US and Japanese central bank resolutions hit a strong dollar behind the undercurrent

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FX168 Financial News (Hong Kong) News Monday (July 25) US market early in the morning, the US dollar index fluctuated at a high level, hitting a high of 97.57 since March 10. This week, the global financial market will usher in the Federal Reserve and the Bank of Japan interest rate decision, investors will hold their breath! Some analysts pointed out that if the Bank of Japan once again unexpectedly unexpectedly this week, or the bank's relaxation policy has limited impact on the market, it may disappoint the dollar bulls. In the crude oil market, the US oil oil oil fell below the $43 and $45/barrel mark respectively. The technical chart shows that oil prices are likely to fall back to the $40/barrel line. In addition, some analysts pointed out that crude oil inventories will not be backlogged until August and September, and it will be the hardest time for the oil market.

The two central banks of the United States and Japan are welcoming the rise of the US dollar

On Monday, the dollar maintained its recent gains against the euro and the yen, and this week the Fed and the Bank of Japan will hold policy meetings, and investors expect the dollar to be supported.

Among the world's major central banks, the Fed is the only central bank to discuss interest rate hikes. The increase in non-farm payrolls in June and the improvement in other economic data have caused the Fed to raise interest rates.

In contrast, the problem for many central banks is not whether it is loose, but how much easing is. Although the Bank of Japan has repeatedly denied that it will use "helicopter money" to stimulate the economy, the trend will be released.

This puts the yen under further pressure, but some strategists worry that once the Bank of Japan is less than the market expected doves, investors who short the yen will be disappointed and will leave.

Citigroup London strategist Richard Cochinos pointed out that "the macroeconomic outlook is 100% focused on the Fed and the Bank of Japan. Of the two central banks, the market is significantly more bets on the Bank of Japan."

He said that Citigroup expects the Bank of Japan to cut interest rates by 20 basis points and launch a QE initiative worth 3 billion Japan.

“Short-term capital bets on the dollar,” he said. “The dollar/yen is going up to 110. It’s not enough to just launch the QE.”

According to Bloomberg, since the inauguration of the first policy meeting of the Bank of Japan Governor in 2013, Kuroda has not yet seen such a strong policy easing expectation.

If the Bank of Japan once again unexpectedly unexpectedly this week, or if the bank's easing policy has limited impact on the market, it may disappoint the dollar bulls.

During the day, USD/JPY is trading above 106.13. As the euro was boosted by the German Ifo economic index stronger than market expectations, the euro/dollar traded above the four-week low of 1.0955 hit last Friday.

The US manufacturing PMI released on Friday was strong, and the Fed’s interest rate hike is expected to pick up further this year. The US dollar is therefore supported.

The US stock market repeatedly hit a record high this month, and the market sentiment improved, which put the yen under pressure and fell about 7% against the US dollar after the three-year high reached after the Brexit.

The market generally expects the Fed to remain inactive this week, and investors turn their attention to whether the statement releases a hint of a recent rate hike.

The Fed’s fund rate futures showed on Friday that the Fed’s probability of raising interest rates in December was 48%, which was still below 20% a few weeks ago.

"If the Fed comments this week to support the interest rate hike and the Bank of Japan relaxes its policy, the USD/JPY may test the 108 mark. On the contrary, if the Bank of Japan ignores market expectations and the move is not moving, the pair will fall below 105," Tokyo FPG Securities President KO ji Fukaya pointed out.

Continued positive risk assets are a key factor in the strengthening of the US dollar and the weakening of the yen, but the headwinds that the commodity market is beginning to face may reverse this trend.

Following the strong performance in the first half of this year, the price of oil in the past week has fallen by more than 4%, and the commodity-related currencies including the Canadian dollar have stagnated.

Analysts at UniCredit Italy said they believe the trend will not last.

“The market may be too complacent, and current market trends indicate that the Bank of Canada will remain inactive for at least the next three years,” they pointed out.

"In the next few quarters, the market will begin to digest some of the tightening expectations, and the Canadian dollar continues to be undervalued. The dollar/Canadian dollar is likely to be fierce."

"Second bad news" after Brexit! Sterling /dollar rebound is "difficult to go to the sky"

Sterling was flat on Monday, after a survey released that the UK's manufacturing outlook is sluggish, supporting the UK economy's recent recession and the need for the Bank of England to further ease monetary policy.

GBP/USD has fallen by nearly 12% since the UK referendum decided to leave the European Union last month. Investors are worried that Brexit will have a negative impact on the economy, especially for the UK's existing large current account deficit. If investment flows are exhausted, often The account deficit will be further expanded.

A clear sign that the referendum may begin to impact the already gradual slowdown in the UK economy has surfaced last week, and a survey by Markit shows that corporate activity is declining at its fastest rate since 2009.

According to a report released by the British Industry Coalition (CBI) on Monday, the quarterly corporate optimism fell from minus 5 to minus 47, the lowest since January 2009, close to the lows set in the global financial crisis, but three as of July. The monthly total order indicator rose.

“Once companies are more accustomed to the uncertainty that may last for several years after Brexit, there is reason to believe that corporate confidence will gradually rebound...but it will still be in line with the momentum of slowing economic growth,” said Mitsubishi Tokyo UFJ Bank Foreign Exchange Strategist Lee Hardman said.

At the beginning of the US market, GBP/USD was flat at 1.3108 and traded at 1.3156 before the report was released. The pound was also flat against the euro at 0.8377.

Traders said that as long as the pound rebounded, it could be sold off. The market expects the UK to cut interest rates at least twice in the next six months.

“We expect the pound to continue to face selling pressure in the near term due to weak economic data and the expectation of the Bank of England’s sharply relaxed policy in August,” said Charalambos Pissouros, senior analyst at IronFX GloBA l.

Forbes, a member of the Bank of England's Monetary Policy Committee (MPC), wrote in a daily telegraph last week that it would not rush to cut interest rates. This echoes the speech of the Bank of England’s well-known hawkish official Will. Will said he was not sure if he would support a rate cut at next month's meeting.

Instead, the Bank of England said last week that most of the nine Monetary Policy Committee members are expected to provide more help to the economy at the August meeting.

“Even if the Bank of England Policy Committee members are still unable to unify their views, the data available so far may be sufficient to support further monetary easing in August,” said Antje Praefcke, a strategist at German commercial banks.

The oil price has fallen to a two-and-a-half-month low near the toughest period

In the US market on Monday, investors worried that global crude oil and oil surplus will continue to suppress the market for some time, oil prices have been falling, US oil fell below the $43/barrel mark, and oil also broke through the $45/barrel mark.

Traders said that continued oversupply and increasing economic disadvantages are putting pressure on oil prices.

“Because of weak economic growth, global oil demand growth in the third quarter of this year was less than one-third of the same period last year,” Barclays said on Monday. “The demand support from the Organization for Economic Co-operation and Development (OECD) has weakened, China And demand growth in India has also slowed."

Morgan Stanley said that the unfavorable factors faced in the second half of this year are increasing, leading to expectations of falling oil prices.

These factors include the resilience of the US oil supply, the decline in transportation fuel demand, and the oversupply of refined oil, especially gasoline.

Citi analyst Aakash Doshi said in a report on Monday that strong demand for gasoline has been met by refinery supply and that refining margins are under downward pressure. Moreover, affected by the increase in crude oil and petroleum product inventories, coupled with the strengthening of the US dollar, oil prices have been blocked.

Traders said the strong US dollar and the number of active rigs in the US increased for the fourth consecutive week, which also weighed on oil prices.

The US Commodity Futures Trading Commission (CFTC) announced on Friday that the fund manager's US crude oil futures and options net long position fell to a four-month low in the week ending July 19.

Data show that as of July 19, the New York Mercantile Exchange (NYMEX) crude oil and London Intercontinental Exchange (ICE) WTI crude oil futures and options net long position decreased by 24,912 hands to 155,652 hands.

US crude oil inventories have been reduced by 23.9 million barrels since the end of April, but historical experience shows that it is not a good idea to expect further decline in inventory. Some analysts pointed out that crude oil inventories will not be backlogged until August and September, and it will be the hardest time for the oil market. In the past five years, crude oil demand in refineries has fallen from a high in July, with an average daily reduction of 1.2 million barrels, which lasted until October. Rob Haworth, senior investment strategist at US Bank Wealth Manament, said: “Once the refinery is shut down for maintenance, it means that the most difficult period has begun. At that time, we cannot reduce it quickly. Inventories, oil prices will be subject to greater downward pressure," Worth said in an interview on Friday. "The trend of oil prices this year is in perfect match with the trend of the 2008-2009 financial crisis, but it also worried me about the goods." The future will continue to be under downward pressure and may fall back to $40 per barrel."

Cornerstone Macro analyst CA Rter Worth said in an interview that the current crude oil chart is very similar to the trend during the 2008-2009 crude oil storm, and oil prices may fall back to $40/barrel.

PVM Oil Associates analyst Tamas Varga also said on Friday (July 22) that international crude oil prices have fallen below the 100-day moving average. If the price continues to fall below the long-term moving average in the next few days, oil prices may fall to $40/barrel. A line.

Varga said, "$40/barrel is not an unrealistic goal. These long-term moving averages are under pressure. Once they are lost (I do expect to lose), the oil price will drop another few dollars."

He stressed that if the future oil price is lower than the 100-day moving average, it will further fall to the 200-day moving average (Brent crude oil in the first line of 42.43 US dollars per barrel, US crude oil in the first line of 40.85 US dollars per barrel).

In addition, Varga added, “If you really bear the fundamentals and then consider the technical factors, these long-term moving averages will give you a reliable and reasonable bearish goal.”

Proofreading: Sui Bin