Fundamental Analysis by Admiral Markets

[Admiral Markets]

NFP And Central Bank Meetings to Dominate The Market

​After spending much of the February in consolidation mode, the US Dollar made a comeback in the last week, especially against Euro, helping the overall US Dollar Index (I.USDX) to register eight consecutive month of gains. On the economic front, last week's smaller-than-expected downward revision of US GDP growth rate for the fourth-quarter of 2014 and rebound in durable goods orders accompanied with unchanged Fed outlook on interest rate hike and upbeat tone on labor market conditions, as reflected in Federal Reserve Chair Janet Yellen's semi-annual testimony on monetary policy, extended support to the US Dollar. On the flip side, the fall in US headline CPI number was attributed to the drop in energy prices while slightly weaker home sales number signalled some cautiousness.

Moving forwards, a series of top-tier economic events scheduled at the beginning of a new month will keep investors engaged and has the potential to trigger some meaningful volatility in the Forex market. The key highlights, however, will be the most keenly watched economic indicator from the US, monthly jobs report, popularly known as Non-Farm payrolls data (NFP).

This week's US economic calendar begins with the release of ISM manufacturing PMI data for the month of February on Monday. Following a larger than expected drop in January, the index is expected to come-in at 53.4 for February as compared to 53.5 recorded in January. Also the ISM non-manufacturing PMI for February, scheduled for release on Wednesday, is expected to show a minor drop to 56.5, from 56.7 recorded in the previous month. Following last month's lower-than-expected pace of expansion in the manufacturing PMI, any drop below this month's expected PMI figures would raise concerns over the health of the economy. This might eventually lead to some weakness for the US Dollar.

In the run-up to the NFP data, ADP report, which shows the number of private-sector jobs addition and provides an early estimate for the government's report. The ADP report, scheduled for release on Wednesday, is expected to show an addition of 214,000 new private-sector jobs in February. However, investors attention will remain focused on Friday's NFP data and is likely to overshadow other economic releases. US labor market reports is one of the most keenly watched economic data, known for generating substantial volatility in the financial markets, and this week's release would be no exception. After printing better-than-expected reading for three consecutive months, economists continue to remain optimistic over the strength in the US labor market and the pace of US economic recovery. After adding more than 300,000 new jobs for two consecutive months, consensus estimate this week's report to show an addition of 241,000 new jobs to the economy during the month of February. Meanwhile, the unemployment rate is expected to dip a bit to 5.6% from 5.7% recorded for January. Also watch out for the release of US trade balance data for the month of January, also scheduled for release on Friday.

Amid uncertainty surrounding the timing of the interest-rate hike by the US Fed, strong labor market report would undo any pessimism over the strength of the broader US economic recovery, eventually helping the US Dollar to build further on its gains.

Apart from the US releases, monetary policy decision announcements from Australia, Canada, UK and Euro-zone should provide adequate momentum for the market. Starting with the Reserve Bank of Australia (RBA), which surprised market by a rate-cut in February, is scheduled to announce its monetary policy decision on Tuesday. This time too RBA is expected to cut its benchmark interest by 25 basis points to 2.00%. Other economic indicators that could have a material impact on the Australian Dollar (AUD) includes Australian GDP print for the fourth-quarter of 2014 and is scheduled for release on Wednesday. Following a dismal 0.3% growth in the third quarter, economists forecast a 0.7% growth for the last quarter of 2014. Market already seems to be pricing-in Tuesday's RBA rate-cut announcement, and hence any surprise positive surprise from RBA or a better-than-expected GDP growth rate sets the stage for a sharp pull-back rally for the already slumped AUD. Adding to this, Australian trade balance and retail sales data, scheduled for release on Thursday are other events to watch from this week's Australian economic calendar and could contribute towards making the upcoming week an eventful week for AUD.

Meanwhile, the Bank of Canada, which also surprised markets in January by cutting its key lending rate to 0.75%, is scheduled to announce it monetary policy decision on Wednesday. A day later the Bank of England is scheduled to announce its monetary policy decisions. Market participants are not expecting any major announcements from both these central banks and hence are likely to prove as a non-events for the market. However, this week's important UK PMI readings, which includes Construction and Services PMI for the month of February, and Canadian GDP print for the last month of December, might trigger the required momentum for the respective pairs. UK construction PMI data is scheduled for release on Tuesday and release of UK services PMI is scheduled on Wednesday. The Canadian monthly GDP figure is scheduled for release on Tuesday.

Moving on to the Euro-zone, with the flash Euro-zone CPI print already published on Monday, investors will now focus on ECB monetary policy decision, which is scheduled on Thursday and where ECB is not expected to alter its current monetary policy stance. However, market will closely scrutinize the ECB press conference, which will be followed by the monetary policy decision announcement, and where participants will look for details on the central bank's one-trillion Euros of government bond buying program, which begins in March. Also, ECB President Mario Draghi's comments towards Greek uncertainty might trigger some volatile move for the Euro-zone common currency, Euro.

Summing it all, this week's important economic releases/events has the potential to trigger some meaningful volatility in the Forex market. Further, given that the US Dollar is already in a well-established strong up-trend, only a highly disappointing NFP reading or a substantial jump in unemployment rate could possibly trigger some near-term corrective move for the greenback.


“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Tepid Economic Calendar To Restrict Big-Moves In The Forex Market

Last week's excellent NFP number and a drop in US unemployment rate to 5.5% triggered a fresh leg of strong up-move for the overall US Dollar Index (I.USDX), which rose for the third-straight week. Strong US employment reports has now fuelled speculations of a possible rate-hike by the US central bank as early as June this year. This eventually turn investor's focus towards the next major trigger for the Forex market, US Federal Reserve's two-day monetary policy meeting scheduled to begin on March 17.

Meanwhile, this week's lighter US economic calendar is unlikely to provide any meaningful direction for the market. Investors, however, will look for additional clues to gauge the strength of broader US economic recovery from retails sales data, this week's highlight from otherwise a tepid US economic calendar. Also, manufacturing data from UK, China along with Australian employment report could possibly generate some momentum in the Forex market. Let's have a brief outlook on some important market-moving events scheduled during the course of the upcoming week.

The US monthly retail sales data for the month of February is scheduled for release on Thursday. Following a sharper than expected drop in January, market participants are expecting a strong rebound with consensus estimates forecasting the retail sales to have gained by 0.5%, while core retail sales expected to rise 0.6%. Apart from 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 March is expected to improve marginally to 95.6 from a upwardly revised 95.4 recorded in February.

Moving on to manufacturing data, the latest print for Chinese industrial production for the month of February is scheduled for release on Wednesday and is anticipated to show a slight down-tick to 7.7% as against January's better-than-expected reading of 7.9%. The UK manufacturing production data, which makes up around 80% of total UK industrial production, is also scheduled for release on Wednesday. For the month of January, both UK manufacturing and industrial production are expected to improve and estimated to register a growth of 0.2%.

Also watch out for Chinese inflation data, Australia's largest trading partner, and UK trade balance data, scheduled for release on Tuesday and Thursday respectively. Following the global trend, Chinese inflation has been trending lower in recent months. The trend, however, is now expected to have paused in February with the CPI expected to come-in at 1%, up from 0.8% recorded in January. Meanwhile, UK trade balance is expected to slightly better the previous month's reading, but still remain elevated, to show a trade deficit of 9.7 billion Pounds for the month of January.

Australia Employment Change and Unemployment Rate

Source: TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES​

Along with the Chinese industrial production data, other economic data that could materially impact the Australian Dollar (AUD) include Australian employment report, scheduled for release on Thursday, and would determine whether AUD could recover from multi-year lows or not. Consensus estimate the number of new people employed during the month of February to have increased by 15.3 K and unemployment rate to hold steady at 6.4%. After last month's dismal jobs report and last week's disappointing GDP data, sluggish jobs data is more likely to extend the ongoing weakening trend for AUD.

Last week's strong NFP data now seems to have convinced market participants that the Fed is more likely to hike rates earlier than expected, possibly in the middle of this calendar year. This would eventually pave way for continuation of the ongoing strong momentum for the US Dollar. However, this week's lighter economic calendar might compel investors to book some profits, thus posing some risk for the US Dollar strength, at-least for the week ahead.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

FOMC To Rule Forex Market This Week

Ignoring disappointing US retail sales data and a drop in consumer sentiment index, the US Dollar last week resumed its broad based rally against other major currencies. Last week's rally helped the overall US Dollar Index (I.USDX), which measures the US Dollar strength against the basked of six major currencies, to test the 100.00 mark barrier.

Going forwards, outcome of the Federal Reserve's two-day monetary policy meeting, starting Tuesday, happens to be the most anticipated event for the Forex market this week. Market participants expect the Fed to sound optimistic in its monetary policy statement, which scheduled to be announced on Wednesday. The Fed is also expected to remove the phrase "patience" from its monetary policy statement, indicating that it remains on track for first interest rate hike sometimes during mid-2015. The FOMC statement this time will be accompanied with an update to the Fed's economic projection for inflation and economic growth over the next 2 years. This would be followed by a press conference by the Fed Chairwoman Janet Yellen, where Yellen's comments would be closely scrutinized in order to determine the strength of the overall US economic recovery and start of the rate-hike cycle.

Investors this week will also get an update on the US housing sector as the Commerce Department is scheduled to release reports on building permits and housing starts for the month of February on Tuesday. Continuing with the slow pace of recovery in US housing market, economists are expecting building permits in February to have grown to a seasonally adjusted annual rate of 1.07 million, while housing starts are expected to have slowed to a 1.05 million-units pace in February.

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, scheduled for release on Monday and Thursday respectively. Following a unexpected drop to 7.8 in February, the Empire State manufacturing index is expected to rise and reach 8.1 in March. Meanwhile, the drop in Philly Fed manufacturing index in last three months has been sharper than expected and analysts this time are expecting a minor recovery to 7.3 in March. Also watch out for industrial production data for the month of February, also scheduled for release on Monday.

From UK, minutes from Bank of England's (BoE) latest monetary policy meeting and UK employment report, both scheduled for release on Wednesday, are highlights from this week's UK economic calendar. Apart from US central bank, BoE is the only other central bank from major economies to have hinted towards the possibilities of a interest-rate hike, possibly in 2015. Forex market already seems to be pricing-in a unanimous vote for not raising near-term interest rate; however, should this week's minutes provide some clues over the timing of a possible rate-hike by the central bank, it could trigger a short-covering rally and boost near-term demand for GBP pairs. Meanwhile, the UK labor market report is expected to show the number of people claiming unemployment related benefits declining by 31,000 and the unemployment rate dropping to 5.6%.

UK Unemployment and Claimant Count Change

Source: Office for National Statistics, Department for Work and Pensions
​

Elsewhere, this week's BoJ's monetary policy decision, scheduled to be announced on Tuesday is likely to prove as 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 weaker-than-previously estimated GDP data, that showed Japanese economy expanding at a slightly slower pace of 0.4% in the last three months of 2014.

In addition to this, traders will also watch for some meaningful releases from other parts of the world. Few of the releases include, German ZEW economic sentiment on Tuesday, monetary policy meeting minutes from RBA and BoJ's latest meeting on Tuesday and Friday respectively. New Zealand's GDP growth rate for the fourth-quarter of 2014 on Thursday. The Swiss National Bank (SNB) is scheduled to release its quarterly Monetary Policy Assessment on Thursday, which will be followed a press conference by SNB Chairman and Governing Board Members.

The recent surge in the US Dollar has been fueled on speculations that the Federal Reserve could be moving closer to the first rate-hike in over six-years. Moreover, dropping the phrase "patient" is more likely to spur further rally for the US Dollar. However, higher market expectations now seems to pose some near-term risk of a corrective move for the US Dollar, should the Fed hint towards holding the near-zero interest rate policy until the last quarter of 2015.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

FOMC Triggers Forex Volatility

The much awaited monetary policy meeting of the US Federal Reserve summed up with extended uncertainty on Wednesday and provided considerable US Dollar declines. However, the greenback travelled again on the success path during early Thursday as removal of the word “Patience”, from the FOMC statement, pinched market players for expecting a rate hike in June meeting.

The FOMC statement, said that "The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term." The statement in itself is unclear as even if dropping the word “Patient”, and setting the table for a rate increase sooner, the Fed left the timing of an interest rate hike fairly wide open by sighting room for the labor market improvement.

The Fed Chair, Janet Yellen, in her press conference following the meeting, said that "Just because we removed the word 'patient' does not mean we will become impatient," The comment spread the doves into the market and triggered USD sell-off. The Fed Chair also signaled that labor market is still into its nascent stage and needs sustainable improvements to force the policy makers towards an interest rate hike. Moreover, the FOMC officials revised down their forecast for the economic growth to 2.3% and 2.7% during this year and the next as compared to expecting a 3% GDP growth rate during December meeting. Policy makers also cut down their forecast for end-2015 Fed Funds Rate to 0.625% against the 1.125% level forecasted in December and provided additional weakness to the US currency.

Hence, yesterday’s FOMC meeting added uncertainty into the market that initially expected the hint for June rate hike. The meeting also increased importance for all the up-coming FOMC meetings as market players could keep on looking for interest rate hike.

Limits of the FOMC

Let’s discuss the details that could have stopped the FOMC from announcing interest rate hike mistakes made in 1937 when it tightened too early and had to reverse that decision soon after

US Wage Growth & Inflation

Source: TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES​

Aforementioned chart clearly depicts the two important reasons that could have restricted the FOMC from announcing timings for interest rate hike, the Wage Growth and the Inflation. It shows that even if the NFP & the Unemployment Rate are fairly high, the real wage growth is minimal. Moreover, the inflation is also taking a southward trip and spreading worries for the economy.

Should the FOMC hike interest rate soon, before the wage growth becomes sustained and the inflation rallies, chances are higher that the wages and salaries could dive and would harm the weaker purchasing power of the population. That in-turn would spread another round of pessimistic economic details and would force the central banker to restore monetary easing.

To sum up, even if the broader labor market details are optimistic, and there is a drop of “Patience” word from the FOMC statement, chances are higher that the Fed will wait for further improvements into the labor market details and inflation readings to signal interest rate hike. The announcement is purely data driven and is less likely to happen in near future (till June) unless miracles happen with the US economics.

Other than the speculations concerning Fed’s interest rate hike, discussions between the Eurogroup financial leaders and the Greece, to release emergency lending and loose some of the reform norms, are likely to continue fueling forex market volatility. Should the Greece maintain its hard stance, avoiding orders from Germany and the Troika, chances of Greece leaving the Euro-zone becomes brighter and could hurt the broadly weaker Euro.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

US Dollar Might Extend The Corrective Move

Last week's movement in the Forex market was driven by one of the most eagerly awaited FOMC meeting statement. As was anticipated, the Federal Reserve dropped the word "patient" from its policy statement but the tone portrayed a dovish economic outlook. The US central bank lowered its economic growth outlook and inflation projections. Moreover, although the FOMC expects to begin raising interest rates later during the year, but the projected pace was more gradual than the market participants were expecting. Recent strengthening of the US Dollar was quoted as one of the primary reasons for downward revision of the economic outlook. Fed's dovish economic outlook was re-affirmed by last week's lackluster US housing starts data and an unexpected drop in two regional manufacturing indices. This led to a sharp sell-off for the US Dollar, snapping the overall US Dollar Index's (I.USDX) four weeks of winning streak.

Moving ahead, investors will have the opportunity to further gauge the health of US housing market and manufacturing sector from this week's existing home sales and durable goods orders. However, this week's key drivers from US economic calendar would be the latest reading on US headline inflation, consumer price inflation (CPI), and the final print of US GDP for the fourth-quarter of 2014.

Data pertaining to durable goods orders for the month of February is scheduled for release on Wednesday. Following its first rise in three months, durable goods orders are expected to register a marginal gain of 0.2%. Meanwhile, core durable goods orders, which excludes transportation items, are anticipated to have gained 0.4% in the month of February. This week's housing data from the US features the release of existing and new home sales data for the month of February and are scheduled for release on Monday and Tuesday respectively. The US housing market data is expected to show signs of stabilizing with existing home sales expected to rise to an annualized rate of 4.91 million units from 4.82 million pace recorded last month. On the other hand, New home sales data, a forward looking indicator, is expected to register a slight decline and come-in at an annualized rate of 472K, down from a print of 481K in January.

Source: US Bureau of Labor Statistics​

The US CPI figure for February is scheduled for release on Tuesday. Following last month's subdued print of -0.7%, led by sharp fall in oil prices, CPI for February is expected to have gained 0.2%. The core CPI number, which excludes the volatile food and energy prices, is also expected to increase marginally by 0.1% on a month-on-month basis. The final estimate of US GDP for the fourth-quarter of 2014 is scheduled for release on Friday and after a downward revision, economists this time are expecting an upward revision. Consensus estimate the data to show an annualized growth rate of 2.4%, indicating a steady growth trajectory which is more likely to be carried forward in 2015.

After last week's dovish Fed comments, a disappointing economic data this week, especially weaker-than-expected CPI and (or) GDP data, is likely to hurt near-term demand for the US Dollar, triggering extension of its near-term corrective move.

From the Euro-zone, investors will remain focused on the key developments over a possible solution to Greece’s problems. 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 March are scheduled for release on Tuesday. The German manufacturing and services PMI are expected to show continuous expansion. Meanwhile, French PMI figures are expected to show contraction in manufacturing activity while services PMI is expected to remain in expansion territory. The overall Euro-zone PMI data, however, is expected to show activity in both manufacturing and services sectors expanding at a faster pace than recorded in the previous month.

From UK, inflation data accompanied with retail sales data are likely to continue probing some volatile moves for GBP pairs in the week ahead. Last month UK inflation printed the lowest level on record and the trend is expected to continue with this week's report, scheduled for release on Tuesday, expected to show inflation declining further to 0.1%. Meanwhile, consumer spending, which remains supportive pillar of UK's economic recovery, is expected to have bounced back in February with consensus forecasting retail sales, scheduled on Wednesday, to register a 0.4% growth following a decline of 0.3% in the previous month. Subdued inflation and relatively weaker-than-expected retail sales data is likely to further push the expectations a interest rate hike by BoE, resulting into continuing weakness for GBP in the near-term.

Elsewhere, the flash version of HSBC's Chinese manufacturing data for the month of March is scheduled for release on Tuesday and is expected to remain in expansion territory. Being the largest manufacturer of the world, Chinese manufacturing data bears some meaningful impact on the Forex market. Deterioration in Chinese manufacturing activity is likely to boost demand for safe-haven currencies, especially against the Australian counterpart (AUD), China's largest trading partner.

Last week the Fed provided the required trigger for a short-term corrective move for the US Dollar. Going forward, positive developments from the Greek drama coupled with relatively strong fundamental data from other economics has the potential to further extend the near-term pull-back for the US Dollar.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

A Week Loaded With Important Economic Data

Last week, mixed US economic data led to a intra-week volatility for the US Dollar. Lower-than-expected final US GDP release for the fourth-quarter of 2014 and fifth consecutive monthly decline in durable goods orders, dragged US Dollar lower while strong reading on consumer price inflation and new-home sales data extended some support to the greenback. Combination of diverging economic data led to varying expectations of an eventual interest rate hike by the Federal Reserve and weighed on the US Dollar. Nevertheless, tor the week the overall US Dollar Index (I.USDX) ended lower for second consecutive week.

Going forward, a series of top-tier economic events scheduled at the beginning of a new month will keep investors engaged and help in determining the near-term direction 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 March. Here is a brief overview on some of the important market-moving events scheduled during the course of the upcoming week.

This week's US economic calendar begin with the release of a forward-looking indicator, pending home sales, scheduled for release on Monday. Following an unexpected decline of 3.7% in December and lower-than-expected rise of 1.7% in January, for the month of February pending home sales is expected to show a rise of 0.5%.

In the run-up to the NFP release, movement in the Forex market are likely to be influenced by the release of ISM manufacturing PMI data and ADP report, which shows the number of private-sector jobs addition and provide an early estimate for the government's report. The ISM manufacturing index, scheduled for release on Wednesday, has witnessed a gradual decline since Dec. 2014. For the month of March, the index is expected to drop further and come-in at 52.5. Meanwhile, the ADP report, also scheduled for release on Wednesday, is expected to show an addition of 231,000 jobs in March, outpacing the number of new private sector jobs created in the previous two months. Also watch out for Conference Board's Consumer Confidence index and Chicago PMI data for the month of March, both scheduled for release on Tuesday, and US trade balance data for the month of February, scheduled for release on Thursday.

Source: US Department of Labor​

Moving on to this week's prime focus, NFP data, which is scheduled for release on Friday. US jobs report is one of the most keenly watched economic data from the US and is also known for triggering substantial volatility in global financial markets. This week's release would be no exception as strong labor market report will support the optimistic view of strong labor market recovery that might force the central bank to announce a rate-hike sooner rather than later. The latest monthly employment report for the month of March is scheduled for release on Friday. With the number of new job additions surpassing consensus estimates for four consecutive months, economists remain optimistic over the pace of recovery in the US labor market. Consensus estimate the report to show an addition of 251,000 new jobs to the economy in March and the unemployment rate is also expected to hold steady at a seven-year low of 5.5%.

Even as the timing of interest-rate hike by the US Fed remains uncertain, yet another stronger jobs report would now be enough to convince market of an earlier than expected rate hike, leading to an ultra-strong dollar in the near-term. Only a highly disappointing NFP reading, say below 200,000, coupled with recent softer economic data prints, now seems to seriously deteriorate the strong up-trend for the US Dollar.

From the Euro-zone, investors will closely scrutinize the inflation data for the month of March and unemployment rate for the month of February, both scheduled for release on Tuesday. The flash version of Euro-zone CPI for the month of March is expected to remain subdued at -0.3% and the unemployment rate for the month of February is expected to remain stable at 11.2%. Any further deterioration in the inflation number would further shatter investor confidence in the common currency, Euro, which remains vulnerable to any negative weaker data from the region.

Important data to watch from this week's UK economic calendar include final GDP print for the fourth-quarter of 2014 and key PMI readings (manufacturing and construction PMI) for the month of March. UK GDP for the last quarter of 2014 is expected to match the second estimate of 0.5% and is likely to prove as a non-event for the market. UK manufacturing PMI data, scheduled on Wednesday, and Construction PMI data, scheduled for release on Thursday are this week's key event that could possibly drive GBP pairs in the week ahead.

Meanwhile, economic data that could have a material impact on the Australian Dollar (AUD), includes PMI figures for the month March from Australia's largest trading partner, China. Chinese PMI figures for the month of March includes HSBC's final and official manufacturing PMI, both scheduled for release on Wednesday. Chinese economic data, specially pertaining to manufacturing activity, always has a lasting effect on AUD. Hence, reading below 50 (as is expected), which reflects contraction in manufacturing activity, is likely to exert pressure on the already weak Australian Dollar.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

RBA Maintains Status-Quo; BoJ and BoE to Follow Suit

Slew of central bank announcements started on Tuesday with the Reserve Bank of Australia (RBA) refrained from cutting down their benchmark interest rate and providing a minor recovery into the (AUD). Market players are now looking for monetary policy meetings by the Bank of Japan (BoJ) and the Bank of England, scheduled on Wednesday and Thursday respectively, in order to determine forex market moves. Although both these central bankers are less likely to alter their current monetary policy measures, communications by the policy makers become critical to foresee near-term Japanese Yen (JPY) and Great Britain Pound (GBP) moves.

RBA Maintains Status-Quo

After the Australian central banker cut its benchmark interest rate in February, for the first time since July 2013, speculations concerning the need for another rate cut continue spreading into the market. However, the RBA stopped cutting the Cash Rate from 2.25% in its March meeting and maintained the same in its April 07 meeting.

The commodity driven economy, Australia, acted upon the interest rate cut mainly driven by the plunge in commodity prices amid global slowdown. Moreover, weaker economics from its major consumer, China, also helped pushing down the inflation and GDP growth rate that in-turn caused the central banker to introduce the rate cut.

In its policy statement on April 07, the RBA said "Further depreciation (in Interest Rate) seems likely, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy," That in-turn supports the forecast for another rate cut in future and the AUD decline during medium to longer term.

With the central banker in need of analyzing the effects of its February rate cut, in addition to wait for the FOMC to signal interest rate hike, it is less likely to act in its May meeting; however, extended declines in commodity prices and/or considerable weakness in Chinese economy could force the central bank to announce another rate cut in its May meeting. Alternatively, an improvement into the economics, coupled with the strong commodity prices, could provide another excuse for it to maintain its status-quo and wait for the FOMC to hike the interest rate to support their economy.

Bank of Japan (BoJ) And Bank of England (BoE) Are Other Candidates To Remain Inactive

Having discussed the RBA, another central bankers’ meet, namely the BoJ and BoE, scheduled during the week, are the next events to analyze.

Bank of Japan, that added stimulus in late October, is less likely to act on its recent JPY strength, which is in less interest of the export driven economy, as it continue flashing signals of wait and watch approach before it rolls back sleeves to tame the deflation pressure. The economy witnessed a positive growth in Q4 2014; however, strong JPY is adversely affecting the industrial output and the inflation readings. Even if the policy makers refrains from altering their current monetary policy, the economy watchers survey, scheduled to be released with the rate statement, consequently followed by the press conference, could become important to foresee chances for future increase in monetary easing measures by the BoJ.

Should majority of the policy makers see adverse impact of recent JPY strength, which is more likely, the BoJ could add further stimulus to fuel the economy. However, there are lesser chances that the BoJ acts in medium-term as it would wait for some more time to get the interest rate hike hints from the FOMC and witness results of JPY strength.

It is quite a different case for the Bank of England as compared to RBA and BoJ as it is a strong contestant of interest rate hike after the Federal Reserve. The UK economy has gained considerable improvements in its labor market details, PMIs and growth numbers; however, the inflation reading, which recently plunged to the record low, is hindering the path of near-term interest rate hike. The central banker, in its recent Inflation report, signaled that the inflation reading is likely to remain dismal in near-term due to the decline in commodity prices and slowdown in Europe; however, it continue expecting a higher inflation, reaching 2.0% target in medium to longer term.

Hence, the BoE is less likely to alter its near-term path of the monetary policy tightening unless some of the bear policy makers support loose monetary policy for extended period. Moreover, such changes are only expected in the medium to longer term and the recent policy meeting is more likely to become a non-event.




“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Can US Dollar Extend Last Week's Bullish-Move?

Following a substantial decline in the previous three weeks, the US Dollar, last week, snapped its losing streak and managed to recover against most major currencies. The US Dollar recovery that started with the release of ISM non-manufacturing index, that remains firmly in expansion territory, was reinforced by the minutes from the Fed's latest monetary policy meeting in March. The greenback soared after the release of the minutes that revealed several FOMC members favoring the Fed to start rising the funds rate at the highly-anticipated June meeting. Elsewhere, Greek worries continued dragging the Euro-zone common currency, while uncertainty over the upcoming UK elections has started weighing on GBP. Meanwhile, RBA's decision to hold its key benchmark rates at historic low levels provided some minor support for the Australian Dollar. Nevertheless, the overall US Dollar Index (I.USDX) ended the week on a firm footing and would now take cues from this week's busy economic calendar.

From the US, investors this week will be looking forward to the release of monthly retail sales data, two regional manufacturing indices along with the release of CPI and housing data. In the world of data-dependent monetary policy, the US economic data will be closely scrutinized in order to determine the timing of the Fed starting to move towards normalizing its monetary policy.

The US economic calendar begins with the release of monthly retail sales data and is scheduled for release on Tuesday. Following a back-to-back dismal retail sales data for three consecutive months, market participants are expecting a strong rebound in March with consensus estimates forecasting the retail sales to have gained by 1.1%, while core retail sales (excluding automobile sales) expected to register a rise of 0.7%.

This week's key highlight from the US economic calendar would be the latest print on US headline inflation, consumer price inflation (CPI), for the month of March and is scheduled for release on Friday. Following a modest rise by 0.2% in February, economists are expecting March reading to follow suit and come-in at 0.2% on a month-on-month basis. The Core CPI figure, which excludes the volatile food and energy prices, is also expected to register a rise of 0.2%.

Source: Bureau of Labor Statistics​

Moving on to the US manufacturing data, investors will confront the release of industrial production data for the month of March and two regional manufacturing indices, namely - Empire State Manufacturing Index and Philly Fed Manufacturing Index for the month of April. The Empire State Manufacturing Index and industrial production data are scheduled for release on Wednesday, while Philly Fed Manufacturing Index is scheduled for release on Thursday. Following a weakening trend in ISM manufacturing PMI since the end of 2014, this week's manufacturing data will provide fresh insight on the level of activity in the manufacturing sector. The industrial production for the month of March is expected to have dropped by 0.3% but the regional manufacturing indices are expected to show manufacturing activity regaining some momentum in April. Following an unexpected downtick in March, both the Empire State and the Philly Fed Manufacturing indices are expected to rise and come-in at 7.2 and 6.5 respectively.

The release of government's report on building permits and housing starts for the month of March are scheduled for release on Thursday. Economists expect the number of building permits to hold steady above the 1 million mark, at 1.08 million units annualized rate and housing starts are also expected to reclaim the annual pace of 1 million units in the month of March.

Apart from the US releases, monetary policy decision announcements and subsequent press conference from ECB and BOC along with employment data from UK and Australia, and inflation data from UK and Euro-zone have the potential to trigger some volatile moves in the Forex market.

Both the ECB and BOC are scheduled to announce their monetary policy decisions on Wednesday, where both the central banks are not expected to alter their current monetary policy stance and leave interest rates unchanged. However, what could be of special interest for the market participants is the subsequent press conference, where comments about the economy from the respective central bank chiefs are likely to impact the movement in the currency market. Additionally from the Euro-zone, the final print on the inflation data for the month of March is scheduled for release on Thursday. Ever since 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 final print is unlikely to show any inflationary pressure and is expected to remain at negative 0.1% while the core CPI is expected to remain at 0.6%.

From UK, the annual CPI reading and monthly employment report, scheduled for release on Tuesday and Friday respectively, are likely to infuse substantial volatility, especially for GBP pairs. Inflation data and labor market conditions remains key determinant for Bank of England's monetary policy decision, and hence would be closely scrutinized to determine the timing of a rate hike, if any, by the central bank. The UK inflation, measured by CPI, is expected to remain flat at 0% for March and could further push back the prospects of a rate-hike by BoE beyond 2015. Meanwhile, the UK labor market report for the month of March is expected to show the number of people claiming unemployment related benefits declining by 29,000 and the unemployment rate dropping further to 5.6%.

Elsewhere, economic data that could materially impact and determine whether the Australian Dollar could recover from multi-year lows or not includes Chinese GDP data along with Australian employment reports. Investors will be particularly focusing on the release of the first-quarter 2015 GDP growth figure from world's second largest economy, China. The Chinese GDP data, scheduled for release on Wednesday, is expected to continue pointing towards economic slowdown with consensus estimating a 7.0% year-on-year GDP growth in the first-quarter of 2015, down from 7.3% recorded in the last two quarters of 2014. Meanwhile, the Australian employment report, scheduled for release on Thursday, is anticipated to show the number of new people employed during the month of March to have increased by 14.9 K and unemployment rate to hold steady at 6.3%.

After last week's hawkish FOMC meeting minutes that led to an up-surge in the US Dollar, a better-than-expected US economic data print this week, especially higher-than-expected CPI, is likely to turn the US Dollar back into its medium to longer-term up-trend. Also, being the industrial power-house of the global economy, this week's Chinese GDP data would also contribute towards setting the market tone for the upcoming week.



“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Can Gold Prices Extend Declines On Strong US Dollar?

Ever since the monetary policy meeting of the US Federal Reserve revealed that the US labor market still has a room for improvement, and pushed back the rate hike expectation, which was later confirmed by the weaker NFP reading, the Gold prices rallied nearly 7% from its 2015 lows. However, minutes of the same meeting, released last week, weakened the yellow metal prices to shed nearly 1.3% from its recent highs as MPC members were divided on the timing of interest rate with some of them, mainly the Fed official Jeffrey Lacker, San Francisco Fed President John Williams and the New York Fed President William Dudley, supporting the June hike as appropriate. Gold prices are currently testing the lowest level since the start of the month, except the first day of April, near $1188 while writing the article and are down 1.7% as compared to last week’s close. Even if the stronger USD hurts safe haven demand of the Gold, recent demand statistics from India and China, world’s largest consumers, points different direction ahead of the demand season in India. Let’s discuss them in detail.

Dollar Strength

The US Dollar, which is generally considered to negatively affect the Gold prices, rallied since the start of last week as market players trimmed their short positions in post-NFP trading and the speech by FOMC Member, William C Dudley, kept supporting the June hike and said the recent decline in labor market numbers seems ephemeral. Later in the week, the minutes of the FOMC meeting signaled the same with some of the MPC members supporting the same hike and fueled the US Dollar Index (I.USDX) to conclude the week with nearly 2.6% gains.

The greenback stretched the last week’s strength on Monday, even with no economics to track, and is trading is into the positive territory during the early hours of Tuesday. Market players await CPI figure for the month of March, scheduled for Friday, in order to determine near-term USD moves. Should the inflation figure surpasses the 0.2% mark, chances are higher that the Fed could consider hiking rates sooner than later, that in-turn supports the up-surge in USD prices.

However, one should be cautious as the recent surge in USD is more based on speculation that the Fed could hike interest rate sooner and wasn’t accompanied by improved economic numbers. This week has many important details, in addition to the CPI figure, that would clarify the economic strength of the US. Should the respective economics scheduled during the week, namely the CPI, Housing Market details, Manufacturing Indices and Preliminary reading of UoM Consumer Sentiment, disappoints market players, chances are higher that the USD liquidates its recent gains and could extend its decline beyond early month lows.

Gold Demand

Even if the recent USD rally hurt the Gold prices, demand statistics portrays different story with rise in demand at India and China ahead of demand season supporting the near-term hike in Gold prices.

As per figures released by the World Gold Council (WGC), India again secured its position as a top consumer in 2014 with net gold consumption of 842.7 tons as compared to 974.8 in 2013 while Chinese gold imports totaled nearly 813.6 tons as compared to 1311.8 tons’ figure at the end of 2013. Looking at the gold withdrawals from the Shanghai Gold Exchange (SGE), which generally signals future trend of Chinese import demand, the Q1 2015 amount rose to 623 tons with 10.5% hike as compared to 564 tons during Q1 2014. Moreover, the Indian gold import numbers for the month of March rallied more than double to 125 tons from 60 tons during March 2014, which totals a whooping 900 tons of imports, 36% up on an April-March fiscal year basis, as compared to last fiscal year.

Recent figures from the Commitment of Traders data point that large investors like hedge funds or so-called "managed money" have registered 43% increase in their net long positions for the last week as well as the previous week. Hedge funds are now long 6.5 million ounces compared to 3.1 million ounces mid-March. Further, SPDR, world’s largest bullion backed ETF, added nearly 1.754 tons of gold on last weekend with the total holding stood at 734.29.

Hence, the demand figures are showing quite a different scenario with both the largest consumers of Gold rolling back their sleeves for higher consumption, signaling near-term up-surge into the yellow metal prices. Moreover, the India is on the edge of its one of the largest gold buying season, that includes Akshaya Tritiya and the wedding seasons, and same could help adding more gold into the Indian pockets, helping the gold prices to strengthen.

To sum up, even if the broader USD strength continue extending the Gold price decline, weaker economic readings, following the recent trend of US numbers, could result the greenback to trim some of the recent gains, that in-turn is likely to support the Gold prices. However, stronger economic numbers, mainly the CPI, could become detrimental for the gold prices to print new lows for the year 2015 except the physical demand is noticeably high.

On The Technical Side:

Failure to break the 100-day SMA continue signaling additional decline of the Gold prices; however, the $1178 horizontal mark could become strong support for the yellow metal before it plunges to $1160 and $1143, breaking which $1110 and the $1080 are strong supports.

Alternatively, a break of 100-day SMA, near $1211, could fuel the gold prices towards $1224 horizontal mark, 50% Fibonacci Retracement of its November 2014 – January 2015 up-move, breaking which prices can rally to $1240, 38.2% Fibo, and the $1260 mark that is likely restricting near-to-medium-term up-move of the gold prices.




“Original analysis is provided by Admiral Markets”

 

[Admiral Markets]

Market Turns Cautious On USD

Last week's US economic data managed to move back to reflect positive growth but fell short of consensus estimates. Apart from Friday's headline inflation data for March that rose in-line with market expectations, most of the economic data points that included monthly retail sales data, regional manufacturing indices and housing data, although reversed prior month's declines, printed weaker-than-expected numbers. Tepid US economic data resurfaced expectation that the Fed might refrain from raising interest rates until the last quarter of 2015, eventually dragging the US Dollar lower for the week against most major currencies.

With very little in terms of any major economic releases scheduled during the course of upcoming week, investors will have the opportunity to further gauge the health of US housing market and manufacturing sector. This week's data from US housing market data features the release of existing and new home sales data, scheduled for release on Wednesday and Thursday respectively. Following a lower-than-expected reading in last four releases, the existing home sales data for the month of March is expected to reclaim the 5 million units mark and come-in at an annualized rate of 5.04 million units. Meanwhile, new home sales data for the month of March is expected to continue holding the 5 million mark unit but is expected to slip from 539K and reach seasonally adjusted annual pace of 514K.

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 March and flash manufacturing PMI for April. Data pertaining to durable goods orders is scheduled for release on Friday and flash manufacturing PMI data is scheduled for release on Thursday. Following its recent decline, orders for durable goods, which also includes transportation items, is expected to register a gain of 0.7% in the month of March and core durable goods (excluding transportation items) are anticipated to rise by 0.2%. Meanwhile, the Markit flash manufacturing PMI for April is expected to continue reflecting expanding manufacturing activity and come-in at 55.6.

After last week's dismal economic data, the market now seems to have turned cautious and any further deterioration in the economic numbers is likely to extend the near-term corrective move for the US Dollar.

From the Euro-zone, investors will remain focused on the key developments over a possible solution to the Greek drama from Friday's meeting of Euro-zone finance ministers. The key agenda will be to reach an amicable deal to help Greece avoid a default on its debt. On the economic data front, investors will be keeping a close watch on the latest 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 April are scheduled for release on Thursday. The German manufacturing and services PMI are expected to show continuous expansion. Meanwhile, French PMI figures are expected to show contraction in manufacturing activity while services PMI is expected to remain in expansion territory. The overall Euro-zone PMI data, however, is expected to show activity in both manufacturing and services sectors expanding at a faster pace than recorded in the previous month. Other key economic release featuring this week's Euro-zone economic calendar features the release of German ZEW economic sentiment and Ifo business climate for the month of April, scheduled for release on Tuesday and Friday respectively.

Following last week's up-surge in EURUSD, led by the optimistic comments from ECB President Mario Draghi, during the press conference following the ECB monetary policy decision, improvement in this week's PMI figures is likely to help the common currency to extend its near-term recovery.

Dominant UK economic releases from this week's economic calendar consists of monthly retail sales data and minutes from Bank of England's latest monetary policy meeting. The BoE monetary policy meeting minutes, scheduled for release on Wednesday, might continue probing some volatile moves for GBP pairs. The minutes from BoE's latest policy meeting is unlikely to show any change in the number of MPC members showing willingness to raise benchmark interest rates. BoE, however, has projected upbeat inflation and economic growth in its quarterly inflation report. Hence, the minutes could provide some insight that might 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 risen by 0.4% in March on a month-on-month basis. After an unexpected rise in February, stronger or in-line with estimates March retail sales data, scheduled for release on Thursday, is likely to continue supporting GBP, at-least in the near-term.

Elsewhere, the flash version of HSBC's Chinese manufacturing data for the month of April is scheduled for release on Thursday. The PMI data is expected to print a reading below 50, indicating contraction in manufacturing activity. Being the largest manufacturer of the world, Chinese manufacturing data bears some meaningful impact on the Forex market. Deterioration in Chinese manufacturing activity is likely to fade demand for commodity currencies, especially the Australian counterpart (AUD) and New-Zealand Dollar, China's largest trading partners.

Other economic releases that could possibly moves AUD includes the release of RBA's April monetary policy meeting minutes and quarterly CPI data for the quarter ended March 2015, scheduled for release on Tuesday and Wednesday respectively. The RBA policy meeting minutes are likely to prove a non-event for the Australian Dollar (AUD). Australian CPI is expected to continue with its downward trend in-line with commodity prices and come-in at 0.1%, as against the rise of 0.2% recorded in the previous quarter. A further drop in the inflation could possibly hint towards continuing the deflationary phase. This accompanied with a slowdown in the Chinese economy would further reinforce the prospects of RBA initiating some stimulus measures. However, should the releases matches consensus forecast, it is likely to boost the near-term demand for AUD.


“Original analysis is provided by Admiral Markets”