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MARKET ANALYSIS 15/10/14

ECB President Draghi double appearance The focus today will probably be the double appearance of the European Central Bank President Mario Draghi, who will first offer an introductory speech at the 7th Statistics Conference in Frankfurt and later, he will speak at the Grand opening event of European Cultural Days, also in Frankfurt. The ECB President is expected to point out again that the Bank is ready to act more if needed, following his comments on Saturday, when he said that the ECB had reached its "lower bound" with respect to interest rates, and has only one real avenue left for the Bank to achieve its inflation target. The inflation of just below 2% can be achieved by influencing the size and composition of the ECB balance sheet.

Overnight, the Chinese CPI slowed to 1.6% yoy in September from +2.0% yoy in the previous month, while the PPI rate fell deeper into negative territory at -1.8% yoy. The below consensus figures add to concerns of sluggish global growth and sustained low inflationary pressures. It seems that low interest rates fail to stir economic activity and investors are becoming worried about central banks’ ability to do anything about it. In the UK, consumer price growth hit a five-year-low, in Sweden inflation dropped 0.4% yoy, and in the Eurozone inflation is running at +0.3% yoy way below the 2% target. Worldwide, inflation is running below targets and markets are skeptical given what’s going on with inflation. The long-term disinflationary cycle that the globe is being trapped in, is likely to keep rates low for some time.

Today’s indicators: the UK will take center stage again. The nation’s employment data are expected to come out positive for the pound. The unemployment rate is forecast to have declined to 6.1% in August from 6.2%, and the average weekly earnings to accelerate slightly. If the forecast is met this could strengthen GBP somewhat, but after the soft CPI reading on Tuesday, strong employment figures will probably not be enough to reverse the negative sentiment towards the pound.

In the US, we get retail sales for September. The headline figure is forecast to show a 0.1% mom decline, a turnaround from +0.6% mom in August, while retail sales excluding the volatile items of autos and gasoline are expected to have risen, but at a slower pace than in the previous month. Moreover, the Fed releases the Beige book report. The report includes a summary and analysis of current economic conditions in each district and sector, thus is likely to track more attention than usual in my view, especially after the dovish comments of Fed Vice Chair Stanley Fischer over the weekend and ahead of the Oct. 28-29 FOMC meeting. The Empire State manufacturing survey for October and the MBA mortgage applications for the week ended on Oct 10 are also coming out.

Besides ECB President Draghi we have two more speakers scheduled today. ECB Supervisory Board Chair Daniele Nouy speaks in Frankfurt, while BoE policy maker Martin Weale speaks about the Bank’s benchmark rate in Hull. Weale has been pushing for a hike in rates since August.

Wednesday, 15 Oct, 2014 / 8:37

Source : http://www.ironfx.com/en/research-and-analysis/fundamental-analysis_15_10_2014

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