October 30, 2016

30- Oct2016
Posted By: adminwmk

Forex Weekly Outlook Oct 31- Nov 4

The US dollar struggled to maintain its momentum as political issues took over and despite good growth figures. Rate decisions in Australia, Japan, the US and the UK, GDP data from Canada, Employment data from New Zealand Canada and the US Non-Farm Payrolls form a very busy week. These are the major events on our calendar. Join us as we explore the highlights of this week.

U.S. initial growth figures for the third quarter showed the best increase in two years, posting a 2.9% expansion rate. Growth was sluggish in the first half of the year, averaging just above 1%, indicating the US economy is back on track. Solid growth numbers will enable the Federal Reserve to raise interest rates at the end of this year. The dollar could hold on to the gains as a new email scandal embattled Hillary Clinton. Elsewhere, worries of a hard Brexit beat positive growth figures in the UK and the euro managed to recover also thanks to an upbeat German survey. Let’s start,

  1. Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia kept the official cash rate at 1.5% in its October meeting despite Aussie volatility and sluggish mining transition. The decision to leave the rate unchanged was in line with market forecast. However, analysts expect an additional rate cut this year. Policy officials were more optimistic regarding the prospects of GDP growth expecting a boost in employment during the next 12 months. Recent inflation data has been solid.
  2. Japan rate decision: Tuesday. Japan’s central bank kept maintained rates at its September meeting, but introduced fresh changes to its policy approach, in an attempt to boost prices and boat economic growth. The Bank of Japan said it would focus on yield-curve control and would buy 10-year Japan government bonds so that the yield would hover around zero percent while restraining short-term rates. Furthermore the central Bank also abandoned its monetary base figures saying it will expand the monetary base until the inflation target is met.
  3. Canadian GDP: Tuesday, 12:30. The Canadian economy expanded more than expected in July, growing by 0.5% amid a rebound in oil and gas output. Economists expected a weaker growth rate of 0.3% for the month. Activity in the mining, oil and gas extraction rose 3.9% from June, including a 19% increase in non-conventional oil extraction and the manufacturing sector also gained 0.3%. The overall picture showed a broad-based expansion of economic activity. Economists expect a 0.2% growth in August.
  4. US ISM Manufacturing PMI: Tuesday, 14:00. The US manufacturing sector rebounded in September, crossing the 50 point line to 51.5 from 49.4 in August, indicating expansion. Analysts expected a more modest rise to 50.4. The employment index remained in contraction despite the improvement from August. Meanwhile the new orders and production also gained momentum with their gauges rising above the critical 50 level. Analysts expect the growth trend to continue suggesting that the August drops were likely a blip. Manufacturing activity is expected to reach 51.8.
  5. NZ Employment data: Tuesday, 21:45. New Zealand’s labor market continued to strengthen in the second quarter rising 2.4% to reach 2.5 million people, following a 1.2% rise in the first quarter. The reading reflects a stronger employment market. The labor force continued to increase amid strong immigration, as well as a positive trend in participation by women and older workers. Meanwhile the unemployment rate has declined to 5.1% from a revised 5.2% in the first quarter. Economists expect the unemployment rate to average 5.4% in 2016, which is down 0.2 percentage points from last month’s forecast, while the unemployment rate for 2017 is expected to average 5.3%. NZ is expected to increase its labor force by 0.6% in the second quarter and maintain its unemployment at 5.1%.
  6. US ADP Non-Farm Employment Change: Wednesday, 12:15. U.S. private sector added 154,000 jobs in September, missing estimates for a 166,000 gain. In the prior month the reading was revised down to 175,000 from the 177,000 previously reported. The unemployment rate was expected to remain at 4.9%. Analysts expect ADP report to show a 166,000 jobs gain in October.
  7. US Crude Oil Inventories: Wednesday, 14:30. US Crude stocks declined by 600,000 barrels last week, following a 4.9 million barrel rise in the previous week. Analysts expected a rise of 700,000 for the week. The rise in crude prices following the “agreement” among OPEC members to limit production has ended. Crude prices edged up at $51.60 just over two weeks but sunk again struggled to maintain the $50 a barrel level ever since.
  8. FOMC rate decision: Wednesday, 18:00.  Federal Reserve policymakers kept rates unchanged in September despite expressing confidence in US economic growth. The members lowered their expectations for rate hikes in the coming years but said it is likely to be announced before the end of 2016. The Fed said it awaits further evidence of continued progress toward its objectives. The committee reduced its expectations for economic growth and inflation this year despite the solid state to the labor market. Global developments continued to trouble the Fed members, particularly the Brexit vote and a slowdown in China.
  9. UK Rate decision: Thursday, 12:00. The Bank of England left its interest rate at 0.25% leaving the door open for another cut in the coming months. The central bank cut its rate from 0.5% to 0.25% to ensure the stability of the UK’s banking system in the aftermath of the June Brexit referendum vote. However, policy officials said a further cut is possible in the following months. Economic forecasts in November remained unchanged from August. The Bank noted that many economic indicators have suggested that the UK economy has overcome the post-referendum aftermaths, therefore the Bank is not as worried about the short-term state of the economy.
  10. US Unemployment Claims: Thursday, 12:30. The number of Americans who filed new claims for unemployment aid fell by 3,000 claims to 258,000. Economists expected a reading of 261,000. The four-week moving average was 253,000, up 1,000 from the previous week. Continuing jobless claims fell to 2.039 million from 2.054 million in the preceding week.
  11. US ISM Non-Manufacturing PMI: Thursday, 14:00. Service-sector activity edged up to the highest level in nearly a year in September, rising to 57.1 from 51.4 in August, a sign of steady growth for a major sector of the economy. Economists expected a September reading of 53.1. The better than expected figures may help reduce concerns the economy is slowing from last year’s moderate growth. Service-sector activity is expected to remain in expansion reaching 56.2.
  12. Canadian employment data: Friday, 12:30. The Canadian economy added 67,000 jobs in September exceeding expectations for meager employment growth. However the majority of gains were related to part-time work and self-employment. The unemployment rate remained steady at 7%. This was the biggest employment gain in four years and marked the second consecutive month of robust job creation. Part-time employment increased by 44,000 positions while full-time work rose by 23,000 jobs. Self-employment made up of both part-time and full-time employment – soared by 50,000 new jobs. Economists expect a contraction of 10,000 jobs in October and the unemployment rate at 7%.
  13. US Non-Farm Payrolls: Friday, 12:30. US job creation increased less than expected in September as Non farm payrolls increased 156,000 and the unemployment rate inched up to 5%. Economists expected a 171,000 jobs gain and the jobless rate of 4.9%. However economists say the reading is within the broad range of expectations showing a slow and steady growth. Average hourly wages increased by 6 cents to an annualized rate of 2.6%. The average work week also inched up one-tenth to 34.4 hours. The report comes at a critical time for the Federal Reserve as the central bank is looking more confidently toward an interest-rate increase. US employment market is expected to gain 175,000 and predict the unemployment rate would decline to 4.9%.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

30- Oct2016
Posted By: adminwmk

8 Reasons to be Trading Forex Next Week

You should be trading currencies next week because excluding the U.S. Presidential election on November 8th, the next 5 days are jam packed with major event risks.  With 4 monetary policy announcements (from US, Japan, Australia and UK), 4 employment reports (US, Canada, Germany and New Zealand), PMIs and countless other key releases on the calendar, these will be some of the busiest days for FX traders in the month of November. Big moves are assured and we could even see new multi-month / year highs or lows set in the process. GBP/USD is not far from its 30 year low, USD/JPY could hit a new 3 month high, while USD/CAD and USD/CHF could reach fresh 7 or 8 month highs.  This coming week’s central bank rate decisions in November are not as important as the ones in December because no changes in monetary policy is expected but investors will be listening closely for their tone / bias and guidance as they will set expectations for next month’s potential moves. While it may be hard to whittle down to the most important releases (because there are so many of them), the primary events will be the Federal Reserve meeting, the Bank of England’s Quarterly Inflation Report and U.S. non-farm payrolls.

Barring the unexpected news that the FBI has re-opened its investigation into Hillary Clinton’s emails, this past week has been a great one for the U.S. dollar with Friday’s stronger than expected third quarter GDP report adding fuel to the market’s optimism.  We doubt that this investigation will have any impact on the election a week and half from now but political headlines can add to the volatility expected this coming week. The dollar ended the week higher against most of the major currencies.  USD/JPY broke above 105, USD/CAD breached 1.34 and GBP/USD came close to breaking the 1.2100 handle.  It is almost hard to believe that USD/JPY was trading near 100 a month ago but thanks to the Federal Reserve’s persistent commitment to raising interest rates this year even in the face of softening labor and spending data, U.S. yields and the U.S. dollar rose strongly over the past month.  Data in the past week was mostly better with growth accelerating, manufacturing activity improving, new home sales rising, and the trade deficit narrowing but a slow recovery in the labor market and upcoming election is making consumers nervous.  The Federal Reserve isn’t going to change its message next week so the ISM non-manufacturing and non-farm payrolls report will be more important as they will either ease or harden the market’s doubt about December tightening.  Fed fund futures are pricing in a nearly 75% chance of a rate hike at the end of the year but if less than 175K jobs were created in October, putting the average near 165K, those expectations will fade as it will cast doubt on the central bank’s rosy outlook.  With that in mind, since we are anticipating hawkishness from the Fed and the FOMC meeting is 2 days before NFP, we expect the dollar to trade strongly in the front of the week. The Bank of Japan also has a monetary policy meeting and while no changes are expected, weak growth necessitates more easing and investors are eager to find out if they will act in December or surprise with a November move.

Sterling took a beating this past week and the prospect of further losses hinges on the Bank of England. In many ways next week is more important for the British pound than the U.S. dollar because the latest UK PMIs and Quarterly Inflation Report will be released.  Immediately after Brexit, the PMIs plunged, then it recovered in the months that followed and now there is some fear that we will begin to see weakness again. Most of this past week’s economic reports like consumer prices, employment and GDP surprised to the upside but retail sales was weak. Yet sterling came under heavy selling pressure on growing Brexit fears. The headline on Friday that Northern Ireland would not challenge Brexit caused a flurry of activity but is not particularly surprising. The big question next week is whether the BoE will lower its economic forecasts and signal plans to ease.  When Governor Mark Carney spoke this past week, he drove sterling higher when he said there were limits to monetary policy. GBP is at risk of a short squeeze so if the Quarterly Report echoes this sentiment by emphasizing the improvements in the economy and downplaying Brexit, we could see a sharp rise in the currency.  We don’t think that is likely because Carney has been very vocal about the risks of Brexit.  Both the manufacturing and services PMI will be released before the Quarterly report and they will help set expectations for the more important release.

Compared to other major currencies, the data impacting the euro next week is less significant which means the path of the currency will most likely be determined by the market’s appetite for U.S. dollars.  Having fallen to a 7 month low this past week, EUR/USD appears to have bottomed.  We could see 1.10 but further gains should be limited as we expect dollar bulls to remain in control at the start of the week.  On Friday, we learned that consumer prices in Germany grew at its fastest pace in 2 years, which is a function of the weaker euro and higher energy prices. This adds to the string of positive surprises that we seen all week from the Eurozone. Monday’s third quarter Eurozone GDP report and Wednesday’s German labor data are the key numbers to watch.  Job creation was the strongest in 5 years according to the PMIs and another healthy release could keep the currency supported into FOMC.  Like sterling, short positions are near extreme levels, which makes the currency vulnerable to a squeeze in the coming days / weeks.

Of the 3 commodity currencies the weakest one this past week was the Canadian dollar.  Oil prices peaked and data surprised to the downside with retail sales falling and consumer price growth missing expectations.  The Bank of Canada left interest rates unchanged but cut their growth and inflation forecasts, adding pressure on the currency. While August GDP, Canadian employment and the IVEY PMI reports are scheduled for release this week they will take a back seat to all other major global releases.   The Australian dollar on the other hand is likely to march to its own beat with a Reserve Bank of Australia meeting, Australian PMIs and retail sales on the calendar.  After last week’s stronger CPI report, we believe that the RBA’s neutral monetary policy bias will lend support to the currency. While AUD/USD may be pressured by positive USD flows, the Australian dollar could see stronger gains versus the euro, Swiss Franc, Yen and sterling.  AUD has shrugged off rising iron ore and gold prices but we believe these rallies will return as drivers for the currency in the coming week.  Meanwhile Chinese PMIs will affect both AUD and NZD.  The New Zealand dollar has been surprisingly resilient in the face of deteriorating trade data. New Zealand’s employment report is scheduled for release next week and according to the PMIs labor market conditions weakened in the third quarter.