Weekly Market Watch

Released 24 October 2016 - Weekly Newsletter

Last week recap

Declined for its third consecutive week last week as the ECB left interest rates and stimulus unchanged with mixed economic numbers out of both economies. The week began on a positive note, with the rate gaining on Monday after EZ CPI increased +0.4% y/y as widely anticipated, while U.S. Industrial Production increased only +0.1% m/m versus +0.3% expected and Capacity Utilization, which fell to 75.4% compared to an expectation of 75.6%. Also out was the U.S. Empire State Manufacturing Index, which showed a reading of -6.8, significantly lower than the 1.1 print that was expected. The pair then declined on Tuesday despite U.S. Core CPI, which increased +0.1% m/m compared to an expected +0.2%, while CPI rose +0.3% m/m as widely anticipated. On Wednesday, the rate extended its previous day’s losses after U.S. Building Permits increased to an annualized +1.23M versus an expected +1.17M, nevertheless, Housing Starts failed to meet expectations at 1.05M versus 1.18M expected. Also out on Wednesday were U.S. Crude Oil Inventories, at -5.2M versus +2.2M expected. Thursday saw the rate decline sharply after making its weekly high of 1.1038 as the ECB left its benchmark Minimum Bid Rate at 0.0%. At the press conference after the rate decision, ECB President Draghi said there was “no discussion” of extending the QE program beyond its March 2017 original deadline or of tapering asset purchases, which were left at €80B per month, while the deposit rate was left at -0.4%. Also affecting the rate were comments by New York Fed president William Dudley, who stated that, “if the economy stays on its current trajectory I think ... we'll see an interest rate hike later this year.” He continued saying that, “we have made quite good progress toward our objectives ... so clearly as we get closer to our objectives its likely that wed want to make monetary policy somewhat less accommodative.” Economic data on Thursday had U.S. Unemployment Claims increase to 260K versus 251K expected, while the Philly Fed Manufacturing Index showed a reading of 9.7, significantly higher than the 5.2 print that was expected. The pair continued its slide on Friday, making its weekly low of 1.0858 before settling at 1.0878, and showing a weekly overall loss of -0.9%.
Lost a fraction last week as comments from BOJ Governor Kuroda supported the yen with very little significant economic data out of Japan. The rate began the week declining after making its weekly high of 104.36 on Monday after Governor Kuroda stated over the weekend that, “Japans economy continues to recover moderately as a trend, although some weaknesses are seen in exports and output due to the effect of slowing growth in emerging economies.” The pair consolidated at a slightly lower level on Tuesday after mixed U.S. CPI inflation data. On Wednesday, the rate resumed its selloff, making its weekly low of 103.15 after mixed U.S. Building Permits and Housing Starts numbers. The pair then recovered on Thursday after a positive U.S Philly Fed Manufacturing Index print. The rate then lost a fraction on Friday after BOJ Governor Kuroda said that, “if 10-year government bond yields fall well below our target of around zero percent, we may slow our bond purchases.” Kuroda also noted that, “we dont see an immediate possibility of our bond buying falling sharply from the current pace.” USD/JPY closed at 103.81, with a loss of -0.3% from its previous weekly close.
Gained a fraction last week as Sterling consolidated its sharp decline from 1.3440 which began in early September with both countries reporting mixed economic numbers. Cable began the week making gaining a fraction after making its weekly low of 1.2135 on Monday after comments from MPC Member Broadbent, who said that, “Having a flexible currency is an extremely important thing especially in an environment when your economy faces a shock (Brexit) that is different to your trading partners.” The rate continued rallying on Tuesday after UK CPI increased +1.0% y/y compared to an expectation of +0.9%, while RPI increased +2.0% as widely anticipated, however PPI Input showed a reading of 0.0% m/m compared to an expected increase of +0.4%. Wednesday saw Cable consolidate at a slightly lower level after making its weekly high of 1.2330 after UK Claimant Count Change fell to 0.7K, significantly lower than the 3.4K new claims expected, nevertheless, the previous number was upwardly revised from 2.4K to 7.1K. Also out was the UK Average Earnings Index, which increased +2.3% 3m/y as was widely expected and the UK Unemployment Rate, which held steady at 4.9%. Cable continued its slide on Thursday after UK Retail Sales showed a reading of 0.0% m/m versus an expected increase of +0.3%. The rate fell another fraction on Friday after UK Public Sector Net Borrowing showed a reading of 10.1B compared to an expectation of 8.6B. GBP/USD closed at 1.2224, with a gain of +0.3% for the week.
Showed little change last week as the RBA’s minutes for the October meeting showed policymakers were concerned over the housing market and employment numbers. The week began with the pair gaining a fraction after making its weekly low of 0.7580 on Monday after comments from RBA Governor Lowe, who stated that, “Economic growth has generally disappointed since the global financial crisis, weighed down by an overhang of debt. The result is that excess capacity exists in many parts of the global economy.” The pair continued higher on Tuesday after the RBA’s Monetary Policy Meeting Minutes noted that developments in the Australian housing market “would need to be monitored closely” and that it would provide an opportunity to evaluate, “the economic outlook, assess the effects of previous reductions in the cash rate and review conditions in the labour and housing markets”. Wednesday saw the rate extend its rally after mixed U.S. housing market data. On Thursday, the pair fell sharply after making its weekly high of 0.7734 after Australian Employment Change declined -9.8K, significantly lower than the increase of +15.2K that was expected, with the previous release downwardly revised from -3.9K to -8.6K. Nevertheless, the Australian Unemployment Rate declined to 5.6% from a revised 5.7% reading last month. In addition to the employment data, Australian the NAB Quarterly Business Confidence index showed a reading of 5 compared to a previous print of 3. The rate extended its losses on Friday in the absence of any significant data from either country. AUD/USD closed at 0.7604, with a loss of -8 pips and virtually unchanged on the week.
Rallied last week as the BOC left interest rates unchanged with mixed economic numbers from both countries. The rate began the week gaining a fraction after gapping lower on Monday as Canadian Foreign Securities Purchases increased to +12.74B compared to an expected +6.24B, with the previous number upwardly revised from +5.23B to +9.10B. The pair then fell a fraction on Tuesday after Canadian Manufacturing Sales increased +0.9% m/m versus +0.3% anticipated. On Wednesday, the rate gained a fraction after making its weekly low of 1.3005 after the BOC left its benchmark Overnight Rate unchanged at 0.50%. In the central bank’s Rate Statement, the bank noted that, “Given the downward revision to the growth profile and the later closing of the output gap, the Bank considers the risks around its updated inflation outlook to be roughly balanced, albeit in a context of heightened uncertainty. Meanwhile, the new housing measures should mitigate risks to the financial system over time. At present, the Bank’s Governing Council judges that the overall balance of risks is still in the zone for which the current stance of monetary policy is appropriate, and the target for the overnight rate remains at 1/2 per cent.” The pair continued sharply higher on Thursday after mixed U.S. economic numbers, gaining again on Friday after Canadian Core CPI increased only +0.1% m/m versus +0.2% expected. Also out was Canadian Core CPI, which increased +0.2% as widely expected, and Canadian Retail Sales, with a decline of -0.1% m/m compared to an expected increase of +0.5%, and Core Retail Sales, which showed a reading of 0.0% m/m versus an expected increase of +0.4%. USD/CAD went on to close at 1.3328, with a gain of +1.4% from its previous weekly close.
Reversed direction, gaining ground last week as New Zealand reported better than expected inflation data. The rate began the week on a positive note, rallying after making its weekly low of 0.7076 on Monday after New Zealand CPI increased +0.2% m/m compared to an expectation of a flat reading. The rate continued gaining on Tuesday after the New Zealand GDT Price Index printed at +1.4%, significantly higher than the previous reading of -3.0%. The pair extended its rally on Wednesday after mixed U.S. housing data. On Thursday, the pair declined sharply after making its weekly high of 0.7265 after comments from FOMC member Dudley inferred a possible Fed rate hike before the end of the year. The rate continued selling off on Friday after mixed U.S. manufacturing and home sales data. NZD/USD closed at 0.7160, with an overall gain of +1.0% for the week.

The week ahead

AUD The Australian economic calendar is rather quiet this coming week, only featuring CPI (0.50%) and Trimmed Mean CPI (0.40%) on Wednesday and PPI (0.60%) on Friday. Resistance for AUD/USD is seen at 0.7826/34, 0.7709/64 and 0.7614/91, with support noted at 0.7401/0.7586, 0.7232/0.7370 and 0.7284/99.

CAD The Canadian economic calendar is quite peaceful this coming week, only featuring Wholesale Sales (0.20%) and a speech by BOC Governor Poloz on Monday. Resistance for USD/CAD is seen at 1.4001, 1.3638 and 1.3352/1.3456, while support shows at 1.3194/1.3312, 1.2923/38 and 1.2763/1.2821.

EUR The Eurozone economic calendar is busy this coming week, featuring Money Supply data on Thursday. Monday starts the week’s highlights off with French Flash Manufacturing PMI (50.2), French Flash Services PMI (54.1), German Flash Manufacturing PMI (54.3), German Flash Services PMI (51.9), Flash Manufacturing PMI (52.7) and EZ Flash Services PMI (52.4), and Tuesday’s key events include German Ifo Business Climate (109.6) and a speech by ECB President Draghi. Wednesday then offers nothing notable, while Thursday features the Spanish Unemployment Rate (19.30%) and the EZ M3 Money Supply (5.10%). Friday’s important data then concludes the week with German Preliminary CPI (0.10%), Spanish Flash CPI (0.30%) and Spanish Flash GDP (0.70%). Resistance for EUR/USD is seen at 1.1103/1.1185, 1.1028/70, and 1.0910/1.0964, with support showing at 1.0807/58, 1.0710/76 and 1.0516/19.

GBP The UK economic calendar is unusually quiet this coming week, only featuring a speech by MPC Member Shafik on Monday, a speech by BOE Governor Carney on Tuesday and Preliminary GDP (0.30%) on Thursday. Resistance to the topside for GBP/USD shows at 1.2794/1.2864, 1.2324/32 and 1.2226/71, while support for the pair is expected at 1.2131/45, 1.2088 and 1.1991.

JPY The Japanese economic calendar is very quiet this coming week, only featuring Household Spending (-2.60%) and Tokyo Core CPI (-0.50%) on Friday. Resistance for USD/JPY currently shows up at 106.31/80, 104.63/105.59, and 104.12/15, with support indicated at 103.16/38, 101.24/102.85 and 100.67/96.

NZD The New Zealand economic calendar is very peaceful this coming week, only featuring the Trade Balance (-1,125M) on Wednesday. Also, Sunday is a Bank Holiday in New Zealand. The chart for NZD/USD shows resistance at 0.7483, 0.7202/0.7420 and 0.7164/86. On the downside, technical support is expected at 0.7132/42, 0.7034/0.7086 and 0.6949/78.

USD The U.S. economic calendar is active this coming week, featuring Advance GDP data on Friday. Monday starts the week’s highlights off with speeches by FOMC Member Dudley and FOMC Member Bullard, and Tuesday’s key events include the CB Consumer Confidence survey (101.5). Wednesday then offers New Home Sales (601K) and Crude Oil Inventories (last -5.2M), while Thursday features Core Durable Goods Orders (0.20%), Weekly Initial Jobless Claims (261K), Durable Goods Orders (0.10%) and Pending Home Sales (1.20%). Friday’s important data then concludes the week with Advance GDP (2.50%), the Advance GDP Price Index (1.30%), the Employment Cost Index (0.60%) and the Revised University of Michigan Consumer Sentiment survey (88.2).


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