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AUDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Australian Dollar: NeutralThe Australian Dollar consolidated against most of its major counterparts for the week with plenty of intraday swings against its US namesake. A status-quo RBA rate decision and dubious set of local employment figures offered the currency few fresh cues. Additionally, elevated volatility levels kept the bulls at bay and hindered a recovery for the high-yielding currency.
Next week brings domestic Consumer and Business confidence data as well as Chinese Trade Balance figures. However, the regional economic releases may do little to shift well-anchored RBA policy bets. This in turn may generate another lackluster response from the AUD to the figures.
Local economic prints continue to play second fiddle to other guiding factors including the ‘risk-off’ theme that has gained traction in recent weeks. Investor nervousness and heightened volatility may continue to detract from what has actually been a relatively stable yield advantage for the Aussie. This could limit the scope for a recovery and keep AUD/USD capped below the 90 US cent handle over the near term.
Further, positioning amongst speculative futures traders remains well-above last year’s extremes despite recently flipping to net short. This suggests there is plenty of room in the AUD short trade before it begins to look crowded.
Downside risks remain centered on the 0.8660 floor, which if broken on a ‘daily close’ basis could open the next leg lower to the July ‘10 low at 0.8320.
NZDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for New Zealand Dollar: NeutralA quiet economic calendar on the domestic front is likely to see the New Zealand Dollar price action fall in with broad-based risk appetite trends in the week ahead. That probably spells volatility for the sentiment-geared currency as heretofore complacent investors begin to see a perfect storm of risk aversion gathering on the horizon.
The markets appeared to be taking the approaching end of the Federal Reserve’s QE3 asset purchase program in stride until relatively recently. While the swell in risk-geared assets has been closely linked with the US central bank’s generous stimulus efforts, traders seemed content enough with the post-Q1 recovery in US economic news-flow to believe that asset prices need not necessarily unravel after liquidity injections are wound down.
This relative calm appears to be giving way as policymakers from seemingly all directions sound the alarm about “frothy” valuations while global growth bets fizzle. Fears of another recession in Europe coupled with a deep slowdown in China had been somewhat muted amid hopes that a robust US would amount to a strong-enough countervailing force. Such rosy notions were notably upset last week as minutes from September’s FOMC meeting revealed concerns about contagion.
The churn continues in the week ahead. In the US, speculation about the length of the time gap between the end of QE3 and the first subsequent rate hike will be informed by September’s PPI data. On the growth front, Retail Sales and Industrial Production figures as well as the Fed’s Beige Book survey of regional economic conditions will help inform bets on whether the US is strong enough to hold up global demand as output elsewhere falters.
Meanwhile, a Chinese Trade Balance and CPI readings will help to gauge just how deep of a slump is developing in the East Asian giant and what might be done about it. The inflation gauge seems like it might draw particular attention, with a softer print likely to be seen as opening the door for Beijing to expand policy support, and vice versa. On balance, the path of least resistance seems to favor risk aversion. It seems altogether naïve to think that risky assets will happily resume a steady advance even as the Fed withdraws its helping hand and growth forecasts are roundly slashed. Timing such reversals is notoriously difficult however, and it remains unclear if the week ahead will ultimately deliver the seemingly inevitable breakdown. A bout of volatility is almost surely in the cards however, with swings risk appetite set to be mirrored in Kiwi performance.
GOLD (XAUUSD) Fundamentals (based on dailyfx article)
Fundamental Forecast for Gold: NeutralGold prices are markedly higher this week with the precious metal rallying more than 2.5% to trade at $1221 ahead of the New York close on Friday. The advance marks the largest weekly rally since mid-June and comes amid a surge in volatility with back to back triple-digit swings in the Dow and steep losses in European equities. As fears of a global slowdown begin to take root, recent comments from the Fed have started to push out interest rate expectations with gold likely a beneficiary in the near-term.
The release of the minutes from the latest FOMC policy decision on Wednesday cited concerns among Fed officials with regards to the global slowdown while noting that the stronger dollar may dampen inflation and hamper exports. The dovish tone fueled demand for gold as markets rallied on expectations that the central bank may need to delay the normalization process. Equity gains were pared the following day however with the SP 500 posting a 2% decline as gold stretched into fresh monthly highs.
Looking ahead to next week, the attention shifts back to the US data stream with retail sales, industrial production, the University of Michigan surveys, housing numbers and the release of the Fed’s Beige Book on tap. With the recent downturn in equities and continued concerns regarding the recent USD rally, weaker data could further fuel strength in gold in the near-term. With that said, we would need to see a strong batch to cap this recent advance with the longer-term outlook remaining weighted to the downside. Look for possible strength in the coming weeks to likely offer more favorable short entries.
From a technical standpoint, gold continues to trade within the confines of a descending Andrew’s pitchfork formation with the monthly low coming in right at the rebound off pitchfork support. Prices are now nearly 4.5% off the lows and we’ll look for a breach above $1222/24 (on a close basis) to validate a break of the monthly opening range. Such a scenario targets resistance objectives at the June close at $1243- this level happens to coincide with the pitchfork bisector line late next week and may be relevant as the economic calendar picks back up. Interim support stands rests at $1206 with a move below this threshold shifting our focus back to the short side of the trade targeting pitchfork support and the 2013 lows at $1178/80.
The dollar gained ground against most of the other major currencies on Friday amid fears over global growth, but the dollar index snapped a 12-week winning streak as the traditional safe haven yen ended the week higher.
EUR/USD was down 0.48% to 1.2628 late Friday, while GBP/USD slid 0.26% to 1.6074.
Market sentiment was hit by fears that Germany, the euro zone’s largest economy is being dragged into a recession after recent data indicated unexpected weakness in manufacturing and exports.
Data released on Thursday showed that German exports fell 5.8% in August, and this followed weak industrial output figures on Tuesday.
Earlier in the week, the International Monetary Fund cut its forecasts for global growth in 2014 and 2015 and warned that global growth may never reach its pre-crisis levels ever again.
The fund revised down its growth forecasts for the euro area’s three largest economies Germany, France and Italy.
Steep declines in commodity-price declines also fuelled fears that the global economy is slowing. Brent crude oil prices ell to their lowest level for nearly four years on Friday.
USD/JPY was down 0.17% to 107.64 late Friday, and ended the week with losses of 1.97%.
The US Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, ended the week down 1% at 85.92. The move ended a 12-week rally that saw the index gain more than 8% since early July.
The dollar weakened on Wednesday after the minutes of the Federal Reserve’s September meeting showed that some officials were concerned over the impact of the stronger dollar on global growth and the outlook for U.S. inflation.
"Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector," the minutes said.
The commodity linked dollars ended Friday broadly lower, with AUD/USD tumbling 1.10% to 0.8684 in late trade, off the two week highs of 0.8897 struck in the previous session.
NZD/USD lost 0.64% to trade at 0.7812, while USD/CAD eased up 0.14% to 1.1198.
In the week ahead, investors will be awaiting U.S. data on retail sales and industrial production for fresh indications on the strength of the economic recovery. Tuesday’s ZEW report on German economic sentiment will also be closely watched.
Monday, October 13
- Markets in Japan are to remain closed for a national holiday.
- China is to release data on the trade balance.
- Markets in Canada are to remain closed for the Thanksgiving holiday, while U.S. markets will be closed for Columbus Day.
Tuesday, October 14- Australia is to release private sector data on business confidence.
- Switzerland is to report on producer price inflation.
- The U.K. is to produce data on consumer price inflation, which accounts for the majority of overall inflation.
- The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.
- The euro zone is to publish data on industrial production.
Wednesday, October 15- Australia is to release a private sector report on consumer sentiment, as well as official data on new vehicle sales.
- China is to release data on producer and consumer prices.
- The
U.K. is to publish data on the change in the number of people employed
and the unemployment rate, as well as data on average earnings.
- The
U.S. is to release data on retail sales, the government measure of
consumer spending, which accounts for the majority of overall economic
activity. The country is also to report on producer prices and
manufacturing activity in the New York region.
Thursday, October 16- New Zealand is to publish private sector data on
manufacturing activity, while Australia is to release a report on
inflation expectations.
- The euro zone is to publish revised data on consumer prices for September.
- Canada is to release data on manufacturing sales and foreign securities purchases.
- The
U.S. is to release the weekly report on initial jobless claims as well
as data on industrial production and manufacturing activity in the
Philadelphia region.
Friday, October 17The euro declined against the dollar on Friday amid concerns the European economy is floundering and may require fresh stimulus measures from the European Central Bank.
EUR/USD hit 1.2790 on Thursday, the pair’s highest level since September 24, before subsequently consolidating at 1.2629 by close of trade on Friday, down 0.48% for the day but still 0.91% higher for the week.
The pair is likely to find support at 1.2582, the low from October 6, and resistance at 1.2790, the high from October 9.
Market sentiment was hit by fears that Germany, the euro zone’s largest economy is being dragged into a recession after recent data indicated unexpected weakness in manufacturing and exports.
Data released on Thursday showed that German exports fell 5.8% in August, and this followed weak industrial output figures on Tuesday.
Earlier in the week, the International Monetary Fund cut its forecasts for global growth in 2014 and 2015 and warned that global growth may never reach its pre-crisis levels ever again.
The fund revised down its growth forecasts for the euro area’s three largest economies Germany, France and Italy.
Steep declines in commodity-price declines also fuelled fears that the global economy is slowing. Brent crude oil prices fell to their lowest level for nearly four years on Friday.
The dollar weakened after the minutes of the Federal Reserve’s September meeting released Wednesday showed that some officials were concerned over a slowdown in global growth and the impact of the stronger dollar on the U.S. inflation outlook.
"Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector," the minutes said.
The minutes prompted investors to trim back expectations for an earlier-than-expected hike in U.S. interest rates.
On Friday, Fed Vice Chairman Stanley Fischer said weaker-than-expected global growth could prompt it to slow the pace of eventual interest rate hikes.
The US Dollar Index, which tracks the performance of the greenback against a basket of six major currencies, ended the week down 1% at 85.92. The move ended a 12-week rally that saw the index gain more than 8% since early July.
In the week ahead, investors will be awaiting U.S. data on retail sales and industrial production for fresh indications on the strength of the economic recovery. Tuesday’s ZEW report on German economic sentiment will also be closely watched.
Monday, October 13
- Markets in the U.S. will be closed for Columbus Day.
Tuesday, October 14- The ZEW Institute is to release its closely watched report on German economic sentiment, a leading indicator of economic health.
- The euro zone is to publish data on industrial production.
Wednesday, October 15- The U.S. is to release data on retail sales, the
government measure of consumer spending, which accounts for the majority
of overall economic activity. The country is also to report on producer
prices and manufacturing activity in the New York region.
Thursday, October 16- The euro zone is to publish revised data on consumer prices for September.
- The
U.S. is to release the weekly report on initial jobless claims as well
as data on industrial production and manufacturing activity in the
Philadelphia region.
Friday, October 17AUDIO - Weekend Edition with John O'Donnell
John O’Donnell calls in from Vancouver where he is teaching a free class on market timing. Merlin and John talk about some of the market evolution that has happened in Canada. Other topic include oil, precious metals, global currencies and much more!
if actual > forecast (or actual data) = good for currency (for EUR in our case)
[EUR - German ZEW Economic Sentiment] = Level of a diffusion index based on surveyed German institutional investors and analysts. It's a leading indicator of economic health - investors and analysts are highly informed by virtue of their job, and changes in their sentiment can be an early signal of future economic activity.
==========
German Oct ZEW Economic Sentiment Worse Than Forecast; Lowest Since 2012
Germany's investor confidence deteriorated for the tenth successive month in October, turning negative for the first time since late 2012, as the economic situation is expected to worsen further.
The ZEW Indicator of Economic Sentiment dropped to -3.6 from 6.9 in September, the Mannheim-based Centre for European Economic Research/ZEW said. It was far worse than the zero reading forecast by economists.
The latest score was the first negative since November 2012, when the print was -15.7.
The current conditions index of the survey plunged to 3.2 from 25.4 in the previous month. Economists had forecast a reading of 15 for the month.
"Geopolitical tensions and the weak economic development in some parts of the Eurozone, which is falling short of previous expectations, are a source of persistent uncertainty. These factors are tarnishing growth expectations in Germany," ZEW President Clemens Fuest said.
"Disappointing figures concerning incoming orders, industrial production, and foreign trade have likely contributed to the growing pessimism among financial market experts."
if actual > forecast (or actual data) = good for currency (for GBP in our case)
[GBP - CPI] = Change in the price of goods and services purchased by consumers. Consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to raise interest rates out of respect for their inflation containment mandate.
==========
U.K. Sep Inflation Falls To 5-Year Low
U.K. inflation slowed to a five-year low in September, the Office for National Statistics showed Tuesday.
Consumer price inflation eased more-than-expected to 1.2 percent in September from 1.5 percent in August. Economists had forecast the rate to slow marginally to 1.4 percent.
Month-on-month, consumer prices remained flat in September versus 0.4 percent rise in August. Prices were expected to grow 0.2 percent.
Consumer prices excluding energy, food, alcoholic beverages and tobacco, rose 1.5 percent from last year, slower than the 1.9 percent increase seen in August.
Another report from the ONS showed that output prices declined for the third consecutive month in September. Output prices declined 0.4 percent year-on-year after falling 0.3 percent in August. Economists had forecast a 0.3 percent drop.
On a monthly basis, output prices were down 0.1 percent, the same rate of fall as seen in August.
AUDIO - Monday Meltdown with Roger Best
Markets continued their downside momentum Monday, even in lieu of positive comments that the fed will not raise rates for longer than expected. Part of the selloff was due to fear in the market place, and focus on Ebola. Master Instructor, Roger Best, joins Merlin for a look at how these major news headlines spread fear and create market moves as well as trading opportunities. Roger also shares his thoughts on market levels and where he sees things headed.
EUR/USD Bear Flag in Focus Amid Growing Risk for Euro-Zone Recession (based on dailyfx article)