current NZD/USD price trend may soon reverse lower despite the fact traders remain net-short.

Traits of Successful Traders

Traits of Successful Traders

Recommended by Christopher Vecchio, CFA

Traits of Successful Traders

— Written by Christopher Vecchio, CFA, Senior Currency Strategist





Source link

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Forex

British Pound Under Pressure as Brexit Talks Beleaguer UK & EU Officials

Published

on

By


2020 Election, Brexit, British Pound, US Presidential Debate, Coronavirus – Talking Points

  • British Pound volatility could swell as Brexit talks intensify
  • UK-EU divorce talks may push EUR/GBP out of downtrend
  • Third presidential debate up next: why does this one matter?

Brexit: When Will it End?

The British Pound continues to be suspended in a fog of uncertainty as EU and UK policymakers attempt to hammer out the details of an agreement. As I’ve written before, fisheries are a major point of contention that have contributed to the impasse. EU chief negotiator Michel Barnier said bilateral talks will intensify this week so a deal can be reached.

Having said that, his UK counterpart David Frost agreed to hold constructive talks but noted in a tweet that “the EU still needs to make a fundamental change in approach to the talks”. Needless to say, prolonged uncertainty and growing premonitions about a no-deal scenario may pressure Sterling. This week, GBP has the second-highest implied volatility against the US Dollar among its G10 peers, right under the petroleum-linked Norwegian Krone.

Political Volatility Impacting British Pound

British Pound Under Pressure as Brexit Talks Beleaguer UK & EU Officials

Source: Bloomberg

Given the immense political volatility of the situation, it makes forecasting the British Pound’s movements against its counterparts even more difficult. Due to the erratic developments associated with Brexit – and Sterling’s price action tied to it – breaking news on the EU-UK divorce would likely elicit a strong reaction out of GBP, making it difficult to employ technical analysis. With that in mind, a pattern appears to have formed.

EUR/GBP Price Outlook

EUR/GBP has been trading below sharp descending resistance after topping in early September at a multi-month high at 0.9258. The pair may attempt to break out of the downtrend, which if successful could be met with an aggressive buying bout if it signals the start of a short-term recovery. Having said that, EUR/GBP may cap its gain at stubborn resistance at 0.9190.

EUR/GBP – Daily Chart

British Pound Under Pressure as Brexit Talks Beleaguer UK & EU Officials

EUR/GBP chart created using TradingView

Conversely, if the pair is rejected at the slope of depreciation, then the pair may challenge the floor at 0.8974. If that cracks under the weight of swelling selling pressure, it may open the door to retesting critical support at 0.8863. To get more technical updates, be sure to follow me on Twitter @ZabelinDimitri.

Third Presidential Debate and the Election

As mentioned in previous article, the third and final presidential debate – which in reality is the second after it was cancelled – will be occurring on October 22. You can read more about the details in my outline here. The main takeaway is to see how the debate affects polling data and in turn how it and if at all it elicits a market reaction.

While debates have historically not impacted voters’ intentions, the first presidential debate subsequently led to Democratic nominee Joe Biden rising in the polls while incumbent President Donald Trump fell.

This appeared to reinforce the narrative that the former Vice President will take the White House. Having said that, if the 2016 election taught us anything, it’s that the only thing you can be certain of is uncertainty.

— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or@ZabelinDimitrion Twitter





Source link

Continue Reading

Forex

USD/MXN Buckles Below Key Support

Published

on

By


Mexican Peso Technical Price Outlook: USD/MXN Near-term Trade Levels

  • Mexican Peso updated technical trade levels – Daily & Intraday Charts
  • USD/MXN breakdown sets weekly opening-range just below key pivot zone at 21.2316/2942
  • Key near-term support 20.6789 – Bearish invalidation at monthly-open resistance

The US Dollar is down more than 0.4% against the Mexican Peso into the start of the week after breaking below a key pivot zone on Friday. A well-defined descending technical pattern leaves USD/MXN vulnerable to further losses near-term with the immediate focus on a break of the weekly opening-range for guidance. These are the updated targets and invalidation levels that matter on the USD/MXN technical price charts. Review my latest Strategy Webinar for an in-depth breakdown of this Peso setup and more.

Starts in:

Live now:

Oct 26

( 12:10 GMT )

Live Weekly Strategy Webinars on Mondays at 12:30GMT

Weekly Scalping Webinar

Register for webinar

Join now

Webinar has ended

Mexican Peso Price Chart – USD/MXN Daily

Mexican Peso Price Chart - USD/MXN Daily - Dollar vs Peso Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; USD/MXN on Tradingview

Technical Outlook: In my last Mexican Peso Price Outlook we noted that the USD/MXN sell-off was, “testing a break of a key pivot zone we’ve been tracking at 21.2316/2942 – from a trading standpoint, the risk remains tilted to the downside while within this formation.” Price slipped below this threshold on Friday with the USD/MXN testing this zone as resistance over the past few days.

Daily support objectives remain unchanged at the 1.618% Fibonacci extension of the decline off the June highs at 20.6788 backed by the 78.6% retracement of the yearly range at 20.0752. A pivot / close back above 21.2942 would risk a larger rebound towards trendline resistance with bearish invalidation now lowered to the objective October open at 22.0895.

Mexican Peso Price Chart – USD/MXN 120min

Mexican Peso Price Chart - USD/MXN 120min - Dollar vs Peso Trade Outlook - Technical Forecast

Notes: A closer look at Peso price action shows USD/MXN trading within the confines of an descending pitchfork formation extending off the late-September highs with the pair rebounding off median-line support on Monday. The weekly opening-range is set just below the 21.2316-2942resistance zone and we’re looking for the break to offer guidance. A break lower keeps the focus on the September low at 20.8377 and 20.6788. A topside breach of the weekly range would risk a larger price recovery with such a scenario exposing the 61.8% retracement at 21.5489 and daily slope resistance near ~21.8500.

USD Forecast

USD Forecast

Recommended by Michael Boutros

Download Our Latest Quarterly US Dollar Price Forecasts!

Bottom line: The USD/MXN has broken below a key pivot zone but the follow-though looks a bit tired here. Look for topside exhaustion while within this near-term formation with a break lower here keeping the focus objectives into the lower parallels. Ultimately a larger sell-off may offer more favorable opportunities with a breach above the monthly open still needed to shift the broader focus higher again.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

Key US / Mexico Data Releases

US / Mexico Data Releases - USD/MXN Economic Calendar - Key Event Risk Ahead

Economic Calendarlatest economic developments and upcoming event risk.

Active Technical Setups

— Written by Michael Boutros, Technical Strategist with DailyFX

Follow Michael on Twitter @MBForex





Source link

Continue Reading

Forex

Gold Price Forecast: XAU Bulls Tempt Breakout

Published

on

By


Gold Price Forecast:

  • Gold prices are pushing above a key resistance level of 1920 today.
  • Gold prices have been in digestion mode for two-and-a-half months, coming in stark contrast to the bullish mania that drove prices from mid-June and through July.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Gold prices have been in digestion mode for two-and-a-half months now. It might be hard to believe if we go back to early-August, when Gold prices were showing hints of a mania on their way up to fresh all-time-highs. Perhaps what was most remarkable about that move was just how incredibly one-sided it was from late-June and through July. Gold prices took out a number of key resistance levels along the way; but this was a pretty clear example of a trending state in a cyclical market.

That fresh all-time-high soon showed a bearish signal on August 7th. As written in the Gold Technical Forecast for that week, the Friday bar responding to that fresh all-time-high closed as a bearish engulfing pattern; and then the next week brought on a retracement of more than $200 as bulls bailed and prices tried to equalize.

To learn more about bearish engulfing patterns, check out our DailyFX Education section.

Gold Price Daily Chart

Gold Daily Price Chart

Chart prepared by James Stanley; Gold on Tradingview

That retracement found a bit of support at a confluent spot on the chart but, bulls weren’t yet ready to continue the move. As a matter of fact, we still might be in that spot where bulls aren’t yet ready to continue as the past two-and-a-half months have brought on a continued case of digestion in Gold prices.

Gold Forecast

Gold Forecast

Recommended by James Stanley

Download our fresh Q4 Gold Forecast

This digestion has taken on the form of a falling wedge pattern; and given the context, that falling wedge is taking on similar tonalities as a bull flag formation. Falling wedges and bull flags will both often be approached with a bullish aim, looking for buyers to re-take control after digestion of a recent and fresh high.

This also wouldn’t be the first time that Gold prices have went on an extended bout of digestion in this recent bullish cycle: Similar instances happened in February-May of last year; and then again from September-December of last year. Each of those digestion themes took months to reconcile; with bulls eventually winning-out and continuing to drive the topside theme.

To learn more about falling wedges or bull flags, check out our DailyFX Education section.

Gold Price Weekly Chart: Months Long Digestion in Falling Wedges

Gold Weekly Price Chart

Chart prepared by James Stanley; Gold on Tradingview

The big question at this point is whether bulls are taking the reigns again. Price action is testing above the resistance trendline making up the falling wedge formation, and prices are currently holding above a very key price on the chart at 1920. That level was the all-time-high for more than seven years before being taken out by a surging trend in the month of July. It has since caught multiple resistance inflections as this digestion has continued and, may eventually be repurposed for higher-low support when buyers do eventually re-take control of the matter.

Top Trading Opportunities in 2020

Top Trading Opportunities in 2020

Recommended by James Stanley

Get Your Free Top Trading Opportunities Forecast

At this point, the line in the sand of interest appears to be around 1933, which is the current monthly high. A breach above that exposes a Fibonacci level at 1943.41; and a test there opens the door for higher-low support around the 1920 level.

Gold bulls should continue to exercise caution, however, until that new monthly high comes into play. A similar situation presented itself a couple of weeks ago – with bulls bursting above 1920 only for prices to fall back into the prior range.

Gold Price Four-Hour Chart

Gold Four Hour Price Chart

Chart prepared by James Stanley; Gold on Tradingview

— Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX





Source link

Continue Reading

Trending

Copyright © 2017 Zox News Theme.