BOJ BOJ intervened in the FX market today turn even more dovish now

Forex Signals US Session Brief, July 29 – Markets Tighten the Range Ahead of a Big Week

Posted Monday, July 29, 2019 by
Skerdian Meta • 3 min read

Last Thursday, the European Central Bank started what is a series of central bank meetings. They sounded really dovish, but the Euro rallied higher since the ECB didn’t offer a set date of further rate cuts or a stimulus package, which is actually coming, probably in the September meeting.

This week, we have three major central banks holding meetings and markets are consolidating ahead of such events. Central bank meeting are always important for currencies, although now they hold much more importance since the global economy has turned the tail and is in great difficulty, which means that central banks are going to take action. But, traders are not sure how much action they will take, so they are just staying on the sidelines and trading small ranges.

It starts with the Bank of Japan (BOJ) tomorrow. The BOJ is already quite dovish with interest rates at -0.10%, but considering the dovish comments of the last few weeks, and with the revision lower regarding growth from the Japanese government today to 0.9% from 1.3%, chances are that the BOJ will turn even more dovish and announce another monetary stimulus package. The FED comes in on Wednesday and they are expected to cut interest rates by 0.25%. Although there are options of them cutting rates by 0.50% or leaving the door open for more accommodation further down the end of the year, no one knows for sure, which increases the uncertainty.

On Thursday, the Bank of England (BOE) will also hold its monthly meeting and given Brexit and an economy which might already be in recession, they will likely set a date for more monetary easing. The Chinese manufacturing reports this week are also important for forex traders, since this sector is already in recession in China. Besides that, the Canadian GDP report, the Australian inflation figures and the US earnings report will also have a say in the forex market this week.

The European Session

  • Spanish Flash CPI – The consumer price index (CPI) inflation used to stand at around 1.5% YoY in Q1 of this year after the small rebound in the global economy. But it started weakening in May when CPI fell to 0.8% against 1.2% expected and in June it was slashed in half again to 0.4%. This month, it was expected to increase to 0.6%, but the CPI missed expectations, coming at 0.5%, which is really low.
  • UK preparing for No-Deal Brexit According to Raab – UK foreign secretary Dominic Raab commented earlier that the EU will need to move on Brexit. The EU is being stubborn, we want a deal with the EU. If they continue to be stubborn, then we must prepare for a no-deal Brexit. He added that we are turbo-charging no-deal Brexit preparations. The undemocratic backstop must go, there will be a daily government committee looking at no-deal Brexit planning and Javid will set out further funds to prepare for leaving the EU.
  • The Irish are Sticking to the Backstop – Ireland’s agricultural minister Michael Creed said that removing backstop isn’t going to happen. There is no change on the stance towards Brexit withdrawal agreement. He does not believe that the UK is deliberately snubbing Ireland but we need less “megaphone diplomacy” and more discussions.
  • Japanese Government Revises GDP Lower – The government of Japan has revised economic growth lower, citing weaker exports, i.e. weakening global demand as the main reason for the downgrade. Here are GDP and Inflation forecasts for this year and next year:
  • FY 2019 real GDP growth estimate lowered from 1.3% to 0.9%
  • FY 2020 real GDP growth estimate of 1.2%
  • FY 2019 consumer inflation estimate of 0.7%
  • FY 2020 consumer inflation estimate of 0.8%
  • BoJo Still Hopes for A Lifeline From the EU – The UK PM spokesperson, Alison Donnelly commented on behalf of the UK PM Johnson, saying that he hopes that EU leaders will change their mind on withdrawal agreement. Johnson is clear that he wants to meet with EU leaders, but not be repeatedly told that withdrawal agreement cannot be reopened. As long as there is no change to the withdrawal agreement, we must assume no-deal scenario. The government’s central focus is preparing for that. Backstop must be removed to prevent no-deal Brexit.

Trades in Sight

Bearish GBP/USD

  • The trend is bearish
  • There have been no pullbacks higher
  • The 20 SMA is pushing the price down

The 20 SMA is providing resistance for GBP/USD

GBP/USD has been turned extremely dovish now that the EU is not changing its position regarding Brexit and the Irish backstop, after the new Prime Minister has been appointed. Last week the bearish trend picked up pace and today this pair has lost nearly 200 pips already. The 20 SMA is pushing the price down on the 15 minute chart, which means that the trend is really strong even on this time-frame chart.

In Conclusion

There are no events scheduled for the US session today, so we closed this forex brief a bit short. The USD has resumed the uptrend of the last two weeks again and is grinding higher against major currencies. Although, I don’t expect much action today due to the fundamental events that are scheduled for the week ahead.

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