Weekly Market Watch

Released 20 March 2017 - Weekly Newsletter

Last week recap

Continued its rally last week as the FOMC raised interest rates, but did not revise its projected interest rate path, while both countries reported mixed economic data. The week began with the rate losing ground on Monday as the market prepared for elections in the Netherlands and after a speech by ECB President Draghi, in which he stated that, “Simply by diffusing better the technology we already have in the euro area, we could make sizeable gains in productivity. In other words, there is much we can still do to reverse the aggregate productivity slowdown and dispel pessimism about our future.” The pair then made its weekly low of 1.0599 on Tuesday after German ZEW Economic Sentiment printed at 12.8, disappointing the market that expected a reading of 13.2. Also pressuring the rate was U.S. PPI, which increased +0.3% mm versus an expected +0.1%, while Core PPI increased by +0.3% compared to an expectation of +0.2%. On Wednesday, the rate gained sharply after the FOMC raised its benchmark Fed Funds rate by 25 bps to 1.0% from 0.75% as was widely anticipated. The lack of a revision to its rate path, which is projected to be 1.4% by the end of 2017 and 2.1% for 2018, was the same as the projection in December, which weighed heavily on the Greenback. There was one dissenting vote, by FOMC Member Neel Kashkari, who voted to leave the rate unchanged. He stated that, he would prefer to see a plan for the balance sheet before raising rates and that a shrinking balance sheet would, “trigger somewhat tighter monetary conditions.” Kashkari continued, "after it has been published and the market response is understood, we can return to using the federal funds rate as our primary policy tool, with the balance sheet normalization under way in the background.” Wednesday’s economic numbers had U.S. CPI increase by +0.1% m/m versus an expected flat reading, while Core CPI increased by +0.2%, in line with expectations. Also out were U.S. Retail Sales, which increased by +0.1% m/m versus +0.2% expected, while Core Retail Sales increased +0.2% versus an expected reading of +0.1%. The rate extended its gains on Thursday after EZ Final CPI increased by +0.2% y/y, in line with expectations. Also, U.S. Building Permits showed an annualized +1.21M compared to an expected +1.26M, and the Philly Fed Manufacturing Index printed at 32.8 compared to an expectation of 30.2. The pair then made its weekly high of 1.0782 on Friday before selling off on position squaring, and the U.S. Preliminary University of Michigan Consumer Sentiment, which printed at 97.6, as widely anticipated. EUR/USD closed the week at 1.0727, with an overall gain of +1.5% from its previous weekly close.
Reversed direction, losing ground last week as the BOJ left its Policy Rate unchanged and the FOMC raised interest rates by 25 bps. The week began with the rate gaining a fraction on Monday in the absences of any significant data out of either country. The pair then made its weekly high of 115.14 on Tuesday after better than expected U.S. PPI data. On Wednesday, the rate fell sharply after the BOJ left its Policy Rate at -0.10% and the FOMC raised rates by 25 bps both as was widely anticipated. The central bank’s Monetary Policy Statement noted that, “With regard to the outlook, Japan's economy is likely to turn to a moderate expansion. Domestic demand is likely to follow an uptrend, with a virtuous cycle from income to spending being maintained in both the corporate and household sectors, on the back of highly accommodative financial conditions and fiscal spending through the governments large-scale stimulus measures.” The pair continued fractionally lower on Thursday after mixed U.S. economic data. The rate then made its weekly low of 112.55 on Friday as U.S. numbers continued mixed. USD/JPY closed at 112.65, with an overall loss of -1.7% for the week.
Reversed direction, gaining ground last week as the BOE kept the Bank Rate unchanged with one dissenting vote, while the FOMC hiked rates by 25 bps, but left the rate path unchanged. The week began with Cable gaining on Monday after Parliament passed the bill allowing PM May to trigger Article 50 for Brexit negotiations. The rate then fell sharply on Tuesday, making its weekly low of 1.2108 after news that Scotland would be looking to hold another independence referendum after Brexit. Cable then shot up on Wednesday after Claimant Count Change showed a decrease of -11.3K compared to an expected increase of +3.2K, while the UK Unemployment Rate hit a four decade low of 4.7% versus an expected 4.8%. Nevertheless, the Average Earnings Index increased +2.2% 3m/y compared to an expected +2.4%. The pair continued higher on Thursday after the BOE left the Official Bank Rate unchanged at 0.25% and the Asset Purchase Facility at 435B. Kristin Forbes was the one dissenting vote on the Bank Rate, voting for an increase. The Minutes of the Meeting said that, “some members noted that it would take relatively little further upside news on the prospects of activity or inflation for them to consider that a more immediate reduction in policy support might be warranted.” Cable then made its weekly high of 1.2404 on Friday as the United States reported mixed economic numbers. GBP/USD went on to close at 1.2323, with an overall gain of +1.3% from its previous weekly close.
Reversed direction, gaining ground last week as the U.S. Fed raised interest rates and despite lower than expected employment numbers out of Australia. The rate began the week gaining after making its weekly low of 0.7579 on Monday in the absence of any significant data out of either country. The pair then lost a fraction on Tuesday as the United States reported better than expected PPI data. On Wednesday, the rate gained sharply, making its weekly high of 0.7718 after the FOMC raised the Fed Funds Rate to 1.0% from 0.75%. The rate then lost ground on Thursday after Australia reported Employment Change declined by -6.4K versus an expected increase of +16.3K, while the Australian Unemployment Rate increased to 5.9% from 5.7%. The pair resumed its rally on Friday as the United States reported mixed economic numbers. AUD/USD closed the week at 0.7703, with an overall gain of +2.7% for the week.
Reversed direction, trading lower last week as the Greenback was pressured by a dovish FOMC rate hike and with very little significant economic data out of Canada. The rate began the week trading fractionally lower on Monday in the absence of any significant data out of either country. The pair then made its weekly high of 1.3494 on Tuesday after better than expected U.S. PPI data. On Wednesday, the rate fell sharply after the FOMC raised the Fed Funds Rate by 25 bps but failed to adjust the path of rate hikes for 2017 and 2018. The pair then made its weekly low of 1.3276 on Thursday despite Canadian Foreign Securities Purchases, which showed +6.2B compared to an expectation of +9.45B. Friday saw the rate gain another fraction after Canadian Manufacturing Sales increased by +0.6% m/m versus a previous release of +2.1%. USD/CAD went on to close the week at 1.3344, with a loss of -0.9% from its previous weekly close.
Gained ground last week as the Greenback was pressured by a dovish FOMC interest rate hike and with very little significant data out of New Zealand. The rate began the week losing a fraction on Monday in the absence of any significant data out of either country. The pair then made its weekly low of 0.6893 on Tuesday before consolidating after better than expected U.S. PPI data. On Wednesday, the rate made its weekly high of 0.7048 after the FOMC hiked the Fed Funds Rate to 1.0% from 0.75% and despite New Zealand GDP, which increased by +0.4% q/q versus +0.7% expected. Thursday saw the pair decline after mixed U.S. economic data. The rate then resumed its rally on Friday, which brought NZD/USD to close at 0.6975, with an overall gain of +0.8% for the week.

The week ahead

AUD The Australian economic calendar is light this coming week, only featuring the Monetary Policy Meeting Minutes and the HPI (2.40%) on Tuesday; followed on Wednesday with a speech by RBA Assistant Governor Debelle. Resistance for AUD/USD is seen at 0.7834, 0.7740/77 and 0.7717/18, with support noted at 0.7591/0.7662, 0.7490/0.7556 and 0.7222/0.7310.

CAD The Canadian economic calendar is rather active this coming week, featuring CPI data on Friday. Monday starts the week’s highlights off with Wholesale Sales (0.30%), and Tuesday’s key events include Core Retail Sales (last -0.30%) and Retail Sales (last -0.50%). Wednesday then offers a speech by Governing Council Member Schembri and the Annual Budget Release, while Thursday features nothing notable. Friday’s important data then concludes the week with CPI (last 0.90%), Common CPI (last 1.30%), Median CPI (last 1.90%) and Trimmed CPI (last 1.70%). Resistance for USD/CAD is seen at 1.3534/63, 1.3420/95 and 1.3377/86, while support shows at 1.3275/1.3312, 1.3209/11 and 1.3125/77.

EUR The Eurozone economic calendar is not very busy this coming week, only featuring a speech by German Buba President Weidmann on Monday; the ECB’s Long Term Refinancing Operation (last 62.2B) on Thursday; and French Flash Manufacturing PMI (52.4), French Flash Services PMI (56.2), German Flash Manufacturing PMI (56.6), German Flash Services PMI (54.5), EZ Flash Manufacturing PMI (55.3) and EZ Flash Services PMI (55.4) on Friday. Resistance for EUR/USD is seen at 1.1139 and 1.0774/1.0964, with support showing at 1.0698/1.0718, 1.0617/39 and 1.0339/1.0520.

GBP The UK economic calendar is rather sparse this coming week, only featuring a speech by MPC Member Haldane on Monday; CPI (2.10%), PPI Input (0.20%), Public Sector Net Borrowing (2.9B) and the RPI (2.90%) on Tuesday; and a speech by MPC Member Broadbent and Retail Sales (0.40%) on Thursday. Resistance to the topside for GBP/USD shows at 1.2672/1.2705, 1.2451/1.2581 and 1.2346/1.2411, while support for the pair is expected at 1.2213, 1.2081/1.2199 and 1.1985/1.2037.

JPY The Japanese economic calendar is peaceful this coming week, featuring no notable data releases. Also, Monday is a Japanese Bank Holiday. Resistance for USD/JPY currently shows up at 116.86, 114.74/116.07 and 112.61/113.79, with support indicated at 112.55, 111.92/112.04 and 111.35/68.

NZD The New Zealand economic calendar is fairly quiet this coming week, only featuring the GDT Price Index (last -6.30%) on Tuesday; the Official Cash Rate Decision (unchanged at 1.75%) and the RBNZ Rate Statement on Wednesday; and the Trade Balance (160M) on Thursday. The chart for NZD/USD shows resistance at 0.7236/46, 0.7116/72 and 0.7040/48. On the downside, technical support is expected at 0.6948/96, 0.6861/96 and 0.6707/38.

USD The U.S. economic calendar is moderately active this coming week, featuring a speech by President Trump on Monday. Monday starts the week’s highlights off with speeches by FOMC Member Evans and President Trump, and Tuesday’s key events include a speech by FOMC Member Dudley and the Current Account (-129B). Wednesday then offers Existing Home Sales (5.59M) and Crude Oil Inventories (last -0.2M), while Thursday features Weekly Initial Jobless Claims (240K), a speech by Fed Chair Yellen, New Home Sales (566K), and speeches by FOMC Members Kashkari and Kaplan. Friday’s important data then concludes the week with a speech by FOMC Member Evans, Core Durable Goods Orders (0.50%) and Durable Goods Orders (1.10%).


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