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GBPUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for British Pound: Neutral
The British Pound showed signs of life as it rallied for the first week in three versus the US Dollar, but concerns over the future of UK interest rates may continue to weigh on the domestic currency through the foreseeable future.
Last week we wrote it would be a pivotal stretch for the UK currency versus the US Dollar, and indeed surprises from the US Federal Reserve forced a major correction in all major USD pairs and pushed the GBP/USD off of its lows. Disappointments in UK economic data nonetheless held the Sterling back from larger gains and set the stage for another important week ahead.
The combination of UK Consumer Price Index inflation data and Retail Sales growth results promise continued volatility in the GBP and could ultimately set direction through the end of March. CPI figures in particular could have a material impact on expected Bank of England interest rate policy and by extension the GBP. And indeed, traders punished the British Pound as Bank of England chief economist Andrew Haldane unexpectedly told investors that the next policy move could in fact be an interest rate cut.
The surprising statement puts Haldane at odds with BoE Governor Carney who recently said it would be “extremely foolish” to cut interest rates now. As things stand, Haldane seems to be the sole voice in the 9-member Monetary Policy Committee to see a rate cut as a distinct possibility. Yet the market reaction was unambiguous: UK 2-year government bond yields tumbled to fresh monthly lows, and the British Pound moved in kind. Recent 1-week performance in major currencies matched changes in interest rate expectations with near-perfect accuracy and underlined the significance of future moves.
At the risk of coming off as hyperbolic and repetitive, we believe it is shaping up to be yet another pivotal week for the British Pound. The GBP/USD finished modestly higher this past week only because the US currency saw a much larger correction in yield expectations. Major reactions to surprises in CPI inflation and Retail Sales figures could ultimately determine broader direction in the UK currency.
AUDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for Australian Dollar: Neutral
The Australian Dollar mounted a spirited recovery last week, rising 1.8 percent against its US counterpart to record the best performance in a month. Fading Federal Reserve rate hike expectations appear to be behind the Aussie’s rebound, with the currency rising from a multi-year low alongside moderation in priced-in expectations for where the Fed funds rate will be by the end of the year (as telegraphed in futures contracts).
A near-empty domestic economic calendar is likely to keep external factors at the forefront in the week ahead. Last week’s FOMC policy announcement and subsequent clarifying remarks from Fed officials (most notably from Dennis Lockhart, the President of the central bank’s Atlanta branch) suggest the decision on rates “liftoff” will now be made on a meeting-to-meeting basis. This makes for a data-sensitive environment in the near term.
February’s US CPI figures take top billing. The core year-on-year inflation rate is expected to rise to 1.7 percent, marking a three-month high. US price-growth data has increasingly underperformed relative to consensus forecasts since mid-2014 however, suggesting analysts’ models have tended to overstate inflation and opening the door for a downside surprise. Such an outcome may further erode Fed tightening bets, offering the Aussie a further boost.
A wealth of scheduled commentary from key Fed officials will likewise inform investors’ outlook. Remarks from FOMC committee members Williams, Evans and Lockhart as well as Fed Vice Chair Fischer and Chair Yellen are all due to cross the wires. Needless to say, the markets will be keen to get further clarification on the prevailing timeline for the onset of stimulus withdrawal. Rhetoric pointing to cooling conviction on a mid-year rate hike is likely to help the Aussie recovery continue.
HSBC’s Chinese Manufacturing PMI print is a wild card. The release is expected to show factory-sector activity slowed in March, hitting a two-month low. The Aussie has tracked eroding 2015-16 Chinese GDP forecasts downward since mid-2013. This warns that signs of sluggishness in the Oceanic country’s top export market may push the RBA policy outlook deeper into dovish territory and weigh on the exchange rate. Markets now price in 50bps in easing over the coming 12 months.
GOLD Fundamentals (based on dailyfx article)
Fundamental Forecast for Gold: Bullish
Gold prices are sharply higher this week with the precious metal advancing 2.14% to trade at 1183 ahead of the New York close on Friday. The advance comes on the back of the FOMC policy meeting where Yellen and company talked down expectations for a mid-2015 rate hike with the central bank lowering expectations for growth and inflation.
Even though the FOMC removed the ‘patience’ language from the forward-guidance, the updated projections coming out of the central bank dragged on the dollar as Fed officials pushed back their interest rate forecast. Indeed, the downward shift in the interest rate dot-plot raises the risk of seeing the Fed retain the zero-interest rate policy (ZIRP) into the second-half of the year, with the normalization cycle likely be on a more gradual trajectory. Accordingly, the USD may get a brief respite from its recent rally with gold set to stage a near-term recovery amid softer interest rate expectations and a subdued outlook for inflation.
Looking into next week, traders will be closely eyeing key US data points with the Consumer Price Index (CPI), Durable Goods Orders & the final read on the 4Q Gross Domestic Product (GDP) report on tap. Despite the cautions tone laid out by Chair Yellen, stickiness in the core rate of inflation along with an upward rising in the growth rate may cap dollar-losses in the days ahead as market participants now anticipate the central bank to take a softer approach in the normalization cycle.
From a technical standpoint, gold has now rebounded off the key support region we’ve been noting over the past few weeks at 1150/51. Price action this week completes a sizeable key outside reversal candle off of a critical support region with the rally taking prices briefly through the 23.6% retracement of the decline off the January highs at 1181 before settling just below. Look for near-term support at 1167/68 which is defined by the March 18th reversal-day close & the January stretch low.
Nikkei forecast for the week of March 23, 2015, Technical Analysis
The Nikkei as you can see had a very positive week, closing above the ¥19,500 level. With that being the case, we can pull back from here we think that there will be plenty of value to be found, and we of course would be buyers. We still believe that the Nikkei goes to the ¥20,000 level given enough time, so obviously we don’t have any interest in selling. The Bank of Japan continues to offer liquidity, which of course will be supportive of the market. We believe the ¥20,000 will eventually give way to the buyers and offer a longer-term buy-and-hold scenario as well.
DAX forecast for the week of March 23, 2015, Technical Analysis
The DAX went back and forth during the course of the week, ultimately showing a bit of exhaustion. We don’t necessarily have a negative candle though, so really at this point time we believe that a pullback is probably going to be in the cards. We also recognize it as potential value, as the market most certainly is bullish overall. However, we are overbought so we look at pullbacks as potential buying opportunities. We have no scenario in which we are comfortable selling the DAX as it has been so strong.
NASDAQ forecast for the week of March 23, 2015, Technical Analysis
The NASDAQ as you can see broke higher during the course of the week, making fresh, new highs. We got above the 5000 level finally, which of course is a very bullish sign. With this, we believe that pullbacks continue to offer value, and that the market should continue to go much, much higher. We think that the 5000 level should offer a bit of support going forward, and most certainly the 4800 level well. Selling isn’t even a thought at this point in time as the uptrend is so well entrenched.
S&P 500 forecast for the week of March 23, 2015, Technical Analysis
The S&P 500 broke higher during the course of the week, clearing the 2100 level. That being the case, the market looks as if it is ready to continue going much higher, as we are about to make a fresh, new high. Once we do, we feel that this market will just simply continue the upward grind that it has been in for some time now. This is a nice uptrend, and of course has been very steady and therefore we are very bullish of the S&P 500 going forward.
Gold forecast for the week of March 23, 2015, Technical Analysis
The gold markets as you can see initially fell during the course of the week but found enough support at the 1140 level to turn things back around and break out to the upside. Now that we have cleared the 1180 level, we feel that this market will more than likely head to the $1200 level. However, we recognize that you will have to be able to deal with quite a bit of volatility. Regardless though, we have no interest in selling for the longer-term until we break down below the 1140 level, which is something that we haven’t done quite yet.
USD/JPY forecast for the week of March 23, 2015, Technical Analysis
The USD/JPY pair initially tried to rally during the course of the session on Friday, but turned back around to fall the way down to the hundred and 20 level. That being the case, the market looks as if it is going to try to find support in this general vicinity, so having said that we are more than willing to buy supportive candles in this area but do not have them yet. We believe that the Bank of Japan will continue to work against the value of the Yen, so it’s only a matter of time before we bounce.
EUR/USD forecast for the week of March 23, 2015, Technical Analysis
The EUR/USD pair broke higher during the course of the session on Friday, closing above the 1.08 level. It looks like we are heading back to the 1.10 level given enough time, but we also recognize that this is a market that is essentially stuck in a consolidative area. We are more than willing to sell this market on signs of resistance near the 1.10 level, or any type of resistive candle between here and there. We have no interest in buying the Euro there are far too many reasons to avoid it.