Weekly Outlook: 2014, June 08 - 15

NZD/USD weekly outlook: June 9 - 13

The New Zealand dollar rose to a seven-day high against its U.S. counterpart on Friday, before paring gains to end little changed after the closely-watched U.S. nonfarm payrolls report for May yielded no surprises.

NZD/USD hit 0.8554 on Friday, the pair’s highest since May 28, before subsequently consolidating at 0.8500 by close of trade on Friday, up 0.01% for the day and flat for the week.

The pair is likely to find support at 0.8420, the low from June 5 and resistance at 0.8554, the high from June 6.

The Department of Labor said Friday that the U.S. economy added 217,000 jobs last month, just under expectations for jobs growth of 218,000. The unemployment rate remained steady at a five-and-a-half year low of 6.3%.

The data disappointed some market expectations for a more robust reading but indicated that the U.S. economy continued to shake off the effects of a weather-related slowdown over the winter, bolstering the outlook for the broader economic recovery.

The kiwi rallied along with other risk-sensitive assets on Thursday after the European Central Bank unveiled a package of measures to avert the threat of persistently low inflation in the euro area.

The ECB cut the main refinancing rate in the euro area to a record low 0.15% and imposed negative deposit rates on commercial lenders, in a bid to stimulate lending to businesses.

Data from the Commodities Futures Trading Commission released Friday showed that speculators modestly decreased their bullish bets on the New Zealand dollar in the week ending June 3.

Net longs totaled 17,531 contracts as of last week, compared to net longs of 17,994 contracts in the previous week.

In the week ahead, investors will be looking ahead to Thursday’s U.S. retail sales report for May for further indications on the strength of the economic recovery.

The outcome of a monetary policy meeting by the Reserve Bank of New Zealand will also be in focus.

Tuesday, June 10

• China is to produce data on consumer and producer prices. The Asian nation is New Zealand’s second-largest trade partner.

Thursday, June 12

• The Reserve Bank of New Zealand is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.
• The central bank is also to hold a press conference to discuss the monetary policy decision.
• Later in the day, the U.S. is to release the weekly report on initial jobless claims, in addition to data on retail sales and import prices.

Friday, June 13

• New Zealand is to release private sector data on manufacturing activity.
• China is to release data on industrial production and fixed asset investment.
• The U.S. is to round up the week with data on producer price inflation and preliminary data on consumer sentiment from the University of Michigan.

GBP/USD weekly outlook: June 9 - 13

The pound slid lower against the dollar on Friday after data showing that the U.S. economy added jobs for a fourth successive month in May bolstered optimism over the wider economic recovery.

The Department of Labor reported that the U.S. economy added 217,000 jobs last month, just under expectations for jobs growth of 218,000, while April's figure was revised to 282,000.

The U.S. unemployment rate remained unchanged at a five-and-a-half year low of 6.3%.

GBP/USD touched highs of 1.6844 just after the release of the data, before slipping back to 1.6801 late Friday. For the week, the pair was still up 0.35%.

Cable is likely to find support at 1.6750 and resistance at 1.6880.

Elsewhere Friday, sterling was unchanged against the euro, with EUR/GBP settling at 0.8121, recovering from the one-and-a-half year lows of 0.8063 struck in the previous session.

The euro remained supported after the European Central Bank unveiled a package of measures to avert the threat of persistently low inflation in the euro area on Thursday.

The ECB cut the main refinancing rate in the euro area to a record low 0.15% and imposed negative deposit rates on commercial lenders, in a bid to stimulate lending to businesses.

The ECB acted after a report earlier in the week showed that the annual rate of inflation in the euro zone slowed to 0.5% in May, far below the ECB’s target of close to but just under 2%.

Demand for the pound continued to be underpinned by expectations for a rate hike by the Bank of England in the early part of next year.

Data on Wednesday showed that the U.K. service sector expanded at a faster-than-expected rate in May, indicating that the economic recovery is continuing to deepen.

In the week ahead, investors will be looking ahead to Thursday’s U.S. retail sales report for further indications on the strength of the U.S. recovery, while the latest U.K. jobs report will also be in focus.

Tuesday, June 10

• The U.K. is to release data on industrial and manufacturing production.

Wednesday, June 11

• The U.K. is to publish data on the change in the number of people employed and the unemployment rate, as well as data on average earnings.

Thursday, June 12

• The U.S. is to release the weekly report on initial jobless claims, in addition to data on retail sales and import prices.
• BoE Governor Mark Carney is to speak at an event in London.

Friday, June 13

• The U.S. is to round up the week with data on producer price inflation and preliminary data on consumer sentiment from the University of Michigan.

EUR/USD weekly outlook: June 9 - 13

The euro slid lower against the dollar on Friday after data showed that the U.S. economy added jobs for a fourth straight month in May, a day after the European Central Bank unveiled a package of measures to avert the threat of persistently low inflation in the euro area.

The Department of Labor reported that the U.S. economy added 217,000 jobs last month, just under expectations for jobs growth of 218,000, while April's figure was revised to 282,000.

The unemployment rate remained steady at a five-and-a-half year low of 6.3%.

EUR/USD initially touched a two-week high of 1.3677 following the release of the data, before pulling back to 1.3642 late Friday. For the week, the pair was 0.34% higher.

The U.S. jobs report came one day after the ECB announced fresh steps to stave off low inflation in the euro zone, briefly sending the single currency to four month lows of 1.3502 against the dollar, before later erasing the day’s losses.

The ECB cut the main refinancing rate in the euro area to a record low 0.15% and imposed negative deposit rates on commercial lenders, in a bid to stimulate lending to businesses.

The bank also implemented a new Long-Term Refinancing Operation, designed to help banks lend to small companies and said it would "intensify" its preparatory work on the 'asset-backed security' market.

The ECB acted after a report on Wednesday showed that the annual rate of inflation in the euro zone slowed to 0.5% in May, well below the bank’s target of close to but just under 2%.

Elsewhere Friday, EUR/JPY was almost unchanged at 139.87 at the close of trade, recovering from the lows of 138.66 struck in the previous session. For the week, the pair was 0.42% higher.

In the week ahead, investors will be looking ahead to Thursday’s U.S. retail sales report for further indications on the strength of the U.S. recovery, while the euro zone is not scheduled to release any major economic data.

Tuesday, June 10

• In the euro zone, France is to publish data on industrial production.

Thursday, June 12

• The euro zone is to release data on industrial production, while the ECB is to publish its monthly bulletin.
• The U.S. is to release the weekly report on initial jobless claims, in addition to data on retail sales and import prices.

Friday, June 13

• The U.S. is to round up the week with data on producer price inflation and preliminary data on consumer sentiment from the University of Michigan.

ECB Plays it Hand, Economic Data Back in Euro Driver Seat

Fundamental Forecast for Euro: Neutral

• The Euro’s technical posture improved after the ECB meeting, but the spot-on US NFPs produced limited follow through.
• Still, June has proven to be a seasonally strong month for the Euro, at least in the QE era.

The European Central Bank, after weeks of rampant speculation, delivered on its promise made on May 8 for substantive policy action. Yet, the duration and depth of the impact on the Euro has proven thus very limited, raising the question: did the ECB do enough? The Euro ended the week down only against three of the major currencies, while posting meager gains against the other four. Evidently, the market is taking the ECB’s actions as a sign that they’re willing to do what is necessary to help spur lending and ultimately growth in the region; but not necessarily weaken the Euro.

The breadth of ECB action was plentiful, insofar as there were many changes to various aspects of the ECB’s current accommodative monetary program. Everything that was speculated upon in the weeks leading up to the June meeting ended up panning out. The notable changes, to wit:

- Rate cuts: The main refinancing rate was cut by -10-bps to 0.15%; the deposit facility rate was cut by -10-bps to -0.10%; and the marginal lending rate was cut by -35-bps to 0.40%. The rate cuts were in line with expectations, as negative rates had been discussed over the last few weeks (and priced in). The measures should help keep interbank lending rates (EONIA) below 0.40%.

- Liquidity: No more 1-month LTRO, but SMP holdings will no longer be sterilized after the June 10 auction; TLTRO (Targeted LTRO, the ECB’s version of the Bank of England’s Funding for Lending Scheme (FLS)) for up to four years. The SMP unsterilization will boost excess liquidity in the Euro-Zone by about €160B.

- Guidance: Reduced GDP forecast for 2014 from +1.2% to +1.0%, but upgraded 2015 forecast from +1.5% to +1.7%; 2016 GDP forecast unchanged at +1.8%; 2014 inflation forecast downgraded from +1.0% to +0.7%; 2015 inflation forecast downgraded from +1.3% to +1.1%; 2016 inflation forecast downgraded from +1.5% to +1.4%; Asset-Backed Securities (ABS) purchase program discussed.

The efforts made by the ECB are established across all fronts, from traditional easing steps to non-standard measures. There were two definitive steps taken, however, that can be pointed to as perhaps viable reasons why the Euro didn’t endure a greater decline around the ECB’s meeting on Thursday. First, the ECB’s updated its expected EURUSD exchange rate over its forecast horizon to $1.3800 from $1.3600. Second, President Mario Draghi said in his Q&A that the ECB’s rates were essentially ‘at the lower bound’.

What these slight tweaks to the ECB’s policies equate to is that, at current time, there is no real imperative to speculate that the ECB could cut rates further. Additionally, it means that the EURUSD (at $1.3641 at the end of the week) is below the ECB’s expected exchange rate. Going forward, the market will pay less attention to the ECB – that is unless economic data weakens to the point that further action may be necessary.

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