Inflation & Employment Details To Offer Volatile Week Ahead
Hi There,
We're impressed with this thread and would like to share our fundamental forecast, hope you don't mind it.
Inflation & Employment Details To Offer Volatile Week Ahead
“Not everything that goes up can keep pleasing the Bulls forever.” The same happened with the US Dollar during last week when uncertainty over President Donald Trump’s optimistic tax-plan, coupled with lack of big releases, triggered the greenback’s profit-booking by registering the first weekly decline in previous four of the US Dollar Index (I.USDX). With this, the EUR managed to post a weekly advance even after carrying fewer data-points but the GBP couldn’t enjoy upbeat British economics due to pessimism surrounding Theresa May’s future as UK PM and slower growth of Brexit talks. However, the same Geo-political threats, including the news from Saudi Arabia, helped the safe-havens, namely JPY, Gold and CHF, to remain positive at the end of the week.
Further, AUD, NZD and CAD also strengthened on a weekly basis, irrespective of the RBA’s not so hawkish tone, with RBNZ’s optimism and welcome figures from China while the Crude stretched its north-run to consecutive fifth week mainly because of growing support for an extension to global production-cut accord beyond March 2018.
Even with shorter list of economic data-points, last week offered volatile moves on Geo-political concerns which are still active and got the boost during weekend with Sunday Times’ news signaling 40 members of UK parliament stand ready to ink a letter of no confidence for the present occupant of the UK PM. Additionally, Saudi Arabia increased security of its Crude pipelines after one of the sources witnessed a blast. Hence, the Geo-political waves aren’t likely to soften anytime soon and may keep entertaining investors for the upcoming week.
Other than the political news, the economic calendar is also heavier for the week as it contains headline CPI from UK, US & Canada, Retail Sales from US & UK and Job numbers for Australia and Britain.
Let us discuss each of these fundamentals in detail.
US Inflation, A Key To Unlock Another Rate-Hike
Although uncertainty concerning the Trump’s much awaited tax-plan dragged the US Dollar down during last-week, December rate-hike woes aren’t still dead as the latest communication from one of the FOMC member favored another rate-lift in the upcoming month. Though, the Federal Reserve has always preferred weighing inflation as a strong indicator to base upon their monetary policy changes and hence Wednesday’s CPI will become crucial for all the USD Bulls who are still buying the currency.
During its latest release, the monthly figure for CPI registered a 0.5% growth and the YoY stat marked 2.2% increase compared to their respective priors of 0.4% & 1.9% while the Core CPI softened to 0.1% from 0.2% earlier on monthly basis but remained unchanged while looking at YoY figure of 1.7%. Concerning this week’s release, forecasts suggest 0.1% & 2.0% numbers for the CPI’s monthly & yearly horizon respectively whereas the Core CPI isn’t expected to change from 1.7% YoY but increase a bit on MoM to 0.2% mark.
Inflation isn’t only consumer-centric detail which is scheduled for release on Wednesday, the monthly update for Retail Sales is also out for declaration on the same day. Retail Sales also suggest absence of strong consumer sentiment as the headline figure might register 0.1% growth against 1.6% with the Core Retail Sales likely flashing 0.2% mark compared to 1.0% earlier.
In addition to the aforementioned top-tier stats, monthly releases of US PPI, Empire State Manufacturing, Philly Fed Manufacturing and Housing Market details are also up for release during the week. Starting with the PPI, the factory gate inflation gauge is expected to register 0.1% growth versus 0.4% prior on Tuesday while the Building Permits & Housing Starts, on Friday, could again portray the strength of US reality sector with the former likely posting 1.25M against 1.23M prior and the later is expected to make 1.19M mark versus 1.13M earlier.
Moving on, manufacturing indices, namely Empire State Manufacturing Index and Philly Fed Manufacturing Index, are both bearing pessimistic expectations for their scheduled release of Wednesday and Thursday respectively. The Empire State Manufacturing Index may register 25.3 number versus 30.2 prior while the Philly Fed Manufacturing Index is likely to post 24.3 mark compared to 27.9 earlier.
On the political front, some of the Republicans have started taking their steps back from supporting the Trump’s tax plan in his absence and the Senate’s raw announcement to introduce a phased tax-rate cut is something investors might not like while the Mr. President’s failure to get any big good news from his Asian tour could hinder the USD’s up-moves. However, he seems cultivating a bit soft corner for the North Korea off-late as recent political news signals Donald Trump isn’t avoiding chances of a diplomatic talk with his North Korean counterpart which the former previously denied.
Hence, even if the consumer-centric details might not offer any big good news, USD buyers may have a chance to ignore soft numbers in light of hurricane effects and soothing tension with North Korea. Though, developments on tax-plan must not be missed.
UK & EU Economic Calendar Are Also Worth Observing
US isn’t the only major economy that’s likely to entertain investors during the week, the UK and EU also have some important data-points scheduled that can fuel market moves.
From the UK, Tuesday’s CPI, Wednesday’s Jobs Report and Thursday’s Retail Sales are the headline numbers that could help portray near-term GBP moves while Tuesday’s German & EU ZEW Economic Sentiment and EU Flash GDP may direct immediate EUR trend.
While UK CPI and Retail Sales are both expected to help the Pound recover some of its latest losses with 3.1% and 0.2% numbers against 3.0% and -0.8% respective priors, the employment details aren’t seem that upbeat. The Average Earnings might flash 2.1% mark versus 2.2% prior and the Claimant Count Change could register an increase of 2.4K from 1.7K while the Unemployment rate isn’t likely to change from 4.3%.
In case of EU release, the Flash GDP might not deviate from its 0.6% prior but the improvement in ZEW numbers can help the EUR. German ZEW Economic Sentiment bears the consensus of posting 19.8 mark compared to 17.6 earlier with the EU ZEW Economic Sentiment likely registering 29.3 stat against 26.7 prior.
In regards to the politics, the UK PM’s status is again in danger due to her inability to get required success in Brexit talks and also because many of her supporting law-makers’ resignations filed due to latest sex-scandals at the Britain. However, there seem lesser traumatic situation at EU that can help the regional currency.
Considering the BoE’s latest rate-hike, chances of strong consumer-centric details pushing the central bank towards another such action any time soon are less and hence any negatives from employment front, together with political pessimism, can keep weakening the Pound. Further, the EUR may a reason to stretch its recovery due to acceptable economic sentiment and less political noise compared to other major economies.
Technically, the 1.1560-55 continue being a strong near-term support for the EURUSD, breaking which it can drop to 1.1480 & 1.1450-45 with 1.1730 & 1.1800 acting as important upside resistances to watch. Moving on, GBPUSD’s sustained trading below 1.3100 could signal its downturn to 1.3030 & 1.2950 but 1.3230, the 1.3280 & 1.3330 seem crucial if the pair reverses towards north.
Canadian Consumer-Centric Details, Japanese GDP & AU Jobs Report Comes At Last
If traders aren’t fed up of aforementioned critical data-points, Tuesday’s Preliminary reading of Japan’s Q3 2017 GDP, Thursday’s AU Employment numbers and Friday’s Canadian will still be there to cater their needs.
Japan’s Prelim GDP might soften a bit to 0.4% from 0.6% prior but still is expected to register seventh straight quarter of gains and that’s what Shinzo Abe might keep praising to support the present policy of the nation, be it fiscal or monetary. Further, the Australian Employment Change is also expected to weaken a bit to 18.9K from 19.8K prior with no change likely in present Unemployment rate of 5.5%. Moreover, Canadian CPI might also disappoint recent buyers of the CAD with 0.1% mark against 0.2% prior.
With the present political turmoil likely to keep helping the JPY conquer soft GDP mark, the AUD and CAD may have lesser strengths to stretch their up-moves due to weaker economics.
On the technical front, USDJPY might not decline much unless breaking 112.80 support while its upside seems capped by 113.80 & 114.50. However, the AUDUSD has repeatedly failed to cross the 200-day SMA figure of 0.7700 and may drop to 0.7570 on the break of 0.7630 whereas USDCAD is likely bouncing back from 1.2680 support-line towards 1.2780 resistance-mark.
