Fundamental Weekly Forecasts for US Dollar, USDJPY and GBPUSD

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newdigital, 2015.02.14 12:32

Forex Weekly Outlook Feb. 16-20

The US dollar was on the back foot against most currencies in the past week. Japanese GDP, German Economic Sentiment, UK employment data, the FOMC Meeting Minutes and the FOMC meeting minutes stand out. These are the main events on FX calendar for this week. Here is an outlook on the market movers coming our way:

U.S. retail sales unexpectedly declined 0.8% in January, following a 0.9% drop in December. The low oil prices did not boost sales as previously predicted and economists missed also on consumer confidence. However, analysts still believe sales will pick up in light of the ongoing improvement in the labor market and low prices. In the euro-zone, the hopes about a resolution for Greece, despite struggles, was joined by strong German growth numbers. In the UK, the hawkish approach from Carney helped sterling. The Aussie was pressured by weak employment data and the loonie was not boring as it moved sharply with oil prices.

1. Japan GDP data: Sunday. 23:50. Gross domestic product contracted by an annualized 1.6% in the three months ended September, considerably lower than the 2.2% rise estimated by economists. On a quarterly basis, Japan’s GDP dropped 0.4%, amid lower business investment. Economies forecasted a 0.5% rise in the third quarter. Japan’s consumption tax increased to 8% in April but did not result in a major fiscal improvement. Policymakers consider another 10% rise to boost GDP growth. Economists expect GDP will rise 0.9% in the fourth quarter of 2014.
2. Eurogroup meetings: Monday. The Eurogroup Finance Ministers will continue to search for a solution to the Greek debt crisis after failing to do so last week. The new Greek government is determined to change the rules of the game to relieve its staggering debt burden and loosen the tight austerity measures imposed by the previous Government. There is a better chance that this happens once Merkel passes the hurdle of state elections in Hamburg.
3. UK inflation data: Tuesday, 9:30. The UK inflation rate declined sharply to 0.5% in December, from 1.0% in the previous month, reaching its lowest rate since May 2000. This decline was prompted by lower fuel prices. Analysts expected inflation to reach 0.7%. Bank of England governor Mark Carney still expects rate hikes in the next two years despite the sluggish inflation. Economists predict the ongoing inflation decline will continue while households are expected to benefit from these super low rates. UK CPI is expected to rise 0.3% this time.
4. German ZEW Economic Sentiment: Tuesday, 10:00. German analyst and investor climate edged up in January amid low oil prices. Sentiment rose to 48.4 in January from 34.9 in December, reaching the highest level since February last 2014. The strong release beat forecast for a 40.1 reading. Economists warned that if the Greek situation deteriorates it will influence the German economy. German analyst and investor climate is expected to jump to 56.2.
5. Japan rate decision: Wednesday. At its January monetary policy meeting, the Bank of Japan decided to maintain its monetary policy and continue to raise the monetary base at an annual pace of JPY 80 trillion. The decision was in line with market expectations. The bank noted a slight improvement in exports and a rise in industrial output and forecast a stronger expansion from lower oil prices. Inflation expectations also increased but expected to slow temporarily due to the oil price decline.
6. UK employment data: Wednesday, 9:30. The number of people unemployed fell by 29,700 in December following a decline of 26,900 in November indicating UK’s labor market remains strong. Furthermore, average earnings have increased, a positive development to household spending. However, wage growth will be sustained only if production improves. The number of unemployed is predicted to decline by 25,200 in January. The unemployment rate for December is predicted to stand at 5.8% and wages at 1.7%.
7. US Building Permits: Wednesday, 13:30. The number of US building permits declined 1.9% in December, reaching an annualized pace of 1.03 million units, while housing starts jumped 4.4% to 1.09 million units. Economists expected permits to reach 1.06 million. The main reason for the sluggish growth in the housing market is that wage growth is slow disqualifying many potential buyers from obtaining mortgages. The number of US building permits is estimated to reach1.08 million units.
8. US PPI: Wednesday, 13:30. U.S. producer prices plunged 0.3% in December, the steepest decline in three years amid declining energy costs. The reading was in line with market forecast. Following this report the Fed reduced its inflation expectations, raising new doubts about future rate hikes. However policymakers regard the falling inflation is temporary. U.S. producer prices are expected to rise 0.4%.
9. US FOMC Meeting Minutes: Wednesday, 19:00. In the last Fed decision back in late January, the Fed sounded optimism about the economy and about the “strong job market” to quote the statement. However, it continued urging patience regarding raising the rate and mentioned international developments. We will now learn how the members see the economy and how worried they are about events abroad.
10. US Unemployment Claims: Thursday, 13:30. Initial claims for unemployment benefits edged up 25,000 to a seasonally adjusted 304,000 last week. However, the general trend still shows strength in the US labor market. Analysts expected a modest climb to 282,000 last week. The four-week moving average dropped 3,250 to 289,750. Economists expect jobless claims will remain subdued amid the massive job gain over the last three months. The number of jobless claims is expected to rise by 305,000.
11. US Philly Fed Manufacturing Index: Thursday, 15:00. Manufacturing activity in the Philadelphia-region slipped into lower gear in January, reaching 6.3 points, following 24.5 in December. This was the largest fall in 11 months. Analysts expected a much higher figure of 20.3. The majority of responders reported that lower energy prices were having overall net positive effects on manufacturing business and the six-month outlook continued to be positive. Manufacturing activity is expected to climb to 8.8 points.

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newdigital, 2015.02.14 12:45

US Dollar Fundamentals (based on dailyfx article)

Fundamental Forecast for Dollar: Neutral

• Speculation of a mid-2015 start to a spaced Fed tightening regime is becoming consensus – and is well priced
• The Pound made a rebound this past week and if the Euro and Yen follow suit, it could force a USD turn?

The Dollar’s relative fundamental appeal is strong. Backed by a pace-setting rate forecast, a comparatively-robust growth outlook and a market depth that can offer a buffer in case clouds gather; there is considerable appeal. Yet, how large is the Greenback’s theoretical premium? If the markets work to discount advantage and disadvantage, much of the currency’s strength should arguably be incorporated into current exchange rates. Further gains are certainly possible, but momentum – the technical embodiment of conviction – requires furthering the Dollar’s advantage or seeing the majority of its counterparts lose ground. There is a dearth of high-profile, yield-influencing US event risk on the docket ahead, but there are plenty of cross winds that may cause the USD problems.

For the Dollar’s own motivation, this past week’s newsflow offered relatively little to feed the fixation on rate expectations. Both Fed Funds and Eurodollar futures were little changed from the swell they received following the strong wage numbers in the February 6 jobs data. According to these measures, the market is pricing a first hike around the September policy meeting. Depending on what poll you reference, economists and Primary Dealers are more hawish in their view between June and July. As we move closer and closer to the the nearest consensus and hit key event risk along the way, speculation will heat up. For now though, we are still at least four months out and this week’s docket doesn’t carry heavy-hitting data or commentary.

If the changing tides of the Dollar’s own fundamental backdrop were the dynamic to this equation, we would likely see the currency consolidate or generate modest gains as time premium to the policy tightening burned. However, value is always relative. Though the Greenback is the world’s most liquid currency, its strength can change with the weakening or strengthening of its counterparts. Given its solitary reserve status, the rise or fall from one counterpart alone often does not carry enough weight to strongarm the Dollar. Yet, should a few major counterparts strengthen, it could swamp the Greenback.

This past week, a significant move was made by the British Pound which led to a remarkable GBPUSD move above 1.5350. The Sterling found footing after the BoE’s Quarterly Inflation Report. Though the review warned a brief bout of negative inflation was on the horizon and the first rate hike could be pushed out, the currency seemed heartened that the dovish outlook wasn’t as deep as the market may have been pricing in. A turn from GBPUSD is only a first step and it didn’t force a USDollar break, but it did anchor the benchmark. A few more key moves along similar lines and we could trigger a cascade of sell orders.

Ahead, the Pound will have another chance to gain traction on its rate forecast through its wave of January inflation data, the January labor report and even the minutes from the Bank of England last policy meeting – though this will likely rehash many of the same talking points that the Quarterly Report offered. Another substantial peer that may be prove the more underappreciated threat as a monetary policy spark is the Japanese Yen. Fully set in its open-ended QQE program, it may seem that the Yen is the traditional carry funding currency. Yet, given the recent concerns to come out of the BoJ that a weak currency was contributing to problems, this week’s Japanese 4Q GDP data and Wednesday morning rate decision should be watched closely.

Far more influential as a counterpart will be the Euro’s health. We are not expecting a change to the ECB’s flight plan for its new QE program launching next month. Instead, the world’s second most prolific reserve currency will be stirred by the burgeoning concerns about the region’s stability as negotiations over Greece’s bailout terms grind on. Since the anti-austerity Syriza-led coaltion took over the government last month, little to know progress has been made towards compromise. With meaningful deadlines coming due, if the pressure eases back, a relief rally for EURUSD could produce a strong Dollar downdraft.

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newdigital, 2015.02.14 13:02

USDJPY Fundamentals (based on dailyfx article)

Fundamental Forecast for Dollar: Neutral

• Speculation of a mid-2015 start to a spaced Fed tightening regime is becoming consensus – and is well priced
• The Pound made a rebound this past week and if the Euro and Yen follow suit, it could force a USD turn?

Japan’s 4Q Gross Domestic Product (GDP) report may heighten the appeal of the Yen and encourage the Bank of Japan (BoJ) to soften its dovish tone for monetary policy as the region is expected to return to growth during the last three-months of 2014.

The Japanese economy is expected to come out of the technical recession from 2014 as market participants look for a 0.9% rebound in the growth rate, and the recovery may push the BoJ to retain its current policy at the February 18 meeting as the central bank argues that any additional stimulus at this point is ‘counterproductive.’ As a result, Governor Haruhiko Kuroda may highlight an improved outlook for the region and promote a wait-and-see approach for the foreseeable future as the central bank head remains confident in achieve the 2% target for inflation over the policy horizon. With that said, the fresh batch of central bank rhetoric may spur a further decline in USD/JPY as market participants scale back bets for additional monetary support in 2015.

At the same time, the Federal Open Market Committee (FOMC) meeting minutes will also be closely watched as a growing number of central bank officials show a greater willingness to normalize monetary policy in mid-2015. Indeed, the Fed may continue to highlight an upbeat tone for the U.S. economy as the central bank anticipates lower energy prices to have a positive impact on the economy, but the policy statement may do little to spur a near-term rally in USD/JPY as the slowdown in private-sector consumption undermines the outlook for growth and inflation. In turn, dollar-yen may continue to consolidate and face range-bound prices throughout the remainder of the month as market participants weigh the outlook for monetary policy.

Despite the pickup in risk sentiment, USD/JPY may continue to give back the rebound from 116.86 and work its way back towards the monthly low after failing to push above the January high (120.73). As a result, we will continue to watch support/resistance in the week ahead, and may need a major fundamental catalyst to establish a new near-term trend in USD/JPY as a wedge/triangle pattern continues to take shape.

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newdigital, 2015.02.14 13:10

GBPUSD Fundamentals (based on dailyfx article)

Fundamental Forecast for British Pound: Neutral

• Pound Rally Extends for Third Week on Firming BOE Outlook
• Greek Debt Talks, UK CPI Data Threaten Rebound Continuity

The British Pound rose for a third consecutive week against the US Dollar after a hawkish-sounding Bank of England Quarterly Inflation Report rekindled interest rate hike speculation, as expected. Governor Mark Carney reminded investors that tightening is the next most likely direction for monetary policy, adding that the central bank intends to look past near-term downside inflation shocks from falling food and oil prices. Investors now price in at least one 25 basis point increase in the baseline lending rate over the coming 12 months, with futures markets reflecting bets on a move in the fourth quarter of this year.

Sterling can hardly expect to coast upward unmolested however. There is much that can happen between now and the end of the year that can upend the currency’s recovery. The revival of Eurozone redenomination risk stands out in the near-term as nervous markets prepare for another round of negotiations between Greek and EU officials over the country’s debt woes on Monday. A similar sit-down produced no results last week and the situation looks increasingly intractable: Greece’s government won a key confidence vote, confirming its mandate to scrap the existing EU/IMF bailout program. Meanwhile, German Finance Minister Wolfgang Schaeuble bluntly dismissed rumors of a 6-month extension on Greek debt repayments as “wrong”.

Both sides face negative fallout without an accord. Eurozone officials don’t want to endanger the bloc’s structural integrity by setting a precedent for a country to leave, an outcome with unknown consequences. Meanwhile, the newly-minted Greek administration surely understands its survival depends on ending economic hardship, which voters equated with EU-imposed austerity. Its fortunes might swiftly turn if a disorderly “Grexit” fails to end the malaise or compounds it.Political brinksmanship has been the status quo throughout the Eurozone debt crisis, so more of the same before a stay of execution is cobbled together is not surprising. If Monday’s meeting elevates hopes for a deal, the Pound is likely to face selling pressure as capital inflows seeking refuge from Euro-linked instability reverse course.

Furthermore, the markets’ policy bets will continue to evolve with incoming economic news-flow. The coming week features a potentially formative bit of event risk as January’s CPI figures cross the wires. The headline year-on-year inflation rate is expected to drop to 0.4 percent, the lowest since at least 1989, but Mr Carney’s sanguine posture on this front will likely dilute the figures’ potency. Instead, all eyes will be focused on the core CPI print – a reading that excludes the influence of volatile items the BOE has opted to dismiss – which is expected to rise for a second month to 1.4 percent. UK price growth data has broadly tended to underperform relative to consensus forecasts over the past two years. If that trend continues and a soft core reading emerges, Sterling may retreat as rate hike expectations cool anew.

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newdigital, 2015.02.19 05:50

2015-02-18 19:00 GMT (or 21:00 MQ MT5 time) | [USD - FOMC Meeting Minutes]

• past data is n/a
  
• forecast data is n/a
  
• actual data is n/a according to the latest press release

[USD - FOMC Meeting Minutes] = It's a detailed record of the FOMC's most recent meeting, providing in-depth insights into the economic and financial conditions that influenced their vote on where to set interest rates.

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FOMC Minutes - Reactions From 10 Major Banks

BofA Merrill: The recent steady stream of Fed speakers advocating for a potential June rate hike led to expectations for relatively hawkish FOMC minutes. The headlines for the minutes surprised to the dovish side, and led to a decline in Treasury yields and the US dollar. However, a closer reading suggested a more modest dovish bent with a lot of disagreement among participants. Thus, attention now shifts to Chair Yellen's Congressional testimony next week, which in our view should elaborate and update the assessment of risks while still leaving a June liftoff in play. We expect persistently below-target inflation delays the Fed until September, but the minutes confirm a fair degree of uncertainty about the timing of the first rate hike.

Credit Agricole: The minutes of the January FOMC meeting were relatively dovish and spelled more caution over the inflation outlook and timing of the rate liftoff. On balance, we continue to expect rate normalization to begin in the Q3 2015.

UBS: The minutes of this FOMC meeting are quite ambiguous. There was no definitive view on the impact of foreign developments. Also, there was no clear view on the outlook or the timing of the first rate hike. This was due, likely in part, to the fact that there was uncertainty about the right inflation measures to look at and what other measures might influence them. Even the phrase "patient" was debated: Would removing it cause markets to adjust the timing of the first rate hike too aggressively?...Unfortunately, all the cross currents give us little direction. Prior to the re-acceleration in wages and the continued strong labor market readings and the rebound in oil prices, it would appear that fading a June hike would have made sense given these minutes. Post these realities, it is not clear. The testimony next week is unlikely to prove too instructive as Yellen testifies on behalf of the committee, which last met on January 28th. For now we will keep our forecast of a June rate hike counting on the still-strong labor market and rebound in energy prices to win the day. We will have to be "patient" to see how this wind blows.

Deutsche Bank: The minutes from the January 27 - 28 FOMC meeting did not indicate any substantive changes to the growth outlook compared to the Fed's most recent projections released last December. The near-term inflation outlook was revised down slightly due to further declines in oil prices. However the staff's inflation forecast for 2016 and 2017 was "essentially unchanged." There was considerable debate over the interpretation of market-based measures of inflation compensation but there were no firm conclusions with respect to the longer-term inflation outlook, which the FOMC still sees as gradually rising toward its 2% target. Moreover, the Fed reiterated the view that low energy prices were a net positive for the economy. In short, there were no material changes with respect to the economic and financial outlook.

ANZ: The minutes from the January FOMC meeting were more dovish than expected although we do not expect there has been a wholesale change in view. The FOMC appears more concerned about risks from offshore and the higher USD and many FOMC members would prefer to keep the fed funds rate at near zero bound for a longer time. In our view, we would not read too much into the term 'longer'. In addition, given many of the offshore risks - such as the Greek and Ukraine situations - now look more likely to be resolved, this should allay a lot of the stated reasons for hesitancy. We continue to look for the first hike around mid-year although we acknowledge the risks of the Fed waiting have increased. Yellen's speeches next week will be important

NAB: The killer paragraph in the minutes of the Fed's January meeting reads as follows: "Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalization had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time". In FOMC speak, many is taken to mean a majority, and these words have had the effect of pushing implied money market yields in the fourth quarter of 2015 down by about 5bps on average, and by as much as 10bps further out along the shorter end of the yield curve. It's worth remembering here that the mood music coming from Fed officials ahead of the minutes - but since the meeting itself - had been consistent in suggesting that a June Fed 'lift-off' is still a very live risk. Janet Yellen's testimonies next week now loom large. Trading will be thinner than normal given today is the Lunar New Year holiday and so Greater China is shut.

SEB: It is our understanding that the Fed minutes did not suggest that the FOMC is paving the way for a June rate hike as "many officials were inclined to stay at zero for longer". Moreover, the drop in inflation expectations was apparently worrying since a number of participants emphasized that they would need to see either an increase in market-based measures of inflation compensation or evidence that continued low readings on these measures did not constitute grounds for concern. While we may have a different view after Chair Yellen's semi-annual testimony before congress next week, the minutes are not suggesting to us that "patience" will be dropped as early as in the March statement. Our forecast still is for liftoff a few meetings later, in September.

Barclays: Our main takeaway from the January FOMC minutes is that concern about downside risk to inflation has risen and, consequently, the bar for raising rates by June is higher than it was in December. We maintain our baseline forecast for a June rate hike at this juncture, but the risk of a later takeoff has risen, particularly if downside surprises on core inflation continue. We look to Chair Yellen's comments in front of the US Senate and House of Representatives next week for further clarification on the committee's thinking.

Danske: The minutes from the January FOMC meeting strongly suggest that the FOMC's fed funds rate projections will be lowered at the upcoming 18 March meeting and the minutes were in general more dovish than recent Fed speeches. Data received since the FOMC meeting on 28 January includes the January employment report, which was very strong. However, we doubt that one data point is enough to turn the Committee's sentiment, in particular when inflation indicators continue to be soft. This challenges our call that the Fed will remove 'patient' from the statement in March and raise the fed funds rate this summer If February data on employment continue to show solid improvement and inflation indicators stabilise, we continue to believe the Fed would like to have the flexibility to raise rates in June. Hence, 'patient' should be dropped in March but will be combined with soft comments from Janet Yellen and lower economic projections in order to keep the market reaction moderate.

CIBC: The latest minutes show that many officials felt dropping patient could lead markets to price in too early a move to tighten policy, putting upwards pressure on rates when some sectors like housing are still showing uneven signs of recovery. Notwithstanding that, several members suggested that a "late departure" could result in monetary policy becoming excessively accommodative. Not inconsistent with that view, there was general agreement that the minutes should "acknowledge solid growth over the second half of 2014, as well as the further improvement in the labour market." The minutes overall show that opinion within the FOMC remains deeply split on when the Fed should take the next step on the road to policy normalization. Although inflation has moved down, the minutes also affirm the statement in suggesting that most members continue to see the drop as a transitory consequence of lower oil prices, and therefore not sufficient at this point to warrant a notable delay in moving interest rates up from the lower bound. Today's release does not change our view that June still remains the most likely date for policy lift off. A slight positive for bonds given further signs of the Committee's reluctance to dispense with the key word "patience". The focus now shifts to Yellen's testimony next week for further information on the policy outlook.

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newdigital, 2015.02.19 19:18

GBP/USD holds steady close to more than 1-month highs (based on nasdaq article)

The pound held steady close to more than one-month highs against the U.S. dollar on Thursday, as the greenback remained under pressure after the minutes of the Federal Reserve's latest policy meeting imdicated that interest rates could stay on hold for a longer period.

GBP/USD hit 1.5466 during European morning trade, the session high; the pair subsequently consolidated at 1.5448.

Cable was likely to find support at 1.5339, Wednesday's low and resistance at 1.5586, the high of January 2.

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newdigital, 2015.02.20 05:53

GBP/USD Technical Analysis: Rally Pauses Below 1.55 Mark (based on dailyfx article)

• GBP/USD Technical Strategy: Long at 1.5373
• Support: 1.5322, 1.5194, 1.4980
• Resistance: 1.5551, 1.5737, 1.5923

The British Pound is digesting gains against the US Dollar after rising to the highest level in nearly two months. Near-term resistance is at 1.5551, the 38.2% Fibonacci retracement, with a break above that on a daily closing basis exposing the 50% level at 1.5737. Alternatively, a turn below the 23.6% Fib at 1.5322 opens the door for a challenge of a horizontal pivot at 1.5194.

We bought GBPUSD at 1.5373, initially aiming for 1.5551. A stop-loss will be activated on a daily close below 1.5194. We will take profit on half of the position and move the stop to breakeven once the first target is reached.

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newdigital, 2015.02.20 09:03

Trading the News: U.K. Retail Sales (based on dailyfx article)

A contraction in U.K. Retail Sales may spur a near-term pullback in GBP/USD as it dampens the outlook for a stronger recovery in 2015.

What’s Expected:

Why Is This Event Important:

However, we may see private-sector consumption outpace market expectations as the Bank of England (BoE) anticipates lower energy prices to boost disposable incomes, and Governor Mark Carney may continue to prepare U.K. households and businesses for higher borrowing-costs as the central bank head turns increasingly upbeat towards the economy.

Nevertheless, improved confidence paired with the pickup in job/wage growth may produce a better-than-expected sales report, and a further improvement in household spending may encourage the BoE to raise the benchmark interest rate sooner rather than later as heightens the prospects for a stronger recovery.

How To Trade This Event Risk

Bearish GBP Trade: Private Spending in U.K. Contracts 0.2% or Greater

• Need red, five-minute candle following the release to consider a short British Pound trade
• If market reaction favors short sterling trade, sell GBP/USD with two separate position
• Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward
• Move stop to entry on remaining position once initial target is hit, set reasonable limit

Bullish GBP Trade: Retail Sales Exceeds Market Forecast

• Need green, five-minute candle to favor a long GBP/USD trade
• Implement same setup as the bearish British Pound trade, just in opposite direction

Potential Price Targets For The Release
GBP/USD Daily Chart

• Lack of momentum to preserve the bullish trend in RSI may highlight a near-term top in GBP/USD as it fails to push back above the former support region.
• Interim Resistance: 1.5500 pivot to 1.5520 (38.2% expansion)
• Interim Support: 1.5250 (100% expansion) to 1.5270 (38.2% retracement)

Impact that the U.K. Retail Sales report has had on GBP during the last release

Period	Data Released	Estimate	Actual	Pips Change (1 Hour post event )	Pips Change (End of Day post event)
DEC 2014	01/23/2015 9:30 GMT	-0.6%	0.4%	+12	+16

U.K. Retail Sales unexpectedly rose another 0.4% in December following the 1.6% expansion the month prior, which was largely driven by falling energy prices. The low inflation environment paired with the ongoing improvement in the labor market may encourage a stronger recovery in the U.K. as it boosts private-sector consumption, one of the leading drivers of growth. Despite the positive results, the lack of follow-through behind the initial reaction kept GBP/USD within the weekly range, with the pair closing at 1.4978.