Fundamental Analysis by Admiral Markets

[Admiral Markets]

Manufacturing PMI Data In Focus

In a week shortened by Christmas holiday, the US Dollar index (I.USDX), that measures US Dollar's performance against its major counterparts, managed to edge up on the back of better than expected third-quarter GDP print. The final revision of US GDP showed economy growing at a seasonally adjusted annual rate of 5%, posting its strongest growth since the third-quarter of 2003. Stronger growth data helped US Dollar to register gains in otherwise a directionless trading week.

Going forward, thin trading conditions are likely to prevail as investors look ahead to manufacturing PMI data from the US and other parts of the global economy, which might provide some fresh cues for the upcoming week.

The week begins with the release of Conference Board's consumer confidence index for the month of December, scheduled for release on Tuesday. Following a decline to a five month low of 88.7 in November, market participants expect the index to rise to 94.6 in December. From the US housing sector, a forward-looking indicator, pending home sales data for the month of November is scheduled for release on Wednesday. After an unexpected decline October, which was followed by a weaker-than-expected readings in the preceding two month, the data is now expected to show a rise of 0.6% in November.

This week releases pertaining to the US manufacturing sector includes Chicago PMI and ISM manufacturing PMI, scheduled for release on Wednesday and Friday, respectively. The Chicago manufacturing PMI for the month of December is expected to show a marginal decline to 60.2 from 60.8 recorded in November. Meanwhile, the ISM manufacturing PMI for the month of December is also expected to tick lower to 57.6 as compared to a reading of 58.7 for the previous month. A slight drop in manufacturing activity already seems to be priced-in, however, any major divergence, especially a reading that shows more-than-expected weakness in the manufacturing activity could possibly weaken the US Dollar slightly.

Chinese manufacturing data for the December from this week's economic calendar includes final reading of the HSBC's manufacturing PMI and official manufacturing PMI. Final reading of the HSBC manufacturing PMI is scheduled for release on Wednesday and is expected to match the flash reading of 49.5, confirming contracting manufacturing activity in December. Similarly, the official manufacturing PMI, scheduled for release on Thursday, is expected to drop further to barely hold the 50-point mark, which separates contraction and expansion. Being China's largest trading partner, Chinese manufacturing data always bears some lasting impact on the Australian Dollar (AUD). Hence, deteriorating Chinese manufacturing activity is likely to exert further pressure on the already weaker AUD.

The release of UK manufacturing PMI for the month of December, scheduled for release on Friday, is the key highlight from this week's UK economic calendar. The index is expected to continue showing expanding manufacturing activity with the reading for the month of December expected to come-in at 53.7, little changed from 53.5 recorded in the November release.

Although, important PMI readings might provide some fresh trading cues for the upcoming week, but the year-end holiday season is expected to keep the trading activity light and restrain some large moves in the Forex market, at-least till the time liquidity normalizes. However, upbeat US economic indicators would fuel speculations of an earlier rate-hike by the Fed, eventually leading to a further up-tick for the US Dollar.






“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

All Eyes on US NFP and Euro-zone CPI

The US Dollar ended 2014 on a high note and kicked off 2015 on a firm footing on the back of monetary policy divergence among major central banks with the Fed all set to raise interest-rates while ECB and BoJ expected to continue with their loose monetary policies. Political uncertainty in Greece and rising expectations of ECB announcing fresh quantitative easing measures kept the Euro-zone common currency under pressure while fresh bout of weakness in crude oil prices led to the suffering witnessed by Canadian Dollar (CAD).

Moving on to the first full trading week of 2015, the release of US employment report for December would be this week's key triggers for the Forex market. Let's have a brief overview on some important market moving events scheduled during the course of the up-coming week and their impact on the Forex market.

US Releases

This week's US economic begins with the release of ISM non-manufacturing PMI for December, scheduled on Tuesday, and is expected to drop to 58.3 as compared to 59.3 in November. Ahead of the official jobs number, ADP report, which shows the number of private-sector jobs addition, is scheduled for release on Wednesday. The ADP report is expected to show an addition of 227,000 new private-sector jobs in December. Apart from the ADP report, investors will also scrutinize minutes from the Fed's December policy meeting, which is also scheduled for release on Wednesday and would be looked upon for some hints of an earlier-than-expected interest rate hike by the central bank. Also on Wednesday, the US trade balance data for the month of November is scheduled for release. of late, sustained US Dollar strength has weighed on the trade deficit number but this time it is expected to narrow to $42.3 Billion after reaching $43.4 Billion in October.

However, the US labor market reports, which has always been known for generating substantial volatility in the financial markets, is likely to overshadow other releases. Investors attention will remain focused on December's NFP data, which is scheduled for release on Friday. Following a big surge in the number of new job additions in November, economists are expecting December to be a yet another strong month, with the consensus estimating an addition of 231,000 new jobs to the economy. Meanwhile, the unemployment rate is also expected to decline to 5.7% from 5.8% registered in the month of November.

Should the December number turn out to be stronger than expected, as was the case in November report, we could see US Dollar building on its big gains registered in 2014. Furthermore, even if the release falls short of expectations, an addition of over 200,000 jobs accompanied with a drop in unemployment rate would undo any uncertainty over the strength of the broader US labor market recovery. This would reaffirm the case of an earlier-than-expected rate-hike by the US central bank, paving way for continuation of the ongoing strong momentum for the US Dollar.

US NFP and Unemployment Rate

Source: TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES​

Euro-zone Inflation Data

Recent ECB easing measures were primarily aimed towards spurring inflation to avoid the risk of deflation. Hence, economist will keep a close eye on this week's Euro-zone inflation data, which is scheduled for release on Wednesday. Euro-zone inflation for the month of December is seen as critical reference point for ECB's upcoming meeting on January 22. Continuing fall in oil prices is expected to drag the headline inflation even lower, with the consensus estimating a reading of 0% on an year-on-year basis. Print below 0% would increase the case of ECB moving closer to introducing fresh easing measures. This accompanied with the ongoing political turmoil in Greece is likely to keep the Euro-zone common currency under pressure in the foreseeable future.

Other Important Economic Releases

Elsewhere the Bank of England is scheduled to announce its monetary policy decisions on Thursday. Market players are not expecting any change in the central bank's current monetary policy stance and hence this week's announcement is unlikely to have any significant impact on GBP pairs. However, UK services PMI for December, scheduled for release on Tuesday, and Friday's manufacturing data for the month of November is likely to provide some momentum for GBP pairs.

Other economic indicators that could lead to an eventful week for the Australian Dollar include Australian trade balance and retail sales data, scheduled for release on Tuesday and Friday respectively. Also watch out for CPI and trade balance data from Australia's largest trading partner, China, scheduled for release on Friday and Saturday respectively.




“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

CPI Data to Fuel Volatility in The Forex Market

In the first full trading week of 2015, the US Dollar had a mixed performance against other major currencies. The overall US Dollar Index (I.USDX) traded higher for most of the week, but gave up some ground on Friday as stronger-than-expected December employment report was overshadowed by a decline in wage growth. Contraction in hourly wage growth convinced investors about the possibilities of the Fed keeping patience before raising its benchmark interest rate. Meanwhile, the ISM non-manufacturing PMI remained firmly in expansion territory and narrowing trade balance data supported the US Dollar during the early half of the week.

Elsewhere, a drop in Euro-zone CPI for the month of December to a five-year low, fueled expectations of ECB announcing fresh easing measures at its meeting on Jan. 22. This accompanied with the Greece uncertainty kept the Euro-zone common currency under pressure. Despite of its drop on Friday, the overall US Dollar Index managed to register a gain for the week.

Entering into the fresh trading week, the US Dollar started on the back-foot as investors now foresee the risk of deflation in the US as is expected to be reflected from this week's CPI data. Apart from the US inflation data, investors await for the release of US retails sales data along with the release of Empire state and Philly Fed manufacturing index, to gauge the strength of US economic recovery. Also, UK CPI and Australian employment data will be on investors radar during the course of the week. Let's have a brief overview on some major market moving releases scheduled for the up-coming week.

After November's surprisingly better-than-expected reading, market participants will now focus on retail sales data, scheduled for release on Wednesday. For the month of December economists are expecting the retail sales to register a growth of 0.2% as against 0.7% growth recorded in November. Meanwhile core retail sales, which excludes automobile sales, is expected to remain muted and register a nominal growth of 0.1% as compared to a growth of 0.5% in the previous month.

Moving on to the US manufacturing sector, investors will confront the release of two regional manufacturing indices for fresh signs of strength in the ongoing US economic recovery, which could also be helpful in determining further strength for the US Dollar. Manufacturing data for the month of January includes the release of Empire State Manufacturing Index and Philly Fed Manufacturing Index, both scheduled for release on Thursday. Following an unexpected sharp drop in December, the Empire State manufacturing index is expected to rebound and come-in at 5.3 for January. Meanwhile, the Philly Fed Manufacturing Index is expected to register a decline and reach 20.3 from lower-than-expected 24.5 recorded in December

Apart from the retail sales data and manufacturing indices, investors will have a close look at the latest reading on US headline inflation, consumer price inflation (CPI) for December, which is scheduled for release on Friday. Of-late continuous slide in crude oil prices has been putting pressure on the headline inflation number, with the November reading dropping -0.3% on a month-on month basis. Going ahead, the December reading for the overall CPI is expected to remain soft and fall by another 0.3%. However, the Core CPI, which excludes volatile food and energy prices, is expected to register a rise of 0.1%. Also watch-out for the preliminary release of University of Michigan's consumer sentiment index, scheduled for release on Friday. The Preliminary University of Michigan's Consumer Sentiment Index reading for January is expected to improve further to 94.2 from 93.6 in December.

US CPI

Source: Bureau of Labor Statistics​

From UK, the only dominant economic data is the inflation data, which is scheduled for release on Tuesday. After dropping to 1% in November, which happens to be the lowest level recorded in 12-years and lower than the BoE's target of 2%, this week's release is now expected to even fall below 1% mark on the back of continuous decline in oil prices. Lower inflation reading, even matching consensus expectation of 0.7%, is likely to push BoE's decision to hike interest rates further beyond second-half of 2015, possibly triggering a fresh leg of weakness for GBP pairs.

This week's dominant Australian data, that could materially impact the currency market include Australian employment report, scheduled for release on Thursday. Following a big surge in the month of November, surpassing the most optimistic expectation, economists this time are expecting the number of people employed during December to rise by 5.3K. Meanwhile, the unemployment rate for the month of December is expected to remain stable at 6.3%. Also watch out for trade balance data from Australia's largest trading partner, China, which is scheduled for release on Tuesday and could lead to some volatile moves in AUD pairs.

With the US Dollar already in short-term overbought condition, this week's inflation data seems to provide sufficient head-room for the US central bank to keep patience and maintain lower interest rates. This, in the short-terms, might compel investors to table some profits and trigger a corrective move for the US Dollar. However, the Greek political uncertainty is unlikely to pose some any risk to the well-established medium-term bullish trend for the US Dollar, at-least in the near-future.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Volatility To Continue Its Dominance In The Forex Market


With the overhang of the Greek political uncertainty, last week, which preceded the much awaiting ECB monetary policy decision, was expected to remain sluggish. However, the Swiss National Bank (SNB) surprised the financial markets by eliminating its three-year-old policy to cap the Swiss Franc (CHF) at 1.2000 against the Euro (EUR), making it one of the most dramatic weeks in Forex market. The SNB announcement triggered a sharp spike in volatility, fueling demand for perceived safe-haven currencies, namely USD and JPY. The Euro-zone common currency, Euro, took a sharp knock down against all major currencies on the back of SNB decision and the Swiss franc (CHF) strengthened as much as 41% against EUR. The move also pushed USDCHF down by 38%.

The SNB decision diverted investors attention from other economic releases like inflation data from the US and UK, which dropped below market expectations, and weaker US monthly retail sales data. The US Dollar, however, benefited from safe-haven demand and was also supported by upbeat University of Michigan's Consumer Sentiment Index. All-in-all the overall US Dollar Index (I.USDX) managed to register one more positive weekly close, amid extreme volatile market conditions.

Last week's spurt in volatility seems to continue its dominance as 3 major central banks once again take center stage this week. The Bank of Japan (BOJ), Bank of Canada (BOC) and ECB are scheduled to announce their monetary policy decision. The key focus, however, will be on the ECB, where the central bank is expected to announce quantitative easing measures. Apart from the ECB housing data from the US, employment and retail sales data from UK along with minutes from Bank of England's latest monetary policy meeting, Chinese GDP data and flash PMI figures are other key highlights from this week's economic calendar. Let's have a brief overview on important market moving events scheduled during the course of the up-coming week.

Central Bank Monetary Policy Announcements

BOJ and BOC are scheduled to announce their monetary policy decisions on Wednesday. Given the importance of ECB monetary policy decision, the BOJ and BOC monetary policy decisions are likely to prove a non-event for the Forex market.

The key ECB monetary policy decision is scheduled to be announced on Thursday. Expectations from this week's ECB meeting are already high with majority of the market participants expecting the central bank to announce aggressive quantitative easing (QE) measures. Although the Forex market already seems to have been pricing in the eventual announcement of QE, what would matter for the market would be the quantum of the measures. Market players will also scrutinize ECB President Mario Draghi's subsequent press conference for some additional details about the quantitative easing program. Should the announced measures fall short of market expectations, we could possibly witness some meaningful recovery for already butchered Euro-zone currency (Euro). Moreover, Draghi's comments might also trigger some volatile moves for Euro pairs.

US Economic Releases

This week's US economic calendar features important housing market data. The release of government's report on building permits and housing starts for the month of December are scheduled for release on Wednesday. Economists expect the number of building permits and housing starts to hold steady above the 1 million mark, at 1.06 and 1.04 million units annualized rate respectively. Meanwhile, existing home sale data, scheduled for release on Friday, are also expected to continue reflecting positive momentum in the US housing sector with the consensus estimating the figure to reclaim the 5 million units mark and come-in at annualized rate of 5.16 million units.


Important Economic Events from UK

UK economic releases consisting of employment reports, retail sales data and minutes from Bank of England's latest monetary policy meeting are likely to continue probing some volatile moves for GBP pairs in the week ahead. The UK labor market report, scheduled for release on Wednesday, is expected to show the number of people claiming unemployment related benefits declining by 24,200 and the unemployment rate dropping to 5.9%. The minutes from BoE's latest policy meeting is also scheduled for release on Wednesday and is unlikely to show any change in the number of MPC members showing willingness to raise benchmark interest rates but would help investors in determining the timing of a rate hike by the central bank. Meanwhile, consumer spending, which remains supportive pillar of UK's economic recovery, is expected to have declined in December. Consensus forecast retail sales for December, which is scheduled for release on Friday, to have declined by 0.6% on a month-on-month basis. Relatively stronger retail sales data and (or) better-than-expected employment reports is likely to increase the possibility of a sharp rebound for GBP pairs, at-least in the near-term. However, in-line with estimated releases would still keep GBP vulnerable to further downside in the near-term.


Global Releases

Investors will be particularly focusing on the release of the fourth-quarter GDP print from world's second largest economy, China. The Chinese GDP data, scheduled for release on Tuesday, is expected to continue pointing towards economic slowdown. Following a drop to 7.3% annualized growth rate in the third-quarter of 2014, consensus forecast year-on-year GDP for fourth-quarter of 2014 to come-in at 7.2%. Being Australia's largest trading partner, Chinese economic releases bears a material impact on the Australian Dollar (AUD). Also, being the industrial power-house of the global economy, this week's Chinese GDP data is likely to set the market mood for the week ahead.

Investors will also be focusing on the release of the flash version of manufacturing PMI data from China as well as flash manufacturing and services PMI data from Euro-zone's two largest economies, France and Germany, along with the broader Euro-zone PMI data, all scheduled for release on Friday. HSBC's flash Chinese manufacturing PMI data for the month of January is expected to remain in contraction territory. Meanwhile, the German and overall Euro-zone manufacturing and services PMI are expected to show continuous expansion while the French PMI figures are likely to reflect contraction in both manufacturing and services sector.




“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Crucial Events On Cards To Continue Stemming Forex Market Volatility

With the ECB announcing its much awaited QE details, €60 billion per month of bond purchases starting from March to September 2016, and an unexpected interest rate cut by the Bank of Canada (BoC), global central bankers kept fueling volatility into the largest financial market, Forex. The broadly weaker Euro dropped to fresh 11-year low against its US counterpart while the USDCAD rallied to near six year high. The Bank of Japan (BoJ) and the BoC lowered their forecast for inflation and growth numbers while the minutes of recent BoE meeting revealed that two MPC members, previously supporting the interest rate change, rolled back their vote in favor of no change into the benchmark interest rate. Further, the Greece election favored expectations supporting victory of the Syriza party; however, the anti-bailout party fell short of gaining absolute majority in the parliament and need to form a coalition government to remain in power. Moreover, the Russian economy faced another difficulty after the S&P downgraded their credit rating to junk. On Tuesday, Preliminary reading of UK Q4 2014 GDP fell below its estimation, to 0.5% against the 0.7% previous number, and continued supporting the GBP weakness.

Having witnessed considerable moves, mainly driven by the central bankers, forex market is likely to continue facing volatile trading sessions as the FOMC and the RBNZ are scheduled for their monetary policy meetings during the week. Moreover, Flash reading of EU CPI and the Advance GDP number from the US are also important in determining the near-term moves of the forex market.

US Economic Releases

FOMC meeting and Advance estimation of Q4 2014 GDP, scheduled for release on Wednesday and Friday respectively, are likely to become the headlines for the US economic readings during the week. Even though the current FOMC meeting isn’t followed by the Press Conference of the Fed Chair, and there are lesser chances of any change into the existing monetary policy, market players are likely to deeply examine the FOMC statement in search of any signal for the interest rate hike. Should there be a hint for the near-term interest rate hike, the USD can rally considerably while continuous talk of “Patient” approach, is less likely to affect the on-going strength of the greenback. Further, GDP numbers are favoring a tick-down from the previous 5.0% growth rate to 3.0% reading and can cause a pullback into the USD strength; however, a reading higher than the previous figure is more likely to confirm that the US economy is less vulnerable to downside risk and can continue fueling the USD strength.

Other than the FOMC and the GDP number, the CB Consumer Confidence, New Home Sales and the Durable Goods Orders m/m, scheduled for Tuesday, and the Pending Home Sales, Unemployment Claims, scheduled for Thursday release with the Chicago PMI, scheduled on Friday, are some other important details that can help determine near-term USD moves. A successive high of the Consumer Confidence index, coupled with the rising New Home Sales and a reversal into the Durable Goods Orders into the positive territory is more expected to help the FOMC deriving cues that the economy is well into their determined direction for increasing benchmark interest rates. However, the Chicago PMI and the Pending Home Sales are likely registering a bit lower than previous readings, 57.7 and 0.6% respectively, that can trigger a mild pullback of the US Dollar strength. In addition to the US releases, news from the Greece and Russia are likely to support safe-haven demands of the greenback.

Inflation numbers from Europe

Flash estimations of January 2014 CPI for the Euro-zone as a whole, in addition to the preliminary reading of German CPI, scheduled for release on Friday and Thursday respectively, are important information to know whether the recent steps by the ECB are worth or not. The German CPI is likely to test historical lows, -0.8%, while the Flash version of Euro-zone CPI is expected to extend its decline to -0.5% against the previous negative figure of 0.2%. Should these numbers confirm the consensus, the regional currency can plunge towards the below-parity level against its US counterpart. Alternatively, only a positive number can support the Euro in restricting its immediate decline.

RBNZ and Japanese details

After witnessing surprise actions by the SNB, BoC and the much awaiting QE by the ECB, speculations concerning the extended halt to the interest rate hike by the RBNZ have gained momentum; moreover, should there be any signal, into the rate statement on Thursday, for the interest rate cut, the NZD can weaken considerably. Moreover, the increment in trade deficit, than the expected -48M, scheduled for Thursday, can cause additional downside of the NZD.

Details relating to Japanese Industrial Production, CPI and the Household Spending, scheduled for Friday release, becomes important in forecasting near-term JPY moves. The BoJ have already cut down their expectations of inflation and growth numbers and the actual reading of the CPI below forecast can provide one more reason for the central bank to announce additional measures. Moreover, the Industrial production is likely to register gains and can provide support to the on-going JPY strength. Other than the economic numbers, uncertainty into the forex market, mainly driven by the global central bankers and the geo-political crisis in Ukraine, are likely to prevail for a bit more time and can support the safe haven demand of the JPY.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Possibly Yet Another Eventful Week Ahead in The Forex Market

In the final trading week of what could be termed as one of the most volatile months in the Forex market, the US Dollar witnessed some mixed performance against other major currencies. The US Dollar continued with its strong up-move against commodity currencies, namely - AUD, NZD and CAD and extended its recovery against CHF. The greenback, however, lost some weight against EUR, GBP and JPY on the back of weaker-than-expected fourth-quarter GDP and durable goods orders data. The US Dollar mixed performance led to some minor losses for the overall US Dollar Index (I.USDX). Nevertheless, the US Dollar still ended the month on a strong note, marking its seventh consecutive month of gains.

Going forward investors will remain engaged with a series of top-tier economic events scheduled at the beginning of a new month and would continue fueling volatility in the Forex market. This week key highlights includes one of the most keenly watched economic indicator from the US, monthly jobs report, popularly known as Non-Farm payrolls data (NFP) and important PMI figures for the month of January along-with monetary policy decision announcements from Australia and UK. Here is a brief overview on some of the important market-moving events scheduled during the course of the upcoming week.

US Economic Releases

This week's US economic calendar begin with the release of ISM manufacturing PMI data for the month of January. Following a larger than expected drop in December, the index, scheduled for release on Monday, is expected to drop further and come-in at 54.9, from 55.5 recorded in December. The ISM non-manufacturing PMI data, scheduled for release on Wednesday, is expected to show a minor improvement and reach 56.6, from 56.2 recorded in the previous month.

Meanwhile, in the run-up to the NFP release, ADP report, which shows the number of private-sector jobs addition and provides an early estimate for the government's report, is scheduled for release on Wednesday. The ADP report is expected to show an addition of 221,000 new private-sector jobs in January, down from 241,000 jobs added in the previous month.

Although, other economic releases could possibly provide some short-term clues for the markets, but investors attention would still remain focused on NFP, which is scheduled for release on Friday. The US labor market reports is known for fueling volatility in the financial markets and this week's release would be no exception. Following a big surge in the number of new job additions in November and better-than-expected print in December economists remain optimistic over the pace of recovery in the US labor market. The consensus estimate the report to show an addition of 231,000 new jobs to the economy in January and the unemployment rate is also expected to hold steady at 5.6%.

Following last week's disappointing US GDP growth number for the fourth-quarter of 2014, a further disappointment on the data front from this week's economic releases might trigger some near-term corrective move for the US Dollar. Even if the economic releases come in-line with market expectations, it would undo any uncertainty over the strength of the broader US economic recovery, eventually helping US Dollar to build-up on it recent gains.

Global Releases

Apart from the US releases, economic releases and monetary policy decision announcements from Australia and UK might provide some momentum for the market. Key economic releases to watch from this week's UK economic calendar includes PMI readings, construction and services PMI for the month of January. Construction PMI data is scheduled for release on Tuesday and release of services PMI is scheduled on Wednesday. On Thursday the Bank of England is scheduled to announce its monetary policy decisions, where market players are not expecting any major change in the central bank's current monetary policy stance. Hence this week's BoE monetary policy announcement is unlikely to have any significant impact on GBP pairs.

The Reserve Bank of Australia (RBA) is also scheduled to announce its monetary policy decision on Tuesday. Following surprise rate-cut by SNB and BoC and hint towards a possible rate cut by RBNZ has now raised expectations that RBA might also follow suite and possibly surprise the market. Although the consensus are not foreseeing a rate cut from this week's meeting, but a dovish economic outlook in RBA's Monetary Policy Statement, which is scheduled for release on Friday, might be considered as a hint towards a possible rate cut by the central bank in the near-future. This would seriously deteriorate near-term demand for the already slumped Australian Dollar (AUD). Other economic indicators that could this week an eventful week for AUD includes Australian trade balance and retail sales data, scheduled for release on Tuesday and Thursday respectively.

Summing it up, this week's important economic releases/events has all the ingredients to trigger some meaningful volatility and make the upcoming week yet another eventful week in the Forex market.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Greece Uncertainty To Support US Dollar Bullish Trend

Last week until the release of NFP data on Friday, it looked like a corrective pull-back for the US Dollar might have just been triggered on the back of widening US trade deficit and modest pace of growth as reflected in ISM manufacturing PMI. However, Friday's jobs report, that surpassed even the most optimistic estimates, helped US Dollar to erase majority of its weekly loss. In the first month of 2015, the US economy created 257,000 jobs, while the unemployment rate saw a slight up-tick to 5.7% from 5.6% in December. The rise in unemployment rate could be because of higher labor market participation, which is a sign of healthy labor market. Another good sign from the jobs report was a 0.5% rise in average hourly wages, that saw a decline in December. In other important developments that surprised the market last week was the Australian central bank's decision to cut its key benchmark interest rate to a record low of 2.25%. The varying effect of various economic developments helped the overall US Dollar Index (I.USDX) to end the week on a flat note, nearly unchanged for the previous week.

Moving ahead, the Forex market will now look for additional cues to gauge the strength of broader US economic recovery from this week's monthly retail sales data from otherwise a tepid US economic calendar. The US monthly retail sales data is scheduled for release on Thursday and following a sharp drop in December, market participants are again expecting a subdued performance in January. Consensus estimates forecast the retail sales to have declined by 0.3% in January, while core retail sales are expected to drop further by 0.4%.

Along with the US retail sales data, preliminary University of Michigan's consumer sentiment index is scheduled for release on Friday. The Preliminary University of Michigan's Consumer Sentiment Index reading for the month February is expected to improve marginally to 98.2 from 98.1 in January.

Apart from the US economic data, the political stand-off between Greece and Germany over extension of the current Greek bailout terms, agreed upon by the old government, will remain key concern from the Euro-zone. The Euro-zone finance ministers are holding an emergency meeting on Wednesday to discuss the possible resolution to the Greek drama. The current agreement expires at the end of February and a failure to negotiate an amicable deal would force Greece to default on its debt. This could trigger some additional volatility in the market and seriously deteriorate the value of Euro-zone common currency, Euro, against other major currencies.

Meanwhile, key economic releases scheduled in the upcoming week's Euro-zone economic calendar features the first release of the composite Euro-zone GDP data along-with Euro-zone's three largest economies, Germany, France and Italy for the fourth-quarter of 2014. The flash version of the 17-nation composite GDP, scheduled for release on Friday, is expected to show a dismal growth of 0.2%. Meanwhile, Euro-zone's two largest economies, Germany and France are expected to show a sluggish growth of 0.3% and 0.1%, respectively, while growth rate for Euro-zone's third largest economy is expected remain flat.

Dominant Australian data, that could materially impact the currency market include Australian employment report, scheduled for release on Thursday. After printing a surprisingly stronger-than-expected rise in the number of people employed for four months out of the past five readings, economists are anticipating a decline for the month of January. Consensus forecast the report to show a negative reading of 4,700 for the month of January and the unemployment rate is also expected to tick higher to 6.2% from 6.1% recorded in December. Also watch out for inflation data from China, Australia's largest trading partner, scheduled for release on Tuesday. Following the global trend, Chinese inflation has been trending lower in recent months. The trend is further expected to continue in January and drop to 1.1%, down from 1.5% recorded in December.

Elsewhere, the Bank of England's (BoE) is scheduled to release its quarterly inflation report on Thursday. BoE updates its forecasts for growth and inflation and forward guidance language on interest rates in its quarterly inflation report. Hence, the report would be keenly scrutinized by central bank watchers in order to evaluate the timing of a possible rate-hike by the central bank. This could materially impact and decide the near-term direction for GBP pairs.

Last week's strong NFP data seems to have convinced market participants that the Fed is more likely to hike rates sooner rather than later, possibly in the middle of this calendar year. Moreover, the ongoing Greek uncertainty, which could eventually lead to Greece exiting the Euro-zone, seems to continue supporting the US Dollar bullish trend into the second week of February.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Strong US Dollar Hurts Gold Prices

Irrespective of surprise actions by the major central banks and the looming uncertainty over the futures of Greece and Ukraine, the Gold prices lost nearly 5% in the month of February as investors continue supporting the US Dollar expecting the only major central bank to hike interest rate in 2015.

The yellow metal registered nearly 8.5% gain during the month of January, mainly because of the surprise action by the SNB during mid-month meeting. However, improvement in US labor market details coupled with the positive comments from the FOMC members, during January-end and early February, provided strong support to the expectations concerning near-term interest rate hike by the Federal Reserve. Gold prices declined nearly 29% in the previous two years, posting the first consecutive annual decline since 1998.

Improvements into the US labor market details have been a pillar for most of the speculations concerning the interest rate hike by the Federal Reserve. Market players do support an increase in benchmark interest rate near the June 2015, also supported by some of the FOMC members, supporting the across the board strength of the US Dollar. The Euro continued its decline even after the ECB announced its much awaited Quantitative Easing as the economic numbers, like inflation and the growth details, continue linger the expectations and the Greece election signals an exit of the troubled nation from the Euro region. Recently, the anti-bailout party of Greece gained victory into the snap election and is discussing ways to avoid extension of existing bailout package that expires on Feb. 28. The talks between the Greece Finance Minister and the Troika (EU/ECB/IMF), to avoid the bailout and find the intermediate solution has gone null on early Wednesday as none of the parties are agreeing to anything. The talks would resume on Monday to have final solution of allowing Greece some intermediate relief to restore the troubled economy. However, should there be continued non-agreement between the parties before the Fed 28, the Greece will run out of funds to work properly and will again join the queue for bankruptcy. Moreover, speculations also mounted that the Greece may leave the regional currency on the non-agreement of their terms by the European leaders and that can become sharp negative for the Euro region currency and provide uncertainty into the market supporting the Gold prices.

Another factor that has fueled considerable worries into the market was Geo-Political tensions in the Ukraine. However, the recent meeting between the Russia, Ukraine, Germany and France provided positive solution as the ceasefire was agreed upon starting from February 15. Hence, with this news, market players may relieve of this geo-political tension and that can adversely affects the Gold prices.

On the demand side, the global gold demand for the year 2014 remained at 3924 tons, down by 4% on a yearly basis and testing the lowest level since 2009. The jewelry demand was down by 10% to 2153 tons while investment demand gained 2%% to 905 tons from the 885 tons in 2013. However, the demand from smaller investors, consisting requirements of bar and coins plunged 40%. Central bankers remained as strong buyers for gold amidst the uncertain global markets by adding 16% more gold into their reserves to 477.2 tons during the year 2014 as compared to 409.3 tons in 2013.

India and China, that accounts nearly 54% of the global gold jewelry demand, are flashing different signals as India hit a record 662.1 tons in 2014 with 19% gain in Q4 2014 while the Chinese jewelry demand declined by 33% to 623.5 tons as compared to the 2013. The demand front signals that the increment in US Dollar and rise into the other investment avenues snatched major part of the gold investment demand and a continuation of the same can become detrimental for the gold prices. Moreover, recent plunge in the Chinese demand is covered by jewelry demand from India but declines of larger magnitude, which is more expected considering recent weakness into the Chinese economic numbers, can provide considerable damages to the Gold prices.

To sum up, recent escalation in the turf between Russia and Ukraine, in addition to the stronger US Dollar, could prove to be a negative for the safe haven demand of the yellow metal. Should there be constant improvement in the US economic details, which has been hurt in recent days, speculations concerning earlier rate hike by the Federal Reserve gains momentum which together with the solution to Greece bailout package could result noticeable declines into the gold prices.

From the technical perspective, the yellow metal prices are currently resting on the strong support near $1223, encompassing 100-day SMA and the 23.6% Fibonacci Retracement of its May 2013 to November 2014 decline. On the extended decline, and a close below $1223, it can test $1180 support level with $1200 psychological support being intermediate rest. A close below $1180 can call for multiple supports, near $1150 & $1130, before plunging to $1100 and the $1080 support levels which mark near-term bottom of the gold prices.

Alternatively, a reversal from the current level is more likely to pullback the prices towards $1240 resistance level, breaking which the 38.2% Fibo., near $1270 and the psychological mark of $1300, also including the 20 month old descending trend-line, are likely to provide strong resistance to the yellow metal prices.

“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Possibly Another Week of Volatile Moves In the Forex Market

Last week's disappointing US retail sales data, surprisingly higher uptick in weekly jobless claims coupled with improved growth forecast in Bank of England's quarterly inflation report, news of Russia-Ukraine cease-fire agreement and better-than-expected GDP print from the Euro-zone led to a third week of consecutive losses for the overall US Dollar Index (I.USDX). US retail sales declined for a second consecutive month, dropping by 0.8% in January following a 0.9% drop in December. Meanwhile, BOE's hawkish comments in its quarterly inflation, signalling to a possible interest-rate hike in 2016, and a stronger-than-expected 0.3% Euro-zone GDP growth in the last quarter of 2014 contributed towards the US Dollar weakness.

Going forward the monetary policy meeting minutes from the Fed and BoE's last meetings along with employment data and retail sales data from UK stand out from this week's economic releases. Apart from the FOMC monetary policy meeting minutes, investors will also track the release of two regional manufacturing indices along with the housing data from this week's US economic calendar for fresh signs of strength in the US manufacturing and housing sector. Investors will also be focusing on the Bank of Japan's monetary policy decision and subsequent press conference along with the release of the flash version of manufacturing and services PMI data from Euro-zone. Here is a brief overview on some of the important market-moving events scheduled during the course of the upcoming week.

From the US manufacturing sector, investors will confront the release of two regional manufacturing indices, namely - Empire State Manufacturing Index and Philly Fed Manufacturing Index are scheduled for release on Tuesday and Thursday respectively. Following a unexpected jump to 10.0 in January, the Empire State manufacturing index is expected to register a decline and reach 9.1 in February. Meanwhile, the drop for Philly Fed manufacturing index in January was sharper than expected and analysts this time are expecting a minor recovery to 8.8 in February. Moving on to the US housing market, the release of government's report on building permits and housing starts for the month of January are scheduled for release on Wednesday. Economists expect the number of building permits and housing starts to hold steady above the 1 million mark and come-in at 1.08 and 1.07 million units annualized rate respectively. Data from US manufacturing and housing sector will be scrutinized closely for fresh signs of strength in the ongoing US economic recovery, which would also be helpful in determining further strength for the US Dollar.

The key event from this week's US economic calendar, however, will be the minutes from the Fed's latest policy meeting, scheduled for release on Wednesday. The Fed remains optimistic over the pace of economic recovery. This accompanied with strong US labor market conditions has continued fueling speculations of an earlier-than-expected interest rate hike by the central bank. Hence, investors will continue watching the Fed meeting minutes keenly in order to determine the timing of the possible first rate-hike. Should FOMC meeting minutes continue reiterate to maintain patience approach before kicking-off the rate-hike cycle, it could possibly lead to extension of the short-term corrective move for the US Dollar.

From the Euro-zone, investors remain focused on the key developments on discussion over Greece bailout terms and a possible resolution to the Greek drama from the Euro-zone finance ministers meeting on Monday. Euro-zone ministers are working to reach an amicable deal that would help Greece to avoid a default on its debt.

Investors will also be focusing on the release of PMI data, a leading indicator of economic health, for both manufacturing and services sector from the Euro-zone. The flash reading of the PMI numbers from Euro-zone's two largest economies, France and Germany, along with the broader Euro-zone PMI for the month of February are scheduled for release on Friday. The German manufacturing and services PMI are expected to show continuous expansion while the French PMI figures are expected to reflect contraction in both manufacturing and services sector. The overall Euro-zone PMI data, however, is expected to show activity in manufacturing and services sectors expanding at a slightly higher pace that in the previous month. Other key economic release featuring this week's Euro-zone economic calendar include German ZEW Economic Sentiment for February and is scheduled for release on Tuesday. After last week's slightly better-than-expected Euro-zone GDP print, improvement in PMI figures is likely to extend further support for the Euro-zone common currency, Euro.

Dominant UK economic releases from this week's economic calendar consists of UK inflation data, employment reports, retail sales data and minutes from Bank of England's latest monetary policy meeting. UK inflation report, scheduled for release on Tuesday, is expected to remain subdued and come-in at 0.3%. The lower inflation expectations already seems to be priced in by the market and hence lower inflation seems unlikely to fuel expectations of a interest rate hike delay by BoE.

The UK labor market report and BoE monetary policy meeting minutes, scheduled for release on Wednesday, are likely to continue probing some volatile moves for GBP pairs. The UK labor market report is expected to show the number of people claiming unemployment related benefits declining by 25,200 and the unemployment rate holding steady at 5.8%. Despite a slowdown in inflation and concerns in the global economy, BoE, in its quarterly inflation report last week, remained upbeat on the inflation and economic growth projection. Hence, this week's minutes from BoE's latest policy meeting would help investors in determining the timing of a possible rate-hike by the central bank.

UK CPI - Inflation rate for the last 10 years: December 2004 to December 2014

Meanwhile, consumer spending which remains supportive pillar of UK's economic recovery, is expected to have declined in January. Consensus forecast retail sales for January, scheduled for release on Friday, to have declined by 0.1% on a month-on-month basis. Relatively stronger retail sales data and (or) better-than-expected employment reports would eventually result into continuation of the near-term upward trajectory for GBP pairs.

Elsewhere, this week's BoJ's monetary policy decision, scheduled to be announced on Wednesday is likely to prove a non-event for the Forex market. However, market player would be keen to see BoJ's evaluation of the latest economic conditions after the release of GDP data on Monday, that showed Japanese economy expanding at a slower-than-expected pace of 0.6% in the Oct. to Dec. 2014 period.

With the US Dollar already in short-term corrective mode, any positive developments from the Greek drama coupled with relatively strong fundamental data from other economics could possibly trigger extension of the near-term pull-back move for the US Dollar.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Economic Releases To Fuel Volatility In The Market

Last week's weaker-than-expected US regional manufacturing indices and housing sector data coupled slightly dovish FOMC meeting minutes and not very disappointing Euro-zone's flash PMI figures pulled-down the US Dollar. Adding to the US Dollar weakness were upbeat UK labor market reports and hawkish Bank of England, signaling to a possible rate-hike later in 2015, as reflected from the minutes of its Feb. 5 meeting. However, Greek uncertainty extended some support for the US Dollar, helping the overall US Dollar index (I.USDX) to register its first weekly gains in last four.

Going forwards GDP estimates from the US and UK along-with speeches by the heads of two most influential central banks, US Fed and ECB, are likely to be the headline grabber for the upcoming week. Also US housing and durable goods orders, US and Euro-zone CPI print, and Chinese manufacturing PMI are few other economic data points that would be of interest for the Forex market participants. Let's have a brief outlook on some important market-moving events scheduled during the last week of February.

This week's data from US housing market features the release of existing, new and pending home sales data, scheduled for release on Monday, Wednesday and Friday respectively. The US housing market data points will be looked for additional cues over the health of housing sector and are expected to continue reflecting positive momentum with existing home sales for the month of January anticipated to continue holding the 5 million units mark and come-in at an annualized rate of 5.03 million units while new home sales for the month of January are expected to reach seasonally adjusted annual pace of 477,000 units. Meanwhile, a forward-looking indicator, pending home sales, is expected to rise a rise of 2.5% in January after registering an unexpected decline of 3.7% in December.

Apart from the US housing market data, investors will also have the opportunity to gauge the health of US manufacturing sector from Durable Goods orders data for January and Chicago manufacturing PMI for February. Data pertaining to durable goods orders is scheduled for release on Thursday and Chicago PMI data is scheduled for release on Friday. Orders for durable goods, which also includes transportation items, is expected to rise by 1.7% while core durable goods (excluding transportation items) are predicted to gain 0.6%. Chicago PMI is expected to decline marginally to 58.4 from 59.4 registered in January.

On Tuesday and Wednesday, investors will be focusing on Federal Reserve Chair Janet Yellen's semi-annual testimony on monetary policy before the Senate Banking Committee and the House of Financial Services Committee respectively. The testimony is likely to reiterate the idea conveyed in the FOMC minutes. Investors, however, will closely scrutinize the question and answer session, to be held following the testimony, in order to seek clarity over the timing when the Fed begins to raise interest-rates.

Meanwhile, the key drivers from this week's US economic calendar would be latest reading on US headline inflation, consumer price inflation (CPI), and the release of preliminary (second estimate) of US GDP for the fourth-quarter of 2014. The US CPI, for January is scheduled for release on Thursday and is expected to continue sliding further to -0.6% following a decline of 0.4% in December. However, the Core CPI figure, which excludes the volatile food and energy prices, is expected to register a marginal increase of 0.1%. The second estimate of US GDP for the fourth-quarter of 2014 is scheduled for release on Friday. According to the Commerce Department's initial estimates, the US economy grew by 2.6% annualized pace in the fourth-quarter of 2014 but economists this time are expecting a tick-down, with the consensus estimating the data to show an annualized growth of 2.1%. However, weaker-than-initially reported growth is unlikely to disturb the steady growth trajectory, which seems more likely to be carried forward in 2015. Also watch out for Conference Board's Consumer Confidence index for the month of November, scheduled for release on Tuesday. Last week's Fed minutes seems to have turned cautious and any further dovish signals by the Fed Chairwoman Janet Yellen and (or) economic numbers, especially GDP data, falling short of market expectations is likely to trigger some near-term corrective move for the US Dollar.

From the Euro-zone, investors will closely scrutinize the final print of the January inflation data, which is scheduled for release on Tuesday. Ever since the ECB shifted its focus to defend the Euro-zone economy against the risk of deflation, the important of Euro-zone inflation data has risen. The Euro-zone final inflation data is likely to remain subdued with CPI for the month of January expected to remain at -0.6%. The Euro-zone deflationary concerns are likely to dominate ECB President, Mario Draghi's testimony in on Tuesday and Wednesday. A dovish economic outlook by the ECB President is more likely to force the Euro-zone common currency, Euro, to continue sliding in the near-term. Other key economic release featuring this week's Euro-zone economic calendar features the release of Gfk German Consumer Climate index for the month of February and is scheduled for release on Thursday.

This week's UK economic calendar highlights the release of second estimate of UK economic growth for the fourth-quarter of 2014 and is scheduled for release on Thursday. The Preliminary estimates for the fourth-quarter showed UK economy growing at the slowest pace in 2014 but continued indicating economic recovery. The second estimate of growth for Q4 2014 is expected to remain unchanged at 0.5%.

The flash version of HSBC's Chinese manufacturing data for the month of February is scheduled for release on Wednesday is expected to show contracting manufacturing activity for third consecutive month. Being the largest manufacturer of the world, Chinese manufacturing data bears some meaningful impact on the Forex market. Hence, deteriorating Chinese manufacturing activity is likely to boost demand for safe-haven currencies, especially against the Australian counterpart (AUD), China's largest trading partner.

Summing it up, any major divergence from this week's expected economic data points, especially from the US, is likely to fuel some additional volatility in the Forex market but the same is unlikely to distort the well-established medium-term bullish trend for the US Dollar.




“Original analysis is provided by Admiral Markets”