Weekly Market Commentary

Released Monday, 16 October 2017

Last week recap

Reversed direction last week, gaining ground overall as the United States reported mixed economic data, while the ECB is now expected to cut its asset purchase program in half beginning in January. The rate began the week by consolidating on Monday after making its weekly low of 1.1719 as the United States celebrated a bank holiday and in the absence of any significant numbers from the EU. The pair rallied on Tuesday after ECB Executive Board Member Sabine Lautenschlaeger said that, “We should begin reducing our bond purchases next year”, she added that, “bond purchases will come to an end, while interest rates will remain low, well past the horizon of net asset purchases”. The rate extended its gains on Wednesday after the FOMC Meeting Minutes showed that core members were still on track for a December rate hike despite concerns over weak inflation. The Minutes noted that, “The risks to the projection for inflation were also seen as balanced. Downside risks included the possibilities that longer-term inflation expectations may have edged down or that the recent run of soft inflation readings could prove to be more persistent than the staff expected. These downside risks were seen as essentially counterbalanced by the upside risk that inflation could increase more than expected in an economy that was projected to continue operating above its longer-run potential.” The pair then declined after making its weekly high of 1.1879 on Thursday after ECB chief economist Peter Praet said that, “While the euro area recovery remains solid, broad-based and resilient, the economy has yet to make sufficient progress towards a sustained adjustment in the path of inflation to levels that are consistent with the Governing Council’s aim”. The central bank is expected to “recalibrate” its asset purchase program on the 26th. Thursday’s economic data had U.S. PPI increase by +0.4% m/m as widely anticipated, while Core PPI increased by +0.4% compared to an expectation of +0.2%. Also, U.S. Initial Jobless Claims fell to 243K versus 251K expected. The pair continued selling off on Friday despite U.S. CPI, which increased by +0.5% m/m versus +0.6% anticipated, while Core CPI increased by just +0.1% compared to an expectation of +0.2%. Also, U.S. Retail Sales rose +1.6% m/m versus an expectation of +1.7%, and Core Retail Sales, which increased by +1.0% versus +0.9% expected. EUR/USD closed at 1.1818, with a net gain of +0.8% for the week.
USD/JPY lost ground last week as North Korea continued presenting a threat to the region, while both countries reported mixed economic data. The rate began the week gaining a fraction on Monday as both countries observed bank holidays. The pair them made its weekly high of 112.82 on Tuesday despite the Japanese Current Account, which showed an expanding surplus of +2.27T versus an expectation of +1.98T. The rate consolidated at a slightly higher level on Wednesday after the release of the FOMC Meeting Minutes. On Thursday, the pair sold off fractionally after ECB Governor Kuroda told reporters at the G-20 Meeting that, “Japan's economy is expected to continue expanding moderately in the future.” Kuroda added that, “Inflation remains around 0.5 percent, still below our target,” and that, “I would like to explain to the G20 that we will continue our ultra-loose monetary policy to achieve 2 percent inflation at the earliest date possible”. The pair continued lower on Friday, making its weekly low of 111.68 on Friday after lower than expected U.S. CPI and mixed Retail Sales data. USD/JPY closed at 111.77, with an overall weekly loss of -0.7%.
Reversed direction, gaining sharply last week as news surfaced that the EU could allow for a two-year Brexit extension to the UK under certain conditions. The week began with Cable gaining after making its weekly low of 1.3074 on Monday after PM May suggested she might reshuffle the cabinet to demote Brian Johnson, the Foreign Minister. May said in a newspaper interview that, “Im the Prime Minister and part of my job is to make sure I always have the best people in my cabinet, to make the most of the wealth of talent available in the party.” The rate continued higher on Tuesday after UK Manufacturing Production increased by +0.4% m/m versus +0.2% anticipated; however, the Goods Trade Balance showed an expanding deficit of -14.2B compared to an expectation of -11.4B. On Wednesday, Cable gained a fraction after the release of the FOMC Meeting Minutes. Thursday saw the pair gain another fraction after news that Brexit negotiations had reached a deadlock due to the so-called “divorce bill”. The EU chief Brexit negotiator Michel Barnier said that the UK had refused to enter into negotiations over the size of the divorce bill, saying that, “On this basis I am not able under the current circumstances to propose next week to the European Council that we should start discussions on the future relationship”. UK Brexit negotiator David Davis appealed to EU member states to intervene in the talks, saying that, “I hope the member states will recognise the progress weve made and take a step forward in the spirit of the PMs Florence speech,” Adding that, “Our aim is to provide as much certainty as possible to business, citizens and the European Union.” Cable then consolidated at a slightly higher level after making its weekly high of 1.3336 after mixed U.S. CPI and Retail Sales numbers. GBP/USD closed the week at 1.3280, with a gain of +1.7% from its previous weekly close.
Gained a fraction last week as the United States reported mixed economic numbers, while Australian numbers were mostly better than expected. The week began with the pair declining and making its weekly low of 0.7746 on Monday in the absence of any significant data from either country. The rate began its rally on Tuesday after the Australian NAB Business Confidence index printed at 7 compared to a previous reading of 5. Alan Oster, Chief Economist for NAB noted that “The sustained weakness in retail conditions should justifiably be raising doubts around expectations for any imminent, and sustained rebound in consumer spending, although tough competition and other margin pressures are likely behind the result as well.” The pair continued fractionally higher on Wednesday after the release of the FOMC’s Meeting Minutes. On Thursday, the rate increased by another fraction after Australian MI Inflation Expectations printed at +4.3% versus a previous reading of +3.8%. The pair then made its weekly high of 0.7896 on Friday after the RBA Financial Stability Review noted that, “A number of policy uncertainties and geopolitical risks persist, which, if they were to escalate, could trigger a reappraisal of asset valuations and a spike in volatility while also weighing on the economic outlook.” AUD/USD closed at 0.7882, with an overall weekly gain of +0.9%.
USD/CAD lost ground last week as the price of crude oil traded over the $50 per barrel handle, with mixed economic data from both countries. The pair began the week making its weekly high of 1.2557 on Monday as both countries celebrated bank holidays. The rate declined on Tuesday as the price of crude oil began rallying and despite Canadian Building Permits, which declined by -5.5% m/m, significantly more than the -0.9% that was expected. The pair continued its decline on Wednesday as the FOMC released their Meeting Minutes and crude oil traded over the $50 per barrel handle. Thursday saw the rate make its weekly low of 1.2432 before gaining ground after Canadian NHPI increased by +0.1% m/m versus +0.3% anticipated. The pair lost a fraction on Friday after mixed U.S. CPI and Retail Sales data. USD/CAD closed at 1.2464, with an overall loss of -0.5% from its previous weekly close.
Reversed direction, rallying last week as risk assets favoured the Kiwi over the Greenback, with very little significant economic data from New Zealand. The rate began the week making its weekly low of 0.7054 on Monday in the absence of any significant numbers from either country. The pair gained a fraction on Tuesday, again, with no significant numbers from either nation. On Wednesday, the rate gained ground after a somewhat dovish FOMC Meeting Minutes and after the New Zealand Business NZ Manufacturing Index printed at 57.5 compared to a previous reading of 57.9. The pair then made its weekly high of 0.7195 after mixed U.S. CPI and Retail Sales numbers. NZD/USD closed at 0.7171, with a gain of +1.3% for the week.


The week ahead

AUD The Australian economic calendar is somewhat active this coming week, only featuring the RBA’s Monetary Policy Meeting Minutes and a speech by RBA Assistant Governor Ellis on Tuesday; followed on Thursday by the Employment Change (15.2K), the Unemployment Rate (5.60%), the NAB Quarterly Business Confidence survey (last 7), and a speech by RBA Assistant Governor Bullock. Resistance for AUD/USD is seen at 0.8659, 0.8102/62 and 0.7896/0.8075, with support noted at 0.7785/0.7834, 0.7711/33 and 0.7562/0.7679.

CAD The Canadian economic calendar is quite active this coming week, featuring CPI data on Friday. Monday starts the week off with Foreign Securities Purchases (last 23.95B) and the BOC Business Outlook Survey, while Tuesday offers a speech by Governing Council Member Wilkins. Wednesday then has Manufacturing Sales (last -2.6%), while Friday concludes the week’s highlights with the CPI (last 0.1%), Core Retail Sales (last 0.2%), Common CPI (last 1.5%), Median CPI (last 1.7%), Retail Sales (last 0.4%) and Trimmed CPI (last 1.4%). Resistance for USD/CAD is seen at 1.2777, 1.2652/62 and 1.2518/99, while support shows at 1.2338/1.2465 and 1.2195/1.2239.

EUR The Eurozone economic calendar is quite inactive this coming week, only featuring a speech by German Buba President Weidmann on Sunday; the German ZEW Economic Sentiment survey (20.3) and Final EZ CPI (1.50%) on Tuesday; and a speech by ECB President Draghi on Wednesday. Resistance for EUR/USD is seen at 1.2623, 1.2329 and 1.1834/1.2091, with support showing at 1.1776, 1.1661/1.1717 and 1.1583.

GBP The UK economic calendar is a bit busier this coming week, featuring key jobs data on Wednesday. Tuesday starts the week off with a speech by MPC Member Ramsden, CPI (3.00%), PPI Input (1.20%), the RPI (4.00%), and speeches by MPC Member Tenreyro and BOE Governor Carney, while Wednesday features the Average Earnings Index (2.10%), the Claimant Count Change (3.2K), and the Unemployment Rate (4.30%). Thursday then offers Retail Sales (-0.10%), and Friday finishes off the week’s highlights with Public Sector Net Borrowing (5.7B). Resistance to the topside for GBP/USD shows at 1.3656, 1.3617 and 1.3338/1.3480, while support for the pair is expected at 1.3223/65, 1.3125 and 1.2906/1.3047.

JPY The Japanese economic calendar is very peaceful this coming week, only featuring a speech by BOJ Governor Kuroda on Sunday. Resistance for USD/JPY currently shows up at 115.61, 113.25/114.49 and 112.32/92, with support indicated at 110.08/111.95, 108.13/109.91 and 107.31/48.

NZD The New Zealand economic calendar is sparse this coming week, only featuring CPI (0.40%) on Monday, followed on Tuesday by the GDT Price Index (last -2.4%). The chart for NZD/USD shows resistance at 0.7608/17, 0.7557 and 0.7184/0.7484. On the downside, technical support is expected at 0.7131, 0.6817/0.7057 and 0.6674/0.6738.

USD The U.S. economic calendar is busy this coming week, featuring speeches by Fed Chair Yellen on Sunday and Saturday. Monday has the Empire State Manufacturing Index (20.3), and Tuesday offers Import Prices (0.60%), the Capacity Utilization Rate (76.20%), Industrial Production (0.40%) and a speech by FOMC Member Harker. Wednesday’s highlights then include speeches by FOMC Members Dudley and Kaplan, Building Permits (1.25M), Housing Starts (1.18M) and Crude Oil Inventories (last -2.7M). Thursday features Weekly Initial Jobless Claims (245K) and the Philly Fed Manufacturing Index (22.2); Friday has Existing Home Sales (5.32M) due out; and Saturday features a speech by Fed Chair Yellen.

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