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PAMMs Weekly Update

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Forex Week Ahead

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The USD fell against major pairs on Friday after US President Donald Trump tweeted that China and the EU manipulate their currency. Trade war escalation has reached a second phase at a time when American politics are having an identity crisis with the ongoing Russian interference during the 2016 elections. Steven Mnuchin will head to Buenos Aires to take part in the finance ministers G20 meeting with trade and monetary policies sure to be a topic of discussion. The European Central Bank (ECB) will announce its main refinancing rate on Thursday, July 26 at 7:45 am EDT with little expectations of a change. ECB President Mario Draghi will host a press conference at 8:30 am EDT with the market focused on his comments for insights into the monetary policy of the central bank.

  • US President worried about Fed’s monetary policy triggers currency war
  • European Central Bank meeting anticipated to be a quiet affair
  • Canadian inflation and retail sales beat expectations

EUR Rises Ahead of ECB as Currency War Concerns Rise

The EUR/USD gained 0.28 percent in the last week. The single currency is trading at 1.1717 after a volatile week is over. The EUR rose 0.73 percent on Friday as Trump’s comments on currency manipulation hit the newswires. The US dollar had fallen on Thursday after President Trump criticized the U.S. Federal Reserve for raising rates and eroding the competitiveness of American products.

In an interview with CNBC the US President said he was not thrilled with the path of interest rates, although he did mention that he would let them do what they feel is best. Earlier in the week Fed Chair Powell testified before the Senate Banking Committee and the House Financial Services Committee side-stepping any comments on trade spats.

The U.S. Federal Reserve has hiked two times already in 2018 leaving the benchmark rate at 175 to 200 basis points. The CME FedWatch tool shows a 86.9 percent chance of a September rate hike and 53.9 percent of a follow up in December. Both sets of probabilities where higher on Wednesday before Trump’s comments were released.

The economic calendar will not feature a large number of North American indicators with the main standout being the release of the first estimate of the US GDP data on Friday, July 27. Analysts forecast a rise of 4.1 percent and could serve as an antidote to Trump’s tweets. The European Central Bank (ECB) will feature on Thursday, but there is little expectation that new guidance will be provided after the June monetary policy meeting.

Loonie Higher on Strong Retail Sales and Inflation Data

The Canadian dollar rose on Friday after the release of retail sales and inflation data. The USD/CAD DROPPED 0.05 percent on a weekly basis. The currency pair is trading at 1.3146 after Canadian retail sales surprised with a 2 percent rise to a seven month high boosted by auto and gasoline sales on Friday. Inflation rose 2.5 on an annual basis in June also impacted by higher gasoline prices. The economic indicators validate the decision of the Bank of Canada (BoC) earlier this month to hike rates by 25 basis points and could further pressure the central bank to lift rates higher despite growing geopolitical headwinds.

The US dollar has been on a downward trend since President Trump issued some sharp criticism on the U.S. Federal Reserve monetary policy. The comments took the market by surprise as talking about the currency is not usually the job of the President, but rather the Treasury Secretary. The statements will most likely be discussed as the G20 meeting in Buenos Aires kicks off.

The US President continued to tweet about the unfair strength of the greenback which responded by falling more than 1 percent against the Canadian dollar.

Oil prices recovered from losses earlier in the week but West Texas Intermediate will finish below $70 after concerns about the increase in supply outstripping rising demand.

The GBP/USD dropped 0.76 percent in the last five days. The currency pari is trading at 1.3133 with political headwinds keeping the pound under pressure. The confusing Brexit strategy from the UK government could end up costing Prime Minister May her job as she scrambles to call an early summer recess to avoid challenge to her leadership.

The Bank of England (BoE) held rates unchanged in June, but there were three dissenters. The economic data could support an August rate hike by the central bank, but the question now is will MPC vote for higher rates holding to its mandate, but with a high possibility that Brexit negotiations once again threaten the growth of the UK economy and the reverse action is needed. The market still believes in an August rate hike, but the GBP will continue under pressure from political uncertainty at home and abroad.

Source:marketpulse.com

The USD fell against major pairs on Friday after US President Donald Trump tweeted that China and the EU manipulate their currency. Trade war escalation has reached a second phase at a time when American politics are having an identity crisis with the ongoing Russian interference during the 2016 elections.

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PAMMs Daily Update

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GBP futures: probable

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CME Group’s advanced data for GBP futures markets noted open interest rose by almost 5K contracts on Thursday vs. Wednesday’s final 196,891 contracts. In the same direction, volume increased by around 10.3K contracts.

GBP/USD scope for further decline alleviated

Cable recorded a fresh yearly low on Thursday around 1.2960 and rebounded on the back of sudden USD-weakness. The move has been on the back of rising open interest and volume, allowing some extra recovery in the near term, although risks remain broadly to the downside.

CME Group’s advanced data for GBP futures markets noted open interest rose by almost 5K contracts on Thursday vs. Wednesday’s final 196,891 contracts. In the same direction, volume increased by around 10.3K contracts.

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Canada: Inflation Hit

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The Consumer Price Index (CPI) rose 2.5% on a year-over-year basis in June, following a 2.2% increase in May. This is the largest year-over-year increase in the CPI since February 2012.

This month’s year-over-year CPI increase follows a year of gradual acceleration in consumer price inflation, from a recent low of 1.0% year over year in June 2017. This trend reflects increases in prices for gasoline and food purchased from restaurants, as well as offsetting factors such as lower price inflation for electricity and telephone services. These movements coincide with recent improvements in the economy and the labour market, as well as an increase in oil prices.

Component highlights

Seven of eight major components rose year over year. The transportation index (+6.6%) was the largest contributor to the year-over-year increase, while the household operations, furnishings and equipment index (-0.1%) was the lone major component to decline.

Energy costs were 12.4% higher compared with June 2017, after increasing 11.6% year over year in May. Year-over-year gains in prices for gasoline (+24.6%) and fuel oil and other fuels (+25.9%) were larger in June than in May, as sustained increases in crude oil prices and exchange rate pressures continued to impact consumer prices. Prices for durable goods rose 0.6% year over year, led by growth in the purchase of passenger vehicles index (+1.8%). This gain is attributable to lower rebates on 2019 model-year vehicles.

Year-over-year gains in the price of services were lower in June (+2.2%) than in May (+2.3%), moderating the growth in the CPI. Prices for telephone services (-8.8%) continued to decline year over year, amid a series of industry-wide price promotions. Consumers paid 8.4% less for travel tours compared with June 2017. The homeowners’ replacement cost index increased less on a year-over-year basis in June (+1.4%) than in May (+2.0%).

Regional highlights

Prices rose more in six provinces in June on a year-over-year basis compared with the previous month. This growth was strongest in Prince Edward Island, where prices increased 2.9%.

The CPI in Newfoundland and Labrador rose 2.3% in June. Gasoline prices were up 16.5% in the 12 months to June after increasing 5.5% the previous month.

Seasonally adjusted monthly Consumer Price Index

On a seasonally adjusted monthly basis, the CPI rose 0.1% in June, matching the increase in May. Six of eight major components increased, while the household operations, furnishings and equipment index (-0.3%) and the recreation, education and reading index (-0.6%) both declined.

Source: marketpulse.com

This month’s year-over-year CPI increase follows a year of gradual acceleration in consumer price inflation, from a recent low of 1.0% year over year in June 2017. This trend reflects increases in prices for gasoline and food purchased from restaurants, as well as offsetting factors such as lower price inflation for electricity and telephone services.

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JPY: Upcoming BoJ

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Analysts at Nomura suggest that the next BOJ meeting on 30-31 July represents interesting event risk for Japan trading and fundamentally, they believe the meeting will be negative for JPY in the medium term.

Likely significant lowering of inflation forecasts suggests the window for BOJ policy normalization is now closing. However, the meeting is an opportunity for the BOJ to consider feasible measures to alleviate negative side effects, as it likely admits the economy needs a more prolonged period of monetary easing.

Although very unlikely, in our view, the Bank could consider changing its 10yr yield target as necessary to ease side effects. Other policy measures outside the monetary policy toolkit to boost JGB market volatility and trading volumes may also be considered.

Source: fxstreet.com

Analysts at Nomura suggest that the next BOJ meeting on 30-31 July represents interesting event risk for Japan trading and fundamentally, they believe the meeting will be negative for JPY in the medium term.

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FOREX Trading Quote

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...The trading genius was previously an idiot or is closer to being one tomorrow. Keep learning...

- PIG INSIDER

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The Times: UK to warn public

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The Times carried a story on Friday, citing that the Britons will from next week start receiving weekly information bulletins from the UK government about how to ensure they’re ready for a disorderly Brexit, Reuters reports.

The newspaper added that the information will be distributed as “bundles” to consumers and companies as the UK prepares for the exit from the European Union (EU) on March 29, 2019.

Further, the small businesses will be given information about how to make customs declarations while British holidaymakers will be told to buy health insurance in case current reciprocal deals end, the newspaper noted.

The Times carried a story on Friday, citing that the Britons will from next week start receiving weekly information bulletins from the UK government about how to ensure they’re ready for a disorderly Brexit, Reuters reports.

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CNY: Taking a beating

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According to analysts at Rabobank, yesterday CNH (offshore) fell like a stone and at one point it traded past 6.80 and then today the PBOC’s CNY fixing was set at the lowest since 2016 at 6.7671 – around 600pips, or 1%, lower than the day before.

Key Quotes

As a result, at time of writing CNH had tested past 6.8350 and was trading at 6.8183. That is through the line in the sand I had thought the PBOC would set before they seemed to set 6.70. Now perhaps we don’t have any lines or any sand at all.

The timing of when we move through the psychological 7 level is all political. And politics is pretty volatile right now.

As a result, at time of writing CNH had tested past 6.8350 and was trading at 6.8183. That is through the line in the sand I had thought the PBOC would set before they seemed to set 6.70. Now perhaps we don’t have any lines or any sand at all.

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PAMMs Daily Update

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EUR/JPY Technical Analysis

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  • EUR/JPY continues to drift lower after being rejected from the 132.00 neighbourhood earlier in the week, where sits the critical 200-day SMA.
  • Some consolidation ahead of further gains is not ruled out following the July rally.
  • The bullish tone in the cross is poised to remain unchanged while above the daily cloud and June’s tops in the 130.40 region. This area appears reinforced by the short-term support line and the top of the cloud in the 128.80 region.
  • On the daily RSI, the cross has receded to the 60 region after flirting with overbought levels in past sessions, while the daily ADX highlights a weak trend.

EUR/JPY continues to drift lower after being rejected from the 132.00 neighbourhood earlier in the week, where sits the critical 200-day SMA.

Some consolidation ahead of further gains is not ruled out following the July rally.

The bullish tone in the cross is poised to remain unchanged while above the daily cloud and June’s tops in the 130.40 region. This area appears reinforced by the short-term support line and the top of the cloud in the 128.80 region.

On the daily RSI, the cross has receded to the 60 region after flirting with overbought levels in past sessions, while the daily ADX highlights a weak trend.

The bullish tone in the cross is poised to remain unchanged while above the daily cloud and June’s tops in the 130.40 region. This area appears reinforced by the short-term support line and the top of the cloud in the 128.80 region.

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USD/CAD – Canadian dollar slides

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The Canadian dollar has posted considerable losses in the Thursday session. Currently, USD/CAD is trading at 1.3266, up 0.73% on the day. On the release front, Canadian ADP Nonfarm Employment Change plunged, posting a reading of -10.5 thousand. This was the first decline of 2018. In the U.S, manufacturing and employment data were better than expected. The Philly Fed Manufacturing Index climbed to 25.7, easily beating the estimate of 21.6 points. Unemployment claims dropped to 207 thousand, better than the estimate of 220 thousand. On Friday, the focus is on consumer indicators. CPI is expected to remain pegged at 0.1%, while retail sales are expected at 0.6%, which would be the first gain in 2018. Traders should be prepared for movement from the Canadian dollar in the North American session.

The tariff slugfest between the U.S and its major trading partners has raised serious concerns not just with investors, but with Federal Reserve policymakers as well. The Federal Reserve Beige Book for July, released on Wednesday, was rife with references to ‘tariffs’. This trend started in the April Beige Books after President Trump threatened in March to impose tariffs on China. Most of the twelve Fed regional districts referred to tariffs in their individual reports, which make up the Beige Book. Some Fed policymakers have also voiced their concern over the impact that tariffs could have on the U.S economy and is an issue the Fed will have to take into consideration, as it mulls over rate policy for the next six months.

With trade tensions hovering, investors are keeping a close eye on the Canadian manufacturing sector. There was excellent news earlier in the week, as Manufacturing Sales in May rebounded with a gain of 1.4%, after a 1.3% decline a month earlier. Last week, the Bank of Canada raised rates by a quarter-point last week, to 1.50%. This is the highest level since December 2008. Will we see more rate hikes in 2018, as will likely be the case in the U.S? The BoC rate statement said that “higher rates will be needed” in order to keep inflation close to the target of 2 percent. Policymakers are keeping a close eye on the simmering trade war, which has seen Canada and the U.S impose tariffs on each other’s products. If the Canadian economy can escape the trade war relatively unscathed, we could see another rate hike at the BoE policy meeting in September.

Source: marketpulse.com

The Canadian dollar has posted considerable losses in the Thursday session. Currently, USD/CAD is trading at 1.3266, up 0.73% on the day. On the release front, Canadian ADP Nonfarm Employment Change plunged, posting a reading of -10.5 thousand. This was the first decline of 2018. In the U.S, manufacturing and employment data were better than expected.

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Gold tumbles

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Gold prices early Thursday extended a downdraft that has pushed the metal toward its lowest close in more than a year, in an atmosphere of rising benchmark rates for U.S. government debt and the continuation of a U.S. dollar rally.

August gold GCQ8, -0.98%  traded $12, or 1%, lower at $1,215.90 an ounce early Thursday, a day after the precious commodity edged up slightly to register its first gain in four sessions and avoided its first finish in correction territory, defined as a decline from a recent peak of at least 10%, since late 2016, according to WSJ Market Data Group. Still, the current decline for the yellow metal puts it on track to post its lowest settlement since July of 2017.

A popular fund used to bet on gold’s moves, the SPDR Gold Shares GLD, +0.03%closed Wednesday trade with a weekly loss of 1.1%, while the underlying commodity is on track for a weekly drop of about 2.1%.

The slump for gold has mounted as the Dow Jones Industrial AverageDJIA, +0.32% and the S&P 500 index SPX, +0.22%  have mostly been in a recent uptrend in recent weeks, with the Dow marking its fifth straight winning sessionon Wednesday before a sluggish turn early Thursday. Gold tends to fall as stocks climb because it is viewed as an asset that appeals to investors in times of uncertainty and fear.

However, the U.S. dollar has generated the strongest headwind for commodities priced in the currency, particularly gold. The ICE U.S. Dollar Index DXY, +0.47%was up 0.4% early Thursday, contributing to its weekly climb of about 0.7% and its year-to-date rally of about 3.6%, according to FactSet data.

A stronger buck can make assets pegged to it more expensive to buyers using other currencies.

Greenback has enjoyed a rebound as investors have turned to the U.S. as a source of safety during an escalating trade spats between the U.S. and its major partners across the globe.

Moreover, signs that the Federal Reserve will continue to raise benchmark interest rates this year as it endeavors to normalize crisis-era monetary policy has somewhat bolstered the case for bullish dollar bets and helped propel key interest rates higher. The 10-year benchmark Treasury noteTMUBMUSD10Y, +0.80%  was near 2.90%, compared with 2.831% last Friday. Rising rates can undercut appetite for commodities that don’t offer a yield like bullion.

Independent market analyst Stephen Todd, a research note, said gold “can’t get out of its own way.” He has maintained a bearish outlook on the metal for more than a month.

Other metals also showed signs of faltering, September silver SIU8, -2.02%tumbled by 32 cents, or 2.1%, to $15.260 an ounce, on track for its lowest close since early 2016.

A silver fund, the iShares Silver Trust SLV, -0.27% closed down 1.7% for the week, as of Wednesday’s settlement.

Looking ahead, investors will watch economic reports on employment and manufacturing. A report on weekly jobless claims us due at 8:30 a.m. Eastern Time, with 224,000 Americans forecast to have filed for unemployment claims last week, while the Philadelphia Fed index for July is set to be released at the same time, followed by a gauge of leading economic indicators for June at 10 a.m.

Source: marketwatch.com

The slump for gold has mounted as the Dow Jones Industrial AverageDJIA, +0.32% and the S&P 500 index SPX, +0.22% have mostly been in a recent uptrend in recent weeks, with the Dow marking its fifth straight winning sessionon Wednesday before a sluggish turn early Thursday. Gold tends to fall as stocks climb because it is viewed as an asset that appeals to investors in times of uncertainty and fear.

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FOREX Trading Quote

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...Markets can remain irrational longer than you can remain solvent...

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AUD/USD hammered

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   •  Investors looked past today’s upbeat Aussie employment details.

   •  Resurgent USD demand triggers the initial leg of retracement slide.

   •  A slump in commodity space further aggravates the selling pressure. 

The AUD/USD pair extended its sharp retracement slide and has now retreated around 90-pips from intraday tops, touched in the aftermath of stellar Aussie jobs data.

The pair once again failed to make it through the 0.7440 supply zone and the initial leg of retracement slide was triggered by resurgent US Dollar demand, which continued benefitting from upbeat economy outlooks from the Fed Chair Jerome Powell and the central bank’s Beige Book report. 

This coupled with the ongoing slump in the metal space weighed heavily on the commodity-linked Australian Dollar and further collaborated towards aggravating the selling pressure. 

The latest leg of sharp fall over the past few hours could also be attributed to some technical selling, following a decisive break back below the 0.7400 handle. Hence, a follow-through weakness, back towards recent lows, now looks a distinct possibility. Technical levels to watch

The 0.7340 area might continue to protect the immediate downside, which if broken might turn the pair vulnerable to slide towards challenging the 0.7300 round figure mark. On the flip side, the 0.7400 handle now becomes immediate hurdle and is followed by a strong resistance near the 0.7440 supply zone.

The pair once again failed to make it through the 0.7440 supply zone and the initial leg of retracement slide was triggered by resurgent US Dollar demand, which continued benefitting from upbeat economy outlooks from the Fed Chair Jerome Powell and the central bank’s Beige Book report.

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