Weekly Outlook: 2015, October 11 - 18

This Will Put A Floor Below The USD; Buy Dips - Credit Agricole

Risk sentiment has been improving further in Asia with most stock market indices trading higher at the time of writing. Although yesterday’s FOMC minutes confirmed that many central bank members expect a lift-off later this year, investors’ rate expectations remain capped.

This is due to both the minutes showing that officials discussed the impact of a stronger USD on inflation and the most recent weaker than expected labour data.

However, we stay of the view that the Fed will ultimately decide in favour of tightening monetary policy in December. It must be noted too that inflation expectations as measured by 5y forward breakeven rates have been well supported of late, irrespective of weaker data.

This in turn should put a floor below the USD. As such we remain of the view that the currency should be bought on dips, for instance against the CHF.


the source

UK and US inflation data, German economic sentiment, UK and Australian employment data, US Retail sales, Unemployment Claims, Philly Fed Manufacturing Index and Consumer Sentiment. These are the main market movers on forex calendar. Join us as we explore the main events of this week.

Last week the Federal Open Market Committee released the minutes from its crucial meeting in September, where the members decided to hold off raising the Federal funds rate. The policymakers acknowledged that the labor market has improved over the year, getting closer to their estimates of longer-run normal rates. Regarding inflation, FOMC members stated that subdued inflation will improve in the near term and would return to normal levels over the medium term. Fed Chair Janet Yellen said it was decided to hold off the rate hike in September but expects such a move later this year.

1. UK Inflation data: Tuesday, 8:30. Inflation in the UK tumbled back to 0% in August due to a smaller rise in clothing prices and cheaper fuel prices. Oil prices declined to a six-and-a-half year low of around $42.50 per barrel. Meanwhile core inflation weakened to 1.0%, leaving no room for a rate hike in the near future. Analysts expect the Bank of England will start to raise interest rates in the first quarter of 2016. Inflation is expected to remain flat this time.
2. Eurozone German ZEW Economic Sentiment: Tuesday, 9:00. German economic sentiment plunged in September to the lowest level in 10 months amid rising concerns over the growth outlook in emerging market economies, especially China. The index fell for the sixth straight month, to 12.1 in September from 25.0 in August. Economists forecasted a decline to 18.3. Current conditions remained positive, rising to 67.5 from 54.7, in the prior month. Analysts forecast economic sentiment will decline further to 6.8 in October.
3. UK Employment data: Wednesday, 9:00. The number of people claiming unemployment benefits increased by 1,200 in August. The claimant count rate remained unchanged at 2.3%, its lowest rate since February 1975. Wages continued to rise, with pay excluding bonuses rising by 2.9% and pay including bonuses exceeded estimates rising by 2.9%. These encouraging figures may prompt the Bank of England to raise rates in the first quarter of 2016. The number of new unemployed is expected to decline by 2,300
4. US Retail sales: Wednesday, 12:30. Retail sales in the U.S. climbed 0.2% in August followed an upwardly revised 0.7% rise in July. Economists forecasted a 0.3% gain. However, despite the stock-market turmoil, consumers continued to spend their savings from cheap energy prices. Furthermore, the constant improvement in the employment market including wage rise have also boosted household spending. Retail sales excluding automobiles gained 0.1% in August after advancing 0.6% the prior month. Analysts expected a 0.2% rise. Retail sales are expected to rise 0.2% while core sales are predicted to decline by 0.1%.
5. US PPI: Wednesday, 12:30. U.S. producer prices were flat in August, suggesting weak inflation pressures. Economists expected a negative reading of 0.1%. This reading followed a 0.2% gain in July. Lower crude oil prices continued to weigh on producer prices. In the 12 months through August, the PPI declined 0.8% after a similar decline in July. It was the seventh straight 12-month decrease in the index. Producer prices are expected to decline by 0.2% in September.
6. Australian Employment data: Thursday, 0:30. The Australian economy created 17,400 new jobs in August, exceeding forecasts of a 5,200 gain. The positive jobs gain reduced the number of unemployed by 14,400. Despite the month to month volatility, an addition of 60,000 positons was registered over the last three months, indicating a growth trend in the Australian labor market. Australian job market is expected to add 7,200 positions, while the unemployment rate is expected to remain at 6.2%.
7. US Inflation data: Thursday, 12:30. U.S. inflation pressures remain low, falling slightly more than expected in August. Consumer price index contracted 0.1% following July’s rise of 0.1%. Analysts expected a flat reading. On an annual basis, headline inflation remained positive, rising 0.2%, as in the prior month. Falling energy prices continues to lead the soft headline inflation data. Meanwhile, CPI excluding energy and food prices rose 0.1%, following July’s rise of 0.1%, in line with market forecast.
8. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial applications for jobless benefits declined more than expected last week, reaching a near 42-year low 263,000 claims. The 13,000 decline provides a positive sign for the labor market after the lukewarm payrolls figure posted in the prior week. It was also the 31st straight week that claims remained below the 300,000 threshold, indicating a strong labor market. The four-week moving average of claims dropped 3,000 to 267,500. The number of US unemployment claims is expected to reach 269,000 this week.
9. US Philly Fed Manufacturing Index: Thursday, 14:00. Business activity in the manufacturing sector within the Philadelphia area lost momentum in September, falling into negative territory, reaching minus 6. The reading was far worse than initially expected and came after an 8.3 reading in August. However, despite the gloomy headline figure, the new orders index edged up to 9.4, from the previous reading of 5.8 and the employment index climbed to 10.2, from the August’s reading of 5.3. Economists believe September’s reading was sentiment driven showing a temporary setback. Philly Fed Manufacturing Index is expected to reach minus 1.8 in October.
10. US Prelim UoM Consumer Sentiment: Friday, 14:00. U.S. consumer sentiment plunged to 85.7 in September following 91.9 in the previous month. This was the lowest reading in a year, suggesting moderate economic growth and mild inflation. Households expected weaker overseas growth would affect the U.S. economy. Current conditions as well as future outlook have also declined. Consumer sentiment is expected to improve in October to 88.8.

the source

US Dollar Forecast – US Dollar Risks Major Bearish Reversal after Worst Drop in 4 Months
The Dollar suffered its worst stumble in four months this past week and technical traders recognize the unstable ground the currency currently stands on.

British Pound Forecast – BoE Strikes Cautious Tone on Global Growth Concerns
The British Pound continues to trade with a mean-reversion tendency as prognostications around future rate hikes are becoming even more complex given the headwinds being seen by the global economy.

Japanese Yen Forecast – USD/JPY Breakout on Sticky U.S. Inflation, Upbeat Fed
The range-bound price action in USD/JPY may persist next week as the Bank of Japan (BoJ) continues to endorse a wait-and-see approach, but the fresh developments coming out of the world’s largest economy may trigger a topside break in the exchange rate should the data prints boost bets for a 2015 Fed rate hike.

Australian Dollar Forecast – Australian Dollar Rally May Stall on Jobs Data, US Inflation Uptick
The Australian Dollar’s impressive recovery may stall as soft jobs data fuels RBA rate cut bets while an uptick in US inflation rekindles Fed tightening speculation.

Gold Forecast – Gold Prices Pivot Into Resistance- Breakout Potential on Dismal CPI
Gold prices are firmer this week with the precious metal up 1.44% to trade at 1154 ahead of the New York close on Friday.

more...