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After CPI, Its GDP’s Turn To Fuel Market Volatility

With a heavy dose of economics, mainly inflation readings, global forex market witnessed noticeable moves during last week; however, upbeat US CPI and hawkish comments from influential FOMC members helped the greenback gauge (I.USDX) to print consecutive fourth weekly gain series. On the other hand, the EUR remained dismal even if the ECB President stepped-back from discussing QE tapering while the GBP finally managed to end the week on a positive side for the first-time in seven weeks on positive data-points. Further, negative details of AU Employment and dovish remark from BoC Governor dragged the AUD and CAD to south while the NZD could benefit from better than forecast New-Zealand CPI. Moreover, the JPY and Gold regained their strength on safe-haven demand whereas continuous drop in US stockpile kept favoring Crude prices.

Moving forward, this week's first estimations of UK & US Q3 2016 GDPs are likely to acquire the center-stage of market-talks whereas US Durable Goods Orders, CB Consumer Confidence and AU Inflation figures are some additional data-points that could offer intermediate trading opportunities to market players. Let's quickly analyze these headline stats.

US GDP Gains Additional ImportanceFollowing an upbeat US CPI release, which favored strong statements from some Fed policymakers, Advance forecast of US Q3 2016 GDP becomes an eye-catcher for greenback traders as a welcome print could join strong jobs report and inflation stage to strengthen the case of much awaited December rate-hike.

The growth figure pleased US Dollar Bulls during late last-month when Bureau of Economic Analysis confirmed a 1.4% expansion and upwardly revised some of the previous releases. The same forced analysts to predict a 2.5% GDP mark during its Friday release; however, statistics for Manufacturing and Services have been mixed off-late and might become a reason to disappoint those who continue try to push greenback northwards.

Prior to GDP, Tuesday's CB Consumer Confidence and the Durable Goods Orders, up for Thursday release, together with Wednesday's New Home Sales and Thursday's Pending Home Sales, are some second-tier economics that could entertain US Dollar traders. While CB Consumer Confidence is likely to witness a pull from its nine-year high of 104.1 to 101.5, the Durable Goods Orders are expected to mark a stagnant 0.1% growth-mark with Core reading forecast signaling a reversal of its -0.2% figure with +0.2% addition. Further, housing market details, namely New and Pending Home Sales, continue to bear mixed expectations as New Home Sales might flash 601K mark against 609K prior while Pending Home Sales could nullify their previous -2.4% contraction with +1.2% advance.

In addition to economic details, nearness to November's US Presidential election also acquire heavy importance as the Hillary Clinton is getting more likes of people, which actually is positive for the USD as the Democrat candidate is more in favor of the Federal Reserve than her counterpart, Donald Trump, who continue raising question on the credibility of US central bank and signals taking drastic measures to overhaul the economy.

Considering the recent rout of upbeat US economics fueling December rate-hike expectations and a welcome lead of Hillary Clinton being an additional ingredient to help maintaining USD strength, strong GDP and Goods Orders could provide additional strength to the greenback. However, a disappointment from headline figures could have higher repercussions and hence should be given more importance.

UK GDP and German Details Are For GBP & EUR Traders

Alike US, the Britain is also scheduled to publish first estimation of its Q3 2016 GDP forecast on Thursday which becomes important for the GBP traders. The Pound recently gained on upbeat data-points, including Jobs, Inflation, etc. and has acquired much of the market attention as the British PM formally announced to start Article 50 negotiation with EU during March 2017. Forecasts suggest a soft UK GDP growth of 0.3% as compared to upwardly revised 0.7% prior. As the present growth figure would indicate clear impact of the Brexit on British economy, a weaker print can cut the UK PM's capacity to negotiate with EU officials in March and would result in higher damages to the GBP.

Following ECB's signal to discuss QE at December meeting, Monday's EU Flash PMIs for Manufacturing & Services helped the EUR to pare some of its recent losses. However, the regional currency is still in a negative territory as analyst fraternity expects that European central banker would refrain from its previous decision to taper the asset buying and rather extend the same. With no major economics on EU calendar left to publish, the German Ifo Business Climate becomes the only figure to analyze EUR trades. The Business Confidence indicator of the EU's largest economy is likely to extend its upside beyond latest two-year high of 109.5 to 109.6, which in-turn indicates strong fundamentals of Germany and could be positive for the EUR.

New-Zealand Trade Balance And Inflation Figures From AU-Japan Are The Rest

Even if GDP is likely to acquire major market-attention, Inflation details from Australia and Japan, coupled with New-Zealand Trade Balance, are also likely to have noticeable impacts on respective currencies.

Following positive Inflation reading from New-Zealand, a reduced Trade deficit on Wednesday can force the RBNZ to leave its likeliness for easy monetary policy and utter some hawkish statements during next month's monetary policy meeting. Forecasts suggest the Trade Balance figure to shrink to -1125M against -1265M, which in-turn can help NZD to continue on its north-run.

Moving to the AU Inflation, while Australian Job details have already given a red signal for the RBA to worry, Wednesday's AU CPI and Friday's PPI could flash additional lights on the future of the Australian currency. The headline inflation, CPI, is expected to print three-month high of 0.5% against 0.4% and the PPI is also likely to please Aussie traders with 0.6% mark compared to 0.1% previous. Hence, both the price-gauges favor AUD up-move and might wipeout recent losses due to labor market figures. Though, weaker prints of these stats could become more damaging to the Australian Dollar as the same would strengthen the case of further monetary easing from RBA.

Last but not the least, Japanese Inflation figures on Friday become immensely important for the JPY as the Bank of Japan continue favoring weaker JPY and a weaker CPI might raise doubts over the effectiveness of its recent monetary policy action. However, forecast suggests no change in the inflation gauge from -0.5% mark and hence unchanged figures can continue favoring safe-haven backed JPY up-move.

Cheers and Safe Trading,

Anil Panchal

Tuesday, 25 Oct, 2016 / 4:52

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