Weekly Review and Outlook 7th November 2016

Mark NugentNov 2016, Trading Plan

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Weekly Forex Review – Week Commencing 7th November 2016

Economic Calendar

Monday saw Core PCE Price Index m/m, the Fed’s favoured measure of inflation meet expectation at 0.1%. BoE Governor Carney has agreed to extend his time as Governor until the end of June 2019 (ZeroHedge). Early Tuesday morning sees Chinese Manufacturing PMI beating expectation (51.2 vs 50.4) and Caixin Manufacturing PMI do likewise (51.2 vs 50.2). BoJ left policy unchanged with the key rate held at -0.1% and maintained QQE with yield control policy framework as expected. Furthermore, the BoJ cut each inflation outlook through to FY18 and pushed back reaching its inflation target to H2 FY18 which would be outside of Governor Kuroda’s tenure (Zerohedge). RBA left key rate on hold at 1.50%, as expected. The RBA reiterated that market indicators have been mixed and that inflation remains low, although it also added that inflation is expected to pick up gradually during next 2 years and that the economy is expected to grow at close to the potential rate over the next year (ZeroHedge). Goldman Sachs said that oil could move to USD 40/bbl if OPEC fails to reach a convincing agreement (ZeroHedge).

Tuesday saw UK Manufacturing PMI essentially on target at 54.3 vs expectation of 54.6. Canadian GDP m/m was on target at 0.2%. US ISM Manufacturing PMI was also on target at 51.9 vs 51.8. New Zealand Global Dairy saw a healthy 11.4% rise.

Wednesday:

US election (ZeroHedge)

• Latest Hampton University poll showed Donald Trump ahead by 3 points in Virginia at 44% vs. 41% which is the first time he is ahead in that state (same poll gave Hillary

Clinton a 12-point lead a few weeks ago). (Newswires)
• Virginia is a key swing state in which neither candidate has a clear lead. However, it is not one of the big four: Iowa, North Carolina, Ohio or Florida – which analysts think Trump must win to be given the keys to the Oval Office.
• Before this poll hit the wires, Fox News’ Brett Baier said FBI sources think the Clinton foundation case is moving towards a possible indictment.
• These two stories in conjunction caused risk averse sentiment in Asia, with safe have flows into JPY, USTs and spot gold alongside softness in equities and the USD.

Fed (ZeroHedge)

• The FOMC kept rates unchanged at 0.25-0.50% as expected; with George and Mester the dissenters. (Rosengren no longer a dissenter)
• The FOMC stated that the case for a rate hike has continued to strengthen but have decided to wait for the time being for some further evidence.
• The FOMC repeated that they view inflation to rise to their 2% target over the medium term but dropped the reference to inflation expected to stay low in the near term.
• No noticeable reaction across major US asset classes.

UK Construction PMI beat expectations (52.6 vs 51.9).

Thursday saw UK Services PMI beat expectation (54.5 vs 52.5). The UK’s High Court ruled that it would be illegal for the government to invoke Article 50 triggering Brexit without parliamentary approval. At the Bank of England’s Super Thursday rates stayed at 0.25% and QE at £435B as expected each by a unanimous vote. US ISM Non-Manufacturing PMI missed (54.8 vs 56.2). Markets are now pricing in a 74% probability of a rate cut at next week’s RBNZ meeting.

Friday saw Australian RBA Monetary Policy Statement reiterating policy easing is to support growth and stated that growth in Australia’s major trading partners is slightly below average and is expected to weaken a little during forecast period. RBA cut H1 2018 growth forecast to between 2.5%-3.5% from previous 3.0%-4.0%, all other notable growth and inflation forecasts were maintained (ZeroHedge). Finally, Australia saw a good Retail Sales m/m number (0.6% vs 0.4%). In the US Non-Farm Payroll came in just under expectation (161K vs 174K) but not materially so and Average Hourly Earnings m/m rose by 0.4% against an expectation of 0.3% and the prior month was revised upwards (0.3% from 0.2%).

Market Reaction

Concerns over a Trump presidency saw US saw global equities down around the world. The USD weakened and the JPY strengthened on safe haven flows. The GBP was up on the week after the High Court Brexit ruling. CAD plunged on the dropping oil price.

Trading Plan

Two trades closed during the week: Trade 75 (USDJPY long) closed out for a loss of 0.25%. Trade 74 (Euro50 short) was closed just before market close at 9pm on Friday for a reward od 5 x risk (2.53%). I ended the week still in Trade 76 (USDJPY short) which was closed first thing on Sunday open with a small amount of slippage for a loss of 0.09% on risk of 0.25%. Month-to-date performance is +2.19% and year-to-date performance is +33.2%.

Weekly Forex Outlook – Week Commencing 7th November 2016

Economic Calendar

The week is of course dominated by the US Presidential Election on Tuesday.

Mon –
Tues – China Trade Balance; UK Manufacturing Production m/m; US Presidential Election
Wed – NZ Cash Rate
Thurs –
Fri –

Financial News

Clinton’s October surprise turns into November dud but damage is done
UK and India’s migration spat hints at trade woes after Brexit

Today

FBI Comey’s intervention over the weekend saying Clinton will not be prosecuted in the email issue has caused global stock markets to gap up significantly and the USD to rise as the JPY weakens. This move closes my USDJPY short with a slight loss due to slippage.

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