All Central Banks Are Turning Hawkish – Weekly Analysis 19 – 25 June
Skerdian Meta • 4 min read
Last week we saw a hawkish shift in the FOMC statement and Yellen backed it up with her comments. We also saw some hawkish signs from the BOE but had to wait for Carney´s speech this Tuesday.
But just as I was anticipating, Carney poured ash on any ideas anyone might have had about any possible rate hikes. However, a day later, another member (Haldane) joined the hawkish side at the BOE. His comments were a bit unrealistic but, together with the Queen´s comments on a softer Brexit, kept the Pound afloat.
A day later the RBNZ (Royal Bank of New Zealand) kept the interest rates unchanged, but again this action came from their rhetoric. This was particularly hawkish since no one complained about the stronger NZD.
On Friday, it was the FED’s turn to close the week. FOMC member Mester warned us about higher inflation, but at the end of the interview, he said that one more rate hike would be appropriate this year. That´s not very hawkish behaviour, for a hawk like him.
Draghi followed suit on Friday when he asked EU leaders for deeper fundamental reforms – as the momentum is pretty good for the EU economy. That was backed up by Merkel just an hour later.
After having some difficulties last week, we finally got back to normal this week. In fact, we had a pretty good week. We closed with no losing signals out of seven – a 100% success rate!
Yes… alright… the number of forex signals was pretty low this week, but that was mainly because the volatility was quite low as well and it got much quieter as we headed towards the end of the week.
We made 118 pips this week from seven forex signals. We started the week pretty well with three winning forex signals on Tuesday – and this accounted for most of our profits. But as the week progressed and the market grew quieter, the signals lasted longer and we were forced to close some of them manually in order to reduce the exposure.
So, the profit increased but the pace got slower. We were hoping that our USD/JPY signal would hit take profit on Friday, but this forex pair traded in an extremely tight range during that day. Thus, that signal is nowhere land now.
The market this week
The BOE (Bank of England) has been delivering some confusing signals lately, which has been reflected in GBP. It can´t make up its mind whether it wants to go up and make a decisive move above 1.30… or plunge into the abyss.
Last week, two more BOE members voted to hike the interest rates, but Chairman Carney said on Tuesday that “now is not the time to hike rates” – a total contradiction! But they weren´t done as Haldane made some more even hawkish comments, that left GBP traders scratching their heads.
One thing to notice this week was the divergence in NZD and AUD. These two currencies usually converge, but after a hawkish RBNZ they started moving apart on Tuesday. By the way, we plan to sell AUD/NZD, but we´re waiting for a retrace higher on the daily forex chart.
There were some mixed comments coming from FED members as well on Friday, but Mario Draghi and Merkel stole the show that day. Draghi urged EU leaders to push ahead with structural reforms, which sort of intervenes/overlaps with their power. That same day, Merkel and Macron had a long meeting and supported Draghi´s comments, so it seems like a federal Europe is starting to take shape.
Inflation has cooled in the last 1-2 months and the Germans don’t look so worried now. Producer inflation (PPI) declined by 0.2% in Germany from last month, and that´s why Merkel and Draghi felt so confident on Friday.
In the US, unemployment claims remained unchanged but remained at a healthy level, while existing home sales jumped considerably from last month. That said, manufacturing and services missed on expectations on Friday.
The data coming from the Eurozone this week was sort of mixed, but I can´t say the same about the numbers coming from Canada. Inflation was supposed to remain at 1.5%, but it came at 1.3%, even after lower unemployment and better economic conditions in Canada. That puts a big question mark over the traditional economic politics/policies, but we´ll cover this issue in the coming week.
Last week, we said that EUR/USD was looking bearish because stochastic was overbought and the candlestick formation pointed down.
Stochastic remains overbought and it´s heading down, but the candlestick formation is changing. The previous two candlesticks were bearish and this week´s candlestick is pretty bullish. Basically, the sellers tried the downside but in the end, the buyers took the price back up and EUR/USD closed the week where it started.
Bears tried this week and failed
So, the weekly chart is unclear right now, while the daily chart is pointing up. Stochastic is headed up and Friday´s candlestick was pretty bullish, but the 20 SMA (grey) has been providing solid support previously and now it´s turning into resistance.
If the pair is to move up the price must break the 20 SMA soon, otherwise, forex traders will think it is unbreakable and start selling.
The daily chart is pointing up but the 20 SMA is providing strong resistance
Week in Conclusion
So, there was a lot of central bank talk this week which moved the markets around, but we managed to close it with quite a few pips in our forex account.
Next week, the forex market is supposed to be similar or probably more volatile because the central banks will get even more active. It starts with Mario Draghi on Monday and again on Tuesday, to be followed by BOEs Carney and Yellen on the very same day. That´s only until Tuesday, who knows how the market will end up next week?