Weekly Market Watch

Released 20 July 2015 - Weekly Newsletter

Last week recap

Traded sharply lower last week as the Greek government and creditors arrived at an agreement, the ECB left rates unchanged and Fed Chair Janet Yellen testified before the House Committee on Financial Services. The week began with the rate dropping sharply on Monday after making its weekly high of 1.1196 after an agreement was arrived at between Greece and creditors at the Euro Summit. Donald Tusk, President of the European Council said, “One can say that we have 'agreekment. Leaders have agreed in principle that they are ready to start negotiations on an ESM programme, which in other words means continued support for Greece. There are strict conditions to be met. The approval of several national parliaments, including the Greek parliament, is now needed for negotiations on an ESM programme to formally begin. Nevertheless, the decision gives Greece a chance to get back on track with the support of European partners.” The pair then consolidated at a slightly higher level on Tuesday after U.S. Retail Sales declined -0.3% m/m compared to an expected increase of +0.2%, while Core Retail Sales declined -0.1% versus an expected increase of +0.7%. Euro data had German ZEW Economic Sentiment Print at 29.7 versus 30.6 expected. On Wednesday, the rate resumed its selloff after testimony from Fed Chair Yellen before the U.S. House of Representatives, in which she stated that, “if the economy evolves as we expect, economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target”. She expects that “the U.S. economy also might snap back more quickly as the transitory influences holding down first-half growth fade and the boost to consumer spending from low oil prices shows through more definitively.” Wednesday’s numbers had U.S. PPI increase +0.4% m/m versus +0.2% expected with Core PPI rising +0.3% m/m compared to an expected increase of +0.1%. Also on Wednesday, the Greek parliament passed legislation allowing implementation of the measures drafted in the loan agreement with the European Stability Mechanism. Thursday saw the pair continue lower as the ECB left its benchmark Minimum Bid Rate unchanged at 0.05%, while the Eurogroup approved the Greek bailout. In a statement, the Eurogroup said that, “we reached today a decision to grant in principle a 3-year ESM stability support to Greece, subject to the completion of relevant national procedures. Upon the completion of the relevant national procedures and the formal decision by the ESM Board of Governors expected by the end of this week, the institutions would be entrusted with the task of swiftly negotiating a Memorandum of Understanding (MoU) detailing the policy conditionality attached to the financial assistance facility.” The rate then made its weekly low of 1.0829 on Friday after U.S. Building Permits increased to an annualized +1.34M versus +1.11M expected, while U.S. CPI rose at +0.3% m/m as was widely anticipated and Core CPI, which increased +0.2%, also as widely expected. EUR/USD went on to close at 1.0829, with an overall loss of -3.0% for the week. Greek banks are scheduled to open on Monday after being closed since June 29th. Limits on withdrawals and other capital controls will be in effect to avoid bank runs.
Gained ground last week as the BOJ left monetary policy unchanged and the United States reported mixed economic data. The pair began the week gaining after making its weekly low of 122.19 on Monday in the absence of any significant data out of either country. The rate then consolidated at a slightly lower level on Tuesday after lower than expected U.S. Retail Sales data. On Wednesday, the pair resumed its rally after the BOJ Monetary Policy Statement indicated the bank would leave monetary policy unchanged. The Statement noted that, “The Bank will purchase Japanese government bonds (JGBs) so that their amount outstanding will increase at an annual pace of about 80 trillion yen. With a view to encouraging a decline in interest rates across the entire yield curve, the Bank will conduct purchases in a flexible manner in accordance with financial market conditions.” Thursday the rate continued gaining after comments from Fed Chair Janet Yellen in testimony before the U.S. House of Representatives The pair then made its weekly high of 124.22 on Friday after better than expected U.S. Building Permits and Housing Starts. USD/JPY went on to close the week at 124.06, with an overall gain of +1.1% from its previous weekly close.
Gained ground last week as BOE Governor Mark Carney testified before the Commons Treasury Select Committee with both countries reporting mixed economic data. The week began on a soft note, with Cable declining on Monday after the release of the BOE Credit Conditions Survey, which noted that, “Lenders reported that default rates on secured loans to households fell significantly in 2015 Q1, and a further fall was anticipated in Q2. Losses given default on secured loans to households also decreased significantly in Q1, but were expected to increase significantly in Q2.” The rate then rallied after making its weekly low of 1.5450 on Tuesday after comments from BOE Governor Carney who stated in testimony before the Treasury Select Committee that, “The point at which interest rates may begin to rise is moving closer with the performance of the economy, consistent with growth above trend, a firming in domestic costs, counterbalanced somewhat by disinflation imported from abroad”. Cable then made its weekly high of 1.5674 on Wednesday before consolidating at a slightly lower level after UK Claimant Count Change showed an increase of +7.0K, significantly higher than the decrease of -8.9K that was expected with the previous number notably revised from -6.5K to -1.1K. Also, the UK Average Earnings Index increased +3.2% 3m/y, just missing expectations of +3.3%, while the UK Unemployment Rate increased to 5.6% from 5.5%. On Thursday, the pair declined after BOE Governor Carney stated that, “It would not seem unreasonable to me to expect that once normalisation begins, interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages.” Cable then consolidated on Friday after positive U.S. Housing and CPI data. GBP/USD went on to close at 1.5606, with an overall weekly gain of +0.6%.
Extended its previous week’s losses last week as asset flows favoured the Greenback over the Aussie with mixed economic data out of both countries. The week began with the pair declining on Monday in the absence of any significant data out of either country. The rate then gained ground on Tuesday after the Australian NAB Business Confidence printed at 10 versus a previous reading of 8 upwardly revised from 7. On Wednesday, the pair fell sharply after making its weekly high of 0.7487 after better than expected U.S. economic data and Fed Chair Yellen’s testimony before the House. Also out on Wednesday was Australian Westpac Consumer Sentiment, which printed at -3.2% versus a previous reading of -6.9%. The pair then gained ground on Thursday after making its weekly low of 0.7348 as Australian MI Inflation Expectations printed at +3.4% versus a previous reading of +3.0%. Friday saw the rate resume its decline after better than expected U.S. Housing and CPI data. AUD/USD closed at 0.7371, with a loss of -0.9% for the week.
Continued its sharp rally last week taking the rate to levels not seen since March of 2009. The gain in the rate was in large part due to the BOC unexpectedly cutting its benchmark Overnight Rate by 25 bps. The rate began the week trading higher after making its weekly low of 1.2679 on Monday in the absence of any significant data out of either country. On Tuesday, the pair declined a fraction after lower than expected U.S. Retail Sales numbers. The rate then rallied sharply on Wednesday after the BOC unexpectedly lowered its Overnight Rate to 0.50% from 0.75%. The BOC Rate Statement noted that, “The Bank of Canada today announced that it is lowering its target for the overnight rate by one-quarter of one percentage point to 1/2 per cent. The Bank Rate is correspondingly 3/4 per cent and the deposit rate is 1/4 per cent. Total CPI inflation in Canada has been around 1 per cent in recent months, reflecting year-over-year price declines for consumer energy products.” Also out was the BOC Monetary Policy Report, which said that, “As consumers increasingly perceive the decline in gasoline prices to be durable, they are more likely to increase their spending. The recent surge in motor vehicle sales and, more broadly, the momentum in retail sales are positive signs that this is starting to occur.” Also supporting the rate was Canadian Manufacturing Sales, which increased +0.1% m/m compared to an expected +0.3%. The pair continued higher on Thursday after Canadian Foreign Securities Purchases declined -5.45B, significantly lower than the expected increase of +8.21B, nevertheless, the previous release was upwardly revised to +16.73B from +12.94B. Friday saw the rate make its weekly and a six year high of 1.3006 despite Canadian Core CPI showing a flat reading m/m versus an expected decline of -0.1% while CPI increased +0.2%, in line with expectations. USD/CAD closed at 1.2971, with an overall gain of +2.4% from its previous weekly close.
Resumed its downtrend last week as asset flows favoured the Greenback over the Kiwi with mixed economic numbers out of both countries. The rate began the week consolidating at a slightly lower level after making its weekly high of 0.6751 on Monday in the absence of any significant data out of either country. The pair then gained a fraction on Tuesday after lower than expected U.S. Retail Sales data. On Wednesday, the rate fell sharply after the New Zealand GDT Price Index declined -10.7% versus a previous reading of -5.9%. The pair continued selling off on Thursday after New Zealand CPI increased +0.4% q/q compared to an expected +0.5%, while the Business NZ Manufacturing Index printed at 55.2 versus a previous reading of 52.0. The rate then consolidated at a slightly higher level on Friday after positive U.S. housing and CPI numbers. NZD/USD closed at 0.6517, with an overall weekly loss of -3.0%.

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 and then CPI (0.8%), Trimmed Mean CPI (0.6%) and a speech by RBA Governor Stevens on Wednesday. Resistance for AUD/USD is seen at 0.7737/92, 0.7532/0.7682 and 0.7487/95, with support noted at 0.7348/71, 0.7271 and 0.7016.

CAD The Canadian economic calendar is characteristically peaceful this coming week, only featuring Wholesale Sales (0.1%) on Monday, followed by Core Retail Sales (0.7%) and Retail Sales (0.4%) on Thursday. Resistance for USD/CAD is seen at 1.3305, 1.3260 and 1.3006/62, while support shows at 1.2822/34, 1.2778/83 and 1.2632/65.

EUR The Eurozone economic calendar is only moderately active this coming week, only featuring the Spanish Unemployment Rate (22.9%) on Thursday, followed by French Flash Manufacturing PMI (51.1), French Flash Services PMI (53.9), German Flash Manufacturing PMI (52.1), German Flash Services PMI (54.1), EZ Flash Manufacturing PMI (52.5) and EZ Flash Services PMI (54.2) on Friday. Resistance for EUR/USD is seen at 1.1207/89, 1.1035/1.1150 and 1.0954/69, with support showing at 1.0818/28, 1.0712 and 1.0659/65.

GBP The UK economic calendar is quieter than usual this coming week, only featuring Public Sector Net Borrowing (8.6B) on Tuesday; the MPC Official Bank Rate Votes (0-0-9) and the MPC Asset Purchase Facility Votes (0-0-9) on Wednesday; followed by Retail Sales (0.4%) on Thursday. Resistance to the topside for GBP/USD shows at 1.5666/97, 1.5766/88 and 1.5909/29, while support for the pair is expected at 1.5315/51, 1.5440/46 and 1.5530/97.

JPY The Japanese economic calendar is very quiet this coming week, only featuring Trade Balance data (-0.25T) on Thursday. Also, Monday is a Japanese Bank Holiday. Resistance for USD/JPY currently shows up at 125.67/85, 125.05 and 124.14/45, with support indicated at 123.85, 122.45/87 and 121.93/122.02.

NZD The New Zealand economic calendar is characteristically peaceful this coming week, only featuring the RBNZ’s Official Cash Rate Decision (3.25%) and the RBNZ Rate Statement on Wednesday, and then the Trade Balance (100M) on Thursday. The chart for NZD/USD shows resistance at 0.6751/69, 0.6618/81 and 0.6557/71. On the downside, technical support is expected at 0.6442/96, 0.5991 and 0.5926.

USD The U.S. economic calendar is less active than usual this coming week, featuring Weekly Initial Jobless Claims data on Thursday. Monday and Tuesday are quiet, so Wednesday starts the week’s highlights off with Existing Home Sales (5.40M) and Crude Oil Inventories (last -4.3M). Thursday then offers Weekly Initial Jobless Claims (285K), and Friday’s important data then concludes the week with Flash Manufacturing PMI (53.7) and New Home Sales (543K).


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