Weekly Outlook: 2015, August 30 - September 06

Attachment 15652

AUD: Where To Target? - ANZ

• "Looking ahead, we are likely to see the drivers change once again, and for risk aversion and market sentiment to come to the fore."
• "On the commodity front, downside risks are dominated by the excess supply in iron ore and are also being met with continued efficiency drives on the cost front. In addition to this, we expect the recent rally in iron ore to reverse as steel demand declines and China steel exports slow."
• "ANZ now targets AUD/USD 0.68 by December 2015 and by 0.67 in March 2016."

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US Dollar Forecast – US Dollar Volatility Near-Guaranteed, but Which Direction?
It was a difficult week for traders as the initial US Dollar breakdown left many looking for further losses.

Euro Forecast – EUR/USD August Advance to Unravel Further on Dovish ECB, Upbeat
The sharp pullback in EUR/USD may gather pace in the week ahead should the European Central Bank (ECB) signal a further expansion of monetary policy, while another 200K+ U.S.

British Pound – Sterling Runs into Support as Carney Takes the Stage at Jackson Hole
The British Pound was caught up in the rollercoaster risk-off/risk-on ride of the week in a very similar manner as the Euro and Japanese Yen; albeit with more subdued price action.

Japanese Yen Forecast – JPY Bulls Brace for BOJs Next Bailout
JPY saw its biggest rally vs. the USD since 2009 throughout this week’s early market turmoil.

Australian Dollar Forecast – Australian Dollar at Risk on RBA, Rebuilding Fed Rate Hike Bets
The Australian Dollar looks vulnerable to deeper losses in the week ahead as Fed rate hike bets rebuild while RBA rhetoric takes a dovish turn.

Gold Forecast – Gold Reverses as Fed Expectations Rebound – US NFP to Clear the Way
Gold prices plummeted this week with the precious metal off by more than 2% to trade at 1137 ahead of the New York close on Friday.


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Markets did not go on an August vacation in a week that saw extreme volatility. The US dollar emerged as a big winner but it wasn’t always this way. A very busy week awaits us: rate decisions in Australia and the Eurozone, GDP data from Canada and Australia, and a full buildup to the the all-important Non-Farm Payrolls in the US. These are the major market movers for this week. Join us as we explore these top events on our weekly outlook.

Turmoil in global financial markets increased speculations that the Federal Reserve may delay the widely anticipated September rate hike. Concerns over global growth, the plunge in commodity prices, China’s frenzied stock markets and its recent currency devaluation suggested a possible change in the Fed’s timetable. Nevertheless, US economic data remained positive with a sharp upward revision in the growth forecasts for Q2, reaching 3.7% compared to 2.3% expansion estimated earlier. Furthermore, Durable Goods Orders registered solid gains rising 2% while core orders increased 0.6%, well above forecasts, indicating rising domestic demand and further expansion in the third quarter.

The yen and the euro enjoyed the trouble but this changed, especially for the euro. Also the ECB could react, not only the Fed. Commodity currencies generally suffered but managed to stage a partial recovery.

1. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia kept the cash rate on hold at 2%. The RBA governor Glenn Stevens reiterated that currency must be devalued although it moved closer to the bank’s destination. Solid gains in retail sales and consumer spending, released after the rate meeting, confirmed the upbeat tone in the RBA’s report. However, rising prices in the housing market continue to concern policy makers. The RBA is expected to maintain rates at 2% this time. Nevertheless, there is an outside chance of action right now, to mitigate the Chinese slowdown and mitigate the fall in expenditure.
2. Canadian GDP: Tuesday, 12:30. Canada’s economy contracted 0.2% in May, marking the fifth consecutive month of decline led by a surprise drop in manufacturing. The Bank of Canada estimated GDP would decline 0.5% in the second quarter, after falling 0.6% in the first three months. Policymakers hope a softer Canadian dollar and lower interest rates will boost economic activity in the second half of 2015. US demand weakened in the first quarter while the oil price crush affected the energy sector. However, economists believe a solid GDP gain in June. Canadian economy is expected to grow by 0.3% in June.
3. US ISM Manufacturing PMI: Tuesday, 14:00. Manufacturing PMI, according to the ISM report, showed a lower than expected reading of 52.7, following 53.5 in June. The release was above the 50-point line indicating expansion, indicating the manufacturing sector is still growing. The employment component declined to 52.7 from 55.5. New orders inched up to 56.5 from 56.0. Production jumped to 56.0 from 54.0. Economists expect Manufacturing PMI to reach 52.8 this time.
4. Australian GDP: Wednesday, 1:30. The Australian economy boosted its activity in the first quarter, posting the best quarterly growth in 15 years. The 0.9% increase was preceded by a 0.5% gain in the last three months of 2014. The main factors for expansion were exports, domestic spending and the construction sector. The economy over went major changes, shifting from mining activities to tourism, education and professional services. Policymakers tried to find ways to compensate for the loss of massive funding formerly invested in the mining sector. The better than expected GDP release raises hopes for an ongoing recovery. Australian economy is expected to grow by 0.4% in the second quarter.
5. US ADP Non-Farm Payrolls: Wednesday, 12:30. The U.S. private sector added 185,000 workers in July, posting the smallest increase since April, following 237,000 jobs addition posted in the prior month. Economists expected a stronger gain of 216,000 in July. Job growth remained strong, but moderated since the beginning of the year. The main factors for the slowdown were layoffs in the energy industry and weaker job gains in manufacturing. US job market is expected to add 205,000 new positions in August.
6. Eurozone rate decision: Thursday, 11:45, press conference at 12:30. The ECB is not expected to change policy right now: interest rates have reached their “lower bound” according to the Bank and QE is achieving some results in monetary easing and indirectly a weaker euro. However, the recent market turbulence has already sparked a comment hinting about further stimulus. Will the ECB announce an acceleration of its QE program beyond 60 billion euros / month or its time frame beyond September 2016? This could officially help the economies and basically serve as a participation of the ECB in currency wars. A rise in the euro is undesired as the recovery is fragile. A change in policy is not expected, but President Mario Draghi could hint about the potential to act, putting his weight on the euro.
7. US Trade Balance: Thursday, 12:30. The U.S. trade deficit widened in June from $40.9 billion in May to $43.8 billion in June, amid solid consumer spending boosting imports, while exports contracted due to the strong dollar. Imports edged up 1.2% to $232.4 billion, while exports declined to $188.6 billion from $188.7 billion. The strong dollar weighed on manufacturers, making their products more expensive overseas. The U.S. trade deficit is expected to grow further to 44.5 billion.
8. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial jobless claims declined by 6,000 last week to 271,000. The reading was broadly in line with market forecast. The four-week moving average of initial claims inched up to 273,000 from 272,000. Continuing claims rose to 2.269 million from an upwardly revised reading of 2.256 million. The steady jobs data readings suggest the US labor market is continuing to improve. The number of new jobless claims is expected to reach 273,000 this week.
9. US ISM Non-Manufacturing PMI: Thursday, 14:00. July’s ISM non-manufacturing index posted the highest reading in 10 years, reaching 60.3 after a 56.0 reading in June. Economists expected a lower figure of 56.3. New orders edged up to 63.8, and backlog orders showed 54.0, indicating substantial acceleration from June. Export orders also increased considerably despite the strong dollar. ISM non-manufacturing index is expected to reach in August 58.3.
10. FOMC member Jeffrey Lacker speaks: Friday, 12:10. Federal Reserve Bank of Richmond President Jeffrey Lacker is scheduled to speak in Richmond. Mr. Lacker voiced his support for raising short-term interest rates sooner rather than later. Lacker’s speech will follow the August jobs report release from the Labor Department, a vital info before the Fed’s policy meeting. Market volatility is expected especially in the light of dovish comments from the Fed.
11. Canadian employment data: Friday, 12:30. Canada’s employers added 6,600 jobs in July, rebounding after a similar decline in June. However, the jobs addition did not alter the unemployment rate, which remained stuck at 6.8%. Economic data released in the first quarter indicates the economy shrank, but the jobs report shows a more complicated picture.11,000 jobs were added in the last six months despite the major downturn in the oil and gas sector. However, the majority of the 7000 positions added in July were part time. Canada’s labor market is expected to cut 2,500 jobs while the unemployment rate is forecasted to remain unchanged at, 6.8%.
12. US Non-Farm Payrolls: Friday, 12:30. U.S. Nonfarm payrolls registered another solid gain in July adding 215,000 jobs after a 223,000 increase in June. The unemployment rate remained steady at a seven-year low of 5.3%. The Fed has upgraded its assessment of the labor market, describing it as continuing to “improve, with solid job gains and declining unemployment. Average hourly earnings increased five cents, or 0.2%, after being flat in June, but is much lower than the 3.5% growth rate economists associate with full employment. August’s new jobs addition is expected to be 220,000 while the unemployment rate is forecasted to decline to 5.2%.

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Roller coaster does not begin to describe the week that EUR/USD underwent. A leap to highs unseen in months continued with big fall. Volatility is set to continue as traders return to their desks and the ECB makes its statement. Apart from Draghi we also have employment, inflation and PMI data. Here is an outlook for the highlights of this week and an updated technical analysis for EUR/USD.

The fear that gripped markets continued helping the euro. The common currency has become a funding one and that was clear with the leap above 1.17. However, this didn’t last too long: not only the Fed can be more dovish but also the ECB. A hint about monetary stimulus and a rebound in atmosphere and stocks sent the pair down. Also a better than expected GDP read from the US helped the dollar regain its strength. In the euro-zone, the solid German business sentiment helped the euro early in the week while other figures did not surprise.

1. German Retail Sales: Monday, 6:00. Consumer activity at the euro-zone’s core country disappointed with a big fall of 2.3% in June. German demand is critical for the whole area. A rebound is on the cards now.
2. Flash CPI: Monday, 9:00. These figures are critical for the ECB decision later on. In July, inflation remained low at 0.2% y/y while core inflation was initially set at 1% before the final read of 0.9%. This data was somewhat encouraging for the ECB: low oil prices still impact headline inflation while underlying demand that effects core prices is better. In August, we had the big crash in oil and that could weigh on headline inflation. However, expectations stand on +0.2% for the headline number and 1% on core inflation.
3. Manufacturing PMIs: Tuesday morning: 7:15 for Spain, 7:45 for Italy, 7:50 for France (final), 7:55 for Germany and the final euro-zone read at 8:00. According to Markit, Spain, the zone’s 4th largest economy, has seen OK growth in July, with a score of 53.6 points. A rise to 53.9 is on the cards now. Italy, the third largest economy, enjoyed stronger growth at 55.3 and another advance to 56.2 is expected. France remained in contraction territory in August according to the preliminary read: a score of 48.6 which is below the 50 point mark separating growth and contraction. Germany countered that with 53.2 and the overall score stood at 52.4 points. The last 3 numbers will likely be confirmed.
4. German employment change: Tuesday, 7:55. In June, the area’s locomotive disappointed with a rise in unemployment: 9000 were added to the unemployment lines. The country enjoyed improving conditions for many months. Has the tide turned? At least for now, a drop of 5K is predicted, making the rise last time a one off, if this forecast is realized.
5. Unemployment rate: Tuesday, 9:00. While the jobless rate is below the highs, it is still quite troubling at 11.1% in June, refusing to drop. The economic growth is not really reflected in jobs. No change is expected.
6. Spanish Unemployment Change: Wednesday, 7:00. Spain still suffers an unemployment rate of over 20% but the situation has improved. The early release of employment figures draws attention despite its seasonality. After a fall of 74K unemployment in July a similar number is on the cards for August.
7. PPI: Wednesday, 9:00. Producer prices eventually feed into consumer prices. A slide of 0.1% was seen in June and a bigger one is on the cards for July, mostly due to commodity prices. A drop of 0.1% m/m is forecast.
8. Services PMIs: Thursday morning: 7:15 for Spain, 7:45 for Italy, 7:50 for France (final), 7:55 for Germany and the final euro-zone read at 8:00. The services sector is doing better than the manufacturing one, and this is most evident in Spain, which enjoyed a strong growth rate according to Markit, with a score of 59.7 points in July. A similar number of 59.3 is expected. Italy has seen weak growth with 52 points in July and an advance to 53.1 points is likely. The preliminary read for August showed growth in France with 51.8 points and an even better one in Germany with 53.6 points. The whole euro-zone scored a healthy growth rate of 54.2 points. The last three numbers will likely be confirmed.
9. Retail sales: Thursday, 9:00. Consumers in the euro-zone bought less in June with a drop of 0.9%, led mostly by Germany. Despite being released after the German figure, this publication still has a significant impact. A rise of 0.6% is expected.
10. ECB decision: Thursday, 11:45, press conference at 12:30. The ECB is not expected to change policy right now: interest rates have reached their “lower bound” according to the Bank and QE is achieving some results in monetary easing and indirectly a weaker euro. However, the recent market turbulence has already sparked a comment hinting about further stimulus. Will the ECB announce an acceleration of its QE program beyond 60 billion euros / month or its time frame beyond September 2016? This could officially help the economies and basically serve as a participation of the ECB in currency wars. A rise in the euro is undesired as the recovery is fragile. A change in policy is not expected, but President Mario Draghi could hint about the potential to act, putting his weight on the euro.
11. German Factory Orders: Friday, 6:00. This volatile indicator enjoyed a surprisingly strong rise of 2% in June and could cool down now with a drop of 0.5%.
12. Retail PMI: Friday, 8:10. After long months below the 50 point mark, this indicator of consumption climbed to growth territory in May and reached 54.2 points in July. Is the momentum still with us? We may see a slide now.
13. Revised GDP: Friday, 9:00. According to the preliminary figure, the euro-zone economies grew by 0.3% in Q2. This was slightly worse than predicted. No revision is expected now.

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