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Forex Flash: 30% chance of the BoE extending QE – TD Securities

The UK Services PMI revealed the sharpest pace of business growth in nine months, while job creation picks up. The manufacturing report shows contracting employment at its quickest pace in 40 months, so the two sectors should combine to leave employment growth roughly flat overall. “The PMI report also noted that the combined PMIs are consistent with GDP growth of about +0.1% Q/Q in Q1, though our own tracking for UK GDP at the start of March is -0.1% Q/Q, so it’s still a very close call for whether the economy expands during the quarter, or contracts and makes for a triple-dip recession”, wrote analyst Jacqui Douglas.

Given that the BoE will be meeting and deciding on its policy this week, TD Securities analysts point to a 30% chance of the BoE extending QE, “but no further QE (both in March and for the rest of the year) remains our base case forecast”. Funding for Lending (FLS) should continue as BoE's Fisher has already said they likely need one more quarter of data before they can make some preliminary readings on its effectiveness.

“Markets now seem to be positioning for less risk of further stimulus at this week’s meeting, with 5-10s steepening as markets price out the odds of more QE”, Douglas said. “We will still get the announcement though of how the BoE is planning to reinvest the £6.6bn from its APF that is maturing this month, where we suspect that it may deviate from the old buckets and concentrate a little more on the 5-15y area, although with such a small amount we don’t expect that announcement to be a substantial market mover”, the TD Securities analyst concluded.

Forex Flash: Bunds eye correction despite long-term bullishness – RBS

According to Technical Markets Strategist Dmytro Bondar at RBS, “Bund prices formed a meeting lines reversal pattern after opening above the previous high, suggesting there would likely be correction for now.” Corrective targets include 145.00/144.90, possibly 144.50. “In the long term, the price formed a pennant pattern with the measuring target of 147.00 (flags fly at half-mast). We believe this target will be met after a possible correction from the 145.82 resistance. Resistance is expected at 145.82, 146.00/17, 146.37 and 146.67. Overall, favor being long to 146.00/17 onto 146.67 and 147.00 on a caveat of a sustained break below 144.5.” Bondar adds.
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Forex Flash: EUR/USD would range between 1.29-1.32 near term – Rabobank

The single currency remains locked in the area of 1.3020/40 on Tuesday, retracing ground after a failed attempt to break above 1.3080 on better-than-expected PMI data....
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