Weekly Market Watch

Released 14 June 2016 - Weekly Newsletter

Last week recap

Resumed its decline last week as asset flows favoured the Greenback over the Euro with very little economic data from either economy. The week began with the rate declining a fraction on Monday after German Factory Orders showed a decline of -2.0% m/m compared to an expectation of -0.4%. Also, Fed Chair Yellen said that, “Payroll gains were reported to have been much smaller in April and May than earlier in the year, averaging only about 80,000 per month. And while the unemployment rate was reported to have fallen further in May, that decline occurred not because more people had jobs but because fewer people reported that they were actively seeking work.” Yellen also stated that, “I see good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones” and that, “further gradual increases in the federal funds rate are likely to be appropriate.” The pair then consolidated at a slightly lower level on Tuesday after U.S. Revised Nonfarm Productivity declined -0.6% q/q, in line with expectations. On Wednesday, the rate gained after ECB governing council member Ardo Hansson said he was in favour of buying corporate bonds in the bank’s QE program and that recent increases in oil and commodity estimates could “foresee quite a large increase in inflation just on account of this increase in energy prices.” Wednesday’s economic data had U.S. Crude Oil Inventories decline -3.2M, as widely expected and JOLTS Job Openings, which showed +5.79M compared to 5.67M expected. The pair then made its weekly high of 1.1415 before declining sharply on Thursday after ECB President Draghi said in a speech that, “A too-slow return of output to potential is far from innocuous. On the contrary, it has lasting economic consequences, since it can ultimately lead to potential being eroded as well.” And that “The euro area faces a twin policy challenge: to get more firms in each sector to the productivity frontier and to get more labour and capital to those productive firms”. The rate extended its losses on Friday, making its weekly low of 1.1245 after the OECD in a report on the EZ’s economic outlook noted that, “the ECB could envisage additional rate cuts, notably the deposit rate as it is the most important policy rate in an environment of excess liquidity.” Friday’s eco-data had U.S. Preliminary University of Michigan Consumer Sentiment print at 94.3, in line with expectations. EUR/USD closed the week at 1.1249, with an overall loss of -1.0% from its previous weekly close.
Gained a fraction last week as both countries reported mixed economic data. The week began with the rate gaining on Monday after comments from Fed Chair Janet Yellen. The pair then declined a fraction after making its weekly high of 107.89 on Tuesday after the Japanese Current Account showed a contracting surplus of +1.63T versus +2.04T expected, while Japanese Final GDP increased +0.5% q/q as was widely anticipated. On Wednesday, the rate came under pressure after a better than expected U.S. employment number. The rate then gained a fraction after making its weekly low of 106.25 on Thursday after a better than expected U.S. Initial Jobless Claims data. The rate consolidated a slightly lower level on Friday as the United States reported consumer sentiment data which was in line with expectations. USD/JPY closed at 106.93, with an overall gain of +0.4% for the week.
Continued its slide, declining sharply last week as polls indicated the “leave” camp ahead of the “remain” voters in the upcoming Brexit referendum on June 23rd. The week began with Cable declining a fraction on Monday after comments from Fed Chair Janet Yellen. The rate then rallied sharply, making its weekly high of 1.4659 on Tuesday in what was described as an “erroneous trade” over a possible “remain” favoured poll. Also out on Tuesday was UK Halifax HPI, which increased +0.6% m/m, double the expected increase of +0.3%. On Wednesday, Cable resumed its selloff despite UK Manufacturing Production, which showed an increase of +2.3%, significantly higher than the expected 0.0% reading that was anticipated. The rate extended its losses on Thursday despite the UK Goods Trade Balance showing a deficit of -10.5B compared to an expected -11.1B, with the previous number upwardly revised from -11.2B to -10.6B. Friday saw Cable make its weekly low of 1.4178 after the results of the latest ORB poll for the Independent newspaper showed 55% of respondents in favour of leaving the EU, up +4 points from the previous poll in April, while 45% supported staying in the EU, a decline of -4 points since the last poll. GBP/USD went on to close at 1.4245, with an overall weekly decline of -1.8%.
Showed little change last week as the RBA left interest rates unchanged with very little economic data out of either country. The week began with the pair making its weekly low of 0.7314 on Monday after comments from Fed Chair Janet Yellen. Tuesday saw the rate gain ground after the RBA left the benchmark Cash Rate unchanged at 1.75% as was widely anticipated. In the central bank’s rate statement, the bank noted that, “Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia''s terms of trade remain much lower than they had been in recent years. In financial markets, conditions have generally been calmer for the past several months following the period of volatility early in the year.” The pair continued gaining on Wednesday despite a better than expected U.S. JOLTS employment number. On Thursday, the rate declined after making its weekly high of 0.7503 after a favourable U.S. Initial Jobless Claims number. The pair extended its loss on Friday bringing AUD/USD to close at 0.7373, with an overall gain of just 9 pips and virtually unchanged on the week.
Continued its slide, making it the third consecutive week the rate has declined. The decline in the rate was due in part to the price of oil, which went over the $50 handle briefly last week, while both countries reported mixed economic data. The week began with the pair making its weekly high of 1.2981 on Monday after Fed Chair Janet Yellen gave a speech inferring the Fed would eventually raise interest rates. The pair extended its losses on Tuesday despite Canadian Ivey PMI, which showed a reading of 49.4, significantly lower than the expected print of 54.2. The rate then made its weekly low of 1.2654 on Wednesday after crude oil hit $51.59 per barrel and despite Canadian Building Permits, which showed a decline of -0.3%, substantially lower than the expected increase of +1.6% that was expected. The pair then reversed direction, gaining ground on Thursday after Canadian NHPI increased +0.3% m/m as widely anticipated. Friday saw the rate continue gaining as the price of crude dropped below the $50 per barrel handle and despite Canadian Employment Change, which showed an increase of +13.8K, notably higher than the expectation of +3.1K, and the Canadian Unemployment Rate, which declined to 6.9% from 7.1%. USD/CAD closed at 1.2771, with a loss of -1.3% from its previous weekly close.
Extended its previous week’s gains last week as the RBNZ left interest rates unchanged with mixed economic numbers out of the United States. The week began with the rate declining on Monday as New Zealand observed a bank holiday and Fed Chair Yellen spoke at the World Affairs Council in Philadelphia. On Tuesday, the pair made its weekly low of 0.6952 before rallying after U.S. Revised Nonfarm Productivity came out in line with expectations. The rate then rallied sharply on Wednesday after the RBNZ left its benchmark Official Cash Rate at 2.25% as expected, nevertheless, the rate decision came with a less dovish statement than expected, while the Monetary Policy Statement noted that, “We expect inflation to strengthen reflecting the accommodative stance of monetary policy, increases in fuel and other commodity prices, an expected depreciation in the New Zealand dollar and some increase in capacity pressures. Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.” The rate continued rallying on Thursday, making its weekly high of 0.7145 after comments from RBNZ Governor Wheeler, who said that, “The exchange rate is higher than appropriate given New Zealand’s low export commodity prices. Together with weak overseas inflation, this is holding down tradables inflation. A lower New Zealand dollar would raise tradables inflation and assist the tradables sector.” The pair then sold off on Friday as traders squared positions, bringing NZD/USD to close at 0.7054, with an overall weekly gain of +1.5%.

The week ahead

AUD The Australian economic calendar is rather sparse this coming week, only featuring the NAB Business Confidence survey (last 5) on Tuesday, and the Employment Change (15.1K) and Unemployment Rate (5.70%) on Thursday. Also Sunday is an Australian Bank Holiday. Resistance for AUD/USD is seen at 0.7718/22, 0.7547/92 and 0.7401/0.7503, with support noted at 0.7343/68, 0.7241/0.7314 and 0.7108/85.

CAD The Canadian economic calendar is moderately active this coming week, featuring Manufacturing Sales (last -0.9%) on Wednesday; as speech by BOC Governor Poloz and Foreign Securities Purchases (last 17.17B) on Thursday and Core CPI (last 0.2%), CPI (last 0.3%) and a speech by Governor Council Member Wilkins on Friday. Resistance for USD/CAD is seen at 1.3217/95, 1.3145/87 and 1.2836/1.3016, while support shows at 1.2742/70, 1.2654/59 and 1.2592.

EUR The Eurozone economic calendar is quiet this coming week, only featuring Final CPI (-0.10%) and the Eurogroup Meetings on Thursday, and the ECOFIN Meetings and a speech by ECB President Draghi on Friday. Resistance for EUR/USD is seen at 1.1615, 1.1415/1.1533 and 1.1341/84, with support showing at 1.1213/1.1244, 1.1127/79 and 1.1043/86.

GBP The UK economic calendar is fairly active this coming week, featuring key jobs data on Wednesday. Monday offers nothing notable, so Tuesday starts the week’s highlights off with CPI (0.40%), PPI Input (0.90%) and the RPI (1.50%). Wednesday then offers the Average Earnings Index (1.70%), the Claimant Count Change (0.1K) and the Unemployment Rate (5.10%), while Thursday’s important data then concludes the week with Retail Sales (0.20%), the MPC’s Official Bank Rate Votes (0-0-9), the Monetary Policy Summary, the Official Bank Rate Decision (unchanged at 0.50%), the Asset Purchase Facility (unchanged at 375B) and the MPC’s Asset Purchase Facility Votes (0-0-9). Resistance to the topside for GBP/USD shows at 1.4637/69, 1.4529/1.4581 and 1.4467/78 and 1.4331/85, while support for the pair is expected at 1.4205/1.4298, 1.4148/78 and 1.4004/89.

JPY The Japanese economic calendar is peaceful this coming week, only featuring the BOJ Monetary Policy Statement and BOJ Press Conference on Thursday. Resistance for USD/JPY currently shows up at 110.58/111.88, 108.71/109.72 and 107.25/89, with support indicated at 106.22/36, 105.54 and 105.19.

NZD The New Zealand economic calendar is light this coming week, only featuring the Current Account (0.97B) on Tuesday and the GDT Price Index (last 3.4%) and GDP (0.50%) on Wednesday. The chart for NZD/USD shows resistance at 0.7230, 0.7145/86 and 0.7051/52. On the downside, technical support is expected at 0.6958/96, 0.6805/95 and 0.6666/0.6771.

USD The U.S. economic calendar is very busy this coming week, featuring the Federal Funds Rate Decision on Wednesday. Monday is quiet, so Tuesday starts the week’s highlights off with Core Retail Sales (0.40%), Retail Sales (0.40%) and Import Prices (0.80%). Wednesday’s key events then include PPI (0.30%), Core PPI (0.10%), Empire State Manufacturing Index (-4.9), Capacity Utilization Rate (75.20%), Industrial Production (-0.20%), Crude Oil Inventories (last -3.2M), the FOMC’s Economic Projections, the FOMC Statement, the Federal Funds Rate Decision (unchanged at <0.50%) and the FOMC Press Conference. Thursday offers CPI (0.30%), Core CPI (0.20%), Philly Fed Manufacturing Index (1.1), Weekly Initial Jobless Claims (267K) and the Current Account (-125B), while Friday’s important data then concludes the week with Building Permits (1.15M) and Housing Starts (1.15M).


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