Archives of “July 25, 2019” day

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USD/JPY climbs to two-week high as yields rise

  
Analysis, Forex
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USD/JPY at the highs of the day

USD/JPY at the highs of the day
If you expect the Fed to follow the ECB, then USD/JPY longs are the place to be.
That’s the brewing signal in USD/JPY as it rises to a two-week high of 108.55. A Fed cut next week is almost a sure thing but a further cut is less certain and either way I don’t see the Fed pre-announcing anything.
Technically, USD/JPY is still in a tough spot but we now have at least one higher low over the past month. It will take a break above 109.00 to spark any kind of real rally but the conditions are there.

ECB leaves key rates unchanged in July monetary policy meeting

  
  Analysis
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European Central Bank monetary policy decision – 25 July 2019

  • Prior decision
  • Main refinancing rate 0.00%
  • Marginal lending facility 0.25%
  • Deposit facility -0.40%
  • Sees rates at present or lower levels at least through 1H 2020
  • Central bank stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards aim in a sustained manner
  • Says will examine options for tiering, potential QE
  • Orders review of options including tiered system for rates
  • Says needs highly accommodative policy for a prolonged time
  • Determined to act if inflation outlook falls short of its aim
Despite the central bank not acting here, the adjustment to the forward guidance and mentioning of further easing measures is just about as dovish as they can get. The part on examining options for rate tiering and QE highlights that and the former will at least be a relief for banks as cuts are set to come in September.
Of note, there’s a subtle tweak to the forward guidance with the ECB allowing for rate cuts now shifting from “rates at present levels at least through 1H 2020” to “rates at present or lower levels at least through 1H 2020″.
EUR/USD nudged higher initially on the rate decision to 1.1161 but after digesting the details, the pair has fallen to a low of 1.1119 before lingering around there now. Expect a more dovish Draghi to potentially send the pair below the year’s low of 1.1107 later on.

Ifo economist says that German economy faces a turbulent time ahead

  
  Analysis
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Comments by Ifo economist, Klaus Wohlrabe, following the data earlier

Germany
  • Sees a slightly positive growth rate in 2H 2019 for Germany
  • But notes that recession is spreading in all important sectors in German economy
  • Says risk of disorderly Brexit has increased
  • Doesn’t believe that the ECB will loosen policy today
The early signs for Q3 haven’t been encouraging for Germany with the manufacturing sector in freefall as the recession in that area deepens. As that continues, the risk of spillover to the services sector will intensify and that won’t bode well for the economic outlook.
As for his comment on the ECB, I’m also leaning more towards that as the governing council may likely see fit to only change its forward guidance as they will only release their latest staff projections in September. That said, they will be skating on very, very thin ice in the mean time in managing the euro and inflation expectations.

Germany July Ifo business climate index 95.7 vs 97.2 expected

  
  Analysis
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Latest data released by Ifo – 25 July 2019

  • Prior 97.4; revise to 97.5
  • Expectations 92.2 vs 94.0 expected
  • Prior 94.2; revised to 94.0
  • Current assessment 99.4 vs 100.4 expected
  • Prior 100.8; revised to 101.1
Slight delay in the release by the source. A measure of business conditions and sentiment/expectations towards the German economy. Do be reminded the Ifo changed the indicator measurement to take into account of services data too as of April 2018.
That’s the weakest headline reading since April 2013 with expectations and current conditions both also seen slumping further in July. This continues to reaffirm weakness in the German economy as we begin Q3.
I reckon concerns about a recession won’t be too far off now. EUR/USD holds steady near the lows for the day at 1.1130 after hitting a session low of 1.1122 briefly, with anticipation still on the ECB policy decision later today.

Eurostoxx futures +0.5% in early European trading

  
Analysis, Global Indices
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Positive vibes seen in early trades in Europe

  • German DAX futures +0.5%
  • French CAC 40 futures +0.8%
  • UK FTSE futures +0.3%
Just be wary that a large part of the gains seen here can be attributed to catch-up play to the performance of US equities overnight. European equities closed in a mixed mood before the late surge in US stocks – led by tech – so that is helping to fuel some of the gains.
Other than that, Facebook beating forecast revenues in Q2 is also helping to lift sentiment further but it’s all about the ECB later on. Expectation that the central bank will ease today has heightened (OIS market sees odds of a 10 bps rate cut at ~51% now) and that should tells you how markets are feeling about the decision later on today.
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