Week in FX Americas – USD Recovers Ahead of EU Stress Tests and FOMC

• US Unemployment claims increase but job market resilient


• New home sales reach six year high


• Bank of Canada holds rates as expected

The USD continues to strengthen this week versus major pairs even though there was limited economic evidence as few indicators were released. The unemployment claims were higher than previous weeks coming in at 283,000, but not enough to continue talking about a sustained job market recovery. New home sales slowed down to 467,000 units annualized rated in September. This is still the highest reading since July 2008.

The EUR/USD started the week at 1.2758 and positive PMI in Germany and Europe overall boosted the pair above 1.28 only to start giving away those gains as the week bore on. Rumors on ECB corporate bond buys as well as bank stress test… stress deflated the EUR. Test results will be published on Sunday and on Wednesday the FOMC statement could push the pair further down towards 1.25 if the US third quarter GDP comes above expectations and there is further pressure on the ECB from lower inflation numbers in Europe.

Canadian Retail Sales, the primary gauge of consumer spending, looked weak in September, posting a decline of 0.3%. This marked a second straight decline and was the weakest showing since January. The markets had anticipated a gain of 0.1%. Retail Sales also came in at –0.3%, shy of the estimate of +0.1%. The markets then shifted their attention to the BOC, which maintained rates at 1.0%, as expected. However, the central bank did remove the word “neutral” from its statement, which was used in the September statement with regard to the BOC’s stance on a rate hike. This helped the loonie recover from sharp losses sustained after the soft Retail Sales Report.

Next Week For Americas:

This week will kick off on Sunday as the European Central Bank (ECB) will release the results from the Bank Stress Test results. Reports emerged today that as many as 25 banks will fail the tests. Earlier articles singled out 11 banks. The ECB has declined to comment until the actual test results are released.

The biggest event next week will be the US Fed’s Federal Open Market Committee (FOMC) interest rate decision on Wednesday. There are no rate change expectations, but there is a lot of anticipation as this will mark the final bond-buying cycle as the Fed positions itself to raise rates in 2015.

The final USD Gross Domestic Product figure will be reported on Thursday. The expectation is for a drop in the rate from the impressive Q2, but still a strong 3.0%. The trends that emerge after the FOMC will be validated or netted versus the US Economy’s GDP final number in the third quarter.

Later in the week inflation becomes a major trend to watch as the German Consumer Price Index, Japan’s National Consumer Price Index and the Euro-Zone Consumer Price Index Estimate are released in the final two days of the week.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

* USD Durable Goods Orders

* USD Consumer Confidence

* USD Federal Open Market Committee Rate Decision

* NZD Reserve Bank of New Zealand Rate Decision

* EUR German Unemployment Rate

* USD Gross Domestic Product

* EUR German Consumer Price Index

* JPY National Consumer Price Index

* EUR Euro-Zone Consumer Price Index Estimate

* CAD Gross Domestic Product

* CNY Manufacturing PMI

MarketPulse

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Week in FX Americas – US Retail Sales Tackles USD Rally

One of the expected drivers of a US Economic recovery are consumers. In a week that will live down in history based on the size of the correction the US retail sales came in at –0.3% not a disaster in itself, but under the expected –0.1%. Consumers are still cautious about their spending. It will be interesting to see how low gasoline prices and even the introduction of the iPhone 6 plays into next month’s figures.

The EUD/USD reversed the trend after the retail sales figures as it could mean a longer period of record low rates as it seemed the US economy could be losing steam. Global stock markets rebounded slightly after a dreadful week. There are signs of risk appetite creeping back into the market. The uncertainty created by negative economic data out of the US compounded with global growth forecast cuts earlier in the month drove the market into a tailspin. Aggravating factors such as the ebola health crisis, armed conflicts, political protests kept investors busy deciding their next steps. European markets show signs of life and the USD has rebounded as volatility subsides.

US jobless claims came in at a 14 year low with 264,000 filed for unemployment insurance last week. Industrial production in the US also outperformed expectations with a 1.0% gain in September. Both indicators calmed the nerves of the market that the US economic recovery was losing steam. The USD continues to rise versus major pairs but some analysts have begun pushing out the rate hike well into 2015 and some have even suggested it could start in 2016 given the global and domestic environments. Fed member speeches are divided clearly into the hawk and dove camps with the strength of the USD caught in the middle.

Next Week For Americas:

The drop in US retail sales along other geopolitical events trigged a wave of uncertainty across the globe. Stock markets and emerging market currencies were the biggest losers as the US economy was thought to be slowing down. The last two days of the week calmed investor’s nerves as earning reports were solid as well as housing and employment indicators out of the US.

Next week has two major trends: Central banks and PMIs. The Reserve Bank of Australia releases its minutes on Tuesday. The Bank of England will also release the minutes from its rate setting meeting two weeks ago on Wednesday . Given that the BOE’s chief economist has cooled expectations of a rate hike this year there will be little surprise in the minutes. The Bank of Canada will announce its benchmark rate. No change is expected given the mixed economic data and employment data confusion.

The flash manufacturing purchasing manager’s index PMI is a survey of manager to gauge their optimism regarding business conditions going forward. HSBC for China and Markit for the rest of the world are the firms that have compiled the early draft of the data and will release it starting with China and the schedule will move around the world given insights into the state of the global economy.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

* CNY Gross Domestic Product

* AUD Consumer Prices Index

* GBP BOE Minutes

* USD Consumer Price Index

* CAD Bank of Canada Rate Decision

* CNY Flash PMI

* EUR French, Spanish, German and European Flash PMIs

* USD US Flash PMI

* NZD Consumer Prices Index

* GBP Gross Domestic Product

MarketPulse

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Week in FX Americas – Fed Minutes Shows Appetite for Rate Patience

The EUR/USD started the week in a now familiar strong USD tune after a strong employment number the week before. The main event for the pair was the release of the minutes from the FOMC meeting two weeks ago. The actual minutes were more dovish than originally expected even after Chair Yellen’s press conference. A strong NFP fueled the expectation that the Fed would have seen the recovery coming. After the minutes the USD lost ground against all majors with the EUR/USD almost reaching 1.28.

The USD was able to regain some ground on the back of global growth forecasts cuts by the IMF and soft data out of Germany. The Canadian employment data provided the surprise of the week after crushing expectations of 20,000 new jobs with an actual 74,100 print. Sceptics will point out that Statistics Canada has reportedly erroneously in the past, and the Australian Bureau of Statistics the most recent example of expectation beating figures being way offside. For the moment CAD was boosted by the mostly full time job creation.

Global Growth

The International Monetary Fund, the World Bank and OECD have all cut growth forecasts for 2014 and 2015. Here divergence amongst recovering economies is clear. US and the UK lead the developed world with Europe and Japan stuck at a standstill. Emerging markets continue to struggle trapped between diminishing foreign direct investment that is going back to safe havens as major central banks make their move and geopolitical events unfold diminishing appetite for riskier investments.

Commodities

Stunted global economic growth has reduced the demand for all commodities. Base metals along with precious have lost as supply is way ahead of demand. Oil has been hit by slowdown of China and remains to be seen if the OPEC discounts trigger a price war, specially after the US has increased its productions due to technological advances. There is a lot of supply in the market and refineries are looking for cheaper crude.

Next Week For Americas:

North America and Japan have a short trading week with Monday being a bank holiday. China kick starts events with the release of their trade numbers on the weekend. Most of the week will be dominated by price reports from the U.K, China and Canada. By Tuesday, investors get to gage business and economic sentiment from Australia and Germany. On Wednesday, Draghi is due to deliver opening remarks at the 7th Statistics Conference in Frankfurt. Volatility is often experienced during his speeches as traders attempt to decipher interest rate clues. The US delivers key sales numbers, weekly claims and rounds off the week with consumer sentiment and Fed Chair Yellen speaking in Boston.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

* GBP Core Consumer Price Index

* EUR German ZEW Survey (Economic Sentiment)

* CNY Consumer Price Index

* USD Advance Retail Sales

* CAD Bank Canada Consumer Price Index Core

* USD U. of Michigan Confidence

MarketPulse

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Week in FX Americas – Battle of the Hawks vs Doves at Fed

• Fed’s Dudley favors patience until labor and inflation pick up


• Fed’s Kocherlakota cautions hiking rates too early


• Fed’s Fisher says sooner rather than later. Spring 2015

One week after the FOMC that saw the end of bond-buying in the immediate horizon several Federal Reserve members had speeches where they expressed their personal opinion on the US economy. The main topic was of course rates. When will the US raise rates and by how much. All members agreed that there needs to be validation from economic fundamentals in particular employment and inflation before starting the rate hike cycle.

The hawk and dove camp both agreed on that, but their views diverged when asked about timing as some don’t see the recovery as sustainable and argued for patience, while others were pushing for a sooner rate hike. Forecasts published last week by the Fed are pointing to a later start of rate hikes, but at a faster pace after the initial benchmark raise is done.

The USD continues to gain versus major currencies. The momentum of the US economic recovery and the big question marks surrounding Japan and Europe have made the USD recover across the board. The EUR/USD has lost 3.43% in September due the to the challenges faced by the ECB in order to beat deflation. Japan reaped the benefits of QE last year but has struggled with a follow-up as reforms and corporate investment continue to lag. Next week is heavy on the European data front alongside a rate decision by the ECB and the mother of all indicators the US Non-Farm Payrolls on Friday.

Next Week For Americas:

The ECB is set to take the stage next week. German numbers continue to be solid when compared to the rest of Europe. The fact is that Germany is not immune economic woes and the sentiment polls have shown there is lack of confidence from business and consumers alike. Mario Draghi and company have the difficult task of convincing the market with words as there will be little change in actual actions.

Friday’s Non-farm payrolls in the US will help or hurt the case of a faster rate hike. Federal Reserve members have spent all week contradicting their forecasts in the media, which has left a lot of uncertainty on the timeline on when the Fed will hike rates. Currently the majority of analyst are envisioning a Q2 rate hike at the earliest. A good employment number might bring that a little close to the present.

Fore more market moving events visit the MarketPulse Economic Calendar

WEEK AHEAD

* EUR German Consumer Price Index

* EUR German Unemployment Change

* EUR Euro-Zone Consumer Price Index Estimate

* CAD Gross Domestic Product

* USD Consumer Confidence

* CNY Manufacturing PMI

* USD ISM Manufacturing

* EUR European Central Bank Rate Decision

* USD Change in Non-farm Payrolls

* USD ISM Non-Manufacturing Composite

MarketPulse

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Week in FX Americas – Is Fed rhetoric about to change?

• Fed shifts interest rate projections


• Fed policy not to follow a “prescribed path”


• Japanese importers supports USD/JPY

This week the Fed retained its guidance that short-term interest rates will remain near zero for a “considerable time” after the bond buying program ends. Currently, the market now expects the remaining $ 15b’s worth of QE to end next month. However, at the same time the Fed have shifted their interest rate projections significantly for both 2015 and 2016. The initial take by many was that the timing of a rate hike had been brought forward. The market’s reaction was again to be long the dollar in response to the overnight guidance. But, has the market overreacted?

In the post FOMC press conference, Ms. Yellen seemed to go out of her way to reinforce that Fed policy would not follow a “prescribed path.” It was not a surprise to hear that future moves would be data dependent and would not follow a preset timeline. The market will have to wait on the Fed to dive much deeper into US data to assess how the US economy and labor markets are really holding up and this requires time.

Fed’s weaker wording

The Fed has been consistent in its harping on about the slack in the labor markets, mainly focusing on the high number of involuntary part-timers. The probability that the Fed will stick to the same script next month is very high. Assuming taper is completed in October, investors should expect the Fed to remove the phrase “after the asset purchase program ends.” What the market will be focusing on will be the language to be used in December. Should we expect the Fed to change “considerable time” and replace it with something weaker?

In yen terms, appetite for the dollar remains strong, hitting a multi-year high Friday morning ¥109.38. Mostly Japanese importers and hedge funds have being supporting the dollar after missing the initial dollar rally. Investors who have been long dollars for some time are expected to lighten a percentage of their positions ahead of the ¥110 level, while hoping for a decent pull back to reestablish fresh ‘long’ dollars again at better levels. Be forewarned, this time around the dollar’s upward momentum seems much stronger than the USD/JPY rally last year. It’s been supported by the dollar’s strength across the board.

What to expect next week

Whatever happens, the market will miss the Scots. Their national sovereignty debate on its own brought back some much needed volume and volatility to the forex space. In a matter of 10 days, the pound has been trading robustly within the £1.6052-£1.6645 range.

European Central Bank President Mario Draghi kick starts the week on Monday testifying on monetary policy before the European Parliament’s Economic and Monetary Committee in Brussels. Flash manufacturing comes to us from China, France, and Germany, and by midweek, Germany will also release its latest Ifo business climate results.

Meanwhile Down Under, traders will be listening to Reserve Bank of Australia Governor Glenn Stevens speak at the Melbourne Economic Forum. Investors with long AUD carry-trade positions will want to know what he has to say as he has a penchant for talking the AUD down to low levels.

The week will end with U.S. durable goods orders and weekly jobless claims on Thursday.

WEEK AHEAD

* EUR ECB President Draghi’s Speech

* CNY China Flash PMI

* EUR French Flash PMI

* EUR German Flash PMI

* EUR German Ifo Business Climate

* AUD RBA Governor Speaks

* USD US Durable Goods Orders (Aug)

* USD US Gross Domestic Product Annualized

MarketPulse

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