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Forex Elliott Wave Forex Technical Analysis

EURJPY Consolidates Expecting the ECB Decision Ahead

The EURJPY cross consolidates in the overnight trading session expecting the ECB interest rate decision statement that will take place before the U.S. opening bell. The analysts’ consensus doesn’t expect changes both in the interest rate that remains at 0.0% and in the deposit facility rate that keeps at -0.50%.

Source: TradingEconomics.com

Technical Overview

The following 8-hour chart shows the EURJPY market participants’ sentiment, where the cross looks consolidating in the extreme bullish zone, developing a flag pattern. This chartist pattern suggests the continuation of the previous movement. In this case, the technical formation could be indicative of further upsides for the following trading sessions.

Moreover, the primary trend identified with the upward trend-line in blue remains on the bullish side. Also, the secondary trendline plotted in green reveals the bullish acceleration of the price action. This market context is confirmed by the EMA(60) to Close Index, with a reading above the level 2.000 that suggests the overbought levels and the potential correction or consolidation of the previous rally.

Short-term Technical Outlook

The EURJPY under the intraday Elliott wave perspective unfolded in its 2-hour chart illustrates the advance in an incomplete corrective rally corresponding to wave ((b)) of Minute degree labeled in black. The internal structure shows the cross advancing in its incomplete wave (c) of Minuette degree marked in blue, suggesting a further upside in the following trading sessions.

At the same time, the previous chart reveals the internal five-wave sequence of wave (c) in blue, which exposes the sideways progress of its fourth wave of Subminuette degree identified in green, which belongs to the wave (c) of Minuette degree. 

In this context, considering that the price action could develop a new upward movement, the cross could advance in its fifth wave in green to the potential target zone between 126.84 and 127.48, where the EURJPY cross could complete the wave (c) in blue, and the wave ((b)) in black. Likewise, once this corrective rally completes, the price could start to develop a downward movement identified as wave ((c)) in black.

In this regard, according to the Elliott Wave theory and considering that the mid-term structure corresponds to an incomplete corrective formation constituted by a three-wave sequence, after the completion of the wave ((b)) in black, the price should start to decline in its wave ((c)) with an internal structure subdivided into a five-wave sequence.

Summarizing, the EURJPY cross currently develops a consolidation pattern, which leads to expect a new upward movement with a potential target between 126.84 and 127.48. Once the price completed its target, the cross may start to decline in a five-wave sequence corresponding to wave ((c)) of Minute degree.

Finally, the invalidation level of the current bullish scenario can be found at 124.566.

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Forex Market Analysis

BoE & ECB hold their rates, US CPI to fall off expectations

BoE

The Bank of England kept interest rates on hold on Thursday and highlighted greater financial market concerns about Brexit, a month after raising borrowing costs for only the second time in more than a decade.

“Since the Committee’s previous meeting, there have been indications, most prominently in financial markets, of greater uncertainty about future developments in the (European Union) withdrawal process,” the central bank said.

BoE staff raised their forecast for third-quarter growth to 0.5 percent from 0.4 percent, partly due to stronger consumer spending over an unusually warm summer.

Earlier on Thursday, Governor Mark Carney – whose own term was extended this week until January 2020 to help smooth the post-Brexit transition – briefed May and senior ministers on preparations for a ‘no deal’ Brexit.

Carney warned legislators last week that if Britain left the EU without a trade deal, economic difficulties could squeeze British households’ incomes for years to come.

The central bank said on Thursday that risks to global growth had risen, especially if the United States and China implemented protectionist trade measures.

 

ECB

The European Central Bank left interest rates on hold Thursday, in a widely anticipated decision, and reiterated that rates will remain unchanged at least through the summer of 2019.

The ECB also repeated that it expects its asset purchase program to end in December after halving it to €15 billion per month starting in October, from €30 billion at present.

The euro zone monetary authority had announced plans to wind up its massive bond purchasing stimulus program at its June meeting.

Here’s the ECB’s growth & inflation forecasts of 2018,2019,2020

ECB growth forecasts:
ECB Sees 2018 Economic Growth at 2% vs. 2.1% in June
ECB Sees 2019 Economic Growth at 1.8% vs. 1.9% in June
ECB Sees 2020 Economic Growth at 1.7% vs. 1.7% in June

 

ECB inflation forecasts:
ECB Sees 2018 Inflation at 1.7% vs. 1.7% in June
ECB Sees 2019 Inflation at 1.7% vs. 1.7% in June
ECB Sees 2020 Inflation at 1.7% vs. 1.7% in June

 

 

US CPI

US consumer price index came steady such as the previous reading at 0.2% but less than expected 0.3% which may put some pressure on the Federal Reserve to gradually raise interest rates.

The U.S. central bank is widely expected to hike interest rates two more times this year, with the next move higher coming at its September 25-26 meeting. but odds for another move in December have decreased with this soft data.

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Forex Market Analysis

An Interest Rate War is Coming? – 13.06.18 Daily Update


Fundamental Overview


An Interest Rate War is Coming?

Financial Market Latest Updates: In today’s session, the Federal Reserve has decided to increase the interest rate by 0.25%, hiking it from 1.75% to 2%. Beyond commenting the Dollar Index movements or the FED Chairman Jerome Powell’s remarks at the press conference; this interest rate increase the United States is carrying out will mean a change in the course of the monetary policy for the rest of the principal Central Banks.

On the one hand, the ECB has been starting to raise the discourse of the end of the bond purchase program in June and a potential increase in the interest rate that would start from 2019. On the other hand, the Bank of Canada Governor, Stephen Poloz, has commented that there will possibly be a new increase in the interest rate in July (currently at 1.25%). The Reserve Bank of Australia is not far behind in this discourse of rate increases and considers that given the level of inflation in Australia, sooner than later there should be an interest rate hike (the current interest rate is 1.5%.)

 


Technical Analysis


EURUSD

EURUSD continues moving sideways in the pennant pattern expecting the ECB interest rate decision where we foresee that the pair makes new highs above the 1.19 level.

 


 

GBPUSD

GBPUSD continues testing the blue box and bouncing. We expect significant moves in this pair in the next week with the BoE Monetary Policy Meeting scheduled on Thursday 21st. As long as the price does not make a 2B Pattern, a new cycle will not initiate.

 


 

USDCHF

USDCHF as forecasted in our previous Daily Update, made a bullish false breakout and then a bearish move. We still expect fresh lows at least to the blue box between 0.9831 and 0.9809.

 


 

EURGBP

EURGBP is moving sideways. In terms of the traditional Technical Analysis, we could consider the structure as an inverse head and shoulders pattern and a continuation pattern. Our main scenario is that the cross could strike the 0.8921 level mid-term.

 


 

EURJPY

EURJPY is testing the 130.27 resistance, forming an ascending triangle as a continuation pattern of the previous bullish move. We expect that the price reaches the 132.5 level, from where the cross should make a new bearish connector.

 


 

FTSE 100

FTSE 100 still is moving in the lateral channel. Remember that the next BoE interest rate decision meeting will take place on June 21st. Despite none of 63 economists polled by Reuters expect any move from the current 0.5%, a surprise effect of the rate hike could move the British Index considerably.

 


 

DAX30

DAX 30 still is moving in the sideways corrective structure, it’s probably waiting for the ECB interest rate decision and the Mario Draghi discourse before it continues the bearish bias.


 

 

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Forex Market Analysis

EURUSD after ECB press conference is moving as was planned.

Hot Topics:

  • ECB decides to keep the interest rate unchanged at 0%.
  • FTSE continues its way to reach new highs.

ECB decided to keep the interest rate unchanged at 0%.

The ECB in its April monetary policy meeting has decided to keep the interest rate unchanged. As we expected, in the past week, the Euro group has continued its weakness. In the EURUSD pair, our central vision continues being bearish at least till the 1.20 zone.

The inverse correlation continues acting between EURUSD and USDCHF. The bullish trend in the Swiss currency remains very sharp, and our eyes are placed in the 0.999 to 1.02 area, from where the pair could react to the downside.

DAX 30 stays on a sideways movement without enough volatility to advance above the pivot level 12,622. We expect a new low near to the blue box area before to the German Index sees new highs.

FTSE continues its way to reach new highs.

The FTSE 100 in today’s session moved mostly upward, struggling to reach a new high with no success.  Consider that it is still testing the 61.8% Fibonacci retracement level of the bearish move that started in the second half of January. A test in the blue region is expected before making a new bearish leg.

As we said in the previous Daily Update, the GBPUSD pair is making a sideways movement before continuing its bearish cycle. The invalidation level is 1.4261, and the cycle target is 1.3815.

©Forex.Academy

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Forex Market Analysis

German government cuts its growth forecast for 2018

Hot Topics:

  • German government cuts its growth forecast for 2018.
  • FTSE 100 falls dragged by mining sector stocks.

German government cuts its growth forecast for 2018.

The German government reduced its forecast for 2018 growth to 2.3% from 2.4%. This growth correction happens after the IFO business confidence index was published, which has fallen for the fifth consecutive month in April. Despite the cut, the Economy minister Peter Altmaier said: “Germany is doing well economically. Actually, we are doing very well”.

In this context, DAX 30 is making a bearish corrective move, which could extend to the area between 12,180 and 11,930 pts before it continues its bullish trend. Invalidation level is below 11,792.4.

The EURUSD moved lower and lost its 1.22 level, looking for the 1.215 to 1.207 levels. We keep in mind the ECB Monetary Policy meeting where we don’t expect changes in the interest rate. In case the Euro rises above 1.224, our current bearish bias in the common currency will change to a bullish bias.

By inverse correlation, the USDCHF pair continues moving bullish, surpassing the maximum registered yesterday. The current situation makes us think that the Swiss currency could build a sideways pattern and be making a corrective move before continuing with its trend. The invalidation level is in 0.95774.

FTSE 100 falls dragged by mining sector stocks.

The FTSE 100 moves bearish in the last trading hour and drops more than 0.70% in the session, dragged mainly by the mining sector stocks, where metals have moved away from their annual highs. The leading British index could extend its falls to the 7,100 level, from where it could resume the upward trend. The invalidation level remains at 6,971.8.

The pound sterling has rejected the level of 1.40 thus forming the pivot level. After the fall recorded in the last trading session, we expect a recession to the area of 1.407 to continue the previous bearish movement with a target between 1.38 to 1.375. Invalidation level is located at 1.4246.

©Forex.Academy

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Forex Market Analysis

Time for a new Correction

Hot Topics:

  • Is it time for a new Indexes’ correction?
  • US Dollar can’t continue its rally against their main pairs.

Is it time for a new Indexes’ correction?

The FTSE closed the session near our blue box, the area from which we expected that the price would make a corrective movement at least down to 7,326.  It could even be down to the 7,000 pts level.

 

The DAX closed the session testing the 12,622 resistance, failing once again in its attempt to strike the resistance. The pattern left at the end of the session looks like a double top pattern. If the price breaks down at 12,465.5, the target level will be 12,294.

US Dollar can’t continue its rally against their main pairs.

The Euro stopped its correction despite the positive economic data in the US. Consumer confidence increased in April, at the same time, the New Homes Sales (MoM) in the US advanced 4% in March, the highest level for four months. We think the corrective move in the Euro has paused, waiting for the ECB Monetary Policy decision. As long as the price moves below 1.2476, our bias remains bearish.

 

The pound has dropped below the psychological level of 1.40 and is now making a pullback looking to recover the previous zone. We will wait and expect the beginning of its next move to take a position in the GBPUSD pair. Our primary vision is that price could make new lower lows, to reach even below 1.37 level.

 

The CHF climbed up to the 0.98 level from where it has been rejected. It is likely that the Swiss currency makes a new high in 0.9825 before starting a bearish correction. The target is between the 0.965 and 0.9720 zone at least. The invalidation level of the current bullish cycle is 0.9577.

©Forex.Academy

Categories
Forex Market Analysis

The Positive Data Reported in Canada could support a rate hike soon

Hot Topics:

  • The positive data reported in Canada could support a rate hike soon.
  •  The Greenback rally continues.
  • FTSE maintain the bull trend, DAX waits for ECB meeting?

Positive data reported in Canada could support a rate hike soon.

The consumer inflation (YoY) in March increased to the highest level in three years reaching 2.3%, climbing from the 2.2% reported in February. The Core Inflation (YoY) descended to 1.4% in March from the 1.5% in February. The higher oil prices have influenced inflation to rise. On the other hand, retail sales in February have increased to 0.4% from 0.1% reported in January. The Bank of Canada maintains a 2 percent inflation target; this scenario could signal an interest rate hike soon. In the last Monetary Policy meeting, the Bank of Canada decided to maintain the rate at 1.25%.

In the technical context, a correction for the Canadian Dollar group could show soon. In the EURCAD cross, we expect a bullish movement with a target placed in the 1.58 level before making new lows.

In the same way, GBPCAD is developing a bullish retracement process that could reach 1.805 – 1.81, the area from where it could make the bearish continuation of the main trend.

The Greenback rally continues.

For the fourth consecutive session, the US Dollar saw advances compared to its main competitors. The Euro has broken down its short-term consolidation structure but has been stopped by the lower trend-line of its long-term triangle pattern.

The Pound tested the 1.40 psychological level again, from where it is bouncing. We expect a retracement to a Fibonacci level before we decide to sell this pair.

The Swissy could visit the area between 0.9765 and 0.9836 before it makes a bearish cycle.

FTSE maintains the bull trend, DAX waits for ECB meeting?

The main European indices have closed with a mixed sentiment. The FTSE 100 closes the last trading session of the week climbing above the pivot level 7,326. We expect more upsides until the 7,450 – 7,520 area before it makes a bearish leg.

On the opposite side, DAX 30 could not climb up above the pivot level of 12,622. The German index could make a new bearish leg, likely to be around the 12,100 – 12,200 area before the ECB Monetary Policy Meeting and continue the bullish cycle.

© Forex.Academy

Categories
Forex Market Analysis

Dolar Index closes bearish helped by mixed CPI data

Hot Topics:

  • Dolar Index closes bearish helped by mixed CPI data.
  • EUR-USD is losing momentum.
  • Manufacturing Production (YoY) falls, and pound closes slightly upward.
  • BoJ – Kuroda keeps the promise of monetary policy.
  • Crude Oil climbs to the highest level since 2014.

Dolar Index closes bearish helped by mixed CPI data.

The index of the greenback yesterday closed down 0.04%, finding support at level 89.03 weighed down by mixed inflation data. On the one hand, Core CPI (YoY) rose to 2.1% in March from 1.8% registered in February. On the other side, the Consumer Price Index CPI (MoM) fell to -0.1% in March, while in February it recorded an advance of 0.2%. We continue to observe the lateral range in which the price is with a bearish bias. (Click on the chart for full resolution).


 

EUR-USD is losing momentum.

The pair of the single currency is losing momentum, in the fourth consecutive trading session, the euro advanced 0.10% finding resistance at 1.2395. In an interview with Reuters, the ECB lawmaker Ardo Hansson said that the ECB “needs to be patient and eliminate its stimulus very gradually.”

Although the ECB has kept the interest rate at low levels and has maintained its policy of buying bonds, lawmakers are debating that it is time to start cutting this policy. ECB legislator Ewald Nowotny, meanwhile, said he would have “no problem” in raising the deposit rate from -0.4% to -0.2% as a means to normalise monetary policy.

In this macroeconomic context, the euro is reaching a key area in the range 1.2412 – 1.245. Should not exceed the level 1.2476, the pair could make a new bearish leg. In the long term, we still have our eyes on 1.26 as the end zone of the EUR / USD bullish cycle.

Manufacturing Production (YoY) falls, and pound closes slightly upward.

Manufacturing Production (YoY) fell to 2.5% in February well below the consensus that estimated an advance of 3.3%. The sector that was most affected was the construction sector with a decline of 1.6% in February. The National Statistics Office attributes to a large extent these low figures to the effect of severe weather.

On the technical side, we are observing a possible corrective process that could begin to be developed from area 1.42 – 1.425 with a potential level of invalidation in over 1.4345 coinciding with the highest level of the year.

 

BoJ – Kuroda keeps the promise of monetary policy.

The Governor of the Bank of Japan, Haruhiko Kuroda, reiterated his optimistic view on the expansion of Japan’s economy, affirming that “With the improvement of the product gap and the medium to long-term inflation expectations observed, we expect that inflation will accelerate as a trend and go to 2 percent. ”

On a technical level, on the one hand, the USD-JPY is still in a limited lateral range between 106.64 and 107.49, the predominant bias is bullish and increases its probability of strength as it closes above 108. The level The invalidation of the bullish sequence is 105.66.

On the other hand, by a positive correlation concerning USDJPY, we see in the Nikkei 225 Index within a long-term bearish pattern developing an ascending diagonal formation, which in case of exceeding 21,957 could lead to exceeding 22,500 pts.

 

Crude Oil climbs to the highest level since 2014.

First, it was the turn of the Brent oil; now it is the turn of the Crude oil that has climbed to the highest levels since 2014, reaching 67.36 US $ / Barrel, while the Brent oil climbed to new highs reaching $72.69.

For the Brent Oil, although the trend is bullish, the closest resistance is $72.91, while the level of invalidation of the bullish cycle is below $67.

As with the Brent Oil, the Crude Oil is in a free climb up to $ 70.7 as long as it remains above the $64 level.

On the opposite side, by inverse correlation, the Loonie remains in free fall with a target at the base of the bullish channel, the impact zone could be between 1.2456 to 1.235.

 

 

 

 

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Organisation of the European Central Bank

Globalisation has led to an integration of the various aspects of people’s lives from consumer habits to cultural aspects. The economy has not been indifferent to this phenomenon and the relations between most countries have been internationalised so that there is more and more dependency between them and for that reason greater co-operation between governments and between the central banks of each country.

There are more and more processes of regional integration, which has led geographically close countries to eliminate barriers to trade between each other and generate an economic bloc that is more competitive with the rest of the world. But not all forms of integration are equal, there are some deeper ones that allow macroeconomic policies to be co-ordinated and create a single currency and other unions that simply reduce trade barriers between countries without going beyond a privilege in trade with certain countries.

The European Union has developed a legal and political system that promotes continental integration through common policies that cover different spheres of European society, although the origin of this union is especially economic. The form of integration was a monetary union where a single currency was created to facilitate transactions between countries, but some countries belonging to the European Union avoided giving up their control over their currency and therefore did not adopt the Euro as a transaction unit.

In order to achieve monetary union, certain requirements of fiscal homogeneity need to be met in order to synchronise their macroeconomic policies, which is why some European countries have first had to meet some public deficit targets in order to be part of the integration. Being part of a monetary union, the member countries give part of their sovereignty to the European Central Bank, in charge of issuing the common currency and fixing the monetary policy of the economic union.

The countries that make up this economic agreement have:

  • Preferences among members to boost trade within their borders.
  • Elimination of trade barriers for members of the agreement.
  • Common external protection.
  • Free mobility of capital, people and productive factors
  • Economic policy coordination
  • Unique economic policy

The first historic step for the consolidation of the European Central Bank occurred in 1998, where the decision was made to build an economic and monetary union with free capital mobility within Europe, a central monetary authority and a single monetary policy within the European area. But before formally taking the decision two previous events had occurred that allowed the creation of the bank.

  1. In 1990, free capital mobility is allowed among some European countries, as well as greater co-operation among central banks, which allows a convergence in the economy of several European countries.
  2. The European Monetary Institute (EMI) was established in 1994, central banks were prohibited from continuing to grant loans, monetary policy co-ordination was further increased, economic convergence followed and the establishment of central bank independence to take the necessary measures for the good performance of the economy.

Already in 1999 stronger steps were taken for the monetary and economic union, such as the introduction of the Euro, the establishment of a single monetary policy set by the European System of Central Banks (ESCB) and the conversion rates were set.

Since the 1st of January, 1999 the European Central Bank has been responsible for conducting the monetary policy for the eurozone consisting of 19 state members. To be part of this union, each country had to comply with certain economic and legal criteria. The following chart shows the main stages of the European Central Bank.

Graph 74. Stages of the European Central Bank.

 

The European Central Bank has a legal status under international law and is considered an international institution. The Euro system is composed of the European Central Bank (ECB) and the National Central Banks (NCBs) of the countries that adopted the Euro. The Euro system and the European Central Banks system will continue to co-exist as long as there are members of the economic union who have decided not to adopt the Euro. The following chart shows the member countries of the eurozone.

 

Graph 74A. Euro Area 1999-2015. Retrieved 16th February 2018, from https://www.ecb.europa.eu/euro/intro/html/map.en.html

 

Mandate

The main objective of the bank and its monetary policy is to maintain price stability. As complementary objectives, the bank must help the economies of member countries in their growth and in the dynamics of the labour market, but without these variables diverting the main objective of keeping inflation under control.

For the bank, price stability is defined as an annual increase in the Harmonised Index of Consumer Prices (HICP) for the entire eurozone below 2% and a long-term target of 2%.

 

Organisation

The European Central Bank has four major subdivisions that make all the decisions to fulfil the bank’s mandate.

  • The Executive Board
  • The Governing Council
  • The General Council
  • The Supervisory Board

 

The Executive Board

All the members of the board are appointed by the European Council. Each member is chosen for a period of eight years without the possibility of renewing. The board meets normally every Tuesday and is composed of:

  • The President
  • The Vice-President
  • Four other members

The committee is responsible for the implementation of the monetary policy defined by the governing council and the instructions given by the National Central Banks (NCBs). It is also in charge of the daily management of the bank and prepares the meetings of the governing council.

 

The Governing Council

It is the decision-making body of the bank, composed of six members of the executive committee as well as the governors of the central banks of the 19-member countries of the Euro-system. It is chaired by the president of the ECB. They meet every six weeks and publish the minutes of the meetings with all the necessary information four weeks after the meeting. In total it is composed of 25 members with the accession of Lithuania in 2015 and there is a rotation of the votes in the meetings as follows:

 

Rotation of voting rights in the Governing Council

 

 

Graph 75. Rotation of voting rights in the Governing Council in 2018. Retrieved 16th February 2018, from https://www.ecb.europa.eu/ecb/orga/decisions/govc/html/votingrights.en.html

The responsibilities are to define the monetary policy of the euro area and in particular to establish the interest rate at which commercial banks will be given resources, in addition to the supply of Euro-system reserves.

 

The General Council

It is composed of the president of the ECB, vice president of the ECB and the governors of the 28 National Central Banks (NCBs) that belong to the European Union, where 19 countries are of the euro area and 9 countries of non-euro areas. Other members who attend the meetings, but without the right to vote are the president of the Council of the European Union and members of the European Commission.

The general council carries out the tasks assumed by the European Monetary Institute (EMI) that the ECB should execute as the last phase the economic and monetary union since not all the member states adopted the Euro. Its functions are the collection of statistical information, preparation of the annual report of the ECB among others. This body will be dissolved when all the members of the economic union assume the same currency.

 

The Supervisory Board

The supervisory board meets twice a month to discuss, plan and carry out supervisory tasks of the bank’s departments. It consists of, the president appointed for a period of 5 years, vice president elected from among the members of the executive board, four representatives of the ECB and representatives of national supervisors

In conclusion, there is a certain similarity between the way monetary policy decisions are made between the European Central Bank and the US Federal Reserve since it is done through voting by the governors of the banks that make up the central bank and take turns the votes in the meetings. The difference is that the rotation of the votes of the districts that make up the Federal Reserve is annual while the votes of the banks that make up the ECB are rotated monthly as shown in the graph above.

Regarding the mandate of the central banks, there is a greater similarity between the ECB and the Bank of England since both have to maintain price stability as its main objective, and the objective of the annual growth of inflation is 2%. Although they also worry about economic growth and the unemployment rate, these objectives are secondary. While for the Federal Reserve the three variables are equally important, so by mandate they are responsible for maintaining low unemployment rates, stable economic growth with good growth rates and an inflation rate that is close to 2%.