Inflation, PMIs & Central Bankers To Keep Traders Busy

Januar 18, 2016 12:45

Last week, "Risk-off" sentiment in the global financial markets, mainly driven by Chinese pessimism, kept supporting safe-havens, including JPY, Gold and USD, as majority of the global economies had no important data-points to publish. Adding to this, six month high US Consumer Confidence provided extra strength to the greenback in countering negative impacts of downbeat US Retail Sales, PPI, Jobless, Manufacturing & Industrial numbers while registering weekly positive closing. Moving on, the GBP extended its downside to multi-year lows against the USD with continued stream of weaker economics favoring BoE policymakers' decision to wait and watch for further monetary policy action while the EUR performed negatively with absence of economic support. Moreover, commodity currencies, namely AUD, CAD and NZD, went on extending their south-run as commodity sell-off failed to hold its breath with continued crash in crude oil prices and the Chinese currency (Yuan) devaluation.

Unlike the week gone-by, the upcoming week, which starts with the US bank holiday on Monday, has many important events to fuel the forex market. Amongst them, Chinese GDP and Industrial Production, Inflation numbers from UK, US and Canada, coupled with monetary policy meetings by the BoC and ECB, are likely to gain major attention. Also, UK Retail Sales & Job details, US housing market numbers and the slew of PMIs from EU & US, could offer additional volatility to participants of global financial markets.

Chinese Economics Could Continue Fueling Wild Moves

Off-late the China, world's second largest economy and the biggest industrial player, has been fueling global market volatility as the nation's economy continues to struggle with its downbeat data-points and the currency devaluation. Being one of the major market influencer and large commodity user, pessimism at the domestic front spread fears across the globe and help safe-havens. The dragon nation is scheduled for publish its headline GDP and the Industrial Production numbers on Tuesday that could provide further insight on how deep-rooted the present Chinese problem is.

As can be noticed from the aforementioned graph, Chinese Industrial Production and the GDP generally goes hand-in-hand as the economy is heavily dependent on its manufacturing sector and hence another weaker print of the Industrial production might force the forecasters to expect slower economic growth. The Industrial production marked downbeat numbers in September and October before it printed 6.2% growth during November, the manufacturing output is likely registering 6.0% number during the month of December. Moving on, Q4 2015 GDP growth rate is expected to maintain its 6.9% increase.

While stagnant GDP growth rate might soothe some of the recent scars of commodity decline, weaker Industrial production details could continue dragging down the commodity currencies, namely - CAD, AUD and NZD, and can favor more volatility in the market.

US CPI And Housing Market Details To Help Determine USD Moves

The US markets which are off for Monday, could witness magnified volatility on Wednesday when the benchmark inflation number, CPI, and the headline housing market readings, namely Building Permits and Housing Starts, are scheduled for publish. Moreover, Thursday's Philly Fed Manufacturing Index & Jobless Claims, followed by Friday's Existing Home Sales could offer additional help to forecast immediate US Dollar moves.

While the CPI is likely maintaining its 0.0% mark again and the Core reading is expected to print 0.2% increase one more time, the Building Permits may reveal a bit of weakness in US housing market with 1.20M number against 1.28M prior; however, expected gains in Housing Starts and Existing Home Sales, may counter the pessimism with 1.19M v/s previous 1.17M and the 5.21M as compared to 4.76M revealed during prior month respectively. Further, consensus relating to the Philly Fed Manufacturing Index and the Jobless Claims reveal less of change with the Philly index might mark -3.1 number versus -5.9 prior and Unemployment Claims can print 281K against 284K prior.

Even if inflation readings are less likely to support the USD up-move, if matching with forecast, upbeat housing market details, coupled with on-going risk-off market mode, can again help the greenback land on a positive side.

ECB, European ZEW Index and Headline PMIs Can Portray EUR Trend

After witnessing nearly two-weeks of no major European economics, the EU economic calendar is scheduled for releasing ZEW Economic Sentiment on Tuesday, followed by the ECB meeting on Thursday and the headline Flash PMIs on Friday.

Although the ECB is less likely to announce any monetary policy change during its upcoming meeting, comments by the ECB Governor, following interest rate decision, is more likely to provide noticeable EUR moves. Recent pessimism across the globe might force the central banker towards speaking some dovish words relating to the inflation outlook; however, with the recently announced QE extension, the ECB Chief may refrain from spreading worries and can maintain its optimistic speech-tone.

Consensus relating to the ZEW economic sentiment indicates weaker points from EU and Germany, as the EU number might mark 27.9 against 33.9 prior while the German reading of the same index is expected to print 8.2 as compared to 16.1 prior. Moreover, monthly Flash PMIs relating to the EU and German Manufacturing and Services sector may also favor recent EUR weakness as both these details are likely revealing soft numbers with the EU Flash Manufacturing PMI expected to print 53.0 against 53.2 prior and the Services PMI may remain intact at 54.2 prior while the German Flash Manufacturing and Services PMIs likely showing 53.0 against 53.2 prior and the 55.6 as compared to the 56.00 marked in previous month respectively.

With majority of the data-points favoring continued weakness in the European currency, dovish tone of the ECB President might extend the stretch the recent EUR weakness.

GBP Traders To Watch UK Job Details, CPI And Retail Sales

Slew on negative data-points and a nearness to Brexit decision continue dragging down the UK currency off-late; however, Tuesday's monthly print of CPI, headline labor market numbers, scheduled for Wednesday, and the December month Retail Sales, up for Friday release, are likely important data-points that could flash lights on further GBP moves.

Even if the CPI and Unemployment rate are likely to remain unchanged at 0.1% and 5.2% prior respectively, Claimant count change may increase to 4.1K against 3.9K prior and Earnings could weaken with 2.1% growth against 2.4% prior. Moreover, the Retail Sales are expected to contract by -0.1% from +1.7% marked during November. Hence, headline data-points support BoE's loose monetary policy and might result further GBP south-run except being surprisingly positive.

Canadian CPI and BoC May Guide CAD Traders

Crash of Crude prices, Canada's main export, coupled with weaker data-points, have been forcing the Canadian Dollar (CAD) to keep running down against majority of its counterparts; however, the Bank of Canada (BoC) has been holding its benchmark interest-rate intact during past three meetings and becomes crucial to foresee upcoming trend of the CAD.

Monetary policy meeting by the BoC, scheduled for Wednesday, is expected to deliver a 0.25% cut in its overnight rate after the central banker held it unchanged during September, October and December. The meeting will be followed by a press conference from the
BOC Governor which might reflect future moves of the policy makers and could reveal the economic scenario of the nation. Moreover, December month CPI, up for Friday, may extend its recent negative print and can magnify CAD decline.

With the on-going plunge in Crude, chances are more likely that the central bank would match with the consensus & can drive the CAD down; though, a surprise announcement to refrain from the interest rate cuts, coupled with hawkish tone of the Governor, might help the Loonie, as it is nicknamed, reverse some of its near-term losses.

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