Weekly Market Watch

Released 11 October 2016 - Weekly Newsletter

Last week recap

Sold off last week as the ECB considered tapering its bond buying program before it ends in March of next year, and despite a lower than expected U.S. Non-Farm Payrolls number. The rate began the week trading lower after making its weekly high of 1.1242 as U.S. ISM Manufacturing PMI printed at 51.5 versus 50.4 expected, while Spanish Manufacturing PMI showed a reading of 52.3 versus an expectation of 51.6. The pair extended its decline on Tuesday after ECB chief economist Peter Praet noted that, “the ECB will preserve its accommodative stance until inflation returns to our aim.” He added that “very low interest rates will probably prevail for an extended period of time” and that “a durable improvement in the prospects of the euro area banking system requires further efforts outside the realm of monetary policy.” On Wednesday, the rate consolidated at a slightly lower level as the ECB gave indications it would taper its bond buying program and after U.S. ADP Non-Farm Employment Change came out at 154K versus 166K expected, however, ISM Non-Manufacturing PMI printed at 57.1 versus 53.1 anticipated, while the U.S. Trade Balance showed a deficit of -40.7B, which was in line with expectations. The pair then declined sharply on Thursday after the ECB Monetary Policy Meeting Accounts noted that, “It was underlined that the projections were based on exceptionally supportive financing conditions, which to a large extent reflected the ECB’s accommodative monetary policy. It was also noted that market expectations of additional monetary policy measures by the ECB were reflected in the technical assumptions underlying the September 2016 staff projections for growth and inflation.” Also pressuring the rate was U.S. Initial Jobless Claims, which dropped to 249K versus 255K expected, just 1K higher than the 40 year low of 248K made in April. Friday saw the pair make its weekly low of 1.1104 before gaining sharply after U.S. Non-Farm Payrolls came out at 156K versus an expected 171K, while the Unemployment Rate gained a notch to 5.0% from 4.9% and Average Hourly Earnings held steady at 0.2%, in line with expectations. EUR/USD closed at 1.1142, with an overall loss of -0.4% from its previous weekly close.
Continued its rally last week as the Greenback was supported by surging bond yields and despite a lower than expected Non-Farm Payrolls number. The week began with the rate making its weekly low of 101.18 on Monday after the Japanese Tankan Manufacturing Index printed at 6 versus an expectation of 7, while the Tankan Non-Manufacturing Index printed at 18, which was in line with expectations. The pair continued sharply higher on Tuesday in the absence of any significant data out of either country. On Wednesday, the rate extended its rally after mixed U.S. employment and manufacturing data. The pair then made its weekly high of 104.15 on Thursday after the United States reported a lower than expected weekly Initial Jobless Claims number. The rate declined sharply on Friday after a lower than expected U.S. Non-Farm Payrolls number and Unemployment Rate hike. USD/JPY closed at 102.93, with a weekly gain of +1.5%.
Declined sharply last week, making a 31 year low after UK PM Theresa May announced her timeline for Brexit. Cable began the week losing a full figure on Monday after making its weekly high of 1.2945 as PM Theresa May outlined her plan for Brexit. May said that in the ruling Conservative Party’s annual conference she will initiate formal talks on Brexit by the end of March of 2017. Negotiations could last as long as two years and would lead to the UK’s leaving the EU by April of 2019. She also said she would request EU leaders to begin preparatory work before triggering Article 50 of the Lisbon Treaty. Monday’s numbers had UK Manufacturing PMI print at 55.4 compared to an expected 52.1. Tuesday saw the pair decline another big figure, making a new 31 year low after talk that PM May would opt for a “hard exit,” which would have the UK give up trade with the EU for immigration control. UK economic data on Tuesday had Construction PMI print at 51.3 versus 49.1 expected. On Wednesday, Cable consolidated at a slightly higher level after UK Services PMI showed a reading of 52.6 versus 52.1 expected. According to Markit, “the solid PMI readings for September will cast doubt on the need for any further stimulus from the Bank of England in coming months.” But that “the pace of expansion has cooled since the first half of the year, reflecting widespread concern about the potential future impact of Brexit.” The rate resumed its selloff on Thursday after a positive U.S. employment number. Cable then made its weekly low of 1.1451 on Friday in a so called “fat finger” trade, meaning that the steep decline was caused by an error in program trading or misplaced trades. GBP/USD then recovered after a lower than expected U.S. Non-Farm Payrolls number, ending the week at 1.2432, with a whopping loss of -4.1% for the week.
Reversed direction, trading lower last week as the RBA left interest rates unchanged, asset flows favoured the Greenback over the Aussie and despite better than expected economic data out of Australia. The week began on a positive note, with the pair gaining on Monday despite a better than expected U.S. ISM Manufacturing PMI number. The rate then declined sharply after making its weekly high of 0.7690 after the RBA left its benchmark Cash Rate unchanged at 1.50%. In his first Introductory Statement as RBA Governor, Phillip Lowe noted that, “Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.” Also, Australian Building Approvals showed a decline of -1.8% m/m versus an expected -5.8% with the previous number upwardly revised from +11.3% to +12.0%. The pair then consolidated at a slightly higher level on Wednesday after Australian Retail Sales increased +0.4% m/m versus an expectation of +0.2%. Thursday saw the pair resume its selloff after a better than expected U.S. employment number and despite the Australian Trade Balance, which showed a deficit of -2.01B versus an expectation of -2.32B. The rate then consolidated at a slightly higher level on Friday after making its weekly low of 0.7552 as the United States reported a lower than expected Non-Farm Payrolls number and higher Unemployment Rate. AUD/USD closed at 0.7583, with an overall weekly decline of -1.0%.
Reversed direction, rallying last week as risk appetite favoured the Greenback over the Loonie and despite higher crude oil prices and better than expected economic data out of Canada. The week began with the pair gaining after making its weekly low of 1.3067 on Monday as the United States reported a better than expected PMI number. The rate extended its gains on Tuesday in the absence of any significant data out of either country. On Wednesday, the pair lost a fraction as crude oil prices penetrated the $50 per barrel handle and the Canadian Trade Balance showed a deficit of -1.9B versus an expected -2.5B. The rate resumed its rally on Thursday despite Canadian Building Permits, which increased +10.4% m/m, significantly higher than the expectation of +1.1% with the previous number upwardly revised from +0.8% to +3.4%. The pair then fell sharply on Friday after Canadian Employment Change increased to +67.2K versus +8.5K expected. USD/CAD closed at 1.3280, with a gain of +1.2% from its previous weekly close.
Sold off last week as asset flows favoured the Greenback over the Kiwi with very little significant economic data out of New Zealand. The rate began the week declining a fraction after a better than expected U.S. ISM PMI number and despite NZ NZIER Business Confidence, which printed at 26 versus a previous reading of 19. The pair then made its weekly high of 0.7310 before selling off after the NZ GDT Price Index declined -3.0% compared to a previous reading of +1.7%. The rate continued its slide on Wednesday after mixed U.S. employment and manufacturing numbers. On Thursday, the pair consolidated at a slightly higher level despite a better than expected U.S. Initial Jobless Claims number. The rate then made its weekly low of 0.7109 on Friday despite lower than expected U.S. Non-Farm Payrolls and Unemployment Rate. NZD/USD closed at 0.7162, with an overall weekly loss of -1.7%.

The week ahead

AUD The Australian economic calendar is very sparse this coming week, only featuring the NAB Business Confidence survey (last 6) on Tuesday and the RBA’s Financial Stability Review on Friday. Resistance for AUD/USD is seen at 0.7826/34, 0.7709/64 and 0.7636/91, with support noted at 0.7401/0.7614, 0.7232/0.7370 and 0.7284/99.

CAD The Canadian economic calendar is very quiet this coming week, only featuring the NHPI (0.30%) on Thursday. In addition, Monday is a Bank Holiday in Canada. Resistance for USD/CAD is seen at 1.3638, 1.3352/1.3456 and 1.3247/95, while support shows at 1.3119/94, 1.2923/1.3075 and 1.2762/1.2863.

EUR The Eurozone economic calendar is very peaceful this coming week, only featuring the German ZEW Economic Sentiment survey (4.2) and the EZ ZEW Economic Sentiment survey (6.3) on Tuesday. Resistance for EUR/USD is seen at 1.1340/1.1494, 1.1326 and 1.1213/83, with support showing at 1.1103/1.1185, 1.1028/70 and 1.0951.

GBP The UK economic calendar is quiet this coming week, only featuring the BOE Credit Conditions Survey on Friday. Resistance to the topside for GBP/USD shows at 1.2914/1.3020, 1.2849/64 and 1.2794, while support for the pair is expected at 1.2226 and 1.1991.

JPY The Japanese economic calendar is sparse this coming week, only featuring the Current Account (1.58T) on Tuesday. Also, Monday is a Bank Holiday in Japan. Resistance for USD/JPY currently shows up at 106.31/53, 104.12/105.59 and 103.35/38, with support indicated at 101.24/102.65, 99.53/100.24 and 98.99.

NZD The New Zealand economic calendar is quiet this coming week, featuring no notable data. The chart for NZD/USD shows resistance at 0.7607/59, 0.7483 and 0.7252/0.7420. On the downside, technical support is expected at 0.7202/0.7232, 0.7051/0.7186 and 0.6949/78.

USD The U.S. economic calendar is quite active this coming week, featuring the FOMC Meeting Minutes on Wednesday. Monday is a Bank Holiday, and Tuesday is quiet, so Wednesday starts the week’s highlights off with a speech by FOMC Member Dudley, JOLTS Job Openings (5.79M) and the FOMC Meeting Minutes. Thursday then offers Weekly Initial Jobless Claims (252K), Import Prices (0.10%) and Crude Oil Inventories (last -3.0M), and Friday’s important data then concludes the week with Core Retail Sales (0.40%), PPI (0.20%), Retail Sales (0.60%), Core PPI (0.10%), FOMC Member Rosengren, Preliminary University of Michigan Consumer Sentiment survey (92.1), and a speech by Fed Chair Yellen.


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