Even with not so active economic calendar, US Dollar Bulls managed to fuel the greenback index (I.USDX) to seven-month high during last week as upbeat FOMC minutes and Retail Sales figures, coupled with Fed Chair's positive remarks on US economy, nurtured speculations for December Fed-rate hike. The same optimism for US currency hurt safe-havens like JPY and Gold prices while Crude kept rallying on expectations of a formal production-freeze announcement in November. Further, the EUR couldn't enjoy better than forecast second-tier economics due to growing concerns of QE tapering to follow some more easy monetary steps from ECB and the GBP maintained its south-run with some BoE MPC members praising weaker UK currency. Additionally, the NZD couldn't grow on expectations of further monetary easing from RBNZ while AUD and CAD celebrated higher commodity prices.
During early Monday, market players remained on a bit profit-booking mode while EU Final CPI confirmed its strong flash forecast and helped EUR to extend on its short-covering. However, greenback didn't lose much of its strength as traders await today's Empire State Manufacturing and Industrial Production releases. Moving forward, headline inflation readings from US, UK, Canada and New-Zealand, together with AU and UK Job details and monetary policy meetings of BoC and ECB, are likely to generate decisive moves during the upcoming week and hence must be observed closely. Let's discuss their fundamentals.
US CPI To Drive Chances of December Rate-Hike
While broader market consensus is more in the favor of a December rate-hike, some at the Federal Reserve are still not providing clues for such highly anticipated event as world's largest economy is still struggling to reach its Inflation figure around 2.0% target, which in-turn amplifies importance of Tuesday's US CPI figures. In addition to the headline inflation gauge, housing market details and industrial production figures might also offer intermediate moves to greenback traders and shouldn't be missed as well.
Ever since the US CPI(YoY) dipped from 1.4% in January, it has been flirting with 1.0% mark while flashing 1.1% figure during last month. However, the Core CPI is in a better position and is again confronting 2.3% highs marked in February and June. With upbeat prints of PPI & Retail Sales during last week, chances of the CPI to match 1.5% forecast and of the Core CPI to flash more than 2.3% consensus are higher during its scheduled release on Tuesday. On a monthly basis, the CPI is likely printing 0.3% mark against 0.2% prior and the Core reading is expected to disappoint USD bulls with 0.2% figure compared to 0.3% earlier mark.
Other than inflation figures, Monday's Empire State Manufacturing and Industrial Production, Wednesday's Building Permits & Housing Starts and Thursday's Existing Home Sales are some second-tier details that could help making the greenback alive during the current week. While Empire State Manufacturing and Industrial Production are both likely to reverse their previous negatives of -2.0 & -0.4% with +1.1 & +0.3% respectively, Building Permits are also expected to test six-month high of 1.17M against 1.14M previous. Further, Housing Starts may please the USD as well with 1.18M figure compared to 1.14M marked in last month.
Considering the chances of CPI marking fresh high of 2016, together with upbeat Manufacturing and housing details, the greenback is more likely to extend its present northwards trajectory towards February levels. However, a surprise disappointment from inflation may have higher negative repercussion and could pare some of the USD's latest gains.
GBP Traders Should Be Alert
Given the hanging decision over the Brexit's formal discussion and disappointing data-points indicating more of the GBP's south-run, this week's CPI, job details and Retail Sales would grab the attention of Pound traders. Tuesday's UK CPI is likely printing the highest figure since December 2014 with 0.9% against 0.6% prior while expected addition into the Wednesday's Claimant Count Change to 3.4K versus 2.4K earlier mark might again raise the fear. Additionally, the Average Earnings and Unemployment Rate are likely to maintain their previous details of 2.3% and 4.9% respectively on Wednesday but Thursday's Retail Sales, core to the UK GDP, can please the GBP traders with +0.3% figure versus -0.2% prior. Mixed consensus of headline UK economics might continue increasing the importance of informal comments from UK policymakers and provide volatile trading sessions for the GBP traders; however, improvement in Inflation and Retail Sales could give rise to short-covering rally in UK currency's quote.
Some Central Bankers Also Need Attention
Amongst the headline events of the week, monetary policy meetings of the European Central Bank (ECB) and Bank of Canada (BOC) also acquire important area to be observed as the ECB recently signaled tapering of its QE while improvement in Crude prices may change the BoC's intention towards monetary policy easing.
The Canadian central bank, BoC, is less likely to alter its 0.5% Overnight-Rate on Wednesday; though, quarterly press conference by the Governor and Senior Deputy Governor becomes an important event to observe. Considering recent strength in crude prices, coupled with expected formal production-freeze accord in November and upbeat Canadian job figures, both the BoC leaders might sound hawkish and can provide additional strength to the CAD. However, a surprise favor to the loose monetary policy can result a bit profit-booking in Loonie's prices, as the Canadian Dollar is known as.
Alike BoC, the ECB is also expected to stand pat with its present benchmark rates on Thursday but chances are higher that the President, during his press conference, would signal likeliness of additional monetary policy easing before winding down the QE. In case if Mr. Draghi adheres to market speculations and shows soft-corner for loose monetary policy, coupled with upbeat data-points at US, the EUR is likely to witness further downside.
AU Job Numbers & Chinese Details Are For Commodity Currencies
Improvement in Chinese economics, coupled with expected oil-production freeze, have been helping the commodity currencies, like AUD, NZD and CAD off-late; however, Wednesday's Chinese Industrial Production & GDP, followed by Australian Job Details on Thursday, could provide additional insights to commodity traders. The Chinese Industrial Production is likely to register another robust figure of 6.4% as compared to 6.3% prior and may test the highest level in five-month while GDP print isn't showing any signals to change from its 6.7% mark. At Australian front, the Employment Change is expected to reverse prior -3.9K with +15.2K while the Unemployment-Rate could disappoint AUD traders with 5.7% figures versus it earlier print of 5.6%. With recent surge in commodity prices, upbeat Chinese stats can provide additional fuel into the rally, which in-turn could be witnessed in AUD, CAD and NZD quotes, but disappointing labor-market stats from AU might confine gains of the Australian Dollar.
Last But Not The Least: Canadian And New-Zealand CPI
Alike UK and US, the New-Zealand and Canada are also up for publishing their headline inflation figures during the present week which becomes crucial to forecast NZD and CAD's respective moves. The Statistics New Zealand is scheduled to publish quarterly CPI on Tuesday with an expected weaker print of 0.0% against 0.4% prior while the Canadian authority is up for releasing its monthly CPI figure, together with Retail Sales on Friday. The Canadian CPI bears the consensus of printing +0.2% mark against -0.2% prior with Core CPIlikely flashing 0.2% figure versus 0.0% earlier. Further, the Retail Sales from Canada might also please the CAD traders with +0.5% expansion and the Core reading of +0.4% compared to -0.1% figures for both released during previous month. Given the soft inflation number from New-Zealand, recent RBNZ signal favoring further monetary easing becomes stronger and might drag the NZD to south while upbeat Canadian releases and stronger Crude prices can give reasons for the CAD traders to buy the Loonie, as it is nicknamed.
Cheers and Safe Trading,
Anil Panchal