Investment Bank Outlook 29-07-2022

Credit AgricolePast peak Fed hawkishness and peak USD?The most popular trade of 2022 so far has been to be long the USD, which relies on an increasingly hawkish Fed to continue to push the currency higher. Following the FOMC meeting this week, where the central bank hiked rates by an expected 75bp and pulled the Fed Funds rate into neutral territory, investors are now beginning to question if we are past peak Fed hawkishness and peak USD. Especially following the US logging a ‘technical’ recession in H122.The US economic data, in particular inflation data, will be the ultimate tell-tale sign. After all, while FOMC Chair Jerome Powell acknowledged weaker spending and production, he also said that the Fed was looking for “compelling evidence” of inflation heading lower. So whether or not the Fed has slowed the economy enough to get inflation back under control will be the ultimate arbiter of the peak in the USD. Weakening US economic data and persistent inflation would be a very unfriendly combination for asset markets. The data dependency of the FOMC’s coming rate decisions as well as its meeting-by-meeting approach to rate rises has upped the ante on the US economic data, so the USD will be hyper-sensitive to the US ISM and non-farm payrolls data in the coming week.We also continue to note that if the US economy falls into recession, for it to be an across-the-board negative for the USD, the world’s other large economies (the Eurozone and China), have to help hold up global growth. A tall order given these economies’ challenges–the Ukraine crisis for the former and Covid lockdowns aswell as a weak property sector for the latter. European and Chinese PMI data in the coming week will help assess the economic impacts of these factors. Investors also await any further details on a reported property sector bailout in China.The RBA will continue its own version of super-sized rate hikes and raise its cash rate by 50bp while increasing its inflation and lowering its growth forecast. On Thursday, the BoE is set to join the club of central banks hiking by increments of 50bp, alongside the publication of the August MPR.INGUSD: Not much more room for dovish repricingThe volatile market reaction to yesterday’s poor GDP figures out of the US offered an idea of what we should expect for the coming weeks: an elevated sensitivity of rate expectations and the dollar to incoming data points. In our view, this means that dollar-crosses volatility is unlikely to abate in the near term.Looking at the effective implications of the US falling into a technical recession, we don’t see it going much beyond the 10bp that has been approximately priced out of the Fed curve. After all, the Fed reiterated this week that its focus remains on fighting inflation, and a resilient jobs market is continuing to postpone the prospect of a “real” recession. From an FX perspective, we don’t see the dollar suffering from much more Fed dovish repricing considering the current economic backdrop – only 90bp tightening is priced in by year-end – and more weakness might, if anything, derive from a further rebound in global equities, should investors continue to look at the glass half empty (less scope for Fed tightening) of a US slowdown.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-29-07-2022"
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Daily Market Outlook, July 29, 2022

Daily Market Outlook, July 29, 2022 Overnight Headlines Dollar Wallows Near 6-Week Low To Yen On View Fed To Slow Hikes Amazon’s Strong Revenue And Guidance Reassure Wall Street Apple Ekes Out Revenue Growth On iPhone Sales And Services Asian Stocks Mixed As China Shares Slide On Lack Of New Stimulus BoJ Members Warn Of Global Slowdown, Urge Stimulus Stay In Place Japan On Track For Modest Recovery For Now After Output Jump IMF Downgrades Asia Pacific Forecast As Shocks Keep Rolling China FX Watchdog To Step Up Monitoring Cross-Border Flows In H2 UK Business Confidence Falls As Firms Worry About Economic Slump Global Bonds Surge In Best Month Since 2020 On Recession Fears Oil Steady As Market Weighs Tight Supply Against Recession Fears Citi Says Oil Market May Be Starting To Inflect To Bearish PathThe Day Ahead Asian equity market performance is mixed this morning despite yesterday’s rise in US equities. Futures prices point to further gains in the US today reflecting better earnings reports from Amazon and Apple. The release of US Q2 GDP figures which showed a second consecutive fall in quarterly GDP led to comments that the US is in ‘technical’ recession. However, US Treasury Sec. Yellen said that “we are not seeing a broad-based weakening of the economy.” The US and Chinese Presidents are reported to be planning a face-to-face meeting. Japan CPI inflation picked up by more than expected in July reflecting higher energy and food prices, and a weaker yen. The July Lloyds Business Barometer, which was released earlier this morning, showed a further fall in business confidence taking it below the long-term average. The decline was most marked for large companies and primarily reflected growing concerns about the overall economy as firms views about their own trading conditions remained relatively upbeat. Hiring intentions were also positive although they have moderated somewhat. But there is still little sign of wage or price pressures easing. Today’s busy data calendar includes GDP and inflation data for the Eurozone. Q2 GDP growth is expected to have slowed sharply from its pace in Q1 and, there is a case that as in the US, output may have fallen during the quarter. Annual Eurozone CPI inflation for July is expected to post a modest fall when compared to June. That is primarily due to the fall in energy prices during the month. In contrast, the ‘core’ measure is expected to pick up slightly - an indication that inflationary pressures may be broadening out. Yesterday, German CPI data for June showed an unexpected acceleration, which points to potential upside risks for today’s report. French & Spanish printss will also be released before the Eurozone numbers. In the UK, Bank of England money supply and bank lending data is the only release of note. They may provide new insight into the strength of the housing market and into whether consumers and businesses have raised borrowing to tide themselves through the current cost of living squeeze on incomes. However, the data will probably receive only limited market attention as the main focus is on next week’s BoE policy update. In the US, the June reading for the Fed’s preferred measure of consumer price inflation is predicted to record another rise, taking it even further above the Fed’s inflation target. Finally, the employment cost index, an important measure of wages, is expected to post a deceleration in Q2 but still show labour costs growing at an uncomfortably rapid pace.CitiQuant month-end rebalancing model points to net USD selling Citi note that the estimated outflows from US equities make up the most of the rebalancing need in equities, followed by Japanese equities. Citi add that most other equity and bond markets may see rebalancing inflows. The USD sell signal strength is in line with the historical norm across all currencies other than EUR/USD. "The signal to buy EUR and sell USD is weakest at 0.7 standard deviations because good performance of Euro Area fixed income may also lead to foreign EUR selling to hedge those gains.With the exceptions of GBP and NZD, we haven’t seen significant net real money buying of other currencies in the past week, potentially suggesting little or no front loading of rebalancing trades so far"FX Options Expiring 10am New York Cut EUR/USD: 1.0050 (1.11B), 1.0125 (658M), 1.0200 (824M), 1.0205 (838M) EUR/USD: 1.0245 (1.28B), 1.0250 (1.80B), 1.0300-05 (1.30B) EUR/CHF: 0.9700 (702M), 0.9900 (1.0B) USD/JPY: 128.50 (3.23B), 130.00 (580M), 132.50 (675M)) GBP/USD: 1.1700 (486M), 1.2100 (1.0B). EUR/GBP: 0.8795-0.8800 (420M) USD/CAD: 1.2695 (435M), 1.2830 (630M), 1.2920-30 (974M), 1.3195 (671M) AUD/USD: 0.6750 (401M), 0.7000 (376M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.0350 Month end flows often lead to random moves especially in Europe Ukraine conflict shows no signs of a resolution Plenty of EZ data today with flash Q2 GDP and EZ inflation to be released Resistance 1.0250/60 stronger offers seen to 1.0350/60, support 1.0100-05, 1.0070-75 20 Day VWAP is bullish, 5 Day bullishGBPUSD Bias: Bearish below 1.2280 Inflation hits UK business confidence, lowest since March 2021 Drawn out transition to a new PM the last thing the economy needs Sterling is often volatile at month end in Europe, though steady in Asia GBP traders unsure of +25 or +50 at Aug 4 MPC Offers sited at 1.2280/1.23 bids 1.2090 20 Day VWAP is bullish, 5 Day bullishUSDJPY Bias: Bearish below 134 Slides in the Asian session taking out pivotal 134 support Move came in relatively thin, summer holiday-affected pre-weekend trade Stops fuelled move down, many forced to chase market lower on lack of bids Newly minted bears target a test of 130 Offers see at 134 20 Day VWAP is bearish, 5 Day bearishAUDUSD Bias: Bearish below .7050 Risk assets rallied in Asia with strong after-hour results from Apple and Amazon helping US June PCE, Q2 employment costs will be key data risks for Friday Offer at .70 being eroded as price is accepted above .70 bulls target .71 test AUD/USD support now sited at .6950/40 20 Day VWAP is bullish, 5 Day bullishBTCUSD Bias: Bearish below 25.3K BTC back above 24k on improving risk sentiment Rally puts price back into the VWAPuptrend channel Southeast Asia-focused crypto exchange Zipmex filed for bankruptcy protection Crypto assets need new rights in law, UK legal body says Bulls need a close above 25k to gain significant upside momentum Closing below 21k will be a noteworthy downside development 20 Day VWAP is bullish, 5 Day bullish

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Market Update – July 29 – Stocks Up, USD lower on final trading day of the month

USDIndex sinks again tanked to 105.75, from 106.80.  The US is in a technical recession (2 consecutive quarters of contraction) Q2 GDP -0.9% (Q1 -1.6%), and GDP Inflation rose to 8.7% from 8.0%) but Unemployment remains very low and job creation (Claims fell to 256K from 261k) and wage growth are strong.  US Stocks rallied another 1%+ on expectations of slower rate hikes. AMZN +1.08% & APPL+0.36%, both beat Earnings after hours, shares were up 3% & 12%, respectively. Meta -5.2% & QCOM -4.54%.  Asian markets mixed (Hang Seng -2.02%, Nikkei -0.03%). European FUTS higher. Yields continue to see-saw, today -1.94%, Oil under $97, Gold breached $1760  and BTC moved up to $24k.

Biden & Xi Biden & Xi meeting skirted Taiwan talk, Ukrainian forces plan counterattacks in the South, Russia shells Kiev.

• USDIndex weakens further to 105.45 now. YEN outperforms again in Asian session.
• Equities – USA500 closed higher +48.8 pts (+1.21%) (4072), US500FUTS at 4105 now. Bears being squeezed, 10 days north of 20-day MA. 4175 next key resistance 
• Yields 10-year yield dived into close to 2.681%, recovered to 2.67% now. 
• Oil – peaked at $99.80 yesterday down to test $96.00 before recovering to $97.00 now. 
• Gold – breached & broke key 20-day MA ($1745) and $1750. Trades at $1765 now.
• Bitcoin also rallied on weaker USD to trade at $24.1K now. 
• FX Markets – EURUSD rallied to test 1.0250 on EZ are news, USDJPY dived 1% under 133.00 to 132.75. Cable broke 1.2200 and trades at 1.2225.  

Overnight – JPY Tokyo Inflation hotter, Retail Sales, Housing Starts & Consumer Confidence weaker, AUD PPI inline, French GDP better, German Import Prices in line.

Today – German Flash GDP & Unemployment, EZ Flash CPI and Flash Q2 GDP, US Jun PCE, US Chicago PMI, Canadian GDP.

Biggest FX Mover @ (06:30 GMT) USDJPY (-1.13%). Breached key technical level at 133.00 today and tests 132.50. MAs aligned lower, MACD histogram negative & falling, RSI 31.55 & falling,  H1 ATR 0.361, Daily ATR 1.225.

 

Click here to access our Economic Calendar

Stuart Cowell

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Danone Opens Higher After Management Raises Growth Outlook

Danone, an infant formula manufacturer based in Ireland which leads the market in both dairy and plant-based product categories, as well as operating other businesses in waters, infant and adult nutrition, saw its stock price jump over 2.5% overnight after the company raised its 2022 sales revenue growth outlook .

Fig.1: Key Figures Six-month Period Ended June 30. Source: Danone Financial Report.

Based on its latest interim financial report, like-for-like (LFL) sales in Q2 2022 were up over 7%, resulting in +7.4% net sales (or €13.3B) for the first half of 2022.  Recurring EPS was up +7.2% (y/y) to €1.63, while recurring operating margin stood at 12.1%.

Danone has businesses around the globe. By region, sales growth of the company in the first half of 2022 are +9.7% (Rest of the World), +8.3% (China, North Asia & Oceania), +7.2% (North America) and +5.4% (Europe). Despite the Russia-Ukraine conflict (Russia is the fifth largest market to Danone in terms of contribution to sales), the management remains optimistic and raised its sales guidance to between +5% and +6% (previously was +3% to +5%).

In fact, Danone has been actively developing different types of products to stay competitive worldwide. These include plant-based formula (to satisfy the demand of flexitarians and vegetarians), protein bars, ageing powder drinks, etc. Its strategy in partnering with various e-commerce platforms has further scaled its presence, bringing a greater variety of offerings to consumers worldwide.

Technical Analysis:

The Daily chart shows #Danone gapped up higher at market open today, before giving up its gains and retracing lower back to €55. Above the current price lies the FR 50.0% level, at €55.88. This level shall confirm whether the formation of head and shoulder pattern is successful. A closure above the level would deem the pattern a failure, thus opening up more upside room towards the next resistance at  €58.10 and €61.26. Otherwise, if the candlestick closes below the FR 50.0%, the 100-day SMA at €53.66 may serve as the nearest support, followed by €50.91 and €46.47.

Click here to access our Economic Calendar

Larince Zhang

Market Analyst – HF Educational Office – Malaysia

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distribution.

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Market sentiment is at a low ebb – is it time to buy?

Fund managers feel as pessimistic now as they did in 2008 and early 2020. So is it time to fill your boots?

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The wolf returns to the eurozone’s door

The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.

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Fed Signals Increasing Policy Flexibility, Euro Takes Dovish Clues from Persistent Inflation

US equities rose, and the near end of the yield curve fell following the Fed meeting (2-year Notes 3.1% -> 2.99%), as the Fed rhetoric began to shift from high inflation to a potential economic slowdown due to policy tightening. Recall that in May and June, the comments of the Fed officials, including chair Powell, tried to convince the markets that the Fed was throwing all its efforts into fighting inflation and unfortunately, the US economy will have to pay the high price in terms of slowing growth rates. At the time, equity and dollar markets traded the idea that the Fed was tightening when the US expansion started to show its first cracks, which could potentially exacerbate a downturn. However, data on June retail sales (+1% MoM), U. Michigan inflation expectations (7.9% -> 7.6%) and US gasoline prices in July showed that a favorable mix of still decent growth rates and slowing inflation is emerging in the economy, which should, in theory, increase Fed flexibility and help the central bank to slow down a costly tightening process. The Fed's vague forward guidance outlined yesterday and the move away from a front-loaded tightening approach in favor of a data-oriented one (the ECB did the same at the last meeting) had two important consequences: the dollar and markets in general should become more sensitive to incoming data that will pave the way for the next Fed decision, and the risks of a dovish Fed tweak at the upcoming meetings, increased.Analyzing the probability distribution of how much the Fed rate will rise by the end of the year, it can be seen that the 100 bp outcome still has the highest probability, but the probability of a 75 bp outcome increased while the odds of a 125 bp and higher outcome decreased, signaling a dovish market interpretation of yesterday’s FOMC meeting:Today's release of US GDP data will be the first test of the dollar's reaction function to incoming data. The consensus forecast is 0.5% QoQ in the second quarter, but data on firm inventories and foreign trade point to downside risks.The release of the Durable Goods Orders report yesterday underpinned the demand for risk, as the figure was well above the forecast - growth in June was 1.9% MoM, against the forecast of -0.5%. Apparently, good dynamics were ensured by the growth of orders in the defense sector, excluding orders in this sector, the gain was 0.5% against the forecast of 0.2%. Orders for durable goods is the function of consumer expectations, as they are expensive purchases, so the better-than-expected print provided additional positive information on household expectations.Inflation data in Germany disappointed, the report showed today that inflation slowed down from 7.6% to 7.5%, missing the forecast of 7.4%. At the same time, the price level increased by 0.9% MoM, falling short of 0.6%. Considering that the ECB at the last meeting signaled that the significance of incoming data in policy is increasing, the initial negative reaction of the EURUSD to the report is likely to gain momentum.From a technical point of view, the potential reversal of the EURUSD after the parity test began to fade - the price, after the rebound to 1.025, fluctuates in the range of 1.02-1.01, slowly sliding down against the backdrop of negative news on inflation and growing risks of an energy crisis, especially in light of the news about declining gas flows from the Russian Federation via the Nord Stream 1. As I wrote in the previous article, the risks in this story are skewed towards further escalation, and therefore there should definitely be a bearish bias due to concerns of slowing activity on the back of lower gas consumption and likely higher inflation in the coming months. The pair is in a clear bearish trend and, as we know, without meeting resistance, the trend tends to continue. There are no resistance factors yet, so the downward movement should rather be considered as a continuation of the bearish trend:

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EURNZD: ZE and EU Economic Sentiment weighs on EURO

The Eurozone Economic Sentiment Indicator fell from 103.5 to 99.0 in July. Industry confidence fell from 7.0 to 3.5. Services confidence fell from 104.1 to 101.7. Consumer confidence fell from -23.8 to -27.0. Retail trade confidence fell from -5.2 to -6.8. Construction confidence fell from 103.5 to 99.0. The Employment Expectation Indicator fell from 110.2 to 107.0.

Economic Sentiment

The EU Economic Sentiment Indicator fell from 101.8 to 97.6. The Employment Expectation Indicator fell from 110.2 to 106.6. In the European Union, the decline in the ESI in July was due to significant losses in industry, services, retail trade and consumer confidence, while confidence in construction declined more slightly. The ESI fell sharply in four of the EU’s six largest economies, Spain (-5.0), Germany (-4.9), Italy (-3.4) and Poland (-3.2), while remaining generally stable in France (-0.1) and the Netherlands (+0.2). ¹) It is seen that this sentiment data report put pressure on the EUR in Thursday’s trading.

Meanwhile, in New Zealand ANZ’s business confidence increased from -62.6 to -56.7 in July. The outlook for own activity rose from -9.1 to -8.7. Employment intentions rose from 0.7 to 1.1. Price intention rose from 73.7 to 74.0. Inflation expectations rose from 6.02 to 6.23.

ANZ said most activity indicators were little changed, but housing construction intentions plunged back to a new record low (-73.7). Inflationary pressures remain strong, but may have peaked.

Technical Outlook

The EURNZD currency pair in trading Thursday (28/07) in the European session experienced another decline. The pair is still in bear dominance, having rebounded at 1.5592 unable to maintain its upward bias, despite having attempted to move higher twice by forming price peaks at 1.6839 and 1.6966. The intraday bias remains to the south side, with the possibility to test the 1.5928 price level before equalizing at 1.5592 lows. The price position is still below the 200-day exponential moving average and oscillations are still in the sell zone.

EURNZD, H8

On the upside, a move above the minor resistance 1.6547 will confuse the outlook. However, as long as the trade is still below the price resistance structure of 1.7357, the prospect remains bearish.

¹). https://economy-finance.ec.europa.eu/system/files/2022-07/bcs_2022_07_statistical_annex_en.pdf

²). ANZ-BusinessOutlook-20220728.pdf

 

Click here to access our Economic Calendar

 

Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

 

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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JAPANESE YEN FUTURES ( 6J1! ), H4 Potential For Bearish Momentum

Type: Bullish MomentumKey Levels:Resistance: 0.007487Pivot: 0.007400Support: 0.007309Preferred Case:On the H4, with price moving above the ichimoku cloud and in an ascending trend channel and RSI showing an ascending trendline, we have a bullish bias that price will continue to rise from the pivot at 0.007400 in line with the pullback resistance to the 1st resistance at 0.007487 in line with the 61.8% fibonacci projection .Alternative Scenario:Alternatively, price may reverse off the pivot and drop to the 1st support at 0.007309 at the overlap support in line with the 50% fibonacci retracement .Fundamentals:Japanese Finance Minister Suzuki said that the Japanese government is concerned about the Yen’s recent rapid weakening, giving us a bearish bias on the Japanese Yen.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/japanese-yen-futures-6j1-h4-potential-for-bearish-momentum28"
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Micro USD/JPY Futures (M6J1!), H4 Potential For Bearish Drop

Type: Bearish MomentumKey Levels:Resistance: 136.42Pivot: 135.00Support: 133.53Preferred Case:On the H4, since price has broken out of an ascending trendline and is moving below the ichimoku indicator, we have a bearish bias that price will drop from the pivot at 135.00 where the pullback resistance is to 1st support at 133.53 in line with swing low support, 61.8% fibonacci retracement and 100% fibonacci projection .Alternative Scenario:Alternatively, price may break pivot structure and rise to the 1st resistance at 136.42 where the pullback resistance is.Fundamentals:The weakening of the DXY should provide relief for the Japanese businesses that are hurt from the weakening of the Yen. This gives me a bullish bias for USDJPY .

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/micro-usd-jpy-futures-m6j1-h4-potential-for-bearish-drop28"
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NEW ZEALAND DOLLAR FUTURES (6N1!), H4 Potential For Bullish Rise

Type: Bullish RiseKey Levels:Resistance: 0.63185Pivot: 0.62470Support: 0.61850Preferred Case:On the H4, with prices moving within an ascending channel, RSI moving in an ascending trendline and above the ichimoku indicator, we have a bullish bias that price will rise from the pivot at 0.62490 where the overlap support is to the 1st resistance at 0.63825 where the swing high resistance is in line with the 78.6% fibonacci projection.Alternative Scenario:Alternatively, price could reverse off pivot structure and drop to the 1st support at 0.61955 where the overlap support, 38.2% fibonacci retracement is.Fundamentals:No Major News

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/new-zealand-dollar-futures-6n1-h4-potential-for-bullish-rise28"
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Micro WTI Crude Oil Futures(MCL1!),H4 Potential For Bullish Rise

Type: Bullish RiseKey Levels:Resistance: 100.74Pivot: 98.96Support: 97.95Preferred Case:On the H4, with prices moving within an ascending channel and above the ichimoku indicator, we have a bullish bias that price will rise to the pivot at 98.96 where the swing high resistance, 78.6% fibonacci projection and 78.6% fibonacci retracement are. Once there is upside confirmation of price breaking pivot structure, we would expect bullish momentum to carry price to 1st resistance at 100.74 where the swing high resistance, -27.2% fibonacci expansion , 127.2% fibonacci extension and 100% fibonacci projection are.Alternative Scenario:Alternatively, price could drop to the 1st support at 97.95 where the pullback support is.Fundamentals:Due to the weakness in DXY , we have a bullish view on Crude Oil .

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The Crude Chronicles - Episode 146

Oil Traders Increase Longs The latest CFTC COT institutional positioning report shows that oil traders increased their net-long positions last week for first time in a month. Overall upside bets were increased to 271k contracts from 268k contracts previously. While the move does little to rebalance the massive reduction in upside exposure seen over recent months, it is important nonetheless and might signal a near-term turning point for oil prices if bulls continue to add to upside positions this week.Weaker USD Helping Oil PricesRecent price action has reflected this pause in downward positioning momentum. Crude prices have been stalled along the 95.93 level support. The pullback in the US Dollar over recent weeks has been a big help for oil bulls. Ahead of the FOMC, some pushback against the idea of a larger 1% rate hike helped soften the Dollar, allowing commodities prices (oil included) some room to breathe.More Neutral Tone at FOMCThis USD weakness has persisted this week, helped by yesterday’s FOMC meeting. The Fed stuck to the previously signalled .75% hike and sounded less hawkish in its forward guidance. Fed chairman Powell noted that inflation was still well above target but said that rates were now broadly around the area the bank would consider neutral. Powell acknowledged too that economic activity in the US is slowing though reassured markets that the US is not yet in recession.Powell’s comments appeared to leave plenty of room for Fed action in either direction. Given slowing economic activity, some have interpreted the comments as a sign that the Fed will begin slowing down the pace of further hikes this year. However, Powell himself warned that inflation doesn’t moderate in coming months, the Fed stands to ready to do more, including further “unusually large” hikes if necessary.Recession Fears Weighing on Oil Sentiment Consequently, the outlook for oil prices is not clear. Fears of a recession and higher US rates are clearly negative for oil demand. However, if the Fed is right in its optimism and the US economy can avoid a recession and if rate hikes do begin to slow with a moderation in inflation, this would allow oil prices room to rebound. Alternatively, if a recession does materialise or if the Fed is seen having to continue hiking above the neutral rate to battle inflation, this will no doubt weigh on oil prices.EIA Reports Large Drawdown The latest report from the Energy Information Administration this week had good news for crude bulls. The EIA reported a massive 4.5 million barrel drawdown, three times the size of the expected decline in inventories, reflecting better demand last week. Additionally, gasoline stores were also seen falling by over 3 million barrels, assuaging market concerns on the back of a large surplus the prior week.Technical ViewsCrude OilThe sell-off in crude oil over recent months has seen the market trading lower within a well-defined bear channel. The decline has recently stalled along the 95.93 level support and, with both MACD and RSI turning higher, there is potential for a reversal higher if bulls can get above the 103.80 level near-term. To the downside, a break of the 95.93 level will open the way for a test of 83.75.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/the-crude-chronicles-episode-146"
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Investment Bank Outlook 28-07-2022

Credit AgricoleA second 75bp hike to curb inflationAs widely expected, the Fed delivered a second 75bp rate hike in its fight against four-decade high inflation prints, taking the policy rate to 2.25-2.50% in a unanimous vote. FOMC officials remain “highly attentive” to inflation risks, maintaining a laser focus on returning inflation back to target.Looking ahead, the statement offered unchanged guidance stating that the “FOMC “anticipates that ongoing increases in the target range will be appropriate”, which clearly signals that more tightening is on the way, though leaves the Fed’s options open by not committing to any specific path.Chair Jerome Powell followed this up by suggesting at his press conference that another unusually large rate increase would depend on incoming data, but it would be appropriate to slow the pace of hikes at some point. Powell reiterated that the FOMC is looking for “compelling evidence” of inflation moving down.However, given significantly higher uncertainty than usual, Powell also noted that the Fed will offer “less clear guidance” on future rate decisions, which will be made on a meeting-by-meeting basis depending on the data. This makes sense to us as the Fed would prefer to avoid another situation like the June meeting, when Committee members had explicitly signalled a preference for a 50bp hike before switching to 75bp at the last minute. As a result, the Fed will continue to offer guidance, though will stress data dependence and avoid committing to a specific path.That said, Powell did note that the Fed sees “significant additional tightening” in the pipeline as rates move to a “moderately restrictive” stance by the end of the year. While he was clear that it will be updated at the following meeting and should not be taken as set in stone, he pointed to the latest dot plot as a rough guide, which shows rates hitting a 3.25-3.50% target range by yearend and modest additional tightening in 2023.The market pricing of the terminal policy rate has evolved over the past couple of months, from as high as 4.00% to the latest 3.30%, as the market has transitioned from inflation fears to recession angst. Additionally, the market sees the Fed cutting rates in 2023, potentially as soon as March, with rates dipping below 3% by yearend.We currently see the Fed raising rates to3.50-3.75% by yearend 2022, with a 50bp hike at the upcoming September meeting, though another 75bp move remains a risk. That said, we are less convinced that the Fed will cut in 2023 and instead see it remaining on hold despite softening data as it continues to place a higher weight on the inflation side of the mandate.In its statement, the FOMC acknowledged a slowdown in the economy, highlightingsofteningspendingandproduction,butnotedthatthelabour market has remained robust. Inflation has stayed high, due to Covid-related supply/demand imbalances plus higher energy prices and broader price pressures.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/investment-bank-outlook-28-07-2022"
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