Technical Pattern Analysis: NZD/USD trades at lowest level in almost 4-years, EUR/USD stalls at key Gann level

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newdigital, 2015.01.31 10:11

Forex Weekly Outlook February 2-6 (based on forexcrunch article)

US ISM Manufacturing PMI, Rate decision in Australian and the UK, US Trade Balance and important employment data including the big NFP event. These are forex market movers for this week. Check out these events on our weekly outlook

Last week US jobless claims plunged 43,000 to a 15 year low indicating the labor market strides in the right direction. Economists expected claims to tick down to 301,000. Earlier that week, the Fed held its monthly monetary policy meeting, repeated the “patience” wording regarding a possible rate hike. However the policy makers were more concerned about international developments and their possible effect on US future growth. The Fed also stated that the labor market has improved further and household spending rose moderately, boosted by low energy prices. Will the US economy continue to improve?

1. US ISM Manufacturing PMI: Monday, 15:00. Manufacturing PMI declined in December, coming in at 55.5 following 58.7 in the previous month. Economists forecasted a higher reading of 57.6. Manufacturing output is constantly expanding; however, the rate of growth has eased in the fourth quarter. Companies express growing uncertainty about the outlook in 2015, especially regarding exports. Regarding the fall in oil prices, some ISM members think it would have a good impact on the manufacturing sector while others disagree. Manufacturing PMI is expected to reach 54.9 this time.
2. Australian rate decision: Tuesday, 3:30. Australia’s central bank has kept its interest rate at a record low for 17 months amid the economic transition from mining investment. Many economists believe a rate cut is in order since the economic growth has not picked up to offset the sharp decline in mining investment. Low interest rates may boost investments in the non-mining sectors. In addition. Falling commodity prices like iron and oil will weaken export revenues. No change in rate is expected now.
3. NZ employment data: Tuesday, 21:45. New Zealand’s Unemployment rate was better than expected in the third quarter, falling to 5.4% from 5.6 in the prior quarter. Employment expanded 0.8%, higher than the 0.5% gain reached in the second quarter and better than the 0.6% rise forecasted by analysts. However, on a yearly base, employment expanded 3.2%, below the 3.7% seen in the previous quarter. New Zealand’s employment market is predicted to grow by 0.8, while the unemployment rate is expected to drop to 5.3%.
4. US ADP Non-Farm Employment Change: Wednesday, 13:15. U.S. private sector employment gained 241,000 jobs in December, beating forecasts of a 227,000 job addition. The increase was broad based and was not affected by oil-related companies that experienced a dramatic fall in crude prices, suggesting the US labor market is resilient and does not depend on any one industry. U.S. private employment is expected to gain 221,000 this time.
5. US ISM Non-Manufacturing PMI: Wednesday, 15:00. Service sector activity expanded at the slowest pace in six months, reaching 56.2 in December, after posting 59.3 in November. Economists expected a reading of 58.2. New Orders Index was 2.5 points lower than 61.4 registered in November. Employment Index declined 0.7 points, reaching 56.0 and Prices Index plunged 4.9 points to 49.5. Service sector is forecasted to grow to 56.6.
6. UK rate decision: Thursday, 12:00. The Bank of England policymakers voted unanimously to leave rates at s record-low in January amid tumbling inflation. Both Martin Weale and Ian McCafferty, formerly opposing such a move, had a change of heart as falling oil prices threatened to weaken further the already subdued inflation. The ongoing improvement in the unemployment rate and wage growth didn’t persuade MPC members to vote for a change in policy. Following this statement, economists pushed back their forecast for a rate hike to early 2016.
7. US Trade Balance: Thursday, 13:30. The U.S. trade deficit contracted in November to an 11-month low reaching $39 billion, the smallest since December 2013. Falling crude oil prices helped to strengthen domestic demand, but exports fell 1.0% to $196.4 billion in November, suggesting the slowing global economy may start to affect the US market. Economists expected deficit to reach $42.3 billion. U.S. trade deficit is expected to contact further to$38 billion.
8. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment dropped sharply to a 15 year low, indicating the US labor market continues to strengthen. However, the unbelievably low figure can be also attributed to a holiday-shortened week. The 43,000decline was much better than the 301,000 addition forecasted by analysts. The four-week moving average, fell 8,250 last week to 298,500. The number of claims is expected to reach 277,000 this time.
9. Canadian employment data: Friday, 13:30. Canada’s labor market had another mild setback in December, shedding 4,300 positions after contracting 10,700 jobs in November. The unemployment rate remained unchanged at 6.6%. Full-time employment in December grew by 53,500 jobs, while part-time work dropped by 57,700 indicating the overall picture is quite positive. The 12-month gain was 185,700 positions, an increase of 1.0% , while the six-month moving average for employment growth was 22,100 jobs, up from 21,300 in November.Canada’s labor market is expected to increase by 5,100 jobs, while the unemployment rate is expected to reach 6.7%.
10. US Non-Farm Employment Change and Unemployment rate: Friday, 13:30. U.S. job growth edged up in December, rising 252,000 after a revised jump of 353,000 in November. Meanwhile, the jobless rate declined to a 6.5 year low of 5.6%. However, despite the positive figures, wages did not increase in December a worrisome sign which may compel the Fed to leave rates unchanged for an extended period. Us job market is expected to add 231,000 positions. The unemplolyment rate is forecsted to remain unchanged.

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newdigital, 2015.01.31 10:24

US Dollar Fundamentals (based on dailyfx article)

Fundamental Forecast for Dollar: Neutral

• The US Dollar has advanced for seven consecutive months through January – a record back to the Gold Standard
• NFPs and the PCE inflation indicator will further stir hawkish Fed expectations, but the theme may be mature 

Top event risk is the week-ended January NFPs. The net change in payrolls isn’t nearly as important as the ‘qualitative’ figures. The jobless rate has already touched past year milestones for rate hikes – a few years ago, then Chairman Ben Bernanke tied a first rate hike to an unemployment rate of under 6.5 percent. It is currently 5.6 percent. Perhaps the inflation aspect of the labor data is the lynchpin. Wage growth has struggled to catch traction. A particularly weak showing here, on the other hand, could reinforce the more distant timeline the market has on hikes and instead lead to a downgrade in FOMC forecasts at the March meeting.

Monetary policy is the engaged fundamental driver at the moment, but it is important for Forex traders not to take their eyes off of systemic investor sentiment. In the ‘risk on’ position, progress is slow and struggles to draw in the entire market. However, should full scale ‘risk aversion’ strike, conviction will span the financial system. As momentum picks up, the Dollar will see its haven appeal swell. Yet, in the early stages of such a dynamic shift, the same yield curve appeal the currency cultivated these past months could lead to capital outflow. Should sentiment turn, the Greenback’s bearing will depend on how hot the fire is.