US Session Forex Brief, Feb 12 – Forex Market in Standby Ahead of the Carney and Powell Speeches
Skerdian Meta • 4 min read
The forex market seems to be in standby today. In the recent couple of weeks, we have seen forex traders lean on the USD as the risk of a no-deal Brexit increased and the number of majors to buy decreased considerably. As a result, the market was leaning on the USD as the only safe place to hide, which continued yesterday as well. EUR/USD broke below 1.13 yesterday which seems like a good place to sell today as this pair is retracing higher slowly.
GBP/USD lost nearly 100 pips after a horrible round round of economic data which showed that all sectors of the British economy contracted in December and the GDP declined by 0.4%. Although, that’s not a big surprise. Today, most forex majors are trading in tight ranges as we await the speech from the BOE chairman Mark Carney in some time, while FED’s Jerome Powell will hold a speech in the evening at 17:45 GMT.
I don’t expect Carney to give the GBP direction because no one knows what path Brexit will take, not the Bank of England, not the British Parliament and not the UK Prime Minister either. Theresa May called off the Parliamentary meaningful vote on Brexit today and she will put forward another motion by February 27. That pushes the uncertainty further down the line for another couple of weeks which hurts the sentiment towards the GBP and the Euro.
There is some strange price action in safe haven currencies as the JPY and the CHF continue to slip lower, while GOLD, which is another safe haven asset, has reversed higher after bouncing off the newfound support above the $1,300 level. Stock markets are also running higher today and one of the reasons is the positive comments from Chinese officials yesterday regarding trade talks between the US and China.
- Leadsom Supports May’s Deal If the Backstop Is Temporary – UK lawmaker Andrea Leadsom commented this morning saying that the UK Parliament will support Theresa May’s Brexit deal if the backstop on the Irish border will be temporary. The UK cannot be held in a backstop permanently and the vote on May’s deal will come back when issue of backstop is sorted out. The EU has made its position clear on this issue.
- Nowotny is not Sounding so Confident on the Rate Hike Now – The ECB member Ewald Nowotny said earlier today that the ECB will decide on the interest rate hike in Summer. They were so certain that a rate hike would come at the end of Summer, but now it has been postponed and it is not even a sure thing.
- ECB’s Wiedmann Starting to Come to Terms With the Economic Weakness – The Bundesbank chief Jens Weidmann was speaking in Pretoria, South Africa earlier saying that the economic weakness is a bit longer than initially thought. He sees good reason to stick to medium-term inflation outlook. Now the ECB is starting to realize that this is not just a soft patch.
- Italy’s Salvini is Eyeing the Gold Reserves of the Central Bank – The Italian Deputy Prime Minister, who is the de-facto leader of the country, is looking to get his hands on the Gold reserves of the central bank. He said yesterday that the Italian Gold reserves which are the third largest after the US and Germany with 2,452 tonnes, are the property of the Italian people. He’s threatening to clean house after the central bank failed to protect and supervise Italian banks, so let’s see how this ends.
- Theresa May Calls Off the Meaningful Vote – UK Prime Minister May releases a statement this morning where she has decided to call off the meaningful vote on Brexit this week. That vote will be postponed to February 27, as she told the cabinet that it was clear that discussions with the EU will need a little more time to conclude and so they will not be bringing forward a meaningful vote this week. She told the cabinet that they are seeking ‘legally binding’ changes to the backstop. But, I don’t think she will get anything from the EU.
- OPEC Sees a Declining Demand for Oil in 2019 – The monthly report from OPEC sees the demand for 2019 down by 240k barrels/day at 30.6 mbpd. The output fell 797k bpd in January to 30.8 mbpd. They have raised estimate for non-OPEC supply growth in 2018-19 and revised demand growth forecast lower to 1.24. This looks bearish for Oil and as OPEC cuts production and raises prices, it will attract more shale Oil production.
The US Session
- BOE’s Chairman Mark Carney Speaks – The BOE Governor Mark Carney is already speaking. Carney opened his speech saying that modest tightening of monetary policy over time will likely be sufficient to achieve inflation targets. It is in everyone’s interest to find a Brexit solution. China is the one of the major economies where all major financial imbalances have worsened. He’s right about that. A slowing world economy reflects the shift from accommodative to tighter financial conditions. Trade tensions threaten expansion and trade concerns are cascading through economies.
- US JOLTS Job Openings – The US JOLTS job openings were in a range of around 7 million new jobs a month until October. But January’s report which was for November showed a decline to 6.89 million new jobs and today’s report which is for December is expected to show another decline to 6.84 million jobs.
- FED’s Chairman Powell Speaks – The FED chairman Jerome Powell is due to speak later in the afternoon in Mississippi. He will talk on economic development in high poverty rural communities which is not that interesting for financial markets, but the question and answer session after that will be more interesting. Although, I expect him to sound more or less the same as in the last FED press conference.
Trades in Sight
- The trend has turned bearish for 2 weeks
- The retrace higher is complete
- The 50 SMA should provide resistance
The retrace is complete on the H1 chart
EUR/USD made a bearish reversal two weeks ago after it failed to hold on above 1.15. It has been in a really straightforward downtrend since then with bounces being really minimal during this time. The 20 SMA (grey) has been pushing the price down and when that has been challenged, the 50 SMA has come to the rescue for sellers.
Today, we have been seeing EUR/USD retrace higher and pushing above the 20 SMA on the H1 chart, but we’re approaching the 50 SMA (yellow) which should provided decent resistance above. That moving average comes at 1.13, which is also a support and resistance level in itself, and the stochastic indicator is now already overbought, which suggests that the retrace higher is complete.
The US Dollar has been on a solid bullish trend in the last couple of weeks, although we see that it is under some slight pressure today as it retraces lower. But, this might be a great opportunity to go long on the USD, as we plan to sell EUR/USD soon. FED’s Powell is speaking in 4 hours, although we hope to get a couple of trades until then.