GBP Still Vulnerable To Further Declines And EUR Won’t Be Immune To That – ANZ

GBP/USD resumed its falls on Carney’s speech[1] but there may be more to come, with sterling not falling alone:

Here is their view, courtesy of eFXnews:

Despite the sharp fall in GBP so far, we still see it as vulnerable to further declines. The downgrade of the UK’s AAA rating to AA (negative) by S&P has added to the negative tone. Markets had overlooked the UK’s growing current account deficit (5.2% of GDP in 2015) previously, but this alongside the uncertainty over its future trade relations and the possibility of rate cuts from the BoE, means it is still too soon to call a bottom for sterling. We have downgraded our GBP/USD forecast as a result, seeing it heading to a lower 1.20-1.25 range over H2 and into next year.

Pounded pound July 1 2016

The EUR will not be immune to GBP weakness. In addition, the single currency would be sensitive to any voices calling for referenda on EU membership by other countries looking to follow the UK’s footsteps. We now see the potential for EUR/USD to move to 1.05 or lower, and have downgraded our forecasts as a result.

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GBP/USD falls on Carney’s easing promise

Carny made a special appearance and offers easing during the summer as a reaction to Brexit[1]. He makes a heavy hint that they will take a decision in August. This speech was scheduled only yesterday and is seen as part of the damage control.

GBP//USD slips to 1.3330. Update: it already slips to 1.33. Another update: the pound is already down to 1.3260. We wrote yesterday about why the rally happened and why it is set to fall[2] – this was certainly a sell opportunity now worth over 250 pips.

Carney Highlights

  • High level of uncertainty that will last for some time
  • Clarity needed on the EU trade deal, regulation
  • Results of the referendum are clear, prospects not so
  • Additional measures will be made
  • BOE cannot fully mitigate a large economic shock.
  • Too low rates can hit bank profitability.
  • The efficacy of monetary policy is diminished with ever low interest rates.
  • Uncertainty may have more persistent drag on the economy.
  • July 14th scheduled rate decision will be the first opportunity to assess the impact
  • In August, alongside the Quarterly Inflation Report, the BOE may act.

Market reactions to Carney

  • A 1% fall in the pound
  • 10 year UK bonds at a record low
  • FTSE jumps

more coming

Here is how it looks on the chart.

GBPUSD falls on Carney June 30 2016

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UK business investment falls as uncertainty mounts and economy slows

Signs of early Brexit worries affecting the economy were provided by official data showing business investment falling in the first quarter of the year. Gross fixed capital investment fell 0.1% in the first three months of the year, according to the Office for National Statistics, revised down from an earlier estimate that showed growth of 0.5%.

The narrower measure of business investment fell 0.6%, worse than the earlier estimate of a 0.5% decline, leaving it 0.8% lower than a year ago.

UK business investment

Economic growth slows

The overall pace of economic growth was left unchanged at 0.4% in the first quarter, despite the drop in investment, and the expansion in the fourth quarter of last year was revised higher to 0.7%, at least providing some brighter news on recent economic trends.

However, the pace of economic growth looks set to have slowed further in the second quarter, down to 0.2% according to PMI data available up to May, and the downturn in investment is an overriding concern. Rising business investment had been hoped to play a major role in the building a sustainable economic upturn in the UK, with forecasters such as the Office for Budget Responsibility pencilling-in strong growth of capital spending as a key driver of GDP.

Charts show PMI data up to May 2016.

Brexit worries

The drop in investment follows reports from the business surveys that companies became increasingly reluctant to make investment commitments earlier this year as worries about Brexit coincided with signs of slower economic growth both at home and at the global level. The potential for the UK to leave the EU in particular creates uncertainty about returns on investments, meaning the Brexit vote is likely to have exacerbated the downward trend in investment.

Services and consumer spending continued to drive growth in the first quarter, according to the ONS data, while manufacturing, construction and trade acted as additional drags alongside the downturn in investment.

Manufacturing output fell 0.2%, and construction output was down 0.3%, but service sector activity was 0.6% higher than in the fourth quarter.

Consumer spending was up 0.7%, buoyed by real disposable incomes rising 5.4% on the year in the first quarter, the largest gain in 15 years. However, spending is likely to come under pressure in coming months as a result of higher prices, driven in turn by the fall in the exchange rate.

Manufacturing and trade, in contrast, could well benefit from the weaker pound. Brexit may therefore have the benefit of helping rebalance the economy away from consumers towards manufacturing and exports.

Near-record current account deficit

The current account deficit was estimated to have been running at 6.9% of GDP in the first quarter, narrowing slightly from the record 7.2% in the closing quarter of 2015 to £32.6bn. The deficit could therefore narrow further in coming months as the weaker pound boosts exports and helps attract foreign investment. However, to achieve this we will also need to see business confidence rise and uncertainty lift. Without such confidence, the current account situation could clearly deteriorate.

Current account

Source: ONS.

Chris Williamson | Chief Economist, Markit

Tel: +44 20 7260 2329
chris.williamson@markit.com

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The original article can be found herehere.Markit are an important source of financial information. Their UK PMI figure for manufacturing, construction and services are carefully watched economic indicators and can move GBP forex pairs substantially on their release.

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GBP/USD: En-Route To 1.22 In 3 Months – Credit Suisse

As a function of the UK’s “Leave” decision at the June 23 Brexit referendum, our economists have materially downgraded their expectations for the UK and European economies vis-à-vis the rest of the world. In the same context, we are making material revisions to our forecast set. 

Having been wrong about the outcome of the referendum, we are lowering our 3-month GBPUSD forecast to 1.22 from levels 1.58 previously. This is consistent with the “leave” outcomes we expected when we previewed the possibility back in January .

We believe the UK economy’s well-documented fiscal and current account deficits, combined with the fact that GBP is not especially cheap, leave room for still more GBP weakness. And while the current account would tighten if UK domestic demand falls as the economy heads towards recession, the fiscal picture would become even more of a headache given the likely negative output gap that would materialize. If the BoE responds with a rate cut and QE resumption as we expect, GBP will have fresh reasons to move still lower.

CS forecasts last updated on eFXplus on June 29. 

Copyright © 2016 Credit Suisse, eFXnews™

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Canadian GDP rises 0.1% m/m as expected

No surprises with Canada’s GDP: a rise of 0.1% month over month. Producer prices in Canada jumped by 1.1% m/m, much more than 0.4% predicted but remained negative at -1.1% y/y.

USD/CAD remains stable.

The Canadian economy suffered from the fall in oil prices but the economy is quite diverse. There are worries about the bubbling housing sector in a few cities.

Canada was expected to report a growth rate of 0.1% in April 2016 after a drop of 0.2% in March. The country is unique in publishing GDP on a quarterly basis. In this specific release, we get a peek into Q2.

USD/CAD traded around 1.2955 ahead of the publication. The US releases weekly jobless claims at the same time.

Dollar/CAD has been influenced by Brexit: the US dollar advanced on safe haven flows and the C$ slipped on risk averse markets. However, the move was not that strong in this pair, compared with others.

Here is the USD/CAD chart. The range is quite clear: 1.2910 to 1.30. Further support awaits at 1.2830 and 1.2750. Resistance is at 1.3080.

USDCAD technical chart June 30 2016

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Orbex launches revamped website

Forex broker Orbex has made significant changes to its website. Apart from the modern look, it also provides interesting features.

Here is the information from the official press release:

Limassol, June 30, 2016 – Orbex, an international leader in online forex trading, is pleased to announce the launch of its newly revamped website.

Today, Orbex website offers enhanced usability and robust functionality wrapped up in a spectacular design infused with a pioneering spirit. But what have not changed are the core values on which Orbex was built – to serve traders responsibly.

Over the recent years, the demand for Orbex investment services has been exponentially growing, and the company has seen the necessity to better accommodate the site’s increasing volume of users.

The redesign project was aiming to provide traders with seamless and a more personalized user experience while ensuring complete safety of all operations. Additionally, Orbex has focused on the development of fully responsive design, bringing desktop-quality to mobile and tablet users.

The realization of the project took four months: from the initial plan to implementation; and came as a result of collaborative team effort.

“In today’s world, a website is a manifestation of what you represent as a company and how truly you understand your clients’ needs. Orbex new website reflects the level of responsibility, agility, and reliability we have attained over years,” says Layth Sanjaq, Head of Operations.

The site goes live on the 30th of June 2016 and will be regularly updated with the information on the latest products’ launches, company’s activities and significant financial events.

About Orbex

Orbex is a global award-winning online forex broker, fully licensed and regulated, specializing in the provision of access to the world’s biggest and most liquid financial markets. Since its founding in 2009, Orbex aims to build the responsible development of the global online trading services market by empowering investors with smart online tools backed by customer service to help them focus on new market opportunities.

New Orbex_Launch

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AUD: To Underperform Vs USD, JPY, CHF; Fade Data-Driven Rallies – ANZ

The Australian dollar is facing elections and a rate decision in the next few days. What’s next? ANZ has a bearish outlook:

Here is their view, courtesy of eFXnews:

Brexit is now a reality. The damage is done and we now have to navigate through an environment of heightened uncertainty. Though the UK is far away, this kind of global uncertainty is never a good thing for global confidence or risk appetite. By extension, as a small, open economy dependent on global trade and funding, the AUD should weaken in this environment. We expect the AUD to underperform safe havens such as the USD, JPY and the CHF. The AUD is likely to remain within our existing forecast range (above USD0.66).

Increased pricing of RBA rate cuts has also contributed to the weakness in the AUD. Since the Brexit vote, rates markets have added 20bps of rate cuts and now expect ~40bps of easing. This looks fully priced and as such domestic factors will take a backseat for now

For the AUD, we would fade better-than-expected data although worse-than-expected data may see markets reinforce expectations of near-term RBA easing and see the AUD trade lower. Brexit also raises questions about the medium-term outlook for the Australian economy and in turn, the AUD. Australia has benefited from a globalised economy, with free trade and capital mobility at its centre. While Brexit is not sufficient to declare that globalisation has peaked, the global economic model is clearly under pressure. A continued trend towards less international cooperation would justify a bigger premium on AUD assets and weigh on the AUD.

AUDUSD global and local confidence

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AUD: To Underperform Vs USD, JPY, CHF; Fade Data-Driven Rallies – ANZ

The Australian dollar is facing elections and a rate decision in the next few days. What’s next? ANZ has a bearish outlook:

Here is their view, courtesy of eFXnews:

Brexit is now a reality. The damage is done and we now have to navigate through an environment of heightened uncertainty. Though the UK is far away, this kind of global uncertainty is never a good thing for global confidence or risk appetite. By extension, as a small, open economy dependent on global trade and funding, the AUD should weaken in this environment. We expect the AUD to underperform safe havens such as the USD, JPY and the CHF. The AUD is likely to remain within our existing forecast range (above USD0.66).

Increased pricing of RBA rate cuts has also contributed to the weakness in the AUD. Since the Brexit vote, rates markets have added 20bps of rate cuts and now expect ~40bps of easing. This looks fully priced and as such domestic factors will take a backseat for now

For the AUD, we would fade better-than-expected data although worse-than-expected data may see markets reinforce expectations of near-term RBA easing and see the AUD trade lower. Brexit also raises questions about the medium-term outlook for the Australian economy and in turn, the AUD. Australia has benefited from a globalised economy, with free trade and capital mobility at its centre. While Brexit is not sufficient to declare that globalisation has peaked, the global economic model is clearly under pressure. A continued trend towards less international cooperation would justify a bigger premium on AUD assets and weigh on the AUD.

AUDUSD global and local confidence

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Elliott Wave Analysis on FTSE 100 and S&P500

FTSE 100

On UK index, FTSE100 we expect more gains in the short-term as the recent minor pullback appears to be a wave four within an uptrend. We are looking for wave five to rally towards 6350-6400.

FTSE 100, 15Min

ftse 15 (2)

S&P500

Risk-on moves remains in play with a nice 90 point bounce on the E-mini S&P500 from that 1980 area that was reached following UK referendum votes. However, fear slowed down it seems, so we are now even more bullish than before, especially if we consider that intraday rise on futures contract has impulsive qualities. We see wave 5 coming into play now that may reach 2090 area today, or even higher if the move will be extended.

S&P500, 30Min

snp 30

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AUD/USD: Trading the Chinese Caixin Manufacturing PMI

Chinese Caixin Manufacturing PMI (Purchasing Managers’ Index) is based on a survey of purchasing managers in the manufacturing sector. Respondents are surveyed for their view of the economy and business conditions in China. A reading which is higher than the market forecast is bullish for the Australian dollar.

Here are all the details, and 5 possible outcomes for AUD/USD[1].

Published on Friday at 1:45 GMT.

Indicator Background                             

Traders should pay close attention to this key release, as China is Australia’s number one trading partner, and an unexpected reading can quickly affect the direction of AUD/USD.

Chinese Caixin Manufacturing PMI continues to post to contraction in the manufacturing sector. The indicator came in at 49.2 points in May and little change is expected in the upcoming release.

Sentiments and levels

The stunning vote in the UK has caused plenty of turmoil in the markets, and the aftershocks could lessen the appetite for risk and hurt risky commodities like the Aussie. So, the overall sentiment is bearish on AUD/USD towards this release.

Technical levels, from top to bottom: 0.7692, 0.7597, 0.7438, 0.7334, 0.7192 and 0.7105

5 Scenarios

  1. Within expectations: 46.0 to 52.0: In such a case, AUD/USD is likely to rise within range, with a small chance of breaking higher.
  2. Above expectations: 52.1 to 56.0: An unexpected higher reading can send the pair above one resistance line.
  3. Well above expectations: Above 56.0: Given the current trend, the likelihood of a sharp expansion is low. Such an outcome would likely push the pair upwards, and a second resistance line might be broken as a result.
  4. Below expectations: 42.0 to 45.9: A sharper decrease than forecast could push AUD/USD downwards and break one level of support.
  5. Well below expectations: Below 42.0: A very poor reading could impact on the Australian dollar and push the pair below a second support level.

For more on the Australian dollar, see the AUD/USD forecast[2].

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