While Friday's weaker than expected US labor market readings dragged the greenback down for a while, upward revision in previous two-month figures helped the US Dollar Index (I.USDX) to complete its two-week north-run. The same won against EUR and JPY that presently witness downside pressure on speculations of further monetary easing from ECB and BoJ respectively while upbeat data-points from UK helped GBP to maintain its strength for third consecutive week. Further, the AUD and NZD remained strong as higher interest-rates and positive Chinese numbers lured short-term traders but CAD couldn't gain with Crude, its main export-item, extending its downside on increased US inventory numbers.
During the present week, upbeat readings of UK Services PMI, Swiss GDP and no action at RBA supported the GBP, CHF and AUD till now while recent signals from Saudi Arabia and Russia to join hands when they will discuss oil production freeze favored Crude pullback. Alternatively, soft German Factory Orders provided additional weakness to EUR.
Looking further, the present week's economic calendar has fewer economic data-point/events to observe; however, monetary policy meetings of the ECB and the BoC, together with GDP releases from Australian and Japan, and the UK Inflation Report Hearings, are some important events that demand proper attention.
After RBA, AU GDP Is In Lime-Light
After Reserve Bank of Australia (RBA) matched its much expected move of no action on Tuesday, recently hawkish data-points from Australia inflates importance of Q2 2016 AU GDP, up for release on Wednesday, to determine the near-term moves of the Australian Dollar.
As per June release, the Q1 2016 AU GDP marked 1.1% growth-rate and helped the AUD to slowly extend its upside. The Aussie, as the Australian Dollar is popularly known, now again hints an upside as the recent communication from RBA indicates few chances of additional rate-cuts and praised upbeat job details. However, AUD traders eye on tomorrow's GDP figure which is expected to print 0.4% mark but might disappoint the AU Bears with a bit higher number. Given the GDP surpasses 1.1% prior, which is the highest since mid-2012 if counted on seasonally adjusted basis, the RBA might continue remaining firm and indicate additional upside of the AUD. On the technical side, the AUDUSD can quickly re-test the 0.7740 TL resistance, breaking which chances of its rally to April highs of 0.7835 can't be denied.
UK Details For The GBP Traders To Observe
With the recently welcome numbers from UK, the GBP is all shining to regain its Pre-June strength; however, Wednesday's Manufacturing Production and Inflation Report Hearings, followed by Trade Balance, up for Friday, will be important for the UK currency traders.
Monthly readings of Manufacturing Production and Trade Balance are signaling mixed picture as the Production detail might flash -0.4% contraction against -0.3% prior while the Trade deficit is expected to shrink to -11.7B versus -12.4B registered during previous month. Though, the crucial event will be tomorrow's Inflation Report Hearingsby the BoE's MPC. Looking at the recently upbeat data-set of the UK economics, chances are higher that policymakers might take an opportunity to sound hawkish for the first time after Brexit but these releases are still short-term and the future of UK is still an uncertainty that can force the MPC members to remain cautious while discussing economic improvement and future monetary policy action path. Hence, given the BoE MPC flaunts its impressed behavior by near-term data-point and forecast improvement in inflation, together with a statement favoring less need for additional monetary easing, the GBP can extend its north-run towards 1.3500 area. Though, a cautious tone of the governing council can give rise to profit-booking moves of the Pound which is now near to 1.3375-80 important horizontal area.
ECB Becomes The Sole Hope For EUR TradersHaving witnessed soft economics from EU, coupled with lesser demand of the ECB's QE, market players are now expecting some extra-ordinary moves from the European Central Bank to help the struggling economy and hence they wouldn't miss Thursday's monetary policy meeting and press conference by the ECB President.
Even if the EU central bank isn't expected to alter its benchmark interest-rate, chances are higher that Mr. Draghi, ECB President, should now search for some radical changes into the bank's monetary policy in order to help the economy. Draghi recently said that Brexit isn't the sure case for the ECB to announce further monetary easing and hence fueled speculations that the central banker might search for something else to safe-guard economic downturn. This may include either the extension of its QE, which is scheduled to expire after 6 months, together with some changes in Bond buying pattern, or go a step further and overhaul the present monetary policy. In any case, both these scenarios are likely to provide additional weakness to the EUR but the surprise announcement of no change in the current monetary policy and the constant positive tone of the President might give rise to an upswing of the regional currency.
BoC, Canadian Job Details And Chinese Numbers
Sustained increase in US Crude stockpiles, coupled with doubts over the upcoming meeting of global oil producers to discuss production freeze, have continuously dragged the Canadian Dollar down off-late. However, monetary policy meeting by the Bank of Canada (BoC), on Wednesday, and the Friday's headline Canadian Job numbers, become important for the CAD traders to analyze. Additionally, Chinese Trade Balance and inflation readings, scheduled for release on Thursday and Friday respectively, can also provide meaningful insights to commodity currency traders, including the CAD.
Irrespective of expectations favoring no change in BoC's present monetary policy framework, details of the rate-statement will be closely examined. The BoCis more likely to reveal its weakness with the Crude price decline and might indicate a need for loose monetary policy. At the data-front, the Employment Change is likely printing +18K mark against -31.2K prior while the Unemployment rate can continue remaining at 6.9%. So, BoC's expected dovish tone and an improvement in Employment change can continue provide volatile sessions for the CAD traders but on-going raft of Crude downside might give rise to more of the CAD's downside than the otherwise.
Trade Balance and headline Inflation readings from China are also important for the commodity currencies like AUD, NZD and CAD. While the Trade Balance is indicating a bit of improvement in commodity market with +372B surplus compared to +343B prior, the CPI is expected to soften to 1.7% from 1.8% and the PPI might flash -1.0% mark against -1.7% prior. If the Chinese Inflation figure surprise global markets by an upbeat reading, chances of successive advances by the AUD and NZD, coupled with improvement in CAD, can't be denied.US ISM Manufacturing PMI & Japanese GDP Are The Rest
At the end, US ISM Non-Manufacturing PMI nd final version of Q2 2016 Japanese GDP, up for release on Tuesday and Thursday respectively, are standing at the last stage of priority for the market players. Amongst them, the US PMI may reveal a 55.4 mark against 55.5 prior while the Japanese GDP can confirm 0.0% figure of initial estimates. As both the readings are less likely to deviate from their prior releases, chances of the on-going trend of USD strength and JPY weakness to extend become brighter. However, a surprise hike in Japanese GDP might help the JPY to recover its recent losses.
Cheers and Safe Trading,
Anil Panchal