Weekly Outlook: 2015, December 06 - 13

US Dollar Forecast – US Dollar Fundamentally Moored Until Fed or Fear Decides Its Fate
A lot has changed for the Dollar this past week.

British Pound Forecast – British Pound Shows Signs of Life – Next Week Could be Big
A volatile week of FX trading pushed the British Pound to fresh six-month lows versus the US Dollar, but a late reversal suggests that the GBP/USD ‘Pounding’ may soon come to an end.

Australian Dollar Forecast – Risk-On & Retail Sales Sends AUDUSD to 4-Month Highs
The Australian Dollar peaked over the October 12th high on Friday.

New Zealand Dollar Forecast – NZD/USD Outlook Hinges on Fate of RBNZ Easing Cycle
NZD/USD may continue to retrace the decline from the October high (0.6896) as subdued wage growth in the world’s largest economy drags on the Fed outlook, but the outcome of the Reserve Bank of New Zealand’s (RBNZ) December 10 policy meeting may drag on the exchange rate should Governor Graeme Wheeler and Co. show a greater willingness to further embark on its easing cycle in 2016.

Chinese Yuan (CNH) Forecast – Chinese Yuan Outlook Remains Ahead of Important Data
The Chinese Yuan Offshore Exchange Rate (USD/CNH) saw little volatility despite a much larger breakdown in the US Dollar, and traders were reminded that CNH remains closely correlated to the onshore Yuan exchange rate (USD/CNY).

Gold Forecast – Gold Snaps 6-Week Losing Streak as NFPs Fuel Bets for 2015 Rate Hike
Gold prices snapped a six-week losing streak on Friday with the precious metal rallying 2.55% to trade at 1084 ahead of the New York close.

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SNB, BoE, RBNZ, EUR Correction, Don't Sell CHF For Now

What we’re watching:

FX Focus – Don’t sell the franc…for now: unstable risk sentiment and limited scope of the SNB turning more aggressive next week may trigger further franc upside risk, in particular versus the AUD.

• USD– Retail sales will be the last important data release ahead of the December rate announcement.
• GBP – A reiteration of the dovish language from the last inflation report as part of next week’s BoE announcement could trigger fresh GBP-selling. (for more on GBP, see here)
• CHF – We see little scope of the SNB easing monetary policy next week, especially as EUR/CHF has been well supported of late.
• NZD – The RBNZ may ease monetary policy further next week, a move that is not fully priced in. We see renewed NZD downside risk.
• AUD – Next week’s employment release is unlikely to have a major impact on rate expectations. The main focus should be on China.

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The euro surged on Draghi’s disappointment and it also had some collateral damage for the dollar against other currencies. What’s next? The highlights of the week before the rate decision are: rate decisions in Switzerland, New Zealand and the UK, employment data in Australia, retail sales Producer Prices and Consumer sentiment from the US. These are the main events on forex calendar. Join usas we explore the highlights of this week.

The Draghi Decision was dramatic as always, but not in the expected direction: the ECB made the minimal rate cut, the minimal QE extension and no increase in monthly buys. Despite the option to do more and and reinvesting proceeds, the ECB just failed on its own expectations, sending EUR/USD over 400 pips higher. In the US, the job market posted a solid gain in November adding 211,000 jobs, beating market forecast. This positive reading was preceded by a 298,000 job addition in October, paving the way for a rate hike this month. This release comes a day after Fed Chair Janet Yellen stated that the conditions for a first rate hike have been met.

1. Haruhiko Kuroda speaks: Tuesday, 9:06. BOE Governor Haruhiko Kuroda is scheduled to speak in Tokyo. Kuroda has dismissed calls to go slow on hitting the central bank’s 2% inflation target. Some policy makers warned that pushing up prices too quickly could hurt consumption and have called for the central to give itself more time to achieve its inflation target. Kuroda told business leaders that a slower process would also hurt wage adjustments. Only a bold move could fight deflation. Market volatility is expected.
2. US JOLTs: Tuesday, 15:00. This measure of the jobs market is eyed by the Fed, despite being a lagging one. It provides a broader picture of the economy. A level of 5.59 million is expected in October after 5.39 in September.
3. New Zealand rate decision: Wednesday, 20:00. The Reserve Bank of New Zealand maintained its Official Cash Rate at 2.75%, amid concerns for slower growth in China and in East Asia. A steep decline in diary prices since early 2014 continues to weigh on domestic income. However, inflation is expected to get back on track by early 2016. To ensure that future average CPI inflation settles near the middle of the target range, some further reduction in the OCR seems likely. The central bank is expected to cut rates to 2.50% this time.
4. Australian employment data: Thursday, 0:30. Australia’s unemployment rate declined unexpectedly to 5.9% in October, its lowest reading since May beating forecasts for 6.2%. The job market added 58,600 new positions nearly four times more than expected. The majority of new jobs (40,000) were full time positions, while part time jobs increased by 18,600. The participation rate rose to 65.0% from 64.9% in September. The strong reading suggest the Australian labor market rebounded after the shift from mining to services sector, personal and business services. The labor market is expected to lose 10,000 jobs while the unemployment rate is predicted to rise to 6.0%.
5. Switzerland rate decision: Thursday, 8:30. Switzerland’s central bank continued its policy of negative interest rates on its September meeting, leaving rated at minus 0.75%. The bank sought to devaluate the unjustifiably strong Swiss franc, but predicted a deflation due to low oil prices. The Swiss National Bank stated that, despite a slight depreciation, the Swiss franc is still too strong and Switzerland’s export-reliant economy has had to adjust to a surge in the franc’s value this year after the SNB abruptly abandoned its 1.20 francs per euro cap on Jan. 15.
6. UK rate decision: Thursday, 12:00. Bank of England governor Mark Carney stated in November that interest rates will not be raised in the UK before the end of the year and the majority of policy makers believe the bank should wait a few months before the hike. However, borrowing costs may well be changed affecting mortgages for second homes or other loans. Carney warned about the growth in personal loans and the boom in buy-to-let lending driving up property prices.
7. US Unemployment Claims: Thursday, 13:30. The number of applications for unemployment benefits in the U.S. increased last week by 9,000 to 269,000, maintaining a four-decade lows in the number of claims. There are fewer layoffs and a sense of Job security, enabling stronger consumer spending during the holidays. The four-week average of claims dropped to 269,250 from 271,000 the week before. The number of jobless claims for this week is expected to reach 266,000.
8. US Retail sales: Friday, 13:30. U.S. retail sales inched up 0.1% in October amid an unexpected decline in automobile purchases, showing a slowdown in consumer spending. Economists expected retail sales would increase 0.3% after a previously reported 0.1% rise in September. Sales at automobiles fell 0.5% after rising 1.4% in September. Meanwhile, retail sales excluding automobiles rose 0.2% after posting minus 0.3% in the previous month. Economists forecasted core retail sales would rise 0.4 %. Retail sales are expected to gain 0.2% and Core sales are predicted to rise 0.3%.
9. US PPI: Friday, 13:30. U.S. producer prices declined in October for a second straight month down 0.4% after registering minus 0.5% in the previous month, the poor readings suggest subdued inflation pressures that might postpone the Federal Reserve raising interest rates in December. In the 12 months through October, the PPI declined 1.6% t, the largest drop since the series started in 2009. Producer inflation is likely to remain weak in the coming month. Producer prices are expected to remain flat this time.
10. US Consumer Sentiment: Friday, 13:30. U.S. consumer optimism edged up to 93.1 in November, rising for the second straight month, a good sign before the holiday season. Economists predicted the index would rise to 91.3. The outlook index rose to 85.6 from 82.1 in October, up 7.1% from a year ago. The positive reading suggests consumers are feeling reassured by low gas prices, an improving labor market. Consumer’ inflation expectations were low for the near and long term. The National Retail Federation expects holiday sales will rise 3.7%, only slightly less than last year’s 4.1% gain. Consumer sentiment is expected to reach 92.3 in December.

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