At last, global investors' wish to see a Fed rate-hike became true during last week when the Federal Reserve not only triggered their benchmark interest-rate up by 0.25% but also raised chances of witnessing three such lifts during 2017 together with fueling their projections for GDP and Inflation. With this, the US Dollar registered its strongest rally since 2008 and tested the highest levels since 2003 against its European counterpart. The same damaged Euro's early-week rally and dragged the GBP to south which was previously enjoying upbeat Jobs and Inflation readings. Further, AUD, NZD and CAD also dipped as rise in greenback curbed commodity price gains while JPY and Gold plunged on stronger USD threatening their safe-haven demands.
Moving forward, China's seizure of a U.S. naval drone during weekend raised fresh geo-political concerns between US and China which dragged the USD down during early Monday while helping Gold and JPY to recover some of their recent losses.
Unlike last week, the present week offers very few economics to investors' fraternity before they start celebrating Christmas. However, GDP numbers from US, UK, New-Zealand & Canada, coupled with monetary policy meeting by the Bank of Japan and US Durable Goods Orders can give rise to intermediate trade-flows. Let's quickly analyze them.
USD Traders Would Analyze GDP Figures
Even if Trump victory and hawkish Fed outcome presently portrays upbeat sentiment at US, it is well known fact that the central bank signaled the same pattern during late-2015, with four expected hikes, but could only gift one recently. Hence, market players would closely observe this week's final reading of Q3 2016 GDP in order to authenticate Fed's words.
During its second estimate, the US Bureau of Economic Analysis revealed that the US economy grew with the fastest pace in nearly two-years by printing 3.2% mark while Thursday's Final GDP is likely to provide more happiness to greenback traders with 3.3% number.
In addition to the GDP, Monday's Flash Services PMI, Wednesday's Existing Home Sales, Thursday's Durable Goods Orders and Friday's New Home Sales are some other data-points from US that can continue making markets alive before Christmas holiday season.
Looking at the forecasts, Flash Services PMI is expected to test nearly a year's high with 55.2 figure compared to its downwardly revised 54.6 prior but the Durable Goods Orders may hurt USD with -4.0% mark against its previous advance of +4.6% whereas the Core Durable Goods Orders are also likely to reflect the same weakness with +0.2% number against +0.8% earlier. Additionally, the housing market stats, namely the Existing Home Sales and New Home Sales, are flashing mixed signals wherein the Existing Home Sales is expected to soften from its 5.60M prior to 5.52M while the New Home Sales indicates an advance to 575K from 563K.
Given the strong headline GDP figure, sustained improvement in Inflation and other economics can keep favoring Fed's recently portrayed upbeat path and would help the USD to extend its northward trajectory. However, nearness to holiday season, coupled with negative forecasts for other details, may curb gains of the greenback./>
BoJ And UK GDP To Help Predict JPY & GBP Moves Respectively
Bank of Japan (BoJ), last amongst G7 countries to hold its monetary policy meeting, is scheduled to fuel JPY moves on early Tuesday. Even if the central bank has already conveyed its intention to not alter present policy, traders would closely observe Governor's press conference in order to see a sign of whether the recent plunge in JPY altered BoJ's outlook towards Japanese economy or not. Should the central-banker terms recent JPY downturn as welcome change for the economy, which in-turn reduces chances of any further BoJ intervention, the USDJPY may extend its latest pullback towards 114.80-70 region. Though, any disappointment can keep fueling the pair towards 120+ mark on the chart.
At UK, Final reading of Q3 2016 GDP, scheduled for release on Friday, becomes important for GBP traders as it would reflect the British economy's performance after Brexit. The reading is likely to confirm its initial estimates of 0.5% which is softer than previous quarter. The same also signals need of BoE intervention in future and weaker hand of UK politicians when they start discussing Article 50 with EU. Hence, with soft GDP, UK politicians will face difficulty in bargaining during Article 50 discussion, which in-turn can keep indicating GBPUSD's dip to 1.2250 and the 1.2100 supports while a surprise hike in the figure may trigger its advances to 1.2740-50 area.
The Last Stand: New-Zealand And Canadian Figures
After the RBNZ's recently hawkish statement, the NZD traders are less bearish on the commodity-linked currency and hence Tuesday's Trade Balance, followed by Wednesday's GDP q/q, become important to forecast near-term NZD moves. Consensus signals a three month low Trade deficit, to -500M against -846 prior, counteracting with a soft GDP figure of 0.8% versus 0.9% previous. Considering recent weakness in commodity currencies, negative economics can continue indicating NZDUSD's dip to 0.6850; though, upbeat growth figure may help the pair revisit 100-day SMA level around 0.7200.
Monthly releases of Canadian CPI and GDP, scheduled for Thursday and Friday respectively, might bear less attention due to traders' planned Christmas vacation and present geo-political tension between US-China. Forecasts suggest a -0.1% print by Canadian CPI compared to +0.2% prior while GDP is expected to reveal 0.1% growth mark against 0.3% earlier. Looking at the chances of US-China brawl, Crude prices are more likely to rally higher, which in-turn can help CAD to recover its losses towards testing 1.3230. However, weaker domestic economics may not help the USDCAD to limit its north-run any earlier than 1.3550-60.
Cheers and Safe Trading,
Anil Panchal