Markets Likely To Extend Recent Volatility
Last week, the US Dollar Index (I.USDX) ended lower for a second consecutive week amid extreme volatility, which was prevalent across global financial markets. The US economic data released during the week were generally mixed, with the monthly retail sales data and Empire State manufacturing index missing expectations while industrial production and Philly Fed manufacturing index beating consensus estimates. Even weaker German ZEW Economic Sentiment and UK inflation data, which fell to a 5-year low, failed to provide any meaningful support for the US Dollar.
Going forwards, US housing market and inflation data, along with Chinese industrial production data, and GDP data from UK and China are the leading market moving events scheduled in the upcoming week's economic calendar. Apart from this, BoE and RBA monetary policy meeting minutes accompanied with UK retail sales and Australian CPI data and also flash PMI numbers from China and Euro-zone will be closely watched by market participants. Here is a brief outlook of some of the important market-moving events scheduled during the week ahead.
The beginning of the week marks with the release of RBA's October monetary policy meeting minutes and the release of top-tier Chinese economic data, GDP data for third quarter of 2014 and industrial production data for the month of September, on Tuesday. The RBA policy meeting minutes are likely to prove a non-event for the Australian Dollar (AUD), but Chinese economic data is likely to have a material impact on commodity currencies, including AUD, which always has been very sensitive to economic releases from China. The Chinese economic data would further point towards and confirm the ongoing economic slowdown in the world's second-largest economy. Consensus forecast see year-on-year GDP estimate for Q3 of 2014 to come-in at 7.2%, dropping to the lowest level since Q1 of 2009. Meanwhile, industrial production data is expected to rebound to show a 7.5% year-on-year growth, following a drop to the lowest level since Dec. 2008 in the previous month.
Other economic releases that could possibly moves AUD includes Australian quarterly CPI data for the quarter ended Sept. 2014, scheduled for release on Wednesday, and Chinese HSBC Flash Manufacturing PMI data, scheduled for release on Thursday. Australian CPI is expected to register a rise of 0.4% on a quarter-on-quarter basis, as against the rise of 0.5% recorded in the previous quarter. Meanwhile, HSBC's flash version of the Chinese manufacturing PMI for the month of October is expected to continue showing expanding manufacturing activity and match the previous months reading of 50.2.
Being Australia's largest trading partner, key Chinese economic data always has a strong impact on the movement of the Australian Dollar (AUD) and a stronger Chinese economic data would extend support to AUD.
From the US, existing home sales and new home sales data will further help investors to evaluate the health of US housing market following last week's positive housing starts and building permits data. Existing home sales for September, scheduled for release on Tuesday, are expected to continue the positive momentum and rise further to an annualized rate of 5.11 million units. Meanwhile, following a strong gain in May, new home sales for the month of September, scheduled for release on Friday, are expected to retreat a bit to a seasonally adjusted annual rate of 473,000 units.
The latest reading on US headline inflation, consumer price inflation (CPI), for the month of September is scheduled for release on Wednesday, and following an unexpected drop in August, economists this time expect CPI to remain unchanged on a month-on-month basis. Meanwhile, the Core CPI, which excludes the volatile food and energy prices, is expected to register an increase of 0.2%.
This week's UK economic calendar features the release of minutes from Bank of England's latest monetary policy meeting, retail sales data for the month of September and preliminary release of UK's third-quarter GDP data and will be of keen interest for market players and could set the tone for near-term movement for GBP.
Minutes from BoE's latest policy meeting, scheduled for release on Wednesday, is not expected to show any change in the number of MPC members showing willingness to raise benchmark interest rates. Meanwhile, consumer spending, which remains supportive pillar of UK's economic recovery, is expected to have remained subdued in September with experts anticipating retail sales, scheduled on Thursday, to witness a modest decline of 0.1% this time.
This week's preliminary reading of UK's third-quarter GDP growth, scheduled on Friday, might prove to be the deciding factor for the near-term movement of GBP. Economists project the economic growth rate to mark a marginal slowdown and come-in at 0.7% after rising by 0.9% in the second-quarter.
After the UK inflation surprisingly fell to the lowest level in over 5-year, a highly diverging GDP reading is likely to decided Cable's (GBP) near-term direction. In addition to the GDP data, UK monthly retail sales data for the month of September, scheduled for release on Thursday, could also provide some momentum for GBP pairs.
GDP (£billions) and quarter-on-quarter growth
Elsewhere, investors will be particularly 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 October are scheduled for release on Thursday. Both, German and French, manufacturing PMI numbers are expected to reflect contraction in manufacturing activity while the overall Euro-zone PMI is expected come-in exactly at 50, the dividing point between expansion and contraction territories.
The outcome of this week’s Bank of Canada (BOC) monetary policy meeting and a subsequent press conference on Wednesday will be looked upon by market participants to decide the near-term fate for the Canadian Dollar (CAD), which fell to its lowest level since July 2012 against USD in the week gone-by. Should the comments from Governor Steven Poloz continue to show dovish outlook or further trim the economic growth outlook, it is likely to provide the catalyst for additional weakness for CAD.
As the Forex market volatility returns, investors will continue paying close attention to economic releases and the markets are expected to remain jittery. However, as the US economic recovery continues to remain on track and as markets keep expecting the Fed to end its stimulus program in October, the US Dollar seems unlikely to extend its recent weakness during the upcoming week.
“Original analysis is provided by
Admiral Markets”