Weekly Market Watch

Released 28 December 2016 - Weekly Newsletter

Last week recap

Showed little change in a quiet week leading up to the year-end holidays, with both economies reporting mixed economic data. The rate began the week on a soft note, declining despite the German Ifo Business Climate survey, which showed a reading of 111.0 compared to an expectation of 110.7. Also on Monday, when speaking about the state of the job market at the University of Baltimore, Fed Chair Janet Yellen stated that the United States was seeing “the strongest job market in a decade” and that, “there are also indications that wage growth is picking up”. Nevertheless, she also said that, “Challenges do remain; the economy is growing more slowly than in past recoveries, and productivity growth, which is a major influence on wages, has been disappointing.” The pair then made its weekly low of 1.0351 on Tuesday in the absence of any significant economic news or releases out of either economy. On Wednesday, the rate gained ground despite favourable U.S. Existing Home Sales data, which showed an annualized +5.61M and beat the market’s expectation of +5.52M. The pair extended its gains on Thursday, making its weekly high of 1.0499 despite U.S. Final GDP, which showed a better than expected increase of +3.5% q/q versus the +3.3% consensus. Also out were U.S. Core Durable Goods Orders, which increased by +0.5% m/m that was more than double the expected +0.2% number, and Durable Goods Orders, which declined by -4.6% m/m versus an expected decline of -4.9%. The rate continued fractionally higher on Friday despite U.S. New Home Sales, which increased to an annualized +592K compared to an expected +575K. EUR/USD closed at 1.0452, showing a gain of just three pips and ending up virtually unchanged for the week.
Reversed direction, losing ground last week as the BOJ left its negative Policy Rate unchanged, while the United States reported mixed economic numbers. The week began with the pair making its weekly low of 116.54 on Monday after comments from Fed Chair Janet Yellen. The rate then declined on Tuesday after the BOJ left its Policy Rate at a negative -0.10% and stimulus measures unchanged. The central bank’s Rate Statement noted that, “The Bank will continue with ‘Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control,’ aiming to achieve the price stability target of 2 percent, as long as it is necessary for maintaining that target in a stable manner. It will continue expanding the monetary base until the year-on-year rate of increase in the observed CPI (all items less fresh food) exceeds 2 percent and stays above the target in a stable manner.” After the rate release, Governor Kuroda stated at the press conference that, “Our yield curve control policy is going well. We are undertaking the policy to create the right yield curve [for inflation to reach 2%]. I am not going to say that higher yields in conjunction with higher overseas yields are good, nor are we going to raise our target for [long-term] rates.” The pair gained ground on Wednesday after a favourable U.S. Existing Home Sales release. On Thursday, the rate consolidated at a slightly lower level despite better than anticipated U.S. Final GDP and Durable Goods Orders data. Friday saw the pair lose ground despite a better than expected U.S. New Home Sales number. USD/JPY closed at 117.30, with an overall decline of -0.6% for the week. On December 26th, in a speech entitled, “A New Phase of the Global Economy and Challenges Facing Japan’s Economy”, Governor Kuroda noted that, “2016 has been a tough year, both for businesses and the Bank. Fortunately, the headwind is turning into a tailwind. I am convinced that the coming new year will be one in which Japan's economy will take a big step forward toward overcoming deflation.”
Extended its slide for the third consecutive week as asset flows favoured the Greenback over Sterling with mixed economic numbers from both countries. Cable began the week on a soft note, with the rate losing ground on Monday after making its weekly high of 1.2501 after comments from Fed Chair Janet Yellen. The pair extended its losses on Tuesday in the absence of any significant economic data out of either country. On Wednesday, Cable consolidated at a slightly lower level after UK Public Sector Net Borrowing increased to +12.2B compared to an expectation of +11.5B. The rate continued selling off on Thursday after better than anticipated U.S. Final GDP and Durable Goods Orders numbers. Cable then made its weekly low of 1.2227 on Friday despite UK Final GDP, which increased by +0.6% q/q versus an expected increase of +0.5%, and the UK Current Account, which showed a deficit of -25.5B compared to an expected deficit of -28.3B, with the previous number significantly revised down from -28.7B to -22.1B. GBP/USD closed at 1.2290, with a loss of -1.7% from its previous weekly close.
Extended its previous week’s losses last week as the RBA’s Monetary Policy Meeting Minutes showed the central bank’s concern for increased household debt in Australia, and with mixed economic numbers out of the both countries. The week began with the pair selling off on Monday after the Australian Treasury released its Mid-Year Economic and Fiscal Outlook, which prompted S&P to maintain Australia’s AAA credit rating with a negative outlook. S&P noted that it remained, “pessimistic about the governments ability to close existing budget deficits and return a balanced budget by the year ending June 30, 2021.” Nevertheless, Fitch and Moody’s maintained the country’s AAA rating with a stable outlook. The pair then gained a fraction on Tuesday after the RBA released its Monetary Policy Meeting Minutes for its latest meeting on December 6th. The minutes expressed concern over high levels of household debt created as a consequence of lower interest rates. The minutes noted that, “over recent years, the board had sought to balance the benefits of lower interest rates in supporting growth and achieving the inflation target with the potential risks to household balance sheets. Members recognized that this balance would need to be kept under review.” The rate resumed its downtrend on Wednesday after a better than expected U.S. Existing Home Sales number. On Thursday, the pair continued selling off after better than expected U.S. Final GDP and Durable Goods Orders releases. The pair then made its weekly low of 0.7159 on Friday after a favourable U.S. New Home Sales number. AUD/USD closed at 0.7177, with an overall weekly loss of -1.6%.
Extended its previous week’s gains last week as asset flows favoured the Greenback over the Loonie, with mixed economic data out of both countries. The rate began the week rallying after making its weekly low of 1.3316 on Monday after comments from Fed Chair Janet Yellen. The pair then lost a fraction on Tuesday after Canadian Wholesale Sales increased by +1.1%, significantly higher than the expectation of a +0.3% reading. On Wednesday, the pair resumed its rally after a positive U.S. Existing Home Sales number. The rate continued gaining on Thursday after Canadian CPI showed a decline of -0.4% m/m versus an expected decline of -0.1%, while Core CPI declined by -0.5% m/m versus an expected -0.1% decline. Also out were Canadian Core Retail Sales, which increased by +1.4% m/m versus an expected increase of +0.7%, and Retail Sales, which increased by +1.1% versus an expected increase of just +0.2%. The pair then made its weekly high of 1.3556 on Friday after Canadian GDP showed a decline of -0.3% m/m compared to an expected increase of +0.1%. USD/CAD went on to close at 1.3529, with an increase of +1.9% for the week.
Extended its previous week’s losses last week as both countries reported mixed economic numbers. The week began with the rate declining after making its weekly high of 0.6988 on Monday after the New Zealand ANZ Business Confidence survey came out with a reading of 21.7 compared to a previous print of 20.5. The pair extended its losses on Tuesday after the New Zealand GDT Price Index declined by -0.5% versus a previous reading of +3.5%. Also out on Tuesday was the New Zealand Trade Balance, which showed a disappointing deficit of -705M compared to an expected deficit of -500M, nevertheless, the previous release was upwardly revised from -846M to -815M. Wednesday saw the pair continue lower despite New Zealand GDP, which showed an increase of +1.1% q/q compared to an expected increase of +0.8%, and the New Zealand Current Account, which met expectations at -4.89B. On Thursday, the rate consolidated at a slightly higher level despite better than expected U.S. Final GDP and Durable Goods Orders data. The rate then made its weekly low of 0.6861 after better than expected U.S. New Home Sales data. NZD/USD closed at 0.6878, with an overall decline of -1.7% from its previous weekly close.

The week ahead

AUD The Australian economic calendar is quiet this coming week, featuring no notable data. Also, Sunday and Monday are Australian Bank Holidays. Resistance for AUD/USD is seen at 0.7614/0.7834, 0.7310/0.7557 and 0.7232/65, with support noted at 0.7096/0.7159, 0.6974/0.7015 and 0.6826/0.6909.

CAD The Canadian economic calendar is peaceful this coming week, featuring no notable data. Also, Monday and Tuesday are Bank Holidays in Canada. Resistance for USD/CAD is seen at 1.4689, 1.4001 and 1.3464/1.3638, while support shows at 1.3416, 1.3080/1.3312 and 1.2923/1.3005.

EUR The Eurozone economic calendar is rather quiet this coming week, only featuring the EZ M3 Money Supply (4.4%) on Thursday and Spanish Flash CPI (0.9%) on Friday. Monday will be a Bank Holiday in Germany and Italy. Resistance for EUR/USD is seen at 1.0657/1.0964, 1.0504/68 and 1.0461/99, with support showing at 1.0419, 1.0351/65 and 1.0206.

GBP The UK economic calendar is calm this coming week, featuring no noteworthy data. Also, Sunday and Monday are UK Bank Holidays. Resistance to the topside for GBP/USD shows at 1.2673/1.2864, 1.2511/56 and 1.2301/75, while support for the pair is expected at 1.2226/1.2271, 1.2081/1.2145 and 1.1991.

JPY The Japanese economic calendar is sparse this coming week, only featuring Household Spending (0.2%) and Tokyo Core CPI (-0.4%) on Monday. Resistance for USD/JPY currently shows up at 121.23, 120.47/83 and 118.05/65, with support indicated at 116.54/86, 115.96/116.07 and 113.79/114.82.

NZD The New Zealand economic calendar is peaceful this coming week, featuring no significant data releases. Also, Sunday and Monday are Bank Holidays in New Zealand. The chart for NZD/USD shows resistance at 0.7484, 0.7339/0.7420 and 0.6949/0.7238. On the downside, technical support is expected at 0.6806/96, 0.6786 and 0.6674.

USD The U.S. economic calendar is less active than usual this coming holiday week, featuring CB Consumer Confidence data on Tuesday. Monday is a U.S. Bank Holiday, so Tuesday starts the week’s highlights off with CB Consumer Confidence (108.9). Wednesday then offers Pending Home Sales (0.6%), while Thursday features Weekly Initial Jobless Claims (277K) and Crude Oil Inventories (last 2.3M). Friday’s important data then concludes the week with the Chicago PMI (56.5).


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