Weekly Market Watch

Released 19 October 2015 - Weekly Newsletter

Last week recap

Dropped a fraction last week after being significantly higher earlier in the week. The fractional decline was in part due to talk in the market that the ECB needs to extend or increase quantitative easing with mixed economic data out of both economies. The week began on a quiet note, with the rate consolidating on Monday after comments from FOMC member Stanley Fischer, who said that a Fed rate hike was “an expectation” and “not a commitment” reiterating that “both the timing of the first rate increase and any subsequent adjustments to the federal funds rate target will depend critically on future developments in the economy”. Also, in an interview with Greece’s Kathimerini, ECB President Draghi said that, “it presently appears that it will take somewhat longer than previously anticipated for inflation to come back to, and stabilize around, levels that we consider sufficiently close to 2 percent”. The pair gained fractionally on Tuesday despite German ZEW Economic Sentiment, which printed at 1.9, significantly lower than the 6.8 reading that was expected, while EZ ZEW Economic Sentiment printed at 30.1, in line with expectations. Also supporting the rate were comments from FOMC member Brainard, who stated that, “I view the risks to the economic outlook as tilted to the downside. The downside risks make a strong case for continuing to carefully nurture the U.S. recovery - and argue against prematurely taking away the support that has been so critical to its vitality”. On Wednesday, the pair rallied after U.S. Core Retail Sales declined -0.3% m/m compared to an expected decline of -0.1%, with the previous number downwardly revised from +0.1% to -0.1%, while Retail Sales increased +0.1% m/m versus +0.2% expected. In addition, U.S. PPI dropped -0.5% m/m compared to an expected decline of -0.3% and Core PPI, which declined 0.3% versus an expected increase of +0.2%. The rate then made its weekly high of 1.1494 before giving back all of its previous session’s gains on Thursday after U.S. Core CPI increased +0.2% m/m versus +0.1% expected, while CPI declined -0.2%, as widely expected. Also, Initial Jobless Claims showed 255K claims last week versus 269K expected. Nevertheless, the Philly Fed Manufacturing Index showed a reading of -4.5 compared to -1.8 expected. The pair extended its losses on Friday after EZ Final CPI declined -0.1% y/y as widely expected, after the release, ECB governing council member Ewald Nowotny said that, “core inflation rates are clearly below our target” adding that, “the ECB is using the monetary-policy instruments available, but in my view it is quite obvious that in the current economic situation additional sets of instruments are necessary.” Friday’s U.S. data had Preliminary UoM Consumer Sentiment print at 92.1 compared to an expected reading of 88.8, also the Capacity Utilization Rate came out at 77.5%, in line with expectations and Industrial Production, which declined -0.2%, also as widely anticipated. EUR/USD closed at 1.1349, with a loss of -9 pips and virtually unchanged on the week.
Lost ground last week as the BOJ left monetary policy unchanged and the United States reported mixed to mostly lower than expected economic numbers. The week began with the pair declining a fraction after making its weekly high of 120.25 on Monday after mostly dovish comments from FOMC members Evans and Lockhart. The rate continued sliding on Tuesday after the BOJ’s Monetary Policy Meeting Minutes left monetary policy unchanged, the Minutes stated that, “Based on the above discussions, regarding the guideline for money market operations for the intermeeting period, most members expressed the recognition that it was appropriate to maintain the current guideline that the Bank would conduct money market operations so that the monetary base would increase at an annual pace of about 80 trillion yen. With regard to the asset purchases, most members expressed the recognition that it was also appropriate for the Bank to continue with the current guideline.” The rate extended its losses, dropping sharply on Wednesday after disappointing U.S. Retail Sales and PPI data. Thursday saw the pair reverse direction after making its weekly low of 118.05 after mixed U.S. economic releases. The rate extended its gains on Friday after a better than expected U.S. Consumer Sentiment number and comments from BOJ Governor Kuroda, in which he stated that, “Japanese exports and production have been hit by the recent slowdown in emerging economies but the positive cycle from income growth to spending seems to be working among businesses and households,” adding that, “Domestic demand is expected to stay on an uptrend.” USD/JPY closed at 119.45, with an overall weekly loss of -0.6%.
Extended its previous week’s gains last week as MPC members testified before Parliament with mixed economic numbers out of both countries. The week began with Cable gaining a fraction after comments from MPC member Martin Weale, who said in a speech that, “Britain’s most recent experience suggests tentatively that reviving business confidence can see an improvement in productivity growth and an analysis of the persistence of rates of technical progress suggests the five countries I have considered might all hope for underlying productivity growth in the rate of 1-2 per cent.” On Tuesday, the rate made its weekly low of 1.5299 after testimony before Parliament by MPC member Gertjan Vlieghe, in which he said that, “one major risk is that global growth continues to disappoint and that this would pull UK growth down, both via investment and exports”. Also weighing on Cable was UK CPI, which printed at -0.1% y/y versus an expected flat reading. Also out were PPI Input, which increased +0.6% m/m versus +0.2% expected and UK RPI, which rose +0.8% y/y versus +1.0% anticipated. Cable then rallied sharply on Wednesday after disappointing U.S. Retail Sales and PPI data and despite the UK Average Earnings Index, which increased +3.0% 3m/y compared to +3.1% expected, and Claimant Count Change, which increased to +4.6K versus an expected decline of -2.3K, nevertheless, the UK Unemployment Rate declined a notch to 5.4% from 5.5%. The rate then made its weekly high of 1.5507 on Thursday before declining a fraction after mixed U.S. CPI and Manufacturing data. Cable extended its losses on Friday after mixed U.S. data and comments from MPC member Forbes, who said that, “Global trade (as a share of global GDP) has basically stopped growing over the past 4 years. At its annual meeting last weekend, the IMF downgraded its global growth forecasts – again. This is the eighth fall annual meeting in a row that they have had to revise down their forecasts for global growth in the current year.” GBP/USD closed at 1.5440, with a gain of +0.9% from its previous weekly close.
Reversed direction, declining a fraction last week after speculation the RBA might lower rates and with mixed economic numbers out of both countries. The week began with the pair making its weekly high of 0.7381 on Monday after comments from RBA Deputy Governor Phillip Lowe, who said in a speech that, “What we can be sure of is that we will be best placed to take advantage of our strong fundamentals if our economy is flexible and if it is able to adapt to the changing world in which we find ourselves.” The pair then declined sharply on Tuesday despite Australian NAB Business Confidence printing at 5 compared to a previous reading of 1. On Wednesday the rate rallied after making its weekly low of 0.7197 as Australian Westpac Consumer Sentiment printed at +4.2% versus a previous reading of -5.6% and after dismal U.S. Retail Sales and PPI data. Thursday saw the pair extend its gains despite Australian Employment Change showing a decline of -5.1K compared to an expected increase of +7.2K, while MI Inflation Expectations increased to +3.5% from a previous +3.2%. The pair then declined on Friday after the RBA Financial Stability Review noted that, “Higher debt, fiscal pressure and political instability have been compounding factors for some emerging markets. With the first US Federal Reserve policy interest rate increase since 2006 in prospect in the period ahead, the risk remains that this combination of factors could trigger a sharp repricing in markets where for several years investors have been searching for yield.” AUD/USD went on to close at 0.7266, declining -0.9% from its previous weekly close.
Lost a fraction last week as crude oil prices continued under pressure and after Canada reported better than expected economic numbers. The week began with the pair gaining on Monday despite dovish comments from FOMC members. The rate then made its weekly high of 1.3079 on Tuesday as crude oil dropped below the $50 per barrel handle. On Wednesday, the pair declined after dismal U.S. Retail Sales and PPI data. The rate then made its weekly low of 1.2830 on Thursday after mixed U.S. CPI and manufacturing numbers. The pair then gained ground on Friday despite Canadian Manufacturing Sales, which declined -0.2% m/m versus an expected decline of -0.8%, and Foreign Securities Purchases, which increased to +3.11B compared to an expected +2.21B. USD/CAD closed at 1.2915, with a loss of -0.2% for the week.
Extended its previous week’s gains last week as New Zealand reported a better than expected CPI number with mixed economic data out of the United States. The week began on a positive note, with the rate gaining on Monday after dovish comments from FOMC officials. The pair then declined on Tuesday after comments from RBNZ Governor Wheeler, who stated that, “Recent economic indicators have been more encouraging. Some further easing in the OCR seems likely but this will continue to depend on the emerging flow of economic data. At the same time however, we remain conscious of the impact that low interest rates can have on housing demand and its potential to feed into higher price inflation. It is important also to consider whether borrowing costs are constraining investment, and the need to have sufficient capacity to cut interest rates if the global economy slows significantly.” The pair then rallied sharply on Wednesday after disappointing U.S. Retail Sales and PPI data. The rate then made its weekly high of 0.6895 on Thursday after New Zealand CPI increased +0.3% q/q versus +0.2% expected. The pair then lost ground on Friday as traders squared position and the United States reported mixed economic numbers. NZD/USD went on to close at 0.6805, with an overall weekly gain of +1.7%.

The week ahead

AUD The Australian economic calendar is rather quiet this coming week, only featuring the RBA’s Monetary Policy Meeting Minutes on Tuesday; a speech by RBA Assistant Governor Edey on Wednesday and the NAB Quarterly Business Confidence survey (last 4) on Thursday. Resistance for AUD/USD is seen at 0.7427/95, 0.7343/81 and 0.7279/84, with support noted at 0.7197/0.7215, 0.7083 and 0.6907/0.7016.

CAD The Canadian economic calendar is busy this coming week, featuring the BOC’s Overnight Rate Decision on Wednesday. Monday starts the week’s highlights off with the Federal Election, and Tuesday’s key events include Wholesale Sales (0.2%). Wednesday then offers the BOC Monetary Policy Report, the BOC Rate Statement, the BOC’s Overnight Rate Decision (unchanged at 0.50%) and the BOC Press Conference. Thursday features Core Retail Sales (0.0%) and Retail Sales (0.5%), while Friday’s important data then concludes the week with Core CPI (0.2%) and CPI (0.0%). Resistance for USD/CAD is seen at 1.3153/92, 1.3006/1.3116 and 1.2951/90 while support shows at 1.2900, 1.2830/59 and 1.2778.

EUR The Eurozone economic calendar is moderately active this coming week, featuring the ECB’s Minimum Bid Rate Decision on Thursday. Monday through Wednesday are quiet, so Thursday starts the week’s highlights off with the Spanish Unemployment Rate (21.9%),the ECB’s Minimum Bid Rate Decision (unchanged at 0.05%) and the ECB Press Conference. Friday’s important data then concludes the week with French Flash Manufacturing PMI (50.2), French Flash Services PMI (51.9), German Flash Manufacturing PMI (51.8), German Flash Services PMI (54.0), EZ Flash Manufacturing PMI (51.8), and EZ Flash Services PMI (53.6). Resistance for EUR/USD is seen at 1.1494, 1.1436/66 and 1.1386/1.1409, with support showing at 1.1207/1.1333, 1.1104/71 and 1.1005/86.

GBP The UK economic calendar is also fairly quiet this coming week, only featuring a speech by BOE Governor Carney on Tuesday; Public Sector Net Borrowing (9.1B) on Wednesday; and Retail Sales (0.3%) on Thursday. Resistance to the topside for GBP/USD shows at 1.5530/1.5722, 1.5508 and 1.5466, while support for the pair is expected at 1.5329/1.5424, 1.5243 and 1.5106/99.

JPY The Japanese economic calendar is very quiet this coming week, only featuring Trade Balance (-0.07T) data on Wednesday. Resistance for USD/JPY currently shows up at 121.23/32, 120.34/98 and 119.62/65, with support indicated at 119.05/24, 118.49/88 and 118.05.

NZD The New Zealand economic calendar is inactive this coming week, only featuring the tentatively scheduled GDT Price Index (last 9.9%) on Tuesday. The chart for NZD/USD shows resistance at 0.6813, 0.6895 and 0.6920. On the downside, technical support is expected at 0.6706/0.6769, 0.6618/0.6684 and 0.6557/71.

USD The U.S. economic calendar is less active than usual this coming week, featuring Building Permits data on Tuesday. Monday starts the week’s highlights off with a speech by FOMC Member Brainard, and Tuesday’s key events include Building Permits (1.16M), Housing Starts (1.14M), and speeches by FOMC Members Dudley and Powell, and Fed Chair Yellen. Wednesday then offers Crude Oil Inventories (last 7.6M), while Thursday features Weekly Initial Jobless Claims (266K) and Existing Home Sales (5.38M), which concludes the week’s highlights.


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