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KeyToMarketsUK

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KTM FX Weekly: EURCHF outperforms EURUSD

This week’s trending topic is ECB. The consensus of forecasters foresees a 10bp rate cut at the upcoming meeting on September 12. How deep the central bank can go to is the multi-dollar question.


The euro bulls failed to push the common currency above 20MA last week and this week as well despite some dollar weakness. They wait for the latest announcements from ECB in Frankfurt, followed by Draghi’s speech. Analysts are looking for a deposit rate cut and restarting net asset purchases.

The deposit (or depo) rate, currently set at -0.40% and having been negative now for the past five years (i.e., since June 2014), according to Nomura.

Risk appetite: Since early September the common currency volatility has been reduced on the back of positive developments in Italy and Hongkong and easing risk of no-deal Brexit and policy stimulus in China.

Looking back to the June and July meeting, Draghi sent clear signals that an easing package would be launched. We expect this is going to happen in the September 12 meeting.

“The expectations of Mario Draghi to deliver something big and effective are high,” Sentix said.
Besides, investors seem to be confident that the Fed will continue to cut rates. Geo-political risk like Brexit and Trade conflict are the contributing factors for Global economic slowdown in the past few months. Moreover, these factors show no signs of ending.

Sentix said, “The economic situation in Euroland remains tense, and the recent data suggests that the Eurozone is not far from a recession. In Germany, on the other hand, it must now be assumed that the economy will no longer grow.”

Data review: Eurozone manufacturing slump continues in August whereas Services Business Activity Index signaled a further solid increase in business activity during August.

  • Final Eurozone Manufacturing PMI at 47.0 in August (Flash: 47.0, July Final: 46.5). The index registered its second-lowest reading since April 2013 to indicate another notable deterioration in operating conditions.
  • Final Eurozone Services Business Activity Index: 53.5 (Flash: 53.4, July Final: 53.2). Remaining above the 50.0 no-change marks for a seventy-third successive month, the index recorded 53.5 in August compared to 53.2 in July.
  • The Sentix economic indices improved slightly in September to minus 11.1 points, according to the official release.
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Data preview: Ahead of the ECB event macro data likely to take a back seat.

Thu, September 12 ECB monetary meeting:
The consensus of forecasters foresees a 10bp rate cut at the upcoming meeting on September 12. Analysts are looking for a deposit rate cut and restarting net asset purchases.

Here is a gist of what analysts anticipate from ECB:

  • ING: All eyes on the ECB this week as months of buildup should now result in dovish action. A rate cut seems to be a done deal, the big question is whether renewed QE will be part of the package. The governing council is likely to remain divided on the topic as quite a few ECB speakers have come out against a reboot of the asset purchase programme in recent weeks. Markets have come down on the side of the doves on this one and disappointment is therefore a possibility come Thursday.
  • Danske Bank: On Thursday, we expect the ECB to announce (1) a 20bp cut in the deposit rate (other key rates unchanged) and an extended forward guidance (‘at present or lower…. well past the horizon of net asset purchases’), (2) a 12-month QE restart of EUR45-60bn per month and (3) a tiering system, which could involve less than 1:1 effect on EONIA from the deposit rate cut, where the ‘tiering premium’ may be worth around a quarter of the rate cut.
  • Nordea Markets: We expect the ECB to reveal an easing package consisting of several steps next week: 1. 10bp cut in the deposit rate. 2. Restarting net asset purchases at a pace of EUR 30bn per month (with the purchases starting in October). 3. Strengthening forward guidance by linking it more concretely to the inflation outlook.
  • Credit Agricole: We expect that on Thursday, the ECB will (1) cut its deposit rate by 10bp to -0.50%; (2) announce a sizeable QE2 programme (EUR30-40bn per month for 18 months); and (3) announce measures to support banks’ profitability as the negative rate environment may last for a long time (via easier terms for TLTRO3 and a tiered deposit system). At the same time, the ECB will likely make a slight downward revision to its growth and inflation forecasts.
  • Morgan Stanley: A combo of policy measures including a rate cut with an associated mitigating mechanism, the restart of QE and extra forward guidance is likely to be announced. we think that the ECB will likely announce a 10bp rate cut to -0.50% together with a mechanism to mitigate the impact of negative rates, plus purchases of government and corporate bonds amounting to €30 billion/month for 9-12 months and a good dose of forward guidance.
  • Goldman Sachs: We expect a substantial easing package from the ECB next week (including a 20bp deposit rate cut, bond purchases of €30bn per month for nine months, and forward guidance emphasizing a commitment to keep rates low).
  • Scotia Bank: A deposit rate cut is widely expected and Scotiabank Economics expects a 10bps reduction to -0.5% whereas consensus is somewhat divided toward 10 or 20bps. A smaller reduction now may be followed by a further reduction later if not done in one fell swoop. The grander issue is whether the ECB is prepared to roll out another wave of quantitative easing, and if so, how much will it purchase, over what time horizon, and across what mixture of assets?
  • Nomura: We expect lower rates (10bp off the depo rate, another cut to come later in the year), an extension/reinforcement of guidance, deposit rate tiering and a restart of the asset purchase programme (€30bn per month until the end of 2020).
Technical view

The common currency marginally rose on Monday from the support of 1.1015, it’s last three days low. Whereas the euro bulls failed to push the common currency above 20MA previous week and this week as well despite some dollar weakness.

Looking at the recent elevation of market sentiment, the EURCHF outperform EURUSD, and this will continue as long as risk-on is the driver.

The weekly trend of the common currency is range-bound with negative bias. The inability of EURUSD to sustain above the critical resistance of 1.1251 should be a negative indication for the bulls. According to the daily chart, the key support level is placed at 1.1015/1.1000. In the near term, the price may fall to 1.0860 (if settles below 1.1000) suggested by the corrective A-B-C wave structure.

If the price starts moving higher, key resistance level to watch out for are 1.1140 and 1.1180. A decisive break out above 1.1085 could allow the bulls to raise the headroom towards its 50MA.

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View: Ahead of the ECB meeting, we recommend selling on rallies.

It is important to always keep in mind the risks involved in trading with leveraged instruments.
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KeyToMarketsUK

Well-known member
424 0
KTM FX Weekly: EURUSD gains short-lived


Ifo business climate and US core PCE among top-tier events to keep forex traders busy. Events wise several scheduled speeches from ECB and Fed officials due this week. Behind the past two-week central bank meetings, traders shift the focus back to macro data. On top of these, the financial markets will continue to focus on the US-China headlines

The ECB and Fed delivered a rate cut which was widely expected. After last week’s Fed rate cut, the financial markets have reduced their bets on another cut in the next monthly meeting.
At the press conference, Draghi has emphasized the importance of the fiscal stimulus. Financial markets are expecting a fiscal stimulus in 2020, which can strengthen the euro.
Before fiscal stimulus happened, we expect the EURUSD to fall to 1.0850 and 1.0600 levels, suggested by the corrective A-B-C structure.
  • Danske Bank said, “We doubt very much that the ECB’s new package will succeed in jumpstarting the euro area economy and send inflation higher.” Also said, “The economic cycle is still pointing downward, the German economy being a particular case in point. The economy contracted by 0.1% in the second quarter and Germany will likely see negative growth and go into technical recession in the third quarter. Very likely, the next step could be unemployment beginning to climb as already seen in Sweden.”.
  • UBS said, “The ECB cut deposit rates by 10 basis points and announced a second quantitative easing program. But we think the economic impact of the ECB’s easing package is likely to be marginal due to its size, and is unlikely to move Eurozone stocks much higher from here.”
Data review: Last week data releases were mixed with ZEW Indicator of Economic Sentiment for Germany experienced a sharp rise in September 2019, making up for the significant decline witnessed in August according to ZEW, EA annual inflation stable in August whereas EA PMIs continue to fall in September. The weaker PMI data suggest more ECB easing is expected in the next meeting (October).
  • ZEW indicators currently standing at minus 22.5 points, the indicator climbed 21.6 points compared to the previous month, according to the official release.
  • The euro area annual inflation rate was 1.0% in August 2019, stable compared to July. A year earlier, the rate was 2.1%.
  • Flash Eurozone Manufacturing PMI at 45.6, which was significantly less than 47.0 in August. 83-month low. Flash Eurozone Services PMI Activity Index at 52.0 was less than 53.5 in August. 8-month low.
Data preview: Behind the past two-week central bank meetings, traders shift the focus back to macro data.
Moody Analytics said, “The Trade War, China Slowdown and Brexit Weigh on Europe.”

Ifo (Tue) are the only data points for the common currency.
Draghi is due to testify about the economy and monetary policy before the European Parliament Economic and Monetary Affairs Committee, in Brussels.

TECHNICAL VIEW

The weak daily volatility and the bearish turnaround of the daily stochastic should cap the rallies in the coming days. Against this backdrop, a lasting break of the 1.0960 level sounds tricky, and we rather fear a decline to the double bottom located at 1.0925.

Note, that a break below these levels would underpin bearish momentum, paving the way for a decline to 1.0850 initially and even to 1.0820 levels its 78.6 fib reaction.
The resistances stand at 1.1025 and 1.1075 levels.

Also read EURGBP bullish forecast in our KTM blog
http://www.keytomarkets.com/blog/blog/ktm-fx-weekly-we-could-be-one-two-weeks-from-reaching-a-near-term-bottom/

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Leveraged funds heavily added net EUR/USD shorts, according to the Danske Bank.

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It is important to always keep in mind the risks involved in trading with leveraged instruments.

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KeyToMarketsUK

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424 0
KTM Crypto Daily: Bitcoin has now nearly completed wave C; what’s next?

  • Cryptocurrencies tumble between 15.00%-20.00% overnight.
  • Bitcoin plummeted 15.00% to $7890, closed at the lowest level since June 2019.
  • The descending triangle breakdown suggests more legroom.
The digital asset class dropped on Tuesday a few days after Bitcoin futures launched on NYSE. The most traded cryptocurrency Bitcoin fell $1770 or 15% to end at $8520, while Dashcoin and Ethereum dropped 20.00% and 18.00$ respectively.
“The owner of the New York Stock Exchange launched its long-delayed market for bitcoin futures Sunday, a high-profile bet that consumers, businesses, and Wall Street will embrace cryptocurrencies.” WSJ reported.
“The New York Stock Exchange, launched its bitcoin futures contracts as a way to usher in investors who have been hesitant about trading cryptocurrency. Those futures are “physically deliverable,” meaning they pay out in bitcoin instead of those from ICE competitor CME Group, which introduced its own futures contracts two years ago that pay out in cash.” CNBC reported.
Continuous selling pressure dragged the cryptocurrencies to the key support levels.
It’s possible to make the case that the Bitcoin has now nearly completed wave C in an A-B-C corrective structure.
  • A-B-C structure: 9974-9015-12310 points to $7550
  • A-B-C structure: 12310-9254-10933 points to 7890$, overnight low.
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The market appears to have completed a 3- wave sequence from June 2019 high, which we forecast the level of $7550 on mid-August.

It the above is the correct interpretation, everything since the June 2019 high should be considered within the context of a corrective process. Bottom of the range is down at $7890-7550. Breaking lower than $7550 would further confirm the broader downside bias and open up the possibility of $7000 its 200MA and 20MA (Monthly).
Whereas by considering the descending triangle chart pattern, the price may go as far as below $5000 level, the lowest level since April 2019.

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It is important to always keep in mind the risks involved in trading with leveraged instruments.

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A KTM Analyst is ready to assist you, click on the comment section below

 

KeyToMarketsUK

Well-known member
424 0
KTM Commodity Weekly: Waiting for a clue
  • Oil prices eased on mini-trade deal between the US and China
  • Supply-demand issue takes a back seat, Global growth concerns surfaces
Brent crude oil broke its three-week losing streak posted a healthy gain last week. The price bounced up to $60.45 on Friday, but lowered on Monday, traced out a double top pattern formation. We expect dips to the 200MA (Weekly) level and parallel support located at $57.15 to continue to draw bargain hunting, as we have seen the case for the past two weeks and mid-August as well. Whereas, upside should be capped at $60.50 its 20MA.

The price may fall into a range of 60.50 and $55.70 identified as a double bottom.

It’s possible to make the case that Brent oil has now entered a consolidation phase. If that’s the correct interpretation, everything since early October should be considered within the context of a technical bounce. The bottom of the range is located at $57.15 and $555.75. Breaking lower than $55.70 would further confirm the broader downside bias and open up the possibility of $50.75 and $50.00 levels.

The relative strength index (RSI) indicator is not showing any strength, suggests a consolidation phase, whereas the oscillator has been bullish. If it starts moving higher, watch out for $61.80 and $63.00 levels.

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Oil traders are waiting for clues, US inventory data to be released tomorrow. Last week’s mini-deal between US-China has been keeping the cap on prices besides global growth concerns is over the surface.

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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A KTM Analyst is ready to assist you, click on the comment section below

 

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