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Tailwind: the pound seeks to sail away from the political and economic turmoil

The British currency remains relatively calm this week, expecting, along with the US, a report on the consumer price index in America. An additional factor of pressure for the pound was the thunderclouds on the political horizon of the UK, due to the election of the prime minister.

Markets are focused on the election race in the UK, the favorite of which is Liz Truss, the foreign secretary. She claims the place of Boris Johnson, who was forced by the Conservative Party to resign as prime minister and its leader. The important points of the election program of Truss were the rejection of family benefits and tax cuts for citizens. In addition, the Minister of Foreign Affairs proposed to limit the influence of the Bank of England on the country's economy.

Many analysts assess the current political situation in the UK as a crisis, which is exacerbated by economic turmoil. Recall that last week, the BoE raised interest rates by 50%, but this had little effect on inflation in the country. It should be noted that the central bank began the fight against inflation in December 2021 and since then has systematically raised rates at each of the subsequent six meetings. As a result, by the beginning of the summer, inflation in the UK amounted to 9.4%. According to the BoE's forecasts, it will peak in October, soaring to 13.3%. Against this background, by the end of 2022, the UK economy will enter a recession that will last five quarters.

However, many experts disagree with this view. Currency strategists at Oxford Economics assess the risks of a recession as small, despite the current instability. According to economists, in 2023 the key rate cut by the BoE is more likely. At the same time, the central bank's actions aimed at reducing rates are slowing down economic activity in the UK. Against this backdrop, the GBP is under tremendous pressure, risking to collapse, currency strategists at Societe Generale believe.

At the end of July, the British currency showed growth, waiting for the Federal Reserve to abandon the overly aggressive tightening of the monetary policy. However, this did not happen. On the contrary, the US central bank is quite resolute, and it is supported by the hawkish mood of US officials. Against this background, the pound's recovery was interrupted, releasing the latter into free swimming on the waves of the financial market. The pound has slipped 10% against the dollar since the beginning of this year, placing it in the top three worst currencies among the G-10. The reason is the low pace of rate hikes by the BoE compared to the Fed's anticipatory actions.

According to analysts at Societe Generale, in the near future, the pound will fall to its lowest level since the collapse at the beginning of the COVID-19 pandemic. Additional pressure on the pound is created by the BoE's recent announcement about a possible recession and growing expectations of another rise in interest rates in the US (by 75 bps). In such a situation, the pound may sink to 1.2000 and below. If the bearish trend for the pound continues, the GBP/USD pair will fall to 1.1400-1.2000, according to Societe Generale.

The pair was close to 1.2100 on Tuesday, August 9 and even peaked at 1.2130, but failed to consolidate on these positions. The GBP/USD pair was trading in the range of 1.2069-1.2070 on Wednesday morning, August 10. At the same time, the greenback showed mixed dynamics, as market participants expect July reports on the US consumer price index.

According to updated forecasts for the British currency, in the short term it will maintain support against the US. However, the high likelihood of interest rate cuts by the BoE in 2023 is putting downward pressure on the pound. At the same time, according to analysts at Oxford Economics, in the near future the central bank will raise interest rates amid galloping inflation, thereby contributing to the pound's growth. However, in the long term, the BoE may revise the current monetary strategy, according to Oxford Economics.

UK GDP data for the second quarter of 2022 will be released this Friday, August 12. According to preliminary estimates, this indicator is expected to slow down to 2.8% in annual terms. Against this background, pessimism dominates the markets. In addition, on a quarterly basis, GDP is projected at -0.2%. Earlier, an increase of 0.8% was recorded in the first quarter of 2022. If the current GDP turns out to be weaker than expected, then the pound's decline is inevitable.

The pound may be supported by the dollar's retreat across the entire spectrum of the market. In such a situation, the pound is able to stay afloat. According to preliminary forecasts, in the third quarter of 2022, the GBP/USD pair will remain close to 1.2000 and may reach 1.2200, and by the first quarter of 2023 it will rise to 1.2300.

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US stock market closes higher, Dow Jones gains 1.63%

At the close of the New York Stock Exchange, the Dow Jones rose 1.63% to a 3-month high, the S&P 500 rose 2.13% and the NASDAQ Composite rose 2.89%.

The leading performer among the components of the Dow Jones index today was Walt Disney Company, which gained 4.30 points or 3.98% to close at 112.43. Salesforce.com Inc rose 6.37 points or 3.50% to close at 188.61. Goldman Sachs Group Inc rose 11.29 points or 3.35% to close at 347.91.

The losers were Merck & Company Inc, which shed 0.33 points (0.37%) to end the session at 89.19. UnitedHealth Group Incorporated was down 0.46 points (0.09%) to close at 537.72, while Walmart Inc was up 0.27 points (0.21%) to close at 129. fourteen.

Among the gainers among the components of the S&P 500 in today's trading were Norwegian Cruise Line Holdings Ltd, which rose 11.82% to 13.53, Royal Caribbean Cruises Ltd, which gained 9.74% to close at 41. 67, as well as shares of Carnival Corporation, which rose 9.19% to end the session at 10.34.

The biggest losers were CME Group Inc, which shed 2.24% to close at 198.40. Shares of Dollar Tree Inc shed 1.76% to end the session at 165.97. Quotes Ralph Lauren Corp Class A fell in price by 1.29% to 95.52.

Leading gainers among the components of the NASDAQ Composite in today's trading were Bioatla Inc, which rose 83.10% to hit 6.61, Amyris Inc, which gained 41.92% to close at 3.25, and Infinity Pharmaceuticals Inc, which rose 39.19% to end the session at 1.03.

The biggest losers were Redbox Entertainment Inc, which shed 52.86% to close at 1.65. Shares of OPTIMIZERx Corp lost 30.02% and ended the session at 15.57. Quotes of IsoPlexis Corp fell in price by 30.00% to 2.10.

On the New York Stock Exchange, the number of securities that rose in price (2685) exceeded the number of those that closed in the red (468), while quotations of 102 shares remained practically unchanged. On the NASDAQ stock exchange, 2934 stocks rose in price, 819 fell, and 241 remained at the level of the previous close.

The CBOE Volatility Index, which is based on S&P 500 options trading, fell 9.32% to 19.74, hitting a new 3-month low.

Gold futures for December delivery lost 0.28%, or 5.15, to hit $1.00 a troy ounce. In other commodities, WTI crude for September delivery rose 1.14%, or 1.03, to $91.53 a barrel. Brent oil futures for October delivery rose 0.74%, or 0.71, to $97.02 a barrel.

Meanwhile, on the Forex market, EUR/USD rose 0.88% to hit 1.03, while USD/JPY shed 1.63% to hit 132.93.

Futures on the USD index fell 1.09% to 105.10.

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The music did not play for long, the yen danced for a short time

The dollar is getting up from its knees after a crushing fall on Wednesday. The yen is currently feeling the greatest pressure from the greenback, which showed the strongest growth on the US inflation data the day before.

The market freaked out

By the end of the week, investors continue to digest the July statistics on US inflation. Recall that the data turned out to be cooler than forecasts, which caused a large-scale sell-off of the dollar.

Last month, annual inflation in the US fell from the previous value of 9.1% to 8.5%, although economists had expected the CPI to fall to 8.7%.

A significant easing of inflationary pressures has increased fears that the Federal Reserve may reduce the degree of its aggressiveness with respect to interest rates already at the September meeting.

The reaction of the market was lightning-fast and very emotional: the yield of US government bonds fell sharply, followed by a plunge in the dollar. The DXY index sank 1.5% to a low of 104.646 on Wednesday.

The dollar's weakness provided support to all major currencies, but the yen gained the most in this situation. The yen soared by more than 1.6% against its US counterpart, to a mark of 135.

The dollar is gaining momentum

After a loud fall on Wednesday, the yield of 10-year US government bonds turned towards growth yesterday. It rose by 3.41% during the day and reached a new high of 2.902%.

The sharp increase in the indicator again widened the gap between the yields of US treasury bonds and their Japanese counterparts.

The yen, which is very sensitive to this difference, could not resist the pressure and moved to decline.

The USD/JPY pair managed to recover by 0.12% to 133.19 on Thursday. It was also supported by the general strengthening of the dollar.

The greenback grew by 0.1% against its main competitors. Its index remained almost unchanged and stayed at 105.2 during the day.

Yesterday's comments by Federal Reserve members contributed to the reversal of the yield of US government bonds and the dollar. Despite the slowdown in inflation in July, the tone of officials still remains hawkish.

Neil Kashkari, president of the Federal Reserve Bank of Minneapolis, said that the latest CPI data did not change his expectations about the Fed's future course.

In addition, he stressed that the central bank is still very far from declaring victory over inflation.

The head of the San Francisco Federal Reserve, Mary Daly, was in solidarity with her colleague. She also does not rule out the continuation of the Fed's hawkish policy, unless, of course, the next portions of macro data will favor such a sharp increase.

Recall that the key Fed's goal is to bring interest rates from the current level of 2.25–2.5% to 4% by the end of the year.

Some analysts believe that the central bank will try to solve this problem as soon as possible, and predict another rate increase of 75 bps at a meeting in September.

Why does the yen have no chance?

This year the dollar index rose by 10%. The greenback received such a solid increase thanks to the aggressive policy of the Fed.

Since March, the US central bank has raised interest rates by 225 bps. This makes it the undisputed leader: none of the major central banks can compete with the Fed in the pace of tightening.

But the biggest divergence in monetary policy right now is between the US and Japan. Despite the global increase in rates, the Bank of Japan is still bending its line and continues to keep the rate at a low level.

The priority for the Japanese central bank is not to fight inflation, but to restore the economy, which has been hit hard by the COVID-19 pandemic.

Unlike the US and EU, which have already managed to get out of the crisis caused by the coronavirus, the Japanese economy is just beginning to show signs of recovery.

According to preliminary estimates, in the second quarter, Japan's annual GDP could show growth of 2.7%, which is in line with pre-pandemic indicators.

Statistics on the gross domestic product will be published on Monday. But even if the data turns out to be positive, it most likely will not affect the policies of BOJ Governor Haruhiko Kuroda in any way.

Many experts are inclined to believe that the head of the BOJ will not give up his commitment to a super-soft monetary rate. The main argument in its favor now will be the low wages remaining in the country.

At this stage, salaries in Japan are far behind the rate of inflation, which undermines the purchasing power of citizens.

Another big reason to keep rates low is the coronavirus statistics. Japan is at the epicenter of a new COVID-19 outbreak, posing a major threat to the world's third largest economy.

According to economists at the Japan Research Institute, the BOJ's position can be changed to hawkish only after Kuroda leaves his post.

Given that he is due to retire no earlier than April 2023, one can estimate how long the downward trend promises to be for the yen.

Analysts at the Finnish bank Nordea predict that the USD/JPY pair will continue to strengthen on the tight policy of the Fed and reach the level of 140 in the foreseeable future.

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US stocks closed higher, Dow Jones up 1.27%

At the close of the New York Stock Exchange, the Dow Jones rose 1.27% to a 3-month high, the S&P 500 rose 1.73% and the NASDAQ Composite rose 2.09%.

The leading performer among the components of the Dow Jones index today was Walt Disney Company, which gained 3.88 points or 3.30% to close at 121.57. Merck & Company Inc rose 2.09 points or 2.35% to close at 91.02. Apple Inc rose 2.15% or 3.63 points to close at 172.12.

The biggest losers were Johnson & Johnson, which shed 1.84 points or 1.10% to end the session at 165.30. Amgen Inc was down 0.04 points (0.02%) to close at 248.39, while Visa Inc Class A was up 0.25 points (0.12%) to close at 211. .33.

Leading gainers among the S&P 500 index components in today's trading were Broadridge Financial Solutions Inc, which rose 7.93% to hit 183.19, Albemarle Corp, which gained 5.98% to close at 281.60, and also shares of Penn National Gaming Inc, which rose 5.90% to close the session at 37.70.

The biggest losers were Illumina Inc, which shed 8.40% to close at 208.32. Shares of PerkinElmer Inc lost 1.89% to end the session at 157.91. Quotes of Organon & Co decreased in price by 1.34% to 30.99.

Leading gainers among the components of the NASDAQ Composite in today's trading were Embark Technology Inc, which rose 84.80% to hit 1.07, Twin Vee Powercats Co, which gained 77.50% to close at 7.10. as well as AN2 Therapeutics Inc, which rose 64.66% to close the session at 19.38.

The drop leaders were Performance Shipping Inc, which shed 44.88% to close at 0.34. Shares of PLx Pharma Inc shed 36.68% to end the session at 1.64. Quotes of Imac Holdings Inc decreased in price by 33.36% to 0.63.

On the New York Stock Exchange, the number of securities that rose in price (2517) exceeded the number of those that closed in the red (588), while quotes of 123 shares remained virtually unchanged. On the NASDAQ stock exchange, 2,762 companies rose in price, 988 fell, and 200 remained at the level of the previous close.

The CBOE Volatility Index, which is based on S&P 500 options trading, fell 3.32% to 19.53, hitting a new 3-month low.

The consumer sentiment index of the University of Michigan, which reflects the degree of household confidence in the US economy, according to preliminary estimates, rose to 55.1 points in August from 51.5 points in July, with an expected increase to 52.5 points.

Gold futures for December delivery added 0.53%, or 9.55, to hit $1.00 a troy ounce. In other commodities, WTI crude for September delivery fell 2.63%, or 2.48, to $91.86 a barrel. Brent oil futures for October delivery fell 1.69%, or 1.68, to $97.92 a barrel.

Meanwhile, on the Forex market, EUR/USD fell 0.57% to 1.03, while USD/JPY edged up 0.39% to hit 133.52.

Futures on the USD index rose 0.54% to 105.56.

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Dollar took revenge after the euro rose. Will the EUR/USD pair get stuck in a bearish swamp?

The US currency is full of energy, which it has shown during the rise in the EUR/USD pair. However, experts do not exclude that the European currency will be able to outperform its competitor, but only in a short run. According to experts, at the moment the greenback is one of the most reliable assets that have confirmed the status of a safe-haven currency. The US currency was near a weekly high on Tuesday, August 16, while many key currencies remained under pressure. The reason is the deterioration of global economic data, which increased the risks of a recession.

Against this backdrop, the euro rate against the dollar reached six-week highs, exceeding the psychologically important milestone of 1.0200. The euro traded above the indicated level at the beginning of this week, but then fell to the critical 1.0157. The EUR/USD pair showed the effects of a collapse on Tuesday morning, August 16, hovering near 1.0160 amid strong USD buying pressure.

According to analysts, in the near future the single currency will be supported by the weakening of the greenback and the easing of China's monetary policy. Earlier, the euro strengthened to its highest level in the last month, soaring after the release of data from the US Bureau of Labor Statistics. The reason is the likelihood of lower inflationary pressures.

However, many experts are pessimistic about the medium and long-term prospects for the euro. Currency strategists are sure that the trend towards the weakening of the single currency will last until the end of 2022 - the beginning of 2023. Fueling the fire are fears of a recession as Germany's energy crisis deepens. The specialists expect a long downward trend in EUR due to energy problems and economic disunity in the euro bloc countries. According to forecasts, in the short term, the EUR/USD pair will head towards 0.9600. Experts also allow the euro to stagnate against other world currencies.

However, the single currency's chances to win back will increase if the European Central Bank raises the key rate by 50 bps at the September meeting. In such a situation, a short-term rise in the euro in the range of 1.0400-1.0500 is possible. The euro will be supported by the reduction of interest rates by the People's Bank of China (PBOC). This measure will be aimed at strengthening the national economy, experts emphasize. Recall that on Monday, August 15, the market faced disappointing statistics on business activity in China, which included industrial production, retail sales and investment in fixed assets. Against this background, investors preferred to invest in the dollar, saving their capital due to increased concerns about the growth of the global economy.

The mass exodus of markets in USD is also due to the expectation of the release of the minutes of the FOMC meeting, scheduled for Wednesday, August 17th. According to analysts, the document may contain information demonstrating the Federal Reserve's intentions regarding future rate hikes. This minutes is able to influence the market assessment of the September Fed rate hike, which will ultimately affect the greenback's dynamics.

In a recent Fed speech, it was noted that "a significant change in interest rate policy" is still far away. However, such changes are not far off, Barclays economists believe. The bank's specialists adhere to the current forecast for the interest rate, which provides that the central bank will increase it by 50 bps in September, and in November and December 2022 it will be reduced to 25 bps. The current minutes of the Fed's meeting, due out on Wednesday, will be a turning point for determining the near-term outlook for the market amid uncertainty about monetary policy and how to fight inflation further.

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American stock indices change weakly and in different directions

As it became known from the report of the US Department of Commerce, the number of houses, the construction of which was started in the country in July, decreased by 9.6% compared to the previous month and amounted to 1.446 million in annual terms. The figure was the lowest since February last year. According to the revised data, in June the number of new buildings amounted to 1.599 million, and not 1.559 million, as previously reported. Experts predicted a decline to 1.54 million from the previously announced level in June.

US industrial output rose 0.6% month-on-month in July, doubling the 0.3% rise expected by analysts. According to the revised data, industrial production did not change in June, while a decrease of 0.2% was previously reported.

Production in the processing industry increased by 0.7% compared to June, while experts expected a more moderate growth of 0.2%. A month earlier, the indicator fell by 0.4%, and not by 0.5%, as previously reported. In addition, investors are waiting for the publication of the minutes of the July meeting of the Federal Reserve on Wednesday and the report on retail sales in the US on Friday. Also this week, many leading US retailers publish quarterly reports.

AJ Bell financial analyst Danny Hewson noted that many US investors have taken a wait-and-see attitude, hoping to get new information from the Fed's minutes and retailers' reports, on the basis of which it is possible to understand what exactly consumers are saving on during a period of high inflation.

The value of the Dow Jones Industrial Average by 16:47 GMT+3 increased by 0.05% - up to 33930.76 points.

Standard & Poor's 500 has fallen 0.11% since the market opened to 4292.49 points.

The Nasdaq Composite dropped 0.35% to 13,081.46.

Shares of Walmart Inc. jumped by 5.5%, being the leader of growth in the Dow Jones index. The largest US retailer posted a strong quarterly report and improved its full-year outlook. Walmart's adjusted earnings for the fiscal quarter ended July 31 were $1.77 per share, above analysts' forecast of $1.62 per share. Revenue increased by 8.4% and reached $152.86 billion, while experts on average predicted the figure at $150.99 billion.

Quotes Home Depot Inc. increase by 1.4%. The US-leading home improvement chain posted record revenues and net income in the quarter, even though the number of purchases at its stores fell by 3%.

Target and Lowe's will report on Wednesday, while department store chain Kohl's will report on Thursday.

World Wrestling Entertainment's share price is up 3.2% after the wrestling tournament organizer increased net profit and revenue slightly more than market expectations in the second quarter of 2022.

Shares of Warner Bros. Discovery shed 0.3% on rumors of new cost-cutting measures. In particular, the staff of the subsidiary streaming service HBO will be reduced by about 14%.

Zoom Video Communications' capitalization fell 5.6% after Citi analysts downgraded the recommendation for the company's shares to "sell" from "neutral" levels.

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Wall Street stocks closed lower

The minutes also indicated that Fed officials saw no convincing evidence of easing inflationary pressures in July, suggesting inflation could take longer than expected to slow down.

In an effort to curb inflation, the Fed has already raised its key interest rate by 225 basis points this year. After the release of the protocols, traders in futures linked to the Fed rate estimated its increase by 50 basis points as more likely.

Before the release of protocols, the market was already trading with a significant decline. Growth indices were under pressure due to the weak results of Target's retail chain.

As a result of trading on Wednesday, the Dow Jones Industrial Average fell 0.5% to 33980.32 points, the S&P 500 - 0.72% to 4274.04, and the Nasdaq Composite - 1.25% to 12938.12 points.

Target Corp. stock quotes. decrease by 2.2%. The company, which owns the second-largest discount store chain in the US, posted a nearly 10-fold drop in net income in the second financial quarter due to forced markdowns that hurt its margins.

Shares of TJX Cos. rise in price by 0.4%. The American chain of discount stores in the 2nd quarter of fiscal 2023 increased its net profit by 3%, but revenue fell short of expectations.

Price of Lowe's Cos. grows by 2.1%. The company, which owns the second-largest home improvement store chain in the US, saw a 1% drop in net income in the second quarter of fiscal 2022, but the per-share figure was better than market expectations.

Papers Krispy Kreme Inc. cheaper by 11.9%. The American chain of coffee shops, known for its donuts, cut its net loss in the 2nd fiscal quarter by 4.5 times, increasing revenue by 7.5%. Meanwhile, the company noted that consumers faced unique economic pressures in the past quarter and downgraded its forecasts for the current fiscal year.

The share price of Endo International Plc increases by 0.8%. An international pharmaceutical company has filed for bankruptcy in a US court to deal with its debt load due to litigation related to the so-called "opioid case".

Published by the US Department of Commerce, statistical data indicated that retail sales in the United States in July did not change in monthly terms.

Analysts polled on average predicted an increase of 0.1%.

Sales rose 0.8% in June, up from the 1% previously announced, according to revised data.

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Yen - cover: the dollar broke the chain

Yesterday, the greenback showed a parabolic growth against the yen. The USD rocket rise continues on Friday morning. Dollar aims to renew monthly peak against Japanese currency.

Hawk fuel for USD

The greenback showed convincing growth on all fronts on Thursday. Its index rose by 0.12% and reached the highest value for the month - a mark of 107.6.

The Federal Reserve minutes, which were published on Wednesday, served as a powerful driver for the dollar.

The minutes of the July meeting of the FOMC showed that at this stage the majority of the members of the US central bank are in favor of continuing the aggressive monetary course.

The greenback received even greater impetus yesterday after an interview with the president of the Federal Reserve Bank of San Francisco, Mary Daly.

The official told CNN reporters that it is still too early to declare a victory over inflation and it would be appropriate to raise the interest rate by 50 or even 75 bps in September.

Recall that after the release of the minutes, futures markets took into account the fears of FOMC members about the impending recession and reduced the likelihood of raising rates by 75 bps next month up to 40%.

However, Daly's comment stirred up the water again. For many, it has become obvious that we should not completely rule out the possibility of a third consecutive increase in rates by 75 bps.

Despite the risk of a slowdown in economic growth and an easing of inflationary pressures in July, the Fed may once again deliver a hawkish surprise. Such a scenario is very fertile ground for the dollar.

Increasing pressure on the JPY

The discrepancy between the US Fed's aggressive stance and the ultra-loose monetary policy of the Bank of Japan has led to a serious drop in the yen this year.

The JPY has fallen 15% against the dollar since January. This is the strongest decline of the Japanese currency against the USD since 2013.

Despite the recent recovery, the yen is still struggling to come off a 24-year low. And apparently, in the near future it will not shine.

Strengthening hawkish sentiment on the Fed's future strategy pushed USD/JPY yesterday to a 3-week high of 136.38.

This morning, the asset continues to move steadily upward to a monthly peak of 137, as additional pressure on the yen comes from the release of inflation statistics in Japan.

As the report showed, inflation in the country continues to remain above the BOJ target, which is 2%. In July, the core consumer price index on an annualized basis jumped to 2.4% against the June value of 2.2%.

This is the highest figure since the end of 2014. The inflation rate in Japan has risen for the past four months in a row.

Despite the fact that price pressure continues to increase, this is unlikely to force the BOJ to change its rhetoric.

Today, the Japanese central bank is the only one among the major central banks that still adheres to dovish tactics.

While its peers are actively fighting inflation by raising interest rates, the BOJ keeps the figure at an ultra-low level of 0.1%.

The head of the Japanese central bank, Haruhiko Kuroda, has repeatedly stated that the current inflation is due to rising commodity prices, which indicates its temporary nature.

In addition, inflation in Japan remains relatively low compared to other major countries. For this reason, Tokyo is in no hurry to raise interest rates so as not to harm its already fragile economy after the COVID-19 pandemic.

Fighting inflation Japan is now helping government measures to limit price increases. Through this, and through planned wage increases, the authorities hope to generate robust consumer demand that should help the economy recover.

Nevertheless, experts believe that wage growth, no matter how strong it may be, will not be able to catch up with inflation, which risks accelerating to 3% by the end of the year.

Japan is forecast to see further depreciation of the yen, an increase in the cost of living and a significant reduction in consumer spending until the BOJ begins to take really effective measures to combat inflation.

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US stock markets opened 0.5-1% lower

In the absence of important statistics, investors are looking at quarterly reports and other corporate news, as well as statements from Fed officials.

The value of the Dow Jones Industrial Average by 16:54 GMT+3 fell by 0.71% - to 33758.39 points. Among the leaders of the decline in the index are the shares of Boeing Co., Walt Disney Co. and Salesforce Inc., depreciating more than 2%. Merck & Co. papers are the growth leader, rising in price by 1%.

Standard & Poor's 500 has fallen 1.03% since the market opened to 4239.44 points. The Nasdaq Composite fell 1.58% to 12,760.13 points.

Shares of Deere & Co. fell by 2.9% after the world's largest manufacturer of agricultural machinery and equipment reported a net profit growth in the 3rd financial quarter, weaker than market expectations and worsened its full-year forecast.

Quotes from US sportswear and footwear retailer Foot Locker Inc. soared by 22%. The company published a strong statement for the past financial quarter and announced the resignation of the chief executive officer.

The market value of General Motors Co. rises 2.1% on news that the company will resume paying quarterly dividends, suspended in April 2020 due to uncertainty caused by the COVID-19 pandemic.

Bed Bath & Beyond plunged 42% after reports that prominent billionaire investor Ryan Cohen sold his entire stake in the retailer for a profit of more than $58 million.

Capitalization of Home Depot Inc. declined 0.6% despite the fact that the board of directors of the home improvement chain has approved the launch of a $15 billion share buyback program.

The head of the Federal Reserve Bank of St. Louis, James Ballard, said on Thursday that he could support another rate hike by 75 basis points at the September meeting of the US Central Bank. At the same time, he added that, in his opinion, the economy has not yet overcome the peak of inflation.

Meanwhile, San Francisco Fed colleague Mary Daly said that to curb inflation, the rate needs to be raised to just above 3% by the end of the year, but opposed an aggressive tightening next year.

The market is still waiting for a 50 basis points rate in September, however, there are growing fears that the rate will be raised by 75 basis points.

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US stock market closed lower, Dow Jones down 1.91%

At the close in the New York Stock Exchange, the Dow Jones fell 1.91%, the S&P 500 fell 2.14%, and the NASDAQ Composite fell 2.55%.

Procter & Gamble Company was the leading gainer among the components of the Dow Jones in today's trading, shedding 0.40 points (0.27%) to close at 149.33. Quotes Johnson & Johnson fell by 0.59 points (0.35%), ending trading at 167.59. Chevron Corp lost 0.79 points or 0.50% to close at 156.90.

The losers were shares of Intel Corporation, which lost 1.54 points or 4.35% to end the session at 33.84. Salesforce.com Inc. shares rose 3.69% or 6.79 points to close at 176.98, while Walt Disney Company shed 3.50% or 4.20 points to close at 115.94.

Leading gainers among the S&P 500 index components in today's trading were The Mosaic Company, which rose 3.44% to hit 55.36, Albemarle Corp, which gained 2.12% to close at 275.75, and shares of CF Industries Holdings Inc, which rose 2.07% to close the session at 105.64.

The biggest losers were Warner Bros Discovery Inc, which shed 7.43% to close at 12.71. Shares of Aptiv PLC lost 7.28% to end the session at 96.22. Quotes of CarMax Inc decreased in price by 6.66% to 89.86.

Leading gainers among the components of the NASDAQ Composite in today's trading were Bright Minds Biosciences Inc, which rose 72.80% to 2.16, Anpac Bio Medical Science Co Ltd, which gained 66.01% to close at 0 .36, as well as Summit Therapeutics PLC, which rose 48.18% to close the session at 1.63.

The biggest losers were Advanced Emissions Solutions Inc, which shed 39.78% to close at 3.86. Shares of Pharvaris BV lost 34.07% and ended the session at 12.14. Quotes of Golden Sun Education Group Ltd decreased in price by 29.18% to 36.01.

On the New York Stock Exchange, the number of securities that fell in price (2581) exceeded the number of those that closed in positive territory (554), while quotes of 112 shares remained virtually unchanged. On the NASDAQ stock exchange, 2,905 stocks fell, 867 rose, and 206 remained at the previous close.

The CBOE Volatility Index, which is based on S&P 500 options trading, rose 15.53% to 23.80.

Gold futures for December delivery lost 0.84%, or 14.75, to hit $1.00 a troy ounce. In other commodities, WTI October futures rose 0.06%, or 0.05, to $90.49 a barrel. Brent oil futures for October delivery fell 0.07%, or 0.07, to $96.65 a barrel.

Meanwhile, in the Forex market, EUR/USD was down 0.90% to hit 0.99, while USD/JPY was up 0.42% to hit 137.50.

Futures on the USD index rose 0.72% to 108.88.

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US stocks closed lower, Dow Jones down 0.47%

At the close of the New York Stock Exchange, the Dow Jones fell 0.47%, the S&P 500 fell 0.22%, and the NASDAQ Composite fell 0.03%.

Chevron Corp was the top gainer among the components of the Dow Jones index today, up 5.09 points or 3.24% to close at 161.99. Quotes of Caterpillar Inc rose by 5.45 points (2.84%), closing the session at 197.21. Dow Inc rose 1.21 points or 2.22% to close at 55.62.

The biggest losers were Procter & Gamble Company, which shed 2.88 points or 1.93% to end the session at 146.45. Home Depot Inc climbed 1.70% or 5.31 points to close at 306.90 while UnitedHealth Group Incorporated shed 1.61% or 8.77 points to close at 535 .80.

Leading gainers among the S&P 500 index components in today's trading were Halliburton Company, which rose 6.95% to hit 31.22, Occidental Petroleum Corporation, which gained 6.90% to close at 73.79, and shares of Schlumberger NV, which rose 6.61% to close the session at 39.36.

The biggest losers were shares of Twitter Inc, which shed 7.32% to close at 39.86. Shares of Pool Corporation shed 3.72% to end the session at 360.63. Quotes Healthpeak Properties Inc fell in price by 3.16% to 26.93.

Leading gainers among the components of the NASDAQ Composite in today's trading were Reviva Pharmaceuticals Holdings, Inc., which rose 53.04% to 1.49, Windtree Therapeutics Inc, which gained 52.21% to close at 0. 70, as well as shares of China Index Holdings Ltd., which rose 42.86% to close the session at 1.00.

The drop leaders were WeTrade Group Inc, which shed 39.02% to close at 3.22. Shares of Golden Sun Education Group Ltd lost 38.06% and ended the session at 21.99. Quotes of Bright Minds Biosciences Inc decreased in price by 38.43% to 1.33.

On the New York Stock Exchange, the number of securities that rose in price (1,552) exceeded the number of those that closed in the red (1,531), while quotes of 123 shares remained virtually unchanged. On the NASDAQ stock exchange, 1897 companies rose in price, 1846 fell, and 197 remained at the level of the previous close.

Shares in Occidental Petroleum Corporation surged to a 3-year high, rising 6.90% or 4.76 points to close at 73.79.

The CBOE Volatility Index, which is based on S&P 500 options trading, rose 1.30% to 24.11.

Gold Futures for December delivery added 0.71%, or 12.35, to $1.00 a troy ounce. In other commodities, WTI October futures rose 3.62%, or 3.27, to $93.63 a barrel. Brent futures for October delivery rose 3.81%, or 3.68, to $100.16 a barrel.

Meanwhile, in the Forex market, the EUR/USD pair was unchanged 0.28% to 1.00, while USD/JPY fell 0.51% to hit 136.76.

Futures on the USD index fell 0.47% to 108.47.

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GBP/USD: "Disappointing" pound at the peak of undervaluation

There is a paradoxical situation in the dynamics of the British currency. The pound, which is teetering on the brink of failure and periodically tests low levels, is considered by many experts to be undervalued. This factor helps the pound "float" out of the deepest price drops.

This week, the British currency was actively declining against the USD, trying to develop a bearish rally. As a result, the pound traded near two-year lows, stepping over the 1.1700 support level from time to time. GBP/USD managed to move towards consolidation later this week, breaking a four-day streak of declines and climbing above 1.1800. However, in the short term, pound bears will lose out due to lack of appetite for risk. At the same time, many investors prefer selling GBP, fearing the strengthening of energy problems in the country.

After the release of reports on inflation in the UK, short positions on the British currency intensified. According to reports for July, the consumer price index in the country reached 10.1%, being the highest since 1982. Citi Bank analysts estimate that inflation in the UK will soar to a record 18.6% in January 2023. The reason is a significant increase in prices for blue fuel. According to experts, British inflation will be the highest since the 1979 oil crisis, when its level corresponded to 17.8%. Under such a scenario, the purchasing power of the population will drop sharply. This will trigger a further economic downturn, hurting household finances in the UK.

However, many experts believe that Citi Bank's forecast is extreme, and even the intensification of the energy crisis in the country is unlikely to lead to a sharp round of inflation. This scenario is at odds with the baseline consensus forecast, which assumes inflation to rise to 11.9%, and the Bank of England's estimate (which assumes inflation to rise to 13%). The latter option is quite possible if the new British prime minister introduces another fiscal stimulus.

The current situation has a negative impact on the pound's dynamics, which remains under pressure. The GBP/USD pair cruised near 1.1835 on the morning of Thursday, August 25, gaining momentum. The pound is looking to recoup previous losses with varying degrees of success.

Additional pressure on the dynamics of the GBP has increased fears about the onset of a recession in the UK in the third quarter of this year. In such a scenario, the BoE will have to revise its current monetary policy and slow down the key rate hike. Analysts estimate that the pound is now negatively correlated with interest rates, as the risk of a recession is more important than the potential tightening of monetary policy by the BoE.

On the side of the bears of the British currency - a long-term strengthening of the greenback, which is fueled by the confidence of market players in the further tightening of monetary policy by the Federal Reserve. In addition, investors are convinced that the central bank is set for a significant rate hike in September (by 50-75 bps). The Fed's hawkish stance on this issue will send the dollar to new highs. However, risky assets, including the British currency, will come under pressure. Against this background, experts recommend holding short positions on the GBP/USD pair with 1.1500 as the target.

Currency strategists at the investment bank JPMorgan also adhere to the downward trend against the pound. Analysts expect the pound to fall against the dollar to its lowest level in two years. The reasons are the strengthening of the recession in the UK and the aggravation of the energy crisis due to problems with gas supplies. Against this background, the pound risks falling to 1.1400, the level that was recorded in March 2020.

According to JPMorgan economists, in 2022 the British currency fell by 12% against the US, and this is not the limit. The current situation has made the pound one of the worst G10 currencies in terms of spot returns. However, JP Morgan does not rule out a further recovery of the pound in 2023.

According to experts, risk appetite, the decline in the role of the USD and a fair assessment of the pound stand out among the catalysts for the potential growth of the GBP. Many analysts believe that the pound's undervaluation is a key factor that can prevent its further fall. Over the past 15 years, the deviation of the GBP/USD pair from fair value did not exceed 20%. Currently, the pound is at the peak of undervaluation (by 19.3%). According to experts, the pound may fall even more and remain underestimated for a long time.

According to analysts, the pound retains the potential for further decline, which is possible in the short and medium term planning horizons. The pound may be supported by increased risk appetite and the withdrawal of the greenback from its leading position. However, in light of the strengthening USD, this is unlikely. The pound's appeal for investors is possible amid falling real rates in the US, but now this is unattainable. At current levels, assets denominated in GBP look very cheap for foreign investors, experts conclude.

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Powell vs dollar: will he support or let it float freely?

At the start of the symposium in Jackson Hole, the intrigue about the succeeding dynamics of the dollar increases. Market participants are tensely waiting for what Federal Reserve Chairman Jerome Powell will say and how his speech will affect the current monetary policy and the prospects of the greenback.

At previous symposiums, Powell paid attention to very important issues. In 2020, he announced monetary stimulus for the American economy affected by the COVID-19 pandemic. Last year, the key moment was the statement about the temporary nature of inflation and the curtailment of incentives. Powell's mistake. His stance on inflation has cost the world and American economies dearly, although this situation is fixable.

In 2022, the theme of the event is a reassessment of the current constraints in the economy, namely a large-scale price increase and ways to combat off-scale inflation. Experts are considering two scenarios of Powell's speeches:

1) Basic
The head of the Fed will once again pay attention to extremely high inflation, stressing that the monetary authorities will fight it. The US central bank will do everything possible to maintain economic growth in the United States.

2) Negative
Powell will confirm that the Fed is following the chosen course and is ready to aggressively raise rates to combat inflation. Against this background, the US economy will experience strong pressure. In addition, there may be an increase in yields and a correction in the markets. However, there are no prerequisites for the implementation of the second scenario.

According to experts, Powell's actions will determine the further dynamics of the greenback. Market participants expect that Powell's speech will clarify the immediate prospects of monetary policy. According to analysts, Powell "will try to manage market expectations" while maintaining the hawkish position of the Fed. On Thursday, August 25, at the symposium that began in Jackson Hole, representatives of the Fed confirmed their intention to raise rates and keep them at a high level until inflation weakens. At the same time, investors remain optimistic about the US currency and cautious with a negative bias towards the European one.

The dollar showed confidence this week, gaining momentum after the release of positive macroeconomic data. As a result, in the second quarter of 2022, the US GDP growth rate was revised upward (from -0.9% to -0.6%). At the same time, the number of applications for unemployment benefits decreased more than expected. After the statistics were released, profitability in the US peaked, but then retreated slightly from high levels.

Experts have recorded a steady growth of the greenback over the current year (by 13.5% against a basket of key currencies). The US currency has risen to its highest level in 20 years, while the euro has fallen by about 12% to below parity, which has not been the case for two decades. At the moment, there are many USD bulls on the market betting on its rise. Traders and investors are confident that the dollar has the strength to continue growing thanks to the hawkish attitude of the Fed and inspiring economic indicators in the United States.

Against this background, the European currency is noticeably losing to its American competitor. The energy crisis in Europe and the European Central Bank's unstable stance on raising rates add fuel to the fire. At the same time, most representatives of the central bank support an interest rate hike by 50 bps. However, many investors are deterred by the deteriorating economic prospects of the eurozone and constantly rising inflation. Against this background, the inflationary situation in the United States looks much more stable than on the other side of the ocean.

According to analysts, double-digit inflation in the eurozone is due to the long-term Russian-Ukrainian conflict, which provoked the energy crisis. Economists fear that the euro bloc countries will fall into the so-called "downward spiral of wage and price growth", from which it is difficult to get out. Against this background, long positions on the euro sharply plunged, which was under pressure.

The failures of the European currency play into the hands of the American one, experts emphasize. According to JPMorgan analysts, the greenback was supported not only by "encouraging economic data" on inflation and employment in the United States, but also by the "growing vulnerability" of the European economy. Recall that in July, the consumer price index in the United States rose by 8.5% in annual terms. At the same time, the unexpected increase in the number of jobs reduced market fears about the onset of a recession.

The US currency has received strong support thanks to the Fed's aggressive rate hike. According to investment analysts at U.S. Bank Wealth Management, this trend will continue in the near future. Against this background, the EUR/USD pair maintains a bearish trend, and the euro still looks vulnerable. Experts note the growing downside risks in relation to the euro.

In the short term, the EUR/USD pair is able to test the parity level again. The euro is still showing weakening, having failed to hold the 1.0000 mark. According to experts, the recovery above the level of 1.0030 will support the single currency. However, now it is rapidly sinking. The EUR/USD pair was near 0.9963 on the morning of Friday, August 26. Currently, experts consider the 0.9950 mark to be the support line, the breakdown of which will pull the pair to the low level of 0.9900.

Earlier, currency strategists at Capital Economics announced a prolonged period of the euro's weakness amid deteriorating economic conditions in the eurozone. Against this background, the dollar has every chance of rising, as markets expect the Fed to raise rates again in September. The implementation of such a scenario will increase pressure on the euro. However, any signals from the head of the central bank that the Fed recognizes the stabilization of the inflation rate will allow the markets to interpret what has been said in favor of easing the monetary policy. Misinterpretation of Powell's statements can shake the dollar's position and help the short-term recovery of the EUR/USD pair, experts believe.

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JPY is not a tenant. Powell and Kuroda signed the yen's death sentence

The Japanese currency is flying down at the start of the new week. The reason for the next peak of the JPY is still the same – the divergence in the monetary policy of the Federal Reserve and the Bank of Japan, which intensified after Jackson Hole.

The main event of last week was the annual Fed symposium in Jackson Hole, and its climax was the speech of the chairman of the US central bank.

As expected, Fed Chairman Jerome Powell stressed his firm intention to fight inflation by further raising interest rates.

– The restoration of price stability will take some time and will require the "decisive" use of the central bank's tools, – the official said during his speech at the forum.

The market interpreted this comment as hawkish, which provoked a sharp jump in the yield of US government bonds and, as a result, a large-scale rally of the dollar.

The DXY index updated its 20-year high on Monday morning, jumping to the level of 109.4.

The Japanese currency suffered the most from the strong greenback. In just a couple of hours, the Japanese fell by almost 0.6% and reached a 5-week low of 138.60.

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The current weakness of the JPY is also dictated by the dovish tone of the head of the BOJ. Like his American counterpart, BOJ Governor Haruhiko Kuroda did not present any surprise at the Jackson Hole symposium.

Earlier, Kuroda repeatedly stated that the normalization of monetary policy could cause serious damage to the Japanese economy, which has not yet recovered after the COVID-19 pandemic.

Last Saturday, Kuroda again made it clear that he remains faithful to the ultra-soft course and will continue to adhere to it until "wages and prices will not grow in a stable and sustainable manner."

According to experts, this comment by the head of the BOJ was the last nail in the coffin of the Japanese currency.

In the near future, the yen will not only continue to fall, but also, most likely, will reach another record low against the dollar.

At the time of release, the USD/JPY pair rose above the 139 level and was aimed at the psychologically important 140 mark.

Most currency strategists believe that in the short term, the asset will be able to cross the key barrier that proved impregnable last month.

The probability of such a scenario developing is now very high. In the light of recent speeches by Powell. The markets expect that the wide difference in interest rates between Japan and the United States will remain longer than predicted.

This significantly strengthens the bulls' positions on the USD/JPY pair. According to experts, the upward trend of the asset will continue until at least one of the central banks signals a change in its current monetary rate.

We also draw your attention to the fact that this week the US dollar may receive another strong growth momentum. On Friday, traders expect the release of the US employment report for August.

We also draw your attention to the fact that this week the US dollar may receive another strong growth momentum. On Friday, traders expect the release of the US employment report for August.

If the data from the labor market turns out to be strong, it will push the greenback to new heights and send the yen even deeper to the bottom.

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US stock indicators continue to decline on the statements of the head of the Fed

The value of the Dow Jones Industrial Average by 17:01 GMT + 3 decreased by 0.7% - to 32064.03 points. Standard & Poor's 500 by this time fell by 0.6% - to 4032.75 points. The Nasdaq Composite index has lost 0.7% since the market opened and amounted to 12057.94 points.

On Friday, the fall of the Dow Jones Industrial Average exceeded 1,000 points and became the highest percentage since May 18. The S&P 500 and Nasdaq Composite posted their sharpest declines since June. Powell's remarks, speaking at the annual economics symposium at Jackson Hole on Friday, were more reactive than market participants expected.

Among the 30 components of Dow Jones, only three stocks show an increase in quotations at the beginning of trading: Chevron Corp. - by 1.5%, Boeing Co. - by 0.5% and Verizon Communications Inc. - less than 0.1%.

The drop leaders were Dow Inc., which shed 1.6%, and Travelers Cos. - by 1.5%.

The cost of Apple Inc. down 1%, Microsoft Corp. - by 0.9%, Tesla - by 1.8%.

Sportswear maker Lululemon Athletica tumbled 0.6% after Jefferies downgraded its recommendation to a sell.

Shares of GameStop Corp., the owner of a chain of video game and game electronics stores, are up 0.5%. For 8 previous trades, the value of the company collapsed by 26.7%, it was the longest drop in almost 5 years.

Important for the market this week will be fresh data from the US labor market, the publication of which is scheduled for Friday. According to the average forecast of analysts, unemployment remained at 3.5% in August, while the number of jobs in the country's economy grew by only 300 thousand (after an increase of 528 thousand a month earlier), according to Trading Economics.

The price of bitcoin, which previously fell below the psychologically important mark of $20,000, has again risen above this threshold, which contributes to the increase in stock prices of companies associated with cryptocurrencies. Thus, Coinbase Global papers rise in price by 2.8%, Marathon Digital Holdings Inc. - by 7.3%, Riot Blockchain Inc. - by 4.7%, MicroStrategy Inc. - by 1.9%.

Chinese trading platform Pinduoduo posted a 3.7-fold increase in net income in the second quarter, with adjusted per-share and revenue well above forecasts. The price of the company's American depository shares (ADS) jumped more than 18% on the Nasdaq stock exchange on this news.

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US stocks closed lower, Dow Jones down 0.96%

At the close of the New York Stock Exchange, the Dow Jones fell 0.96% to a one-month low, the S&P 500 fell 1.10% and the NASDAQ Composite index shed 1.12%.

The leading performer among the Dow Jones index components in today's trading was American Express Company, which gained 0.12 points (0.08%) to close at 154.66. Quotes JPMorgan Chase & Co rose by 0.02 points (0.02%), ending trading at 114.41. Nike Inc lost 0.02 points (0.02%) to close at 107.86.

The biggest losers were Dow Inc, which shed 1.49 points or 2.82% to end the session at 51.38. Caterpillar Inc was up 2.52% or 4.84 points to close at 186.94, while Chevron Corp was down 2.44% or 4.01 points to close at 160.62. .

Leading gainers among the S&P 500 index components in today's trading were EPAM Systems Inc, which rose 2.09% to 424.71, Gap Inc, which gained 2.00% to close at 9.67, and Paycom Soft, which rose 1.74% to end the session at 357.29.

The biggest losers were CF Industries Holdings Inc, which shed 6.48% to close at 106.00. Shares of Freeport-McMoran Copper & Gold Inc shed 5.52% to end the session at 29.76. Quotes of The Mosaic Company decreased in price by 4.97% to 57.34.

Leading gainers among the components of the NASDAQ Composite in today's trading were Mobile Global Esports Inc, which rose 103.85% to hit 5.30, Newage Inc, which gained 74.20% to close at 0.36, and also shares of In8bio Inc, which rose 39.39% to end the session at 2.76.

The biggest losers were Amesite Operating Co, which shed 51.45% to close at 0.40. Shares of Baudax Bio Inc lost 43.07% and ended the session at 0.31. Quotes Clarus Therapeutics Holdings Inc fell in price by 36.94% to 0.10.

On the New York Stock Exchange, the number of securities that fell in price (2481) exceeded the number of those that closed in positive territory (647), while quotes of 124 shares remained virtually unchanged. On the NASDAQ stock exchange, 2,587 companies fell in price, 1,138 rose, and 248 remained at the level of the previous close.

The CBOE Volatility Index, which is based on S&P 500 options trading, was flat at 0.00% at 26.21, hitting a new monthly high.

Gold futures for December delivery lost 0.81%, or 14.25, to hit $1.00 a troy ounce. In other commodities, WTI October futures fell 4.93%, or 4.78, to $92.23 a barrel. Brent oil futures for November delivery fell 4.36%, or 4.49, to $98.44 a barrel.

Meanwhile, in the Forex market, the EUR/USD pair was unchanged 0.25% to 1.00, while USD/JPY was up 0.08% to hit 138.80.

Futures on the USD index fell 0.03% to 108.75.

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Hard-working" dollar: strengthening on the euro downturn and in anticipation of positive data on employment in the US

The US currency is in tension before the release of the US labor market report, despite the advantage over the European one. At the same time, EUR does not leave attempts to rise and catch up.

Currently, the downward trend prevails on the markets, plunging the American and European currencies into pessimism. According to economists at Commerzbank, a long-term strengthening of the US labor market provides significant support to the greenback. Experts put an equal sign between a strong labor market and a growing dollar.

According to preliminary estimates, the positive trend in the USD will continue as long as the Federal Reserve adheres to a tight monetary policy. This situation is favorable for the US currency, but undermines the position of the European one. The EUR/USD pair was trading at 1.0012 on the morning of Thursday, September 1, trying to get out of the current range. At the same time, analysts pay attention to the high probability of the pair moving towards parity.

The greenback plunged a bit on Wednesday evening, August 31, after the release of macro statistics on the US labor market, but later won back short-term losses. U.S. private-sector jobs increased by 132,000 last month, according to Automatic Data Processing (ADP), an analyst firm. Initial jobless claims in the U.S. surged to 248,000 on Friday, according to preliminary forecasts. Data on unemployment in the country will be released on September 2. Experts expect this indicator to remain at the level of July (3.5%) and to increase the number of jobs in the non-agricultural sector of the country.

Many currency strategists rely on strong US employment data and falling unemployment. They consider these indicators the most important for the Fed and its future monetary policy. However, some experts argue that the key indicator for the central bank is the level of salaries. Recall that Fed Chairman Jerome Powell and other members of the FOMC are counting on the "cooling" of the national labor market. Representatives of the Fed are trying to avoid a situation in which wage growth provokes another round of inflation. In such a situation, the increase in the number of vacancies recorded in August is a negative signal for the central bank.

Against this background, the European currency seeks to maintain balance and get out of the price hole. However, its efforts are rewarded with rare bursts of recovery, and then a decline. Adding fuel to the fire is uncertainty about the European Central Bank's next steps on the rate. According to Nordea economists, next week the central bank will raise the rate by 75 basis points. The bank believes that even negative forecasts for economic growth in the region will not interfere with this.

At present, the inflation rate in the eurozone remains stably high. According to current reports, inflation in EU countries reached an impressive 9.1% in August. Previously, this figure was 8.9%. The current situation undermines the euro's position, which is hardly kept afloat. According to analysts, the weakening of the euro against the dollar is due to the active tightening of monetary policy by the Fed. At the same time, the current parity between currencies may disappear when a compromise is reached in the EU on tightening the monetary policy or when inflation in the United States returns to the target of 2%. However, both situations are unlikely, experts say.

According to experts, the 1:1 ratio between the dollar and the euro will remain until the EU countries begin to tighten monetary policy following the example of the United States. However, there are many pitfalls here, as the ECB needs to find a compromise between all the countries of the euro bloc.

Many experts believe that by the end of 2022 the balance of power in the EUR/USD pair will change, due to which the topic of parity will be removed. Experts allow changes in the ECB's actions regarding monetary policy. The same is possible with regard to the Fed, which is worried about labor market problems and galloping inflation. According to analysts, the pair will tend to the usual ratio of 1.0500-1.1000. "In the event of a sharp turnaround, the EU economy will receive a solid bonus for the growth of exports and the economy at the expense of the US and China," the experts emphasize.

Market participants are concerned about the questions: will the Fed take a decisive approach to monetary policy? Will the ECB follow suit? Many traders and investors are skeptical about the immediate prospects for the dollar and the euro. At the same time, analysts expect a reduction in key rates in the second half of 2023. The implementation of such a scenario will weaken the greenback and limit the potential for its strengthening.

In the current situation, some experts believe that the markets are wishful thinking, expecting less rigidity from the Fed in the process of forming monetary policy. In this matter, much depends on the level of unemployment in the country. Excessive strengthening of the labor market in the US is pushing the central bank to tighten monetary policy as soon as possible.

Fed officials are stepping up the pace of this tightening, emphasizing that they are ready to temporarily sacrifice the economy for the sake of curbing inflation. However, a few months ago they said they would try to avoid a recession. However, despite the economic upheavals, the US currency remains strong and remains competitive in the global market.

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EUR/USD. Something is wrong in the Forex kingdom, although the euro's problems are still countless, it, as if distraught, craves revenge, and the dollar, not wanting to give up the crown, weaves its insidious network

The dollar starts September with a combative mood, trading near 20-year highs and benefiting from flows to safe havens.

Fears for the fate of the global economy and the drumbeat of leading central banks are rattling traders' nerves.

The greenback is also popular with investors, as they need to buy USD to maintain their margin positions in the face of declining stock indices.

Players' nervousness is compounded by the fact that stocks are entering a historically weak period for the market.

Since 1950, the S&P 500 has fallen by an average of 0.5% in September.

This year, everything speaks in favor of repeating historical trends.

Over the past two months, the volume of a net short position against S&P 500 futures has grown significantly and reached its highest value in two years.

The index just ended the month with its fourth consecutive daily decline on Wednesday.

Investors are still under the impression after Federal Reserve Chairman Jerome Powell's statement last Friday that the central bank's key rate should be raised to a level that will allow inflation to be controlled, despite the risks of recession. The S&P 500 index since last Thursday, the last day before Powell's speech in Jackson Hole, lost more than 5%.

"The market has received a message that the Federal Reserve is going to fight inflation at any cost. We don't think we've seen a bottom this year," strategists at Optimal Capital Advisors said.

On Wednesday, the head of the Federal Reserve Bank of Cleveland, Loretta Mester, continued this topic. She said that the US central bank needs to raise the base rate from the current target range of 2.25%-2.5% above 4% by the beginning of next year and leave it at this level for some time to reduce inflation.

Against this background, the yield of two-year US Treasury bonds, which changes in accordance with expectations regarding interest rates, reached the highest level since the end of 2007 yesterday, rising above 3.5%.

The higher yield of treasuries pushes up the dollar as investors sell debt denominated in other currencies to get a higher premium on US treasuries.

"It doesn't look like they can actually offer decent resistance to the dollar, given such a gloomy global outlook," Rabobank strategists said, referring to other major currencies. "If you sell the dollar, what will you buy?" – they said.

The greenback has been growing for three consecutive months, while the euro fell by 6.5% over the same period.

The greenback's growth against the single currency reflects concerns that a sharp jump in energy prices in the eurozone, caused by the conflict between Russia and Ukraine, will lead to higher inflation and push the European economy into recession.

"High inflation and gas supplies are still serious problems in the euro area. We think this will continue to put downward pressure on the single currency," Commonwealth Bank of Australia analysts said.

As data released on Wednesday showed, inflation in the eurozone rose to a record high of 9.1% in August. This strengthened the case for further significant rate hikes by the ECB to tame it.

"Before the start of the Jackson Hole symposium, the market expected the ECB to raise the rate by 1 bps by the October meeting, and since then these expectations have only increased. However, a rate hike is unlikely to strongly support the euro against the greenback, given that investors are likely to remain focused on the risks of stagflation in the eurozone and given the safe haven function for the dollar," Rabobank analysts said.

"We maintain our EUR/USD target at 0.9500 for one month and still expect the widespread strengthening of the US dollar to persist over the next six months or so," they added.

Another unexpected rise in inflation increases speculation about a 75 bps ECB rate hike at next week's meeting. However, MUFG Bank economists do not believe that the euro will benefit from this sharp tightening.

"Market participants currently estimate a 71 bps rate hike by the ECB policy meeting on September 8, as well as the fact that it will continue to raise rates to 1.50% by the end of the year. Market expectations of a sharper tightening of policy were supported by the hawkish comments of ECB policy makers after Jackson Hole and the recent announcement of another unexpected increase in inflation in the eurozone. However, we are not convinced that a sharp tightening of the ECB's policy will support the steady growth of the euro, as the risks of recession in the eurozone remain elevated," they said.

The eurozone, in case of termination of pipeline gas supplies from Russia, may face a recession in the second half of 2022, analysts at Fitch Ratings believe.

"The onset of recession in the eurozone is likely in the second half of 2022, and in 2023, Germany and Italy will experience an annual decline in GDP. Economic vulnerability in the event of termination of pipeline gas supplies remains high, despite recent active efforts to diversify import sources, in particular LNG," Fitch said.

With the passing of the summer heat, as well as news that European countries are filling their storage facilities at a faster pace than expected, energy prices in the eurozone have decreased from peak values.

However, the European economy, and especially Germany, remain vulnerable to the onset of winter if Russia stops supplying gas, given that storage facilities cover only 25-30% of winter consumption.

"It is very difficult to predict how the situation with gas will develop in the European Union in winter, since much will depend, among other things, on the weather and the volume of gas coming from alternative sources to Russia," said the deputy head of the Directorate of the European Commission for Energy in the relevant committee of the European Parliament.

The European Commission expects gas prices in Europe to remain at an elevated level in the coming winter and fall in 2024-2025.

"We expect that prices will remain at an elevated level in the coming winter, they will fall again in 2024-2025. But they are subject to some fluctuations," EC spokesman Tim McPhie said.

Gas prices and sentiment in Europe are now undergoing a serious stress test, as the Nord Stream-1 gas pipeline closed on August 31 for maintenance. All this warns against excessive enthusiasm for the recovery of the European currency at this stage, ING strategists note.

The EUR/USD pair ended Wednesday's session with an increase of 0.3%, near 1.0057, having reached a weekly high at 1.0080 during yesterday's trading. At the same time, the USD index fell by 0.1% to 108.65 points.

The euro was supported by expectations that the ECB will raise the interest rate by 75 basis points next week.Meanwhile, dollar shorts were mainly caused by the rebalancing of portfolios at the end of the month, turning into consolidation.

The EUR/USD pair lost its bullish momentum on Thursday and plunged by almost 150 points from Wednesday's closing levels. At the same time, the USD index rose to the highest levels since June 2002, coming close to 110.

The Fed's tough stance is still working in favor of the greenback, and the energy crisis in Europe is against the euro, which has not gone away with the correction of gas prices over the past three days.

"Even after reaching new records, the dollar has room for further growth, which is facilitated by the prospects of a global recession and, in particular, the energy crisis in Europe," Generali analysts said.

Fears related to the global recession were exacerbated by China, which announced that Chengdu, a city with a population of about 21 million people, was put on lockdown due to coronavirus.

Reflecting investors' unwillingness to take risks, key Wall Street indexes mostly declined on Thursday.

Friday's US employment report for August carries risks for stocks, because if it is strong, it will increase the prospects for further Fed rate hikes.

The Fed's determination is beyond doubt, since it once led the movement among major central banks to aggressively tighten monetary policy.

As for the ECB, it has yet to prove that it is really ready to act, and not just talk.

"The ECB has yet to convince the markets with its comments to prove that it is willing to endure economic pain in order to effectively combat price risks. Only at this point will the euro be able to really benefit from the ECB's monetary policy on a more sustainable basis," noted the strategists of Commerzbank.

"In a crisis, the market is likely to sell the euro as an initial reaction due to fears of a recession. The ECB's determination to fight inflation is likely to have a positive impact on the single currency only at a later stage – if at that time the ECB really sticks to its approach. This means that euro bulls will probably have to be patient for some time," they added.

"The markets are now putting in quotes an increase in the ECB rate by 167 bps in total by the end of the year.

However, the recent narrowing of spreads on two-year swaps between the euro and the dollar may have already ended, and a reversal – if the ECB does not meet the new hawkish expectations embedded in prices – could send EUR/USD to new lows next week," ING analysts said.

They predict that the EUR/USD pair will remain under pressure in the range of 0.9900-1.0100.

News are provided by InstaForex

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Euro, move forward: the dollar has slowed down! EUR/USD ineptly puts pressure on gas

The euro seeks to wrap itself in favor of the gas problems faced by the countries of the eurozone. Most often, the EUR loses, but now there is a small chance for its short-term recovery amid a slowing USD rally.

The greenback took a breather on the morning of Tuesday, September 6, to recover from a heady rally. This strategy has led to some decline from all-time highs against the euro, but it is still too early to draw conclusions. The threat of a recession looms over both currencies. Adding fuel to the fire is the high likelihood of a sharp rise in US interest rates.

A short-term slowdown in the growth of the USD against key currencies and a slight subsidence against the European one was caused by expectations of statistical data on the index of business activity in the US services sector (ISM). According to preliminary estimates, this figure fell to 55.1% in August from 56.7% in July. Significant support for the US currency is provided by expectations about the rate hike by the Federal Reserve. According to analysts, the central bank is "at a low start" in this matter. At the same time, 62% of specialists include in prices its increase by an additional 0.75 percentage points, up to 3-3.25% per annum.

In such a situation, the dynamics of the euro, which has to withstand the gas crisis in the eurozone, is in distress. At the beginning of this week, the euro fell by 0.7% to 0.9880. According to experts, this is the lowest figure in the last 20 years. The current energy crisis has seriously shaken the euro's position. The driver of this fall was the actions of the Russian authorities, who announced a complete suspension of the supply of natural gas through the Nord Stream pipeline. According to analysts, this will increase the economic problems of European businesses and households.

Against this background, mass short positions on the European and British currencies were recorded. Experts fear that this trend will strengthen. According to currency strategists at ING Bank, "gas pressures sent the EUR/USD pair to new lows this year." Recall that earlier this week, the pair fell below 0.9900 for the first time since October 2002.

According to ING economists, in the near future the EUR/USD pair will continue to fall to a new support level in the range of 0.9600-0.9650. However, this is an extremely low level for a pair, which threatens the existence of the single currency. The EUR/USD pair cruised near 0.9963 on the morning of Tuesday, September 6, winning back previous losses. However, experts warn against euphoria, as the dollar is ready to brace itself and continue its rally, displacing the euro.

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In such a situation, many analysts see a way out in a further increase in the key rate by the European Central Bank. However, ING economists do not agree with this, who consider it excessive to raise the rate by the central bank by 75 bps at once. According to experts, this will not solve the current problems of the eurozone. ING bank believes that the rate hike by 75 bps at the next meeting, scheduled for Thursday, September 8, is "too big a step for the ECB, which will not help the euro." You should expect it to increase by 50 bps, analysts conclude.

Expectations about a sharp rate hike by the ECB (by 75 bps) are fueled by growing inflation in the euro area, the threat of a recession and disappointing macroeconomic data for the region. The icing on the cake was the deepening of the energy crisis in Europe. This undermines the demand for a single currency, experts emphasize. According to current reports, in July, retail sales in the euro area fell by 0.9% in annual terms. At the same time, markets expected a decline of 0.7%. In addition, the Sentix investor confidence index fell to -31.8 points in September from -25.2 points in August. Against this backdrop, Sentix analysts noted a "clear deterioration" in the economic situation in the eurozone, stressing that this is the lowest rate since May 2020.

The US currency continues to benefit from the current situation, despite a short-term subsidence. Many experts agree on the long-term upward trend of the dollar, which has been observed since mid-2021. Experts believe that a significant divergence in the monetary strategies of central banks is a significant driver of the growth of the USD against the euro. It is noted that the ECB is still "two steps behind the Fed" in terms of raising rates. The situation was not saved even by its increase by 50 points in July. However, the ECB may revise its strategy and raise the rate at the next meeting by 50-75 bps.

Another important factor in the greenback's growth is the stability of the US economy. According to analysts, the US is relatively easy to survive the gas crisis, while selling energy to Europe. In the long term, this state of affairs plays against the ECB and the countries of the European bloc, but it plays into the hands of the Federal Reserve. In such a situation, it is difficult for the ECB not only to raise, but also to keep rates at a high level, unlike the Fed. Under such a scenario, a deep economic downturn in the eurozone is possible, experts warn.

The current market environment creates a bullish outlook for the dollar index (USDX). Currently, the bulls on the dollar are in a strong position, pushing the bears. However, the situation may change at any time. In the short and medium term, analysts allow it to rise to an impressive 120 points, that is, an increase of 9%. In a favorable scenario, USDX will head towards the peaks of 2001-2002. However, experts consider this option extreme, although they allow its implementation until the end of 2022.

News are provided by InstaForex

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