Your weekly fundamental view (Nov 14-18)

November 14, 2016 13:24

Need to know

This week is pretty weak on fundamental events, even though there are many important releases this week. In our opinion, the main focus is on the release of GBP CPI. It is very important for the UK economy as their currency has dropped a lot and inflation data is used as the BOE's inflation target. Other important events that traders should be paying attention to are listed below.

Coming up

EUR Mario Draghi the head of ECB speaks on Monday, 14 November. Mr Draghi should speak at the Italian Treasury in Rome. Why should traders care? Volatility is often experienced during his speeches as traders attempt to decipher interest rate clues.

AUD monetary policy meeting minutes on Tuesday, 15 November. Held 11 times per year and two weeks before the official cash rate decision, this is a detailed record of the RBA Reserve Board's recent meeting. Why should traders care? If the statement is hawkish, it is deemed good for the currency and vice versa if the statement is dovish. Traders usually trade this report in the form of spike trading.

GBP CPI comes on Tuesday, 15 November. This is considered the UK's most important inflation data because it's used as the central bank's inflation target. Why should traders care? Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.

Chart: GBP CPI

German preliminary GDP data is released on Tuesday, 15 November. There was a 0.4 % expansion in the Q1, but the current forecast predicts 0.3 % expansion for this eurozone-leading economy. The report measures the overall change in the inflation-adjusted value of all goods and services produced by Germany. As such, it affects the eurozone as well. If the result comes better than expected, traders might start buying Euro against the Dollar. Why should traders care? There are two versions of GDP released about 10 days apart – Preliminary and Final. Preliminary release is the earliest and thus tends to have the most impact.

US retail sales is released on Tuesday, 15 November. The US is a consumer economy. This report is very important for clues related to GDP growth and inflation. Why should traders care? The US retail sales are also important for stock markets and right now, stock markets are very volatile. The US retail sales are the earliest and broadest look at vital consumer spending data.

GBP average earnings and claimant count change are out on Wednesday, 15 November. Average earnings data is the overall change in the price businesses and the government pay for labour, with all bonuses included. A claimant count change represents the number of people claiming unemployment-related benefits during the previous month. Why should traders care? Both reports are released at the same time on Wednesday. Average earnings is a leading indicator of consumer inflation, as when businesses pay more for labour, the higher costs are usually passed on to the consumer. Claimant count data is good if the actual result is below the forecast, as it is the earliest indication of the employment situation.

Crude oil inventories are released on Wednesday, 16 November. A build-up in crude oil inventories usually signals decreasing demand from refiners. On the other hand, a drop would signal that refiners are still producing at elevated levels and the inventory overhang in oil products could continue. This is primarily a US indicator, but it also affects CAD due to Canada's huge energy sector. Previous data showed a 2.4m barrels increase. Why should traders care? The price of petroleum products influences inflation, which impacts oil-dependent industries. Oil has dropped a lot due to oversupply in Europe, so signs of weakness in the USA could send it lower again.

US unemployment claims are released on Thursday, 17 November. These claims are the earliest national economic data, representing the number of individuals who filed for insurance for the first time during the past week. If the actual result is weaker than the forecast, it could be deemed good for the currency. Why should traders care? The number of unemployed people is an important signal of the overall economic health and could hint at the future monetary policy steps.

US inflation rate CPI and Core CPI are released on Thursday, 17 November. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate. Why should traders care? The Federal Open Market Committee and traders usually pay more attention to the core data. If the actual report comes better than the forecast, it should be good for currency.