Week Ahead: Trading Outlook

Key Events This Week: Trading Outlook for December 13th – December 18th

Sun: CNY – New Yuan Loans, JPY – Tankan Large Manufacturers Outlook & Index
Mon: EUR – EZ Industrial Production
Tue: AUD – RBA Dec Meeting Minutes, GBP – CPI, EUR – German ZEW, USD – CPI, NZD – Dairy Auction
Wed: EUR – EZ Manufacturing & Services PMI’s, GBP – Average Weekly Earnings & Unemployment Rate, EUR – EZ CPI, USD – FOMC Rate Decision, NZD – GDP
Thu: EUR – German IFO, GBP – Retail Sales
Fri: JPY – BOJ Monetary Policy Statement, CAD – CPI

 Overview

  • USD The US Dollar remains soft ahead of this week’s FOMC meeting. An adjustment to the EURUSD policy divergence picture fuelled further USD selling midweek with the Dollar index back below its July highs. Full focus now turns to the upcoming rate decision with CME pricing an 83% probability of lift-off. USD ended the week lower as retail sales on Friday came in below expectations at 0.2% vs o.3% expected. Thursday’s rate decision will be the key driver of the currency space trading outlook this week.
  • EUR The single currency, which was sharply stronger  as markets reacted with disappointment to the ECB’s latest policy adjustment, extended gains last week following comments by ECB’s Nowotny which suggested that further ECB easing is not a sure thing, causing a further unwinding of EUR shorts. Domestic data focus is on final Nov CPI and PMI data sets.
  • GBP Sterling was sharply higher last week as investors paired downside risk ahead of the Bank of England’s December meeting, expecting that the Bank might soften its recent Dovishness. Upside was fuelled also by an improved NIESR GDP estimate which beat came in above expectations of 0.5% at 0.6%. The BOE however retained their recent Dovishness, noting the subdued inflation outlook stemming from continued Oil price declines, seeing GBP lower except against the embattled commodity currencies. Domestic focus this week is on CPI with traders keen to see if Oil prices are having an immediate negative effect.
  • JPY The Japanese Yen was higher last week supported by safe-haven inflows. The tumbling Chinese Yuan, continued slide in Oil prices, and weaker equity markets alongside a softer Dollar have all contributed to higher demand for the Japanese Yen which is supported also by a reversal in easing expectations as investor no longer anticipate further BOJ easing this year. Domestic focus this week is on BOJ monetary policy statement and Kuroda conference with traders keen to see if BOJ remains confident on economic outlook heading into the year end.
  • AUD Aside from a mid-week rebound as the US Dollar was sold, the Aussie was lower last week as commodity currencies were hit amidst a risk off tone. Even a further decline in the Australian unemployment rate, which beat expectations of 6% to print 5.8%, was unable to stem the losses as price tracked Oil lower across the week. Domestic focus will be on the RBA’s Dec meeting minutes release.
  • CAD The Canadian Dollar, which is weighed upon by divergent policies between the Bank of Canada and the US Federal Reserve, was a further victim of the continued Oil price declines last week. The near-term domestic economic outlook combined with continued Energy weakness have left the Canadian Dollar  one of the worst performing currencies of the year, fuelling expectations of a further BOC rate cut to come. Traders will be paying close attention to CPI on Friday for signs of energy price induced damage.