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Forex - Japanese Yen Rises Amid Heightened Geopolitical Tensions in Middle East

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The Japanese yen rose against the U.S. dollar on Monday in Asia amid heightened geopolitical tensions in the Middle East after weekend attacks on Saudi oil plants disrupted global oil supplies.

The USD/JPY pair dropped 0.3% to 107.80 by 12:00 AM ET (04:00 GMT).

Drone strikes attacked an oil processing facility at Abqaiq, the world’s largest, and the nearby Khurais oil field on Saturday and knocked out 5% of global oil supply.

Yemen's Iran-aligned Houthi group claimed responsibility for the damage, but the U.S. Secretary of State Mike Pompeohas pointed the finger directly at Iran as he said over the weekend that Iran has launched an “unprecedented attack on the world’s energy supply.”

The news intensified tensions in the Middle East, sending the yen higher as it drew safe-haven demand.

Meanwhile, the U.S. dollar traded slightly lower ahead of an interest rate cut by the Federal Reserve on Wednesday.

The U.S. dollar index that tracks the greenback against a basket of other currencies slipped 0.1% to 97.732. Data on Friday showed that U.S. retail sales increased more than expected in August. That came after better-than-expected producer price inflation data on Wednesday and consumer price data on Thursday.

The Bank of Japan is also due to meet this week. Some believe the central bank may push interest rates further into negative territory and ramp up stimulating policies.

Sino-U.S. trade developments also remained in the spotlight as junior U.S. and Chinese officials will reportedly meet this week ahead of planned talks between senior trade negotiators in October.

Tensions between the two sides eased somewhat in recent weeks after Beijing exempted some agricultural products from additional tariffs on U.S. goods last week and U.S. President Donald Trump postponed a tariff increase on a range of Chinese goods by two weeks.

The USD/CNY pair slipped 0.1% to 7.0717. The AUD/USD pair edged down 0.1% to 0.6872, while the NZD/USD pair gained 0.2% to 0.6381.

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BPCL, HPCL, IOC appear bullish on the charts despite a surge in oil prices

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Nifty Energy Index has been consolidating in the range of 14,730 - 13,750 since August. The formation seems like triple-bottom and a breakout would mean can take the index to 15,000 markBrent oil prices rallied on Monday, surging past the $70 a barrel mark after the largest-ever disruption of crude production in Saudi Arabia amid drone attacks on its key facilities. The disruption, analysts say, may keep oil prices elevated in the near term.

 Brent oil sees biggest intra-day jump in 28 years. Can the up move sustain? "Global oil supplies may be adequately met through large inventories and strategic reserves; however, moderation in oil prices will depend on full restoration of Saudi’s production, which may at least take a few weeks.


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Dollar falls as oil attacks send investors to safety

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The dollar fell while safe-havens and currencies of oil producing countries rallied on Monday, following an attack on Saudi Arabian refining facilities that disrupted global oil supply and heightened Middle East tensions.

Oil prices surged more than 15% following the strikes on two plants, including the world's biggest petroleum processing facility in Abqaiq, knocked out more than 5% of global oil supply.

Yemen's Iran-aligned Houthi group claimed responsibility for the damage, but the U.S. has pointed the finger directly at Iran.

The Canadian dollar rose 0.5% in morning trade in Asia to 1.3224 per dollar. The Norwegian krone rose almost 0.6% to 8.9363 per dollar.

Both currencies often move together with the oil price because the countries are major oil exporters.

The attacks wiped out last week's ebullient risk appetite and prompted U.S. President Donald Trump tweeted the United States was "locked and loaded" for a response.

The safe-haven Japanese yen and Swiss franc each lifted at least 0.3% on the dollar. The yen hit 107.60 per dollar and the franc touched $0.9871. Gold jumped by 1%.

Against a basket of currencies (DXY) the dollar was 0.2% lower at 98.053.

"If that part of the reason for last week's fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton's sacking ... and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

Beyond oil, currency markets are awaiting the outcome of central bank meetings in the U.S. and Japan this week and crucial economic data in Australia and New Zealand that could determine the rates outlook in the Antipodes.

Much of the risk appetite on display last week was driven by signs of a thaw in U.S.-China trade tensions, with both sides offering olive branches ahead of trade talks next month.

However with few solid signs of progress, sentiment remains fragile.

"Geopolitical risks and central bank rhetoric remain key drivers of risk this week," Australia and New Zealand Banking Group analysts said in a note.

In the United States, investors who had begun trimming expectations for a U.S. Federal Reserve rate cut on Wednesday are now certain rates will fall and divided only over how much.

Markets also expect the Bank of Japan to push interest rates further into negative territory, with a third of economists polled by Reuters last week expecting stimulus to be ramped up.

Japanese markets are closed on Monday for a public holiday.

China's premier on Monday said maintaining national economic growth above 6% is difficult, with protectionism weighing.

Retail sales and industrial production figures due on Monday are likely to give further insight into the health of the world's second-largest economy. The Chinese yuan was flat in morning trade offshore .

The pound held last week's gains, as fears of Britain crashing out of the European Union without a divorce deal ebbed, while a news report on Friday also raised hopes that a deal could be secured by Oct. 31.

It steadied just under its highest since July 25 at $1.2491. The euro (EUR=D3) was steady at $1.1077.

The dollar fell while safe-havens and currencies of oil producing countries rallied on Monday, following an attack on Saudi Arabian refining facilities that disrupted global oil supply and heightened Middle East tensions.

Oil prices surged more than 15% following the strikes on two plants, including the world's biggest petroleum processing facility in Abqaiq, knocked out more than 5% of global oil supply.

Yemen's Iran-aligned Houthi group claimed responsibility for the damage, but the U.S. has pointed the finger directly at Iran.

The Canadian dollar rose 0.5% in morning trade in Asia to 1.3224 per dollar. The Norwegian krone rose almost 0.6% to 8.9363 per dollar.

Both currencies often move together with the oil price because the countries are major oil exporters.

The attacks wiped out last week's ebullient risk appetite and prompted U.S. President Donald Trump tweeted the United States was "locked and loaded" for a response.

The safe-haven Japanese yen and Swiss franc each lifted at least 0.3% on the dollar. The yen hit 107.60 per dollar and the franc touched $0.9871. Gold jumped by 1%.

Against a basket of currencies (DXY) the dollar was 0.2% lower at 98.053.

"If that part of the reason for last week's fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton's sacking ... and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

Beyond oil, currency markets are awaiting the outcome of central bank meetings in the U.S. and Japan this week and crucial economic data in Australia and New Zealand that could determine the rates outlook in the Antipodes.

Much of the risk appetite on display last week was driven by signs of a thaw in U.S.-China trade tensions, with both sides offering olive branches ahead of trade talks next month.

However with few solid signs of progress, sentiment remains fragile.

"Geopolitical risks and central bank rhetoric remain key drivers of risk this week," Australia and New Zealand Banking Group analysts said in a note.

In the United States, investors who had begun trimming expectations for a U.S. Federal Reserve rate cut on Wednesday are now certain rates will fall and divided only over how much.

Markets also expect the Bank of Japan to push interest rates further into negative territory, with a third of economists polled by Reuters last week expecting stimulus to be ramped up.

Japanese markets are closed on Monday for a public holiday.

China's premier on Monday said maintaining national economic growth above 6% is difficult, with protectionism weighing.

Retail sales and industrial production figures due on Monday are likely to give further insight into the health of the world's second-largest economy. The Chinese yuan was flat in morning trade offshore .

The pound held last week's gains, as fears of Britain crashing out of the European Union without a divorce deal ebbed, while a news report on Friday also raised hopes that a deal could be secured by Oct. 31.

It steadied just under its highest since July 25 at $1.2491. The euro (EUR=D3) was steady at $1.1077.

The dollar fell while safe-havens and currencies of oil producing countries rallied on Monday, following an attack on Saudi Arabian refining facilities that disrupted global oil supply and heightened Middle East tensions.

Oil prices surged more than 15% following the strikes on two plants, including the world's biggest petroleum processing facility in Abqaiq, knocked out more than 5% of global oil supply.

Yemen's Iran-aligned Houthi group claimed responsibility for the damage, but the U.S. has pointed the finger directly at Iran.

The Canadian dollar rose 0.5% in morning trade in Asia to 1.3224 per dollar. The Norwegian krone rose almost 0.6% to 8.9363 per dollar.

Both currencies often move together with the oil price because the countries are major oil exporters.

The attacks wiped out last week's ebullient risk appetite and prompted U.S. President Donald Trump tweeted the United States was "locked and loaded" for a response.

The safe-haven Japanese yen and Swiss franc each lifted at least 0.3% on the dollar. The yen hit 107.60 per dollar and the franc touched $0.9871. Gold jumped by 1%.

Against a basket of currencies (DXY) the dollar was 0.2% lower at 98.053.

"If that part of the reason for last week's fall in oil and improvement in geopolitical risk sentiment was the news of John Bolton's sacking ... and thoughts this was a precursor to some form of rapprochement between Trump and Iran, then it is no longer valid," said Ray Attrill, head of FX strategy at National Australia Bank in Sydney.

Beyond oil, currency markets are awaiting the outcome of central bank meetings in the U.S. and Japan this week and crucial economic data in Australia and New Zealand that could determine the rates outlook in the Antipodes.

Much of the risk appetite on display last week was driven by signs of a thaw in U.S.-China trade tensions, with both sides offering olive branches ahead of trade talks next month.

However with few solid signs of progress, sentiment remains fragile.

"Geopolitical risks and central bank rhetoric remain key drivers of risk this week," Australia and New Zealand Banking Group analysts said in a note.

In the United States, investors who had begun trimming expectations for a U.S. Federal Reserve rate cut on Wednesday are now certain rates will fall and divided only over how much.

Markets also expect the Bank of Japan to push interest rates further into negative territory, with a third of economists polled by Reuters last week expecting stimulus to be ramped up.

Japanese markets are closed on Monday for a public holiday.

China's premier on Monday said maintaining national economic growth above 6% is difficult, with protectionism weighing.

Retail sales and industrial production figures due on Monday are likely to give further insight into the health of the world's second-largest economy. The Chinese yuan was flat in morning trade offshore .

The pound held last week's gains, as fears of Britain crashing out of the European Union without a divorce deal ebbed, while a news report on Friday also raised hopes that a deal could be secured by Oct. 31.

It steadied just under its highest since July 25 at $1.2491. The euro (EUR=D3) was steady at $1.1077.


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Govt exploring options to sell majority stake in BPCL to global oil firm

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India is considering a plan to sell the nation’s second-largest state refiner and fuel retailer to a global oil company as it explores options to give up its controlling stake in Bharat Petroleum Corp., people with knowledge of the matter said.


The government is keen to lure multinational companies in the domestic fuel retailing to boost competition and shake up a sector that’s long been dominated by state-run firms, the people said, asking not to be identified as the plan is not public. The Business Standard newspaper reported on September 2 government’s plan to sell a majority stake in the company. It holds 53.3 per cent in BPCL.



Prime Minister Narendra Modi’s government has set a record target of raising 1.05 trillion rupees ($14.8 billion) in the current financial year from sale of state firms. The government’s fiscal deficit target of 3.3 per cent of GDP is at risk due to sluggish revenue collections on the back of growth slowdown, limiting the government’s ability to spend on infrastructure and welfare programs.


Offloading its holding in Bharat Petroleum can help meet more than 40 per cent of the aim based on the closing price on September 12. Finance ministry spokesman Rajesh Malhotra could not be immediately reached for a comment.


Early Stage


The talks are at an early stage and it’s unclear how long it will take to finalise a decision and what option the government will choose, the people added. A move to privatise BPCL will need parliament’s approval.


Saudi Aramco is targeting refining deals in India, while Russia’s Rosneft PJSC has already invested in oil refining and fuel marketing. Others such as Total SA, Shell and BP Plc are also expanding into fuel retailing in India. The International Energy Agency expects energy demand to more than double by 2040.


An earlier attempt to sell state refiners Hindustan Petroleum Corp. to a single investor and Bharat Petroleum to the public was stalled by a Supreme Court order in 2003 following protests by labor and political groups.


Bharat Petroleum was previously Burmah Shell, which in 1970s was nationalised by an act of Parliament. Burmah Shell, set up in the 1920s, was an alliance between Royal Dutch Shell and Burmah Oil Co. and Asiatic Petroleum (India).


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China Backs U.S. Farm Purchases as Trade Talks Atmosphere Warms

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China said it is encouraging companies to buy U.S. farm products including soybeans and pork, and will exclude those commodities from additional tariffs, in the latest move to ease tensions before the two sides resume trade talks.

The Commerce Ministry’s announcement on Friday follows a move earlier this week to exempt a range of American goods from 25% extra tariffs put in place last year, as the government seeks to lessen the impact from the trade war. China didn’t specify the amount of purchases of pork and soybeans, which are key exports from agricultural states important for President Donald Trump’s 2020 reelection bid.

Equity markets have rebounded in recent days as both Trump and Chinese leader Xi Jinping sought to lower tensions that are clouding the outlook for the world’s biggest economies. Adding to the pressure on Beijing, China is facing pork shortages that are pushing up prices during a holiday period, prompting officials to ration sales in some areas. Still, major differences on the substantive issues that sparked the trade war remain.

“It is hoped the U.S. side can keep goodwill reciprocity with China through practical actions,” Global Times editor-in-chief Hu Xijin said in a tweet shortly before the move was announced.

Trump administration officials have discussed offering a limited trade agreement to China that would delay and even roll back some U.S. tariffs for the first time in exchange for Chinese commitments on intellectual property and agricultural purchases. Working-level teams from both countries are set to meet next week.

“The ice is thawing,” said Chua Hak Bin, an economist at Maybank Kim Eng Research Pte. in Singapore. “China’s reciprocity to Trump’s goodwill gesture will set the stage for more cooperative trade talks.”

Soybean futures were little changed in Chicago after the Xinhua announcement. Prices had jumped 3.3% on Thursday and hog futures rose the most allowed by the exchange amid optimism that China will boost imports of American farm products. The U.S. government also cut its outlook for soybean stockpiles more than expected in a monthly crop report.

The Shanghai Composite Index increased for a second consecutive week, and the S&P 500 Index was on course for its third straight week of advances.

The Chinese government is growing increasingly concerned about soaring prices and its potentially to mar celebrations for the 70th anniversary of the People’s Republic of China’s founding on Oct. 1. China is hoping to import 2 million tons for the year, some of which would be added to state reserves, according to people with knowledge of the plans.

China bought about a million tons of pork so far this year, of which about 87,771 tons were from the U.S., according to Chinese customs data. Even if purchases tripled, imports would only make up about 6.6% of domestic supply, Citigroup Inc (NYSE:C). said in a report on Sept. 12. The world’s biggest consumer of pork accounted for about half of global demand last year, while it produced about 54 million tons, Citigroup said.

More imports are only going to go part of the way to addressing shortages. The country is likely to see a 10 million ton pork deficit this year, more than the roughly 8 million tons in annual global trade, according to Vice Premier Hu Chunhua. That means the country will need to fill the gap by itself, he said.

China’s Fight Against Pork Prices Could Include U.S. Imports

China had halted U.S. farm-product imports in August after trade-deal negotiations deteriorated. Before that, Beijing had given the go-ahead for five companies to buy up to 3 million tons of U.S. soybeans free of retaliatory import tariffs, people familiar with the situation had said.

The goods exempted from additional tariffs this week by China included pharmaceuticals, lubricant oil, alfalfa, fish meal and pesticides. The exemptions are effective from Sept. 17 to Sept. 16, 2020, and will cover 16 categories of products worth about $1.65 billion, according to Bloomberg calculations based on China’s 2018 trade data. Further rounds of Chinese exemptions will be announced in due course, the ministry said.

Wednesday’s exemptions apply to the round of tariffs Beijing imposed on U.S. goods starting last July in retaliation for higher U.S. levies. China began accepting applications for tariff exemptions in May, but it is the first time they have stated which products will be excluded. The U.S. Trade Representative’s Office has announced six rounds of exclusions for the punitive tariffs on $34 billion in Chinese goods since December.

“We can all see there is a likelihood of a mini-deal given China’s pork problems and to a lesser degree the 2020 election issue,” said Michael Every, head of Asia financial markets research at Rabobank in Hong Kong. “Does this mean we get a ‘real deal’? Let’s just say that this is still highly unlikely.”

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Forex - Dollar Extends Losses on Lingering Trade Hopes

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The dollar extended losses in early trading in Europe Friday, as higher-yielding currencies advanced on hopes of at least a temporary truce to the U.S.-China trade war.

President Donald Trump downplayed a Bloomberg report that his administration was preparing to do a temporary deal with China, potentially rolling back some of the import tariffs recently imposed on Chinese goods.

“Well, it’s something that people talk about,” Trump told reporters en route to an event late Thursday. “I’d rather get the whole deal done,”

The dollar index, which tracks the greenback against a basket of currencies, fell to its lowest in over a week in early trading and by 3:30 AM ET (0730 GMT) was at 98.07, down 0.2% from late Thursday.

Both the euro and the British pound made solid gains, sterling rising above $1.2400 for the first time in seven weeks as the political and judicial problems of Prime Minister Boris Johnson embolden hopes that the country will avoid a disorderly exit from the European Union at the end of next year.

The euro, meanwhile, is rising despite the European Central Bank’s best efforts to keep it weak with a package of monetary easing measures. By 3:30 AM, it was at $1.1104, up by three-quarters of a cent from immediately before the ECB’s policy decisions.

“We expect the euro to suffer more in the coming months and believe that it is still too early to bet on a stronger euro,” said Nordea Markets analyst Jan von Gerich, who has a target of between $1.07-$1.08 for EUR/USD.

Von Gerich argued that the modest size of the ECB’s new quantitative easing program was a slight disappointment, despite the dovish signal effect of it being left open-ended. He said it was likely that incoming President Christine Lagarde would want to ease policy further in December, not least by raising the ECB’s current limits on how much it can buy of each government’s individual bonds. That would allow the bank to beef up the program if needed.

Emerging currencies continued to rally against a backdrop of easier monetary policy in developed markets. The Russian ruble hit a seven-week high against the dollar, while the offshore Chinese yuan rose to its highest in a month.

The Turkish lira was consolidating just below the three-week highs it hit on Thursday in the wake of the Turkish central bank's 325 basis-point interest rate cut.

The mainland Chinese and Korean markets were closed Friday for holidays, while Japan’s is closed on Monday.

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Swiss Bank Group Lambasts Negative Rates for Damaging the Economy

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 The Swiss Bankers Association criticized the central bank’s policy of negative rates, saying it was causing “massive structural damage” to the economy.

At -0.75%, the Swiss National Bank’s policy rate is the lowest in the G-10 as the central bank tries to stem appreciation pressure on the haven franc. With momentum flagging, euro-area officials are likely to announce a further cut to already sub-zero interest rates later on Thursday and may also announce new asset purchases. That could prompt the SNB to deliver a rate cut of its own.

In addition to hampering Swiss banks’ competitiveness internationally, negative interest rates are “result in bubbles and damage the competitiveness of the Swiss economy long term because they keep unprofitable companies alive artificially,” the sector representative said. “Negative interest rates also put the pensions of Swiss citizens at risk. A further lowering of interest rates would further exacerbate this issue.”

Unlike neighboring Italy, Switzerland hasn’t struggled with non-performing loans on banks’ balance sheets. SNB President Thomas Jordan has also said that it’s low real interest rates globally that are making life difficult for savers.

The SNB’s next policy announcement is scheduled for Sept. 19.


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EUR/GBP Forecast: Euro in the Crosshairs, Can the ECB Deliver on Stimulus?

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EUR/GBP Exchange Rate Muted ahead of ECB Rate Decision

The Euro Pound (EUR/GBP) exchange rate remains rangebound this morning as markets brace for what could be an explosive policy decision by the European Central Bank (ECB) this afternoon.

At the time of writing EUR/GBP exchange rate is almost unchanged from this morning’s opening levels, leaving the pairing trading at around £0.8947.

Can the ECB Live Up to Market Expectations?

All eyes are on the European Central Bank today as it prepares to deliver what could be its most important policy decision in years.

Growth in the Eurozone has slowed significantly in recent months, with the bloc’s manufacturing sector deep in contraction and Germany teetering on the edge of a recession.

As a result economists are expecting the ECB will looking to ease its monetary policy to spur growth, with the announcement of what has been billed as a ‘substantial’ stimulus package.

Expectations are high, but the question on everybody’s lips is what might the package include and if it be enough to lift the Eurozone out of the doldrums, with the risk of the Euro (EUR) falling if the measures disappoint.In a note to clients Commerzbank warned:

‘There is high uncertainty about the extent of the expansionary measures the ECB will implement today; and therefore there is large potential for strong fluctuations in the euro exchange rates.’

This comes amid signs that some members of the ECB’s governing council are resistant to the idea of reopening the ECB’s quantitative easing programme, having weaned the Eurozone economy off of bond purchases less than a year ago.


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Euro pauses before ECB meeting as trade thaw triggers risk rally

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The euro hovered near $1.10 on Thursday as traders waited to see the scale of fresh stimulus expected from the European Central Bank, while China's yuan and Australia's dollar were buoyed by further signs of a thaw in the U.S.-China trade war.

After a difficult August in which concerns about a global recession sparked a scramble into safer assets, investors have been returning to riskier markets this month, encouraged by China and the United States making moves to ease trade tensions and by receding fears of a no-deal Brexit.

China on Wednesday exempted a basket of U.S. goods from its tariffs, while U.S. President Donald Trump said in a tweet he would delay a scheduled tariff hike by two weeks in October.

Export-driven Asian currencies from Taiwan to Australia rallied on the buoyant mood as the world's two largest economies each granted concessions in their heated tariff dispute.

The Japanese yen, the go-to safe haven currency for nervous investors, fell to a six-week low against the dollar. The yen breached the 108 mark and was last at 107.98 yen per dollar, down 0.1% on the day and far from its seven-month high of 104.46 plumbed last month.

The Aussie hit a six-week high and the offshore Chinese yuan rose 0.5% to a three-week high of 7.0737 against the dollar.

Market attention now turns to the ECB, the first of a series of major central bank events, with the Federal Reserve and the Bank of Japan meeting next week.

Investors almost universally expect a rate cut at Thursday's ECB meeting as policymakers try to prop up the region's ailing economy.

The real uncertainty is whether policymakers will restart a quantitative easing program after some members of the governing council in recent weeks expressed doubt about the need to relaunch asset purchases.

SEB strategist Jussi Hiljanen said he expected the ECB to cut the deposit rate by 10 basis points, extend the forward guidance on rates by six months and announce the restart of a quantitative easing program with monthly purchases lower than the market anticipated.

"Such a package of stimulus measures would be a disappointment for the market, pushing long rates higher and EUR/USD higher and steepening the curve," Hiljanen said.

The single currency (EUR=EBS) has shed 3.5% since June and was steady at $1.1017 in early European trade.

The dollar was slightly lower against a basket of currencies at 98.599 (DXY).

Sterling was little changed (EURGBP=D3). The pound rocketed to a six-week high on Monday, reversing last week's losses as investors welcomed the British parliament's move to block a no-deal Brexit on Oct. 31.

Despite the more positive mood in risk assets this week, analysts expressed some caution about its sustainability."Just as the presidential tweet on tariffs this morning has injected more momentum ... we are only one social media posting away from a thoroughly unpredictable President turning sentiment on its head," said Jeffrey Halley, senior market analyst for Asia Pacific at brokerage OANDA.

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3 reasons for EUR/USD to fall over the next 3 months

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I posted earlier on The 3 reasons EUR has bottomed against the USD and yen

An alternative viewpoint is for euro to fall.
Via Citi:
  1. in the near term, euro area activity remains very weak
  2. inflation low
  3. ECB may prepare another round of easing, probably at the 12 September, including more QE
More QE means, says Citi:
  • a negative net supply dynamic in the EA bond market
And, thereofe:
  • we lower our EUR/USD forecast 0-3m target from 1.12 to 1.08 level.


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