Forecasting

**newdigital** · 01-25-2014, 05:24 PM

USD/JPY Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

The USD/JPY became a safe haven at the end of the week as traders worried about lackluster Chinese data and the upcoming FOMC meeting. After the Bank of Japan held rates and policy, traders moved into the currency pushing the pair as low as 102 and closing the week at 102.23. Demand for industrial materials is showing clear signs of recovery, with steel and cement production in 2013 in Japan hitting their highest levels in five years on the back of the building boom in disaster-struck regions and urban areas undergoing economic expansion. Production of paper and ethylene, used for a wide range of chemical products, has also increased for the first time in three years.

The Cabinet approved on Friday an action plan for the administration’s economic growth strategy, casting the next three years as an intensive implementation period. Under the action plan, ministers have been put in charge of promoting specific growth strategy fields while the Abe administration will submit 33 related bills to the Diet session that got under way Friday. The action plan was endorsed after negotiations among Prime Minister Shinzo Abe’s team.

The worse than expected HSBC China manufacturing purchasing managers’ index for January, announced Thursday, “made investors risk-averse amid growing uncertainty over the course of the global economy

**newdigital** · 01-25-2014, 05:38 PM

NZD/USD Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

The NZD/USD ended the week in the red after lackluster Chinese data upset global traders. The pair closed the week at 0.8244 after opening on Monday at 0.8254 and hitting a high of 0.8346. Speculators will pay close attention the central bank meeting and Chinese data along with the US Federal Reserve meeting on the 28th. New Zealand’s economy is beginning to boom, boosted by the post-earthquake rebuild in Canterbury and strong housing and dairy prices – Growth and inflation are running ahead of the RBNZ’s previous expectations, which we think will trump concerns over the price of the currency. The odds are turning in favor of a rate increase at this weeks meeting.

With these drivers in place, the RBNZ had already signaled, in its last official statement (12 December) that rate hikes would be needed by April this year. Since that statement, both inflation and growth have surprised the RBNZ on the upside and forward indicators also suggest that there is more momentum than the central bank was forecasting.

The challenge for the central bank is that the NZD still remains high and has also risen since then. But, in our view, the stronger economy and higher inflation are likely to trump concerns over the elevated exchange rate. The economy is already operating at capacity, demand is booming and inflation is ahead of expectations. Interest rates need to rise soon if the central bank is to meet its inflation goals.

**newdigital** · 01-25-2014, 05:41 PM

AUD/USD Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

The AUD/USD fell under the 87 price level to trade as low as 0.8660 on poor Chinese PMI data and growing inflation numbers. The Aussie closed the week at 0.8705. The HSBC purchasing managers’ index on Thursday showed Chinese manufacturing activity fell to a six-month low in January, with a reading of 49.6, down from December’s 50.5. The figure was weaker than expected and dipped below the 50 level which separates expansion from contraction. The Australian dollar had a rough night amid unease about emerging markets from Latin America to Asia, Westpac senior currency strategist Sean Callow said.

“It all kicked off on the China PMI reading,” Mr Callow said. “The Aussie seemed to be punished as a proxy for Asian regional sentiment.

Australian dollar has dropped below US$0.87 for the first time since July 2010 amid concerns about growth in China and the knock-on effects for emerging markets. China’s bank regulator ordered regional offices to increase scrutiny of credit risks in the coal-mining industry, according to people with knowledge of the matter. At the same time, emerging market assets were hit by worries about slowing growth in China as well as political problems in Turkey, Argentina and Ukraine.

The Aussie slid versus all 16 major currencies after the Wall Street Journal cited Reserve Bank member Heather Ridout as saying around 80 cents would be a fair deal for everybody.

**newdigital** · 01-25-2014, 05:55 PM

GBP/USD Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

The GBP/USD broke recent highs against the US dollar touching 1.6668 to close at 1.6504 after traders sold off to book profits after BBA mortgages missed expectations. This week the risks are clearly biased to the upside. As the BoE mentioned in its January minutes earlier this week, “the recent strength of both the business surveys and employment growth pointed to above-trend growth around the turn of the year”. The BoE highlighted upside risks to its staff’s forecasts of “a little fewer than 1% per quarter in the fourth quarter of 2013 and the first quarter of 2014”. Indeed, PMI indices suggest activity rose by 1.2% QoQ in Q4, but they tend to overestimate actual growth numbers. We expect the recovery to have been broad-based across sectors and expenditure components. In particular, business investment likely rebounded for the second consecutive quarter, driven by the dissipation of uncertainty, higher business confidence, enterprises’ solid cash buffers and improved credit availability.

The Pound eased as headlines from a speech of BoE governor Carney flashed on the screens. The BoE governor provided several reasons why a drop of unemployment below 7.0% shouldn’t trigger an immediate rate hike. Amongst other he also hinted to an improved inflation outlook in the UK. Next month, the BoE will also evaluate how to adapt guidance to changing circumstances. Last but not least, the BoE governor mentioned the strengthening of sterling as one of the headwinds for the UK economy. From a market point of view, it is clear that Carney wants to keep interest rates low for longer, whatever the outcome of the data

**newdigital** · 01-25-2014, 05:57 PM

EUR/GBP Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

The EUR/GBP remained in a fairly tight range closing the week at 0.8293 against Mondays close at 0.8246. The pair had ups and downs over the week but each move seemed to offset. There was exception jobs data released in the UK which sent the pound soaring but this was balanced the next day with eurozone PMI reporting higher than expected. The pair remains fairly well balanced. In addition, Draghi said the low inflation rates may just be a function that the eurozone has suffered a stark financial crisis. Similar fears were raised after the 1999 Asia crisis and the 2008 global financial crisis. Draghi praised those countries, such as Greece, which have made big strides over the past few years to get their public finances into shape.

European Central Bank president Mario Draghi laid out the hope that the ailing eurozone economic recovery will pick up steam over the coming months. He told delegates Friday at the World Economic Forum that a stream of “solid” survey data are pointing to better times ahead for a region that’s grappled with a debt crisis, recession and sky-high unemployment over the past few years. Recent surveys of purchasing managers and consumers have indicated growing buoyancy.

“The hard data are not however as uniformly good as the survey data,” said Draghi, who has been widely credited for helping to douse the debt crisis fires. “In a sense, this behavior reflects very similar behavior that took place in the United States a year, a year and a half ago.”

**newdigital** · 01-25-2014, 05:59 PM

USD/CAD Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

The USD/CAD climbed to a record high this week touching 1.1174 after the Bank of Canada meeting and lack of support from Governor Poloz. Oil and gold prices remain depressed and the overall economic situation in Canada is beginning to turn bleak with unemployment and GDP missing expectations. The Bank of Canada issued a very dovish policy statement in which it opted to keep interest rates where they are. Economists also interpreted the statement that accompanied that decision as a sign the bank is leaning toward lowering rates, not raising them, if and when it chooses to act. Finance Minister Jim Flaherty has made a point of noting that a weak dollar can spur economic growth by boosting exports — a boon for a government with its sights set squarely on balancing the books.

There used to be a much stronger link between U.S. spending and Canadian exports, but that link has weakened in recent years as the Canadian dollar has appreciated. And even though the dollar lost ten per cent of its value last year, we really didn’t see any notable benefit to Canadian export.” Bank of Canada Governor Stephen Poloz emphasized Wednesday that the increase in U.S. demand is more important for domestic economic growth than a weak loonie. The marginal boost of a lower dollar is just “the icing on the cake,” he said. But the bank’s language about the dollar has left some economists thinking it still sees the loonie as overvalued.

**newdigital** · 01-25-2014, 06:02 PM

Crude & Brent Oil Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

Crude Oil prices soared this week moving from the opening at 94.31 on Monday to close the week at 96.65 on implied demands and strong global growth after the IMF and the World Bank increased GDP for 2014 and 2015. The IEA also increased its forecast for demand over the balance of the year.

Brent Oil on the other hand declined at the end of the week. Brent oil prices tumbled below $107 a barrel, tracking a sharp sell-off in stocks and emerging markets as worries mounted over an economic slowdown in China. Expectations that the US Federal Reserve will taper its stimulus package next week were also weighing on prices. Brent, the international benchmark, accelerated its decline to fall 93 cents to $106.65, but was on course to end the week at its highest since December 20. It ended 69 cents lower the prior session after weak factory activity data from China US oil, or WTI, fell 35 cents to $96.97, after settling 59 cents higher on Thursday. It was still set to record its biggest weekly rise since December 6

China’s factory sector shrank in January for the first time in six months, a preliminary survey showed on Thursday, suggesting a weak start for the economy in 2014. Investors fled markets in Asia and Latin America, fearing the impact of slower growth in China and on expectations the Fed will cut further its bond-buying stimulus at a policy meeting next week. Brent and US oil futures had started the day strongly as bitter cold in the US sapped stockpiles of crude and distillates in the world’s largest consumer of oil and drew heating oil imports from Europe, Russia and Asia.

**newdigital** · 01-25-2014, 06:04 PM

Gold Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

Gold surprised investors turning upwards this week to end at 1265.40 against expectations for a decline to the 1220 level. Many Japanese investors are turning from the yen and buying gold as a hedge against inflation and wealth preservation as the Japanese economy turns towards inflation. Gold is on track to record a fifth straight weekly gain for the first time since September 2012. But investors are still wary of a market that took its biggest tumble in more than 30 years in 2013. The world’s largest gold-backed ETF, New York’s SPDR Gold Shares, said its holdings declined by 5.4 tonnes on Thursday, bringing its outflow for the week to 6.6 tonnes. It logged its first weekly inflow since early November last week.

Chinese demand eased, with premiums on the Shanghai Gold Exchange dropping to $10 an ounce from $12 the previous day. China in 2013 took over from India as the world’s leading consumer of gold jewelry, data from metals consultancy Thomson Reuters GFMS showed.
Gold premiums in India, the second-biggest buyer, fell more than 30 percent yesterday from earlier this week on speculation over a possible easing of restrictions on bullion imports.

This quarter, gold prices could rise five per cent to $1,330, owing to strong physical buying and robust fabrication demand, a Thomson Reuters GFMS study has said. “It is possible for gold to touch $1,330 before the current quarter is over. The gold market has not regained the sparkle of 2008-late 2011, and is not expected to do so this year, too,” the study said.

While private investors showed a voracious appetite for gold in the wake of a sharp drop in prices, professional investors were absent from active buying, a trend expected to persist through this year. But a short-covering rally in the first quarter of this year isn’t being ruled out and this could contribute to the recent stabilization at a little more than $1,185 Tapering of the bond-buying programme in the US by the Federal Reserve didn’t have a major impact on the gold market, as prices fell in the second quarter. The result was while exchange-traded fund (ETF) investors sold 880 tonnes through 2013, bar hoarding in East Asia, the Indian sub-continent and West Asia stood at 1,066 tons.

It is expected tapering in the US will continue till the end of this year and by then, some interest rate guidance is expected to emerge. Improving economic fundamentals are expected to continue to improve investor appetite for risk and prevent hefty gold investment.

**newdigital** · 01-25-2014, 06:07 PM

Natural Gas Weekly Fundamental Analysis January 27 – 31, 2014 Forecast

Natural Gas broke the $5.00 resistance level for the first time in many months as cold weather across the US and increased demand helped support prices while lower inventory stocks helped prices gain. Natural gas opened the week at 4.247 to hit a high of 5.024. Over the past couple of years, cheap gas has inspired many utilities to turn away from coal, a move that hurt railroads’ profits. And natural gas is becoming more widely used in transportation. More than 100,000 buses, trucks and other vehicles already run on it, although that figure represents only about 3 percent of the transportation sector.

Friday, the price in the futures market soared to over $5.00 per 1,000 cubic feet, up 10 percent to the highest level in 3½ years. The price of natural gas is up 29 percent in two weeks, and is 50 percent higher than last year at this time. Record amounts of natural gas are being burned for heat and electricity. Meanwhile, it’s so cold that drillers are struggling to produce enough to keep up with the high demand. So much natural gas is coming out of storage that the Energy Department says supplies have fallen 20 percent below a year ago — and that was before this latest cold spell.

The diesel-burning locomotive, the workhorse of American railroads since World War II, will soon begin burning natural gas — a potentially historic shift that could cut fuel costs, reduce pollution and strengthen the advantage railroads hold over trucks in long-haul shipping. Rail companies want to take advantage of booming natural gas production that has cut the price of the fuel by as much as 50 percent. So they are preparing to experiment with redesigned engines capable of burning both diesel and liquefied natural gas.