Friday, 05 August 2016 07:48

Trading strategy: BoE cut interest rates

Ending the regular policy meeting on 04th of August, Bank of England (BoE) announced lower interest rates from 0.5% to 0.25%. This decision was adopted by all 9 members of Monetary Policy Committee (MPC) and this is the first time this agency changed interest rates since March 2009. Along with lower interest rates, BoE announced a program of pumping large-scale money into the economy.

Also during this meeting, BoE cut the forecast for UK economic growth strongly since beginning this prediction in 1993. Accordingly, BoE cut its forecast for UK economic growth in 2017 to 0.8 % from 2.3% given in May. The forecast growth this year is unchanged at 2% by GDP of the first half of the year increased sharply over the previous forecast. BOE also forecasts that the unemployment rate would rise to 5.4% in the following year and 5.6% in 2018.

The interest rates cut of BoE has been predicted by the analyst, however, restarting the asset purchase program makes the market unexpected. The pound has depreciated 1.5% against the dollar after BoE's statement. At a press conference later, Governor Mark Carney said MPC launched these measures because the economic outlook has changed dramatically.

Governor Mark Carney also said the majority of MPC members supported adding a further cut of interest rates as well as the further implementation of other measures to stimulate if the data shows that the economy deteriorated. However, many analysts believe that BoE is likely to wait for several months to assess the impact of current measures for the economy before continuing other actions, and the market does not expect the next strong decline of GBP.

The attention of the market today focuses on employment report announced by US Labor Department. Analysts forecast, in July, US economy added only 180,000 new jobs after creating an additional 287,000 jobs in June and the unemployment rate fell from 4.9% to 4.8%. US dollar will be supported if job growth will be at around 200,000 and the unemployment rate and wage growth will be positive as expected. In the case of disappointing jobs data, the dollar will be under pressure big discount.

GBP/USD SELL: 1.3180; TARGET: 1.3020; STOP-LOSS: 1.3240

Xuan Nguyen

Published in Trading strategies

EconomyVN - on 4th of August, Bank of England (BoE) announced to cut interest rates from 0.5% to 0.25% - it is the first time in 7 years.

Interest rates cut is one of the measures of England to deal with the aftermath of Brexit. So specifically what are package solutions?

Besides cutting interest rates by 25 points%, Bank of England has announced a series of programs to add liquidity support for banks as lending 100 billion pounds, spending 60 billion pounds to buy government bonds and 10 billion pounds to buy corporate bonds.

In a press conference immediately after this action, Governor Mark Carney has made the clearer explanations of the BoE decision. Mr. Carney started with placebo sentence that the UK is fully capable of dealing with the economic changes following the aftermath of Brexit while confirming cutting interest rates and pumping money of Bank of England is the move actively ahead of the situation. But with a series of economic data in recent days as production activities, services and construction are simultaneously reporting the results down, while services - the important position of British economy plummeted, everyone understands that economy is under pressure more clearly from Brexit.

Does Bank of England cut interest rates to negative?

The period of the difficult economy certainly just begins, BoE can do something when their intervention is also close to limit. The members of UK Monetary Policy Committee are unified that they will not bring interest rates to lower 0.

In today's speech, the Governor of the Bank of England is not confident about the prospects of the economy, he said growth will fall very sharply, unemployment will increase and Bank of England will continue to intervene, most likely early next year.

Chain of information shows that the more likely Bank of England will take interest rates to 0.1% in the beginning of next year and just cut to that level, with pumping money, and quantitative easing program. UK Treasury in the short term will also announce fiscal adjustments, the more likely the tax reduction to stimulate consumption and lending activities. The solutions to steer the economy in general have been put on the table, but even so, market predicts UK economic growth in 2017 will be still down 0.8% and the possibility of a recession in the next 18 months is still high as 50%.

Thong Le

Published in News
Tuesday, 02 August 2016 02:09

Market waiting for results of RBA meeting

The focus of the market today is the result of the periodic policy meetings of Reserve Bank of Australia (RBA). At the July meeting, RBA kept rates at 1.75% and suggested the possibility of easing further monetary policy. Since that meeting, the Australian economy showed mixed signals with expanding manufacturing activity and increasing inflation. Meanwhile, consumer confidence declined and unemployment rose. According to a Reuters survey, only 60% of analysts predict that the RBA will cut interest rates from 1.75% to 1.5%. In the case of interest rate cut, exchange rate AUD/USD will drop quickly about 0.7450. Conversely, if policymakers delay monetary easing, rates will rise again above the level 0.76.

One other communications market is waiting today to Prime Minister Shinzo Abe of Japan will announce detailed fiscal stimulus package which was announced last week with a large scale over 28 trillion yen. Last week, Yen rose sharply as the Bank of Japan (BOJ) almost didn't significantly change in the monetary policy meeting in July, contrary to the expectations of the major market for a large-scale monetary stimulus as Japanese government determined to revive the economy, which was always bleak in this country. Analysts forecast USD/JPY may fall to threshold 100 if the market does not receive significant support from the information relating to the fiscal stimulus package of Prime Minister Abe.

Notable evolution yesterday was the strongest fall of the CAD when crude oil prices plunged in the first session of the week and WTI oil price sometimes is below 40 USD/barrel for the first time since April 2016. Oil prices began to plummet since early July due to the oversupply of gasoline and refined petroleum products along with signs of rebounding US crude production. Now, National Oil Company Saudi Arabia (Saudi Aramco) lowers oil price strongestly in years, have raised the question of whether oversupply, which made oil prices plunge in 2 years, extends in the coming months.

Tomorrow, August 3rd, Bank of England (BoE) will announce quarterly economic report and results of the periodic policy meeting. Up to 95% of analysts surveyed predicted that BoE will cut rates from 0.5% to 0.25%. Besides, many analysts also said that the BoE is likely to start again the bond purchase program which was suspended since 2012. British Pound is expected to weaken before the meeting of the BOE and after the agency announces the change in monetary policy.

GBP/USD: SELL: 1.3120, TARGET: 1.3100, STOP-LOSS: 1.3270

Tonny Le

Published in Trading strategies

British Pound rose again in the trading session of the early week after policy maker at Bank of England (BOE) Martin Weale said that they need to wait for the assessment of the economic impact before deciding whether to rate cut or not. After BOE took no action last week, any doubts of the members of BOE on the need to easing monetary policy given push Pound higher.

However, many analysts believe that sterling is in brief recovery period and the clearance-sale of the currency will soon return. A series of important statistics of the British economy published this week include the inflation data, employment, retail sales and PMI index is forecast to show the weakness of the British economy and convince BOE on the necessity of easing interest rate policy. Britain's weak data published this week could be the beginning of a sharp decline of Pound.

Turkey has arrested thousands of soldiers after the coup failed yesterday 15th of July and the government claimed to have control of the whole situation. This move has helped to allay fears of new instability after the economic and political issues in Europe, this prompted investors to return to riskier currencies and escape Japanese yen as safe haven assets, so it pushed USD/JPY back to threshold 106 after falling last week.

Aside from the economic data of UK, the market's attention this week was focused on the PMI of Eurozone and the results of the meeting of European Central Bank (ECB). Analysts predict ECB will not make any policy changes in this session. However, ECB President Mario Draghi might open to a stimulus in the near future if Eurozone economic prospects deteriorate due to the influence of Brexit. Any signals of easing policy given will create downward pressure on Euro.

GBP/USD: SELL: 1.3280; TARGET: 1.3130; STOP-LOSS: 1.3360

Thong Le

Published in Trading strategies

Contrary to forecasts of economic analysts and investors, Bank of England (BOE) on 14th of July ended policy meeting by deciding to keep the interest rate at record low 0.5% maintained for more than 7 years, and have not made any changes to the program of 375 billion pound quantitative easing (QE) made from November, 2012.

BOE's decision surprised a lot because before the meeting, participants of market forecasted with probability 70%, BoE will cut rates from 0.5% to 0.25% to support economy deal with risk of depression after the voters of this country voted to leave EU. Even BoE Governor Mark Carney has issued clear signals about the possibility of lower interest rates in the context of deteriorating economic outlook.

In the minutes of the meetings published immediately afterwards, BOE said the agency did not change monetary policy until there is a more complete assessment of impact of Brexit for UK economy. Besides, most members of Monetary Policy Committee (MPC) of BOE have endorsed the easing monetary policy in August, if the economic outlook does not improve.

Shortly after BOE announced this decision, GBP / USD soared nearly 2% to 1.3470, the highest level of 3 weeks before falling partially. Although the recovery of British pound is likely to continue, but this currency is expected to drop again in the near future.

Japanese yen continued strong downtrend since the beginning of the week and in this morning USD / JPY exceeded 106 level, 3-week high as the market continues to expect Bank of Japan (BOJ) will strengthen the easing monetary policy by expanding bond purchase program at a meeting of the agency on July 27-28th. After the landslide victory of the ruling coalition of Prime Minister Shinzo Abe at the Japanese Senate elections, observers are expecting a fiscal stimulus package will be announced in future.

GBP: BUY 1.335 TARGET: 1.3520 STOP-LOSS: 1.3260

Thông Lê

Published in Trading strategies -- GBP/USD rose considerably on Thursday, holding onto sharp gains from earlier in the session, after the Bank of England triggered a rally in the Pound by unexpectedly leaving its benchmark interest rate steady at a closely-watched meeting.

The currency pair surged more than three cents to two-week highs 1.3463, before falling back slightly to 1.334 at the close of U.S. afternoon trading, up 1.47% on the session. The Pound Sterling opened on Thursday at 1.3121 after halting a three-day winning streak a day earlier. Since dipping below 1.28 last week to touch down to fresh 31-year lows, the Pound has rallied by 3% over the last week against its American counterpart. Over the last three weeks, the British counterpart has tumbled nearly 10% in the wake of the U.K.'s historic decision to leave the European Union on June 24.

The Pound is now on pace for its strongest one-week move against its main rivals in nearly six years.

In the U.K., the Bank of England jolted markets by holding their key interest rate steady at 0.5% and leaving its comprehensive Quantitative Easing program unchanged on Thursday afternoon. Following the 8-1 vote, Bank of England governor Mark Carney hinted that the BOE could approve fresh stimulus measures when meets again on August 4.

While the Monetary Policy Committee (MPC) indicated that it will support any measure that helps promote economic growth and return inflation to its targeted objective, the participants appeared leery of making a knee-jerk reaction to last month's Brexit historic decision. Such a move, according to many economists, may have demonstrated excessive panic as markets throughout the euro area remain on edge. Annual consumer inflation in the U.K. remained at 0.3% in June, after hitting 15-month highs this spring.

"The exact extent of any additional stimulus measures would be based on the Committee’s updated forecast," the MPC said in a statement. "Their composition would take account of any interactions with the financial system and their effectiveness in supporting the domestic economy. Further detailed analysis across all policy areas of the Bank would be required."

In addition, the minutes showed that the lone dissenter noted that the subdued economic outlook had "come close to warranting further stimulus," last month ahead of the referendum. The Bank of England's benchmark interest has remained steady at 0.5% over the last seven years.

In the U.S., jobless claims last week were unchanged at a seasonally-adjusted total of 254,000, lingering near 43-year lows. In April, new jobless claims throughout the U.S. fell by 6,000 to 247,000, dropping to their lowest level since November, 1973. Meanwhile, the four-week average on Thursday declined slightly to 259,000, falling roughly 10,000 below the one-month mean from mid-June.

Also on Thursday, the U.S. Labor Department reported that producer prices last month rose considerably, building on increased pricing pressure from May's report. The Bureau of Labor Statistics' PPI-FD rose by 0.5% in June, slightly up from 0.4% gains a month earlier and above consensus estimates of 0.3%. The Core PPI-FD, which strips out volatile food and energy prices, jumped 0.3% on a monthly basis, swinging to a gain after a slight decrease of 0.1% in May.

During a series of public appearances since the Fed last met in late-June, a wide range of Federal Open Market Committee (FOMC) members have offered diverging comments on the timing of the U.S. central bank's next rate hike. While delivering a speech in Houston on Wednesday, Dallas Fed president Rob Kaplan indicated that the FOMC can remain accommodative as long as its dual mandate in terms of inflation and employment objectives are not met. Shortly after, Philadelphia Fed president Patrick Harker said the FOMC could raise short-term interest rates as much as twice this year.

The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.30% to an intra-session low of 95.84 before rebounding slightly to 96.10 at the close of the U.S. afternoon session. The index has fallen by more than 3% since early-December.

Yields on the U.S. 10-Year rose by six basis points to 1.54%, while yields on the UK 10-Year gained five basis points to 0.79%. Yields on both 10-year government bonds are down by more than 85 basis points over the last year.

Published in Forex
Thursday, 14 July 2016 08:23

Pound plunged ahead of BOE meeting

After the recovery session impressed due to the stable return of British politics as the country has a new prime minister, British pound yesterday plunged back before meeting result of Bank of England (BOE) will be announced today with the majority of analysts are predicting that the BoE will cut rates from 0.5% to 0.25% in this meeting.

However, Some analysts suppose that that cutting interest rates will be delayed until the August meeting. At present England is in the process of establishing a new government, policy makers at the BOE can to open policy until the statements related to Brexit are declared by the new government as well as impacts of Brexit for the UK economy are expressed more clearly. If BoE cut interest rates, pound will continue to plunge and set new lows. Otherwise, GBP/USD will have a strong recovery.

Canadian Dollar rose sharply yesterday after Bank of Canada (BOC) decided to keep interest rates at 0.5%. In the statement issued after the meeting, BOC expressed optimistic prospects for the Canadian economy as oil prices on world markets have rebounded. Besides, the agency said that the stability of US economy will support the growth of Canada in the remaining months of this year.

After the slowdown session yesterday, this morning Japanese yen JPY continued to decline to the 3-week low against US dollar as the market continues to expect Bank of Japan (BOJ) will enhance easing monetary policy through the expansion of bond purchase program in the meeting of the agency on 27-28th of July.

Monday, July 11th, Prime Minister Shinzo Abe announced that they will strengthen the economic stimulus measures after the landslide victory of the ruling coalition in Japan's upper house election held on the weekend. The rate increase of the majority coalition in the Japan upper house will allow policy makers to pass bigger fiscal stimulus package in a easier way. Rumors of that the Central Bank of Japan (BOJ) will increase monetary stimulus are strengthened after the yesterday meeting took place between Prime Minister Shinzo Abe and FED former chairman Ben Bernanke, who is known to be author of the giant quantitative easing programs to revive the US economy after the global economic crisis in 2008.

Thông Lê

Published in Trading strategies -- The U.S. Dollar Index pared sharp losses, remaining near three-month highs, after the release of a closely-watched Federal Reserve survey on Wednesday and ahead of a highly-anticipated interest rate decision from the Bank of England.

The index, which measures the strength of the greenback versus a basket of six major currencies, hit an intraday low of 96.09 before, rebounding to 96.36 (down 0.19 or 0.20%) at the close of U.S. afternoon trading. At session-highs of 96.60, the index was only down fractionally from its three-month high in late-June in the wake of the post-Brexit fallout. Although the dollar has fallen sharply from its peak in December, it has rallied more than 4% from its level in early-May when it slumped to 10-month lows.

When the Federal Reserve released the latest version of its Beige Book on Wednesday afternoon, the survey showed evidence of modest economic growth in most regions of the U.S. for the monthly period through July 1. At the same time, respondents from the 12 Fed district reported indications of modest employment growth, modest to moderate wage pressures and generally positive levels of consumer spending, despite some signs of softening conditions. While three regions, Dallas, Chicago and Boston said last month's U.K. referendum had an effect on business activity in their areas, none of the other districts made note of Britain's decision to leave the European Union.

Over the last few weeks, members of the Federal Open Market Committee (FOMC) appear split on the timing of the Fed's next interest rate hike. Kansas City Fed president Esther George and Cleveland president Loretta Mester appear to favor gradual rate hikes over the medium term, while St. Louis Fed president James Bullard and Minnesota Fed president Neel Kashkari seem to advocate a patient approach to tightening monetary policy. Dallas Fed president Rob Kaplan, meanwhile, said the FOMC can remain accommodative as long as its dual mandate in terms of inflation and employment objectives are not met. Also, Philadelphia Fed president Patrick Harker said on Wednesday that the FOMC could still raise rates up to two times this year.

In the U.K., Home Secretary Theresa May was confirmed as Britain's second-ever female prime minister and 54th in history after David Cameron officially resigned from the position on Wednesday. While it is unclear if May's appointment will boost the U.K.'s chances of gaining access to the European Union's single market, the move helped ease investor sentiments on the strength of the British economy for the time being.

Also on Wednesday, May reshuffled Cameron's cabinet appointing former London mayor Boris Johnson as foreign secretary, while adding David Davis, as Secretary of State for Exiting the European Union. Johnson replaces Philip Hammond, who was appointed as chancellor of the exchequer, following the dismissal of George Osborne. The moves come ahead of Thursday's closely-watched Bank of England meeting, the first since the Brexit decision. While BOE governor Mark Carney has sent strong indications that the bank could lower rates and unveil a fresh round of easing at some point this summer, Carney has hinted that the BOE could wait until August before instituting the measures.
GBP/USD hit near two-week highs of 1.337 on Wednesday, before falling back to 1.3133 at the close of U.S. afternoon trading.

Elsewhere, investors digested conflicting reports that Japan could adopt a helicopter monetary policy following former Federal Reserve chair Ben Bernanke's meeting with Abe on Tuesday in Tokyo. The concept of helicopter money involves large scale printing of money by a central bank that is distributed to the public as a way for helping stimulate the economy. Abe unveiled a sweeping reform after his Liberal Democratic Party (LDP) triumphed in upper-house elections over the weekend, which includes a ¥10 trillion ($98 billion) stimulus plan.

In addition, the Japanese government lowered its annual March, 2017 consumer inflation forecast from 1.2 to 0.4% on Wednesday. As a result, the dollar pared earlier losses against the Yen, trading at 104.32 at the end of the U.S. afternoon session, down 0.17% on the day. The pair slipped below 104.00 at session-lows, one day after hitting a two-week high at 104.98.

Published in Forex

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