The dollar fell, the yen rose after data on the US economy and the Bank of Japan decision

The dollar fell, the yen rose after data on the US economy and the Bank of Japan decision

The dollar fell on Friday after the release of US GDP, which growth is at a slower pace than expected in the second quarter, further weakened the expectations of the new US Federal Reserve raising rates in September.
At the same time, the Japanese yen strengthened after the Bank of Japan expanded its stimulus measures by the end of the two-day meeting, but disappointed investors who expected a more ambitious action in support of growth and inflation.
The yen jumped by 3.08% to 102.03.
The Bank of Japan expanded its stimulus measures on Friday, doubling the volume of purchases of securities exchange-traded funds (ETF) because of pressure from the government and financial markets, but disappointed investors who were waiting for more decisive action.
However, the central bank said that will conduct a thorough assessment of the impact of negative interest rates and large-scale program of buying assets that can point to a large-scale revision of the incentive measures.

Pound does not register significant changes

The pound against the dollar slightly weaken, trading range of the pair in the past few days has not changed and has remained in the range 1,310-1,330. In July, the price index for housing in the UK, continued growth of in annual basis, decreasing by 5.2%, on monthly basis - by 0.5%. Indicators exceeded expectations, but the pound ignores the statistics. By the end of the week is unlikely to see bigger dynamics of the pair GBP/USD.

All eyes are on the yen

Today will be the meeting of the Bank of Japan, which will take place against the background of fierce speculation not only about what the regulator will announce, but also about whether it will have at least some value.
Uncertainty increases, because it is not clear what will include incentives program announced by Prime Minister Shinzo Abe, and how much is really new costs it implies.
We do not know what will do the Bank of Japan, it may be best to refrain from adjusting existing QQE program and instead to declare change of approach, coupled with fiscal stimulus, and leave the details for later.
This will keep the yen's rise, at least until the next meeting, and the ball will go to Abe's field. Conspiracy theorists are likely to believe that the Bank of Japan and Abe had already agreed on everything, but they want to make it appear as if each acts on his own.

The USD/JPY is likely waiting for sharp moves in either direction before the meeting. Bulls should pay attention to the Ichimoku cloud, which sends a bullish signal, and if the Bank of Japan will take the test for "pigeon" attitude, I am waiting for strong growth over the next sessions of the outside of the cloud.
Even if the pair rushes down, the recent growth has weakened clearly the downward trend, and on the way to 100.00 support is still a lot of levels, starting with 103.50 and then - 102.50/00.

Fed broke the peace of the euro/dollar

The euro/dollar finally revived after the US Federal Reserve meeting. Thursday trade is in the range of 1,105-1,111. Dollar weakens.
Fed after the meeting left interest rates unchanged. With regard to future plans and actions of the system controller's rhetoric was very blurred and streamlined. Federal Open Market Committee members did not say, that they are attended to ease monetary policy in the future, but did not told that the rate will be raised this year. As always, the Fed referred to the achievements of the labor market and inflation. These indicators are main and will influence the Fed's decision in the future.

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The markets took a break in the growth of expectations on stimulus

The recovery rally after Brexit was based on the belief that central banks around the world once again will print out incentives to restore the normal functioning of financial markets. Paradoxically, without the market turmoil, central banks prefer to wait for economic data to weigh the need for incentives.
Slightly discouraged, that central banks are in no hurry to soften even more the policy, but not giving up, the markets have stalled in recent days near the local maximums. The second false start of the markets (the first was before the referendum on Brexit) is broke into the reality: relying solely on past experience, the markets can be wrong.

The pound strengthened on labor market data

In the beginning of the European trade, the euro/dollar sank for one hour by 38 pips to 1.0981. At this time, the pound strengthened against the dollar and the euro on the labor market data in the United Kingdom, which exceeded forecasts.
UK unemployment rate fell from 5.0% to 4.9% in June. The number of applications for unemployment benefits fell from 12.2 thousand to 0.4 thousand. The average wage, including bonusses, increased from 2.0% to 2.3% in May.
Pound/dollar recovered with one figure (100 points), to 1.3197. As soon as pressure on the euro weakened by euro/pound, euro/dollar has won back all the daily losses.

Speculations on Fed rate increase support of the dollar

The US currency continues to strengthen its position against most opponents. Pressure from the dollar is trying to resist the pound rejoice decent data on the UK labor market.
As for the pair EUR/USD, 1.10 level yesterday withstood the pressure of "bears", and in the course of today's trading price probes the soil under the psychological mark. From a technical point of view, today's close below this strong support will once negative signal and open the way to new three week lows near 1.0970. The loss of this level promises a movement to a minimum 1.0910, formed after the British announcement of the referendum results.

The US economy is recovering from the crisis, but slowly

US released data on inflation and retail sales for June. Retail sales rose by 0.6%, while sales excluding motor vehicles - by 0.7%. The data exceeded market forecast (0.1% and 0.4%, respectively) and were better than May levels (0.2% and 0.4%). However, inflation in June did not meet market expectations. Thus, the consumer price index rose by 0.2%, while the market expected a higher pace of overcoming deflation (0.3% growth). Information is ambiguous: on the one hand, the June inflation rate somewhat disappointed, on the other hand - steady growth in retail sales suggests reduction of deflation in the future, as high demand from retail customers can maintain higher prices and contribute to the output of the US economy from the stage of deflation. However, it seems that the Fed does not keep too much illusions about a fast overcoming of deflation.
The Fed is now at a crossroads: on the one hand, there is a mood to raise rates within this year, on another - raise rates is dangerous, because not all threats to the US economy are eliminated. The increase in rates is possible if the US economy starts to give clear signals of overcoming the crisis, in other words, when the most important indicators, not just retail sales, but also such as the level of employment and inflation, will demonstrate the dynamics in line with market expectations and even start to become better than expected.
For now I do not expect substantial growth of the dollar. Probably within the next week the corridor on the euro/dollar could reach 1.11-1.12.

On the foreign exchange market is approaching summer lull

Last week, the JPY crosses have continued to grow, while at the periphery of the market place quite remarkable events are happening, but in general, it seems that the market returned to summer boredom, despite the fact that volatility is still much higher than in 2014.
EUR/USD was in one of the tightest ranges in its history, despite the banking crisis in the European Union and the existential problems that have arisen around Brexit. AUD/USD and USD/CAD also show no signs of life, though AUD/USD is trying to break through the highest level in more than two months.
The market is now busy looking for an equilibrium point for the British currency, which has experienced a shock due to Brexit and traders in pairs with the yen are trying to understand, when the Japanese authorities are going to take the next inevitable step. Given the common symptoms that indicate that the currency returned to average values, it can be assumed that the GBP/USD will develop from the zone 1,3400-1,3500 and JPY crosses will form a top, before continuing the downtrend.

Comments of Sberbank CIB on incentives

The positive mood in the market is a result of a combination of impulses coming from the leading economies in the form of incentives, say analysts.
According to recent data the Japanese Prime minister Shindzo Abe planned package of fiscal stimulus to the economy in the volume of 20 trillion yen, as in the discussion of policy initiatives will participate former head of the Federal Reserve Ben Bernanke (the adoption of the decision was scheduled for July 29).
In addition, investors welcomed the quick nomination of Theresa May as prime minister of Britain. It came om Tuesday. At the same time the Bank of England last Thursday announced the easing of monetary and credit policy, such action by the ECB can be expected in the third quarter.

Strong growth of the British pound and the continuing depreciation of the yen

On Tuesday, the pound rose against the background of renewed risk appetite, given that today Theresa May is expected to officially become prime minister of Britain and it virtually eliminates one of the obscure elements about the political situation in the UK.
The pair GBP/USD rose by + 1.98%, ending the day at a level of 1.3245 dollars per pound. The Governor of the Bank of England Mark Carney dismissed charges that the bank's independence was compromised when he and his team had addressed warnings about the serious consequences of Brexit.
USD/JPY continued on Tuesday its strong upwards trend, adding  + 1.85%, and closed the day at a level of 104.68 yen per dollar.
The president of the Federal Reserve of St. Louis - James Bullard said, that the result of the referendum in the UK will have no lasting effect on the US economy. According to him, the decline in government bond yields is not a warning about the prospects for growth. He said he still expects an increase in interest rates in the foreseeable future.

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The role of psychology is enormous - Part 3

"After the sharp drop, which followed the release of the voting results, the British FTSE 100 index rebounded to a maximum since the beginning of 2016. The huge jump, but nothing has changed in the economy. Even there is no certainty whether the UK is going to leave the EU at all. But "fear index," which jumped 52% after the announcement of a referendum results in the UK, then fell sharply. As if there wasn't a referendum", - says Vladimir Miklashevskii.
The last few weeks have shown why it is important to know how to trade the news, said Ryan Littlestone, analyst at ForexLive. "News from the central banks, economic indicators and "the talking heads" - those are some of the components of news affecting the trade. Trading on news and data is never black and white. Data exceeding the expectations are not always good news. The statement, which was ignored, the next day can have a key role. Knowing when news are important, and when not, can immensely help traders", - says the expert.

The role of psychology is enormous - Part 2

"Other Central Banks already follow the Fed. From general to specific. If the manipulation of the stock market is still possible for individual stocks (the so-called inside, for example), with the world's currencies it is practically impossible because of the huge volumes. For a one-time impact on the big ten currencies is needed a strength from a Central Bank (such as intervention by the Bank of Japan, the quantitative easing by the ECB, the Fed)", - says Vladimir Miklashevskii.
A recent example of excessive emotionality of the investors became market reaction to the referendum on Brexit. Very interesting is the reaction on the British stock index, as well as the so-called "fear index" S&P 500 VIX (volatility index market of the Chicago Board Options Exchange, which reflects the investors' expectations regarding the US market).

The role of psychology is enormous - Part 1

"The role of psychology is enormous," - said the expert of Danske Bank about what really drives the market.

Our knowledge of the market, as a rule, is limited to dry information, that arrives every day as a result of trading. We can only guess what lies behind it, and what is actually due to the dynamics of trading, because every rise and fall is based on human's choise. There are people - traders, brokers, asset managers, who use the information in their own way.
Strategists from Danske Bank Vladimir Miklashevskiy notes, that the role of psychology in the markets is enormous, "Its size, of course, varies depending on the state of the market, but there are times when psychology - that's all. Markets, like dry hay in the hot summer, can burn out from the stub. Especially when expectations are filled with uncertainty because of the unknown. The more the money supply on the market, the less the laws of supply and demand of the real economy can be seen in the movement of the markets".
For example, now globally all depends on the US monetary policy of the Fed: as softer is it (not even in practice, but in standby), as more desirable investors go into assets with higher risk (and profitability), including on emerging markets, stocks and commodities. Conversely, as more tight is the monetary policy, the more desirable assets are the low market, so-called "safe havens" for example, the US dollar, the Swiss franc, the Danish krone.

Investors disappointed with the data on oil stocks

After the first hours of trading on Thursday, the dollar was put under pressure, which lasted several hours, but still managed to recover. At the end of the working day in the United States, oil prices collapsed after oil reserves data in the US (actual decline in stocks was much lower than expected). Brent fell to almost $48 per barrel. Futures for WTI US crude traded at this time about the level of $ 46.49 per barrel, or 1.98 per cent lower than the previous close.

US crude stocks fell for the week ended July 1, with 2.22 million barrels to 524.4 million barrels, reported the Energy Information Administration (EIA) on Thursday. Stocks fell the seventh week in a row.
However, the EIA data practically coincided with a fall of 2.3 million barrels, which was expected by analysts, polled by Reuters, and there were significantly smaller reduction of 6.7 million barrels reported by the American Petroleum Institute on Wednesday.

Fed's minutes did not brought new ideas

The reports, published yesterday from the June's meeting of the Fed did not brought new ideas on the market. The general conclusion is the following - the uncertainty after the British referendum is maintained, failing data on the labor market in the last month are likely to be a single event, but the attention to statistics in the coming months will be very significant.
Tomorrow will be published labor market data for June, and, according to the consensus forecast, the statistics will be released in a moderately positive manner. Consensus at the moment suggests that there have been generated about 175 thousand new jobs in June, the unemployment rate during this period increased from 4.7% to 4.8% (which is not a problem, after an unexpected decline by 0.2% last month), dynamics wages remained at the level of the previous reporting period. Such statistics would be an evidence that the US economy is relatively healthy, and the labor market is feeling ok.
Tomorrow's statistics will be important for the US dollar in the currency market. The dollar index significantly added value after the publication of results of the referendum, and then within a few days demonstrates consolidation. If the labor market statistics will be positive, the dollar index may try to form another boost up, and the breakthrough of local maximums at 96.90-97 area may give a signal for growth to 98-98.50 area.

If the regulators do not intervene, the panic will increase

The situation in the global markets continues to deteriorate very quickly on all fronts. The banking sector in the world shows slump. At the largest German bank - Deutsche Bank - all look scared. After their collapse by 17.5% on June 24, on Friday they still lost almost 10%. In Italy and Spain in the banking sector there is also panic. In Italy on Friday, the regulator has poured 50 billion euros into the financial system, but it did not help for a long time. Credit markets in Europe and the United States are bursting at the seams. The risk premiums are rising on all fronts. On the debt market in the Eurozone there are first hints of correction.
Bets on Fed's raising rates this year have already fallen to zero. Now, market participants are beginning to lay in the expectations not tightening, but easing of monetary policies.
Everyone was waiting for action from the central bank, but no one does anything. More 1-2 days standby and there will be another wave of panic. The ECB and the Fed should intervene.
The worst thing in the current situation is, that the global regulators may simply lose credibility. And, even if they provide unlimited liquidity to the financial sector, this fact is even more scary. This we have seen as example in China in August last year.
The market is now very dangerous and unpredictable, so it's best to stand aside.

EUR/USD consolidates in a range 1,1025-1,1155

Growing momentum in the euro/dollar to Friday yet exhausted. The main trades in the instrument revolve around the level of 1.1100, the pair activity is in below average levels. Once buyers are not willing to move on, it's time for the pair to consolidate in this range, moreover on Friday there weren't neither good nor bad news. Presumably, such a corridor could be the range 1,1025-1,1155. Here, the main currency pair will fluctuate as long as the market did not receive new catalysts.
The international rating agency S&P decided to decrease the EU rating to AA, because of the Brexit. In comments to the decision of the agency was said, that such an event could negatively affect the EU's financial flexibility. In addition, there are political situation out of sync, and this is also a negative impact on the global image of the European Union. Interesting fact is, that the S&P does not intend to increase the EU's rating, even if the United Kingdom will remain in the alliance and refuse to follow the decision for Brexit. The foreign exchange market, however, was not bothered by S&P's views, and so it is clear that in the Old World for a long time there is no agreement on a number of key issues.