Highlights:
- BoE focus intensifies on boost in inflation y/y as wages remain stagnant
- Dollar rebounds, but lacks violent recovery rally as fixed income is showing hope for optimists
- OPEC said to discuss rolling production curbs into H2 2018
- JPMorgan CEO Jamie Dimon calls Bitcoin ‘a fraud,’ and ‘won’t end well’
- Sentiment Highlight NZD/USD sees 67% increase w/w in net-long positions, contrarian bearish
GBP has been hot. Earlier today, GBP/USD traded as high as +1% from yesterday’s close. Over the last five days, GBP/JPY has moved higher by 3.15%. Tuesday brought about an inflation reading in the UK that likely confirmed what the Bank of England has been fearing. Consumer Price Index Data pushed higher market expectations that the Bank of England will have its hand forced by the market to hike rates.
The Bank of England meets this week and will announce a rate decision on Thursday. What seems most likely is a hold on rates with a warning from Mark Carney that the Bank of England may be forced to raise rates as 3-month average wages have been falling. The problem is that wages are falling while inflation readings like CPI and the Retail Price Index (RPIX) have pushed to multi-year highs on a y/y basis thanks to a very weak GBP. The price of GBP/USD has fallen ~11% since Britain voted to leave the European Union in June 2016.
Keep an eye on our economic calendar for Economic Data Points
Within fixed income, which can leave clues to how broader views of the US Dollar are shaping, there appears to be the reason for optimism if you’re a DXY Bull. The 3Yr-1Mo forward rates (i.e., the fixed income proxy for the Fed’s terminal rate,) appears to have found support, which could limit how aggressively the USD falls from here.
However, traders looking to buy USD should curb their enthusiasm. There remain many unanswered questions about the future of monetary policy in the US. Questions like, who will be the Federal Reserve Chair? How likely is the new Fed chair to validate or oppose the falling neutral rate theme that has kept the Fed on hold more than expected since 2015? Traders looking to trade a potential turn in USD should focus on weaker currencies like the JPY.
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Crude Oil Bulls received good news before the highly anticipated EIA inventory report. OPEC is now expected to roll the production curbs into the second half of 2018. Less encouraging was the price reaction. In fact, since the first production cuts were confirmed in November of 2016, Crude Oil has remained in the top-half of $40/bbl for WTI. It appears that until the price of WTI breaks above $50 on a weekly close basis, it’s difficult to believe we’re through with the 2017 downtrend.
Lastly, never one to mince words, JPMorgan CEO, Jamie Dimon hit the wires on Tuesday with comments that were not Bitcoin-friendly. Dimon said that he ‘would fire any trader trading Bitcoin for being stupid,’ and that the move into Bitcoin ‘won’t end well.’ For those with a conversational familiarity with financial market history, Dimon added that Bitcoin is ‘worse than tulip bulbs.’ Only time will tell, but it looks like it will be a while until JPMorgan would touch the top crypto-currency in terms of market cap. Another Bitcoin headline that hit the wires today was that Nasdaq survey sees 'Long Bitcoin' as the world's most crowded trade, which edges out 'Long Nasdaq,' and 'Short US Dollar.'
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FX Closing Bell Top Chart: GBP/USD Hits 2017 High on Surge in CPI, RPIX
Chart Created by Tyler Yell, CMT
Next Week's Main Event: EUR German Consumer Price Index (YoY) (AUG F)
IG Client Sentiment Highlight: IGCS sees NZD/USD net-longs increase 67% WoW
The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.
NZDUSD: Retail trader data shows 50.0% of traders are net-long with the ratio of traders long to short at 1.0 to 1. The number of traders net-long is 12.6% lower than yesterday and 67.3% higher from last week, while the number of traders net-short is 4.8% lower than yesterday and 22.9% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests NZDUSD prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed NZDUSD trading bias (emphasis added.)
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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com
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