Weekly Review and Outlook 3rd October 2016

Mark NugentOct 2016, Trading Plan


Weekly Forex Review – Week Commencing 26th September 2016

Economic Calendar

Monday saw BoJ’s Kuroda states the main tool for further easing will be further reductions to interest rates. Two Central Bankers were speaking, Draghi (RCB) in Brussels and Poloz (Bank of Canada) were speaking but neither troubled the media. Monday night’s (US time) first US Presidential Debate viewed as a win for Clinton and this is seen as positive for trade and markets.

Tuesday was very light on Tier I data. Zerohedge reported the following:

Japan PM adviser Hamada said JPY strength is damaging confidence in economy and could hurt BoJ. Hamada added further BoJ easing may not be fully effective unless Ministry of Finance (MoF) addresses speculative forces in FX markets which block regular transmission of monetary policy and that MoF should intervene in FX to stem sudden moves such as 5%-6% per day. (Newswires). BoE Governor Carney said economy is still addressing principal uncertainty following Brexit, but also commented he is confident the economy will adjust well and that he sees positive prospects for the UK economy. (Herald Scotland) Saudi Arabian Oil Minister Falih stated that he is not expecting an agreement at Wednesday’s Algiers meeting, while adding that a consensus is possible in November and a freeze could happen later this year. He went on to say that Iran, Libya and Nigeria should be permitted to produce at maximum levels seen in recent years. (Newswires)

Wednesday saw a surprise move, OPEC agreed on a production cap. First such deal in 8 years. Iran, Libya and Nigeria are exempt from the agreement. Details to be agreed and presented at next OPEC meeting on 30th November as a step en route to a wider deal. Energy stocks in S&P500 up 4%. WTI prices rises around $2/barrel to $47/barrel. No news on Draghi’s visit to the Bundestag. I hope he’s alright.

Thursday saw US Final GDP q/q beating expectation (1.4% vs 1.3%).

Friday brought Tokyo Core CPI y/y missing expectations at (-0.5%, -0.4%). UK Current Account beat expectations (-28.7B vs -30.5B). The Current Account is the difference in value between imported and exported goods, services, income flows, and unilateral transfers during the previous quarter, so it’s like balance of payments with extra bits added. The more positive it is, the more demand for the currency there is. Canadian GDP m/m was positive (0.5% vs 0.3%.)

Market Reaction

It was a quiet week with concerns on the German Banking sector: Deutsche bank and Commerz Bank. The major concern was with Deutsche but the sentiment turned more positive on Friday as it looked like the US Justice Department may settle for around one third of the originally suggested fine of USD14B. There was very little movement across the week in equities. In the bond markets, the US 10 year yield has been trending up now since July. The UK 10 year has shown a more anemic yield uptrend since early August which has been partially reversed in the second half of September. German 10 years have been moving sidewayas in a channel with a midpoint below 0%. The message is that the seemingly endless yield falls are over.

Trading Plan

Trades 64, 65 and 66 closed during the week for a total gain of around 2%.

Weekly Forex Outlook – Week Commencing 3rd October 2016

Economic Calendar

Mon – UK Manufacturing PMI and US ISM Manufacturing PMI.
Tues – Australian Cash Rate; NZ Global Dairy.
Wed – Australian Retail Sales; UK Services PMI; US ISM Non-Manufacturing PMI.
Thurs – ECB Monetary Policy Meeting Accounts.
Fri – US NFP and Average Hourly Earnings.

Financial News

Brexit – Article 50 to be invoked in March 2017with full EU exit in early 2019. Trump has a very bad week. Germany’s business chiefs need Deutsche Bank to survive. BoE has room to buy more bonds (QE) if required.

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