Weekly Review and Outlook 12th September 2016

Mark NugentSept 2016, Trading Plan


Weekly Forex Review – Week Commencing 5th September 2016

The main unfolding story of the week was to do with the BoJ and further easing. On Monday, the Bank of Japan said there is room for more accommodation in the run up to the next monetary policy meeting on 19/20th September. However, on Tuesday Japanese PM Abe Adviser Hamada stated the BoJ should wait for the Fed before taking the next steps towards further easing as the BoJ risks having their efforts overshadowed if it expands easing in September and Fed maintains rates a few hours later. Hamada added that a Fed hike would have more impact on weakening the JPY than anything the BoJ does alone and that there is still an opportunity to expand easing in November and December. Then on Wednesday it was reported in Sankei (a newspaper) that the BoJ was struggling to form a consensus regarding its approaching policy review. The JPY strengthened over the week.

Elsewhere, UK Services PMI beat expectation (52.9 vs 49.1) and the GBP rose but ended the day only slightly up vs the USD.

Tuesday saw the Australian cash rate unchanged at 1.5%. The accompanying statement revealed that recent data indicates that overall growth continues despite the recent fall in business investment. Further, the RBA commented that inflation is still quite low and is expected to remain low for quite some time.US ISM Non-Manufacturing PMI missed (51.4 vs 55.4) causing the USD to slide. NZ Global Dairy was positive (7.7% vs no expectation).

On Wednesday we had Australian GDP q/q which was a minor miss (0.5% vs 0.6%) but seen as good enough in the current climate. UK Manufacturing Production missed expectation (-0.9% v -0.4%). At the UK Inflation Report Hearings, BoE Governor Dr Mark Carney said there was more room for interest rate reductions if needed.Bank of Canada kept interest rates unchanged at 0.50%. The statement commented that they see inflation risk skewed to the downside, whilst reiterating expectations of the GDP rate rebounding in Q3 as the impact of the Alberta wildfires works through. The National Iranian Oil Company stated that Iran may be able to exceed pre-sanction levels of output next year and added that it is too early to discuss a production freeze at the Algiers meeting.

Thursday – the ECB kept rates and QE the same. Draghi’s statement was relatively uneventful, with the highlight coming in the form of the staff projections on CPI and GDP as reported in Friday’s Daily Alert. There was very little change from the last forecast. As a consequence, ECB President Draghi states that no additional stimulus is needed at this time and that they are working on a smooth implementation of policies. In the US, Crude Oil Inventories dropped by 14.5M barrels vs forecast of an increase of 0.6M barrels. This is due to lower than normal production and imports caused by a series of tropical storms on the East and Gulf Coasts.

Friday: Chinese CPI y/y missed (1.3% vs 1.7%). North Korea tested what appears to be their biggest ever nuclear device.

Western equity markets were flat all week until Friday when they all fell significantly in selling that lasted all day. German 10 year bund yields crawled back into positive territory. Oil rose on the week.

Trading activity – 3 trades closed last week for a gain of +1.0%.

Weekly Forex Outlook – Week Commencing 12th September 2016

The calendar this week shows a focus on the UK:

Tues – UK CPI and Core CPI
Wed – UK Average Earnings and Claimant Count; US Crude Oil Inventories; NZ GDP
Thurs – UK Retail Sales; UK Super Thursday (interest rate, QE, votes, Monetary Policy Summary); US Retail Sales
Fri – US CPI (the Fed’s favoured measure of inflation, PCE,  is published on 30th Sept)

Bloomberg reports Greek PM Tsipras is repeating calls for debt relief and also for Greek bonds to be included in the ECB’s QE programme. There is an editorial piece saying that governments must start using fiscal policy in a way that complements rather than hinders their central banker’s efforts with monetary policy.

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