Forex Fundamental Analysis

Forex Weekly Outlook Dec. 8-12

The US dollar had another excellent week, reaching new highs against many currencies. Can this continue or will we see a pause? Rate decisions in New Zealand and in Switzerland, US retail sales and consumer sentiment and the ECB’s TLTRO are among the major events for this week. Here is an outlook on the highlights coming our way.

Non-Farm Payrolls posted a superb job gain of 321,000 in November. The release also showed a 0.4% rise in wages. The unemployment rate remained unchanged at 5.8%. This was the biggest jobs gain since January 2012, far above average of 224,000 a month over the past year. This excellent release demonstrates that the ongoing improvement in the job market cannot go unnoticed. In the euro-zone, the ECB refrained from announcing QE in the last meeting for the year, but subsequent reports about the imminence of the move means more pressure on the euro. The Aussie suffered a disappointing GDP report and is now expected to cut rates in 2015. Canada’s loss of jobs didn’t help the loonie. USD/JPY remained unstoppable and left dust behind the round level of 120. Let’s start:

  1. Japan GDP: Sunday, 23:50. Just as the trading week begins, Japan will update its GDP report for Q3. The first release came out at -0.4%, and this means that the country suffers from a recession. This is one of the reasons for scrapping the sales tax hike and for calling the elections. An upgrade to a slide of only 0.1% is expected now. A surprising positive figure would erase the recession. The yen is likely to move sharply in the wake of the new week.
  2. NZ Rate decision: Wednesday, 20:00. New Zealand’s central bank maintained its Cash rate in September at 3.50%, implying they will keep monetary policy on hold until the end of next year, contrasting the U.S. Federal Reserve plans of raising rates. Low inflation and slowing global growth were the reasons behind the decision to keep rates unchanged. Rates are expected to remain unchanged.
  3. Australian Employment data: Thursday, 0:30. Australia’s job market added 24,100 jobs in October. Full-time positions expanded by 33,400 while part-time roles declined by 9,400. The jobless rate remained unchanged at a 12-year high of 6.2%, suggesting a weaker labor market amid the economy’s transition from mining-driven growth. The participation rate edged up to a seasonally adjusted 64.6% compared to 64.5% in the previous month. These figures indicate a modest improvement and a positive trend. Australia is expected to gain 15,200 jobs in November, while the unemployment rate is predicted to reach 6.3%.
  4. Switzerland rate decision: Thursday, 8:30. The Swiss National Bank kept its Libor rate at the minimum low of 0.0% to 0.25%, in line with market prediction. SNB policymakers also issued updated forecasts for growth and inflation revealing a moderate pickup in the coming months. The Central Bank expects GDP growth to reach 2% in 2015. Inflation is expected to reach 2% in 2014 and only 0.6% in 2015. The 3 year+ floor of 1.20 under EUR/CHF, which is not too far from the current price, is widely expected to be maintained.
  5. Euro-zone TLTRO results: Thursday, 10:15. The ECB reports the results of the second tranche of targeted loans: loans that are directed to the real economy. The first tranche disappointed with only €82.6 billion. A bigger take up is expected now, but as long as it remains under €200 billion, the pressure to deliver QE is likely to continue. This is a key release for the euro.
  6. US retail sales: Thursday, 13:30. U.S. consumers increased their spending in October, reaching $444.5 billion, on a seasonally adjusted basis, rising 0.3% compared to September’s decline of 0.3%.  Economists expected a smaller rise of 0.2%. Consumers were more optimistic and made more purchases. October’s core sales, excluding autos, edged up 0.3% from a 0.2% decline in September. Analysts predicted a 0.2% gain in October. Falling gasoline prices helped to increase domestic expenditures leading to stronger holiday sales. Retail sales are expected to gain 0.3% in November while core sales are predicted to rise 0.1 %.
  7. US Unemployment claims: Thursday, 13:30. The number of initial claims for unemployment benefits fell back below the 300,000 line last week, indicating continued growth in the labor market. He reading was broadly in line with market forecast. The four-week average increased by 4750 to 299,000 still near post-recession low. However, the sharp decline could be attributed to Thanksgiving holiday. The number of new unemployment claims is expected to be 299,000 this time.
  8. US PPI: Friday, 13:30. The producer price index gained 0.2% in October amid a pickup in inflation. Prices for many products increased despite a decline in wholesale gas costs. Automakers contributed to inflation by introducing 2015 car models. Beef prices jumped 6% and pork prices surged 8.1%. Meanwhile, core PPI excluding the volatile categories of food and energy, increased 0.4%. However, the rise in PPI does not reflect a trend, since the ongoing declines in fuel prices boost sales boosting inflation. The producer price index is predicted to fall 0.1% in November.
  9. US  UoM Consumer Sentiment: Friday, 14:55. U.S. consumer sentiment edged up in November to a more than seven-year high of 88.8 points, compared to 86.9 posted in September. Economists predicted a reading of 87.3. The ongoing growth in the employment market and the sharp drop in gasoline prices, boosted sentiment. Current economic conditions increased to 103.0 from 98.3 beating forecast of 98.8. Consumer expectations increased to 80.6 from 79.6, exceeding the 80.2 forecast. However, expectations for income gains remained low despite rising and came in below inflation forecasts. One-year inflation expectation declined to 2.6% from 2.9%, while its five-year inflation outlook was also at 2.6%. U.S. consumer sentiment is expected to improve further to 89.6 this time.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

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