Weekly Review and Outlook 24th October 2016

Mark NugentOct 2016, Trading Plan


Weekly Forex Review – Week Commencing 17th October 2016

Economic Calendar

On Monday NZ CPI q/q was above expectations (0.2% vs 0.0%).

Tuesday saw RBA minutes from October 4th meeting stating the voting members judged holding rates at the meeting was consistent with inflation and growth targets. It was also noted that Q3 CPI figures would be available at the next meeting (1st November). RBA’s Governor Lowe commented that Australian interest rates are very low (1.50%) and he stated that there is a focus on employment and the stability of the financial system. Kuwait’s acting oil minister said he expects producers to reach an agreement on a production cap at the forthcoming November meeting of OPEC. Tuesday saw UK CPI y/y outperforming an already high expectation (1.0% vs 0.9%). US Core CPI m/m missed (0.1% vs 0.2%). In New Zealand, Global Dairy was slightly positive at 1.4%.

Wednesday we see mixed signals from China: GDP q/y was on target at 6.7% but Industrial Production y/y missed (6.1% vs 6.4%). Clinton seen as winner of 3rd Presidential debate by CNN poll, Trump seen as winner by Drudge poll. UK Average Earnings Index 3m/y meet expectations at 2.3% with the prior number revised up from 2.3% to 2.4%. Bank of Canada Interest Rate as per expectation – remaining at 0.50%. The BOC cut 2016 GDP growth forecast to 1.1% from the prior 1.3% and cut 2017 to 2.0% from 2.2%. Also, they cut 2016 CPI to 1.5% from 1.6% and 2017 to 1.9% from 2.1%. These reductions were in line with market expectations.

Thursday saw UK Retail Sales miss (0.0% vs 0.3%) and the prior number revised up (0.0% from -0.2%). The big news of the day was the ECB rate decision and press conference. The rate was kept at 0.00% as expected. There had been some rumours in the build up that QE would be tapered or continued beyond the currently indicated end point of March 2017. Draghi made it absolutely clear that neither a continuation nor tapering (the continuation of QE at a reducing rate over a period until it ceases) was even discussed. Of course this strengthened the Euro and weakened equities, but then these moves largely reversed. Draghi also said that they had not discussed cutting rates and that there were no signs yet of a convincing upwards trend in underlying inflation and the European Council will review the committee’s work on QE in December.

The week ends on Friday with Canadian Core Retail Sales missing (0.0% vs 0.4%) and the prior number revised down (-0.2% from -0.1%).

Market Reaction

All major equity markets were up on the week and the sentiment was risk on. Crude oil continued to move sideways in its consolidation zone just above USD50/barrel. Deutsche Bank’s shares recovered slightly but there remains huge concern about the delays in reaching a settlement with the Department of Justice in the US over the proposed USD14B fine which is the current value of the entire bank.

The USD closed up on the week after a poor start. The Euro broke down through support as it weakened. Both the JPY and the GBP moved sideways. The commodity currencies were mixed with CAD down and NZD up. The AUD was essentially flat on the week.

Trading Plan

Two Euro50 shorts, Trades 70 and 71, both closed at a total loss of 1.0% as the Euro50 rose to meet resistance at around 3082. We remain around 2.5% up for the month and over 30% up year-to-date.

Weekly Forex Outlook – Week Commencing 24th October 2016

Economic Calendar

Mon – BOC Governor Poloz speaks to the House of Commons Standing Committee on Finance in Ottawa.
Tues – BoE Governor Carney to testify about the economic consequences of the Brexit Vote before the House of Lords Economic Affairs Committee in London. ECB President Draghi due to speak about stability, equity, and monetary policy at the DIW Economic Institute, in Berlin.
Wed – Australian CPI q/q.
Thurs – UK sees Preliminary GDP q/q.
Fri – In Japan, Tokyo Core CPI y/y and in the US Advanced GDP q/q.

Financial News

EU trade pact with Canada

GBP uncomfortable truce can’t mask the risk of abrupt swings

Oil holds above 50 as Iraq signals break from OPEC output plan

Carney’s future gives investors yet more brexit uncertainty

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