Fundamental Weekly Forecasts for US Dollar, USDJPY, GBPUSD, AUDUSD and GOLD - keep track of external factors that can cause cross fundamental winds

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Sergey Golubev, 2015.05.02 12:56

Forex Weekly Outlook May 4-8 (based on forexcrunch article)

The US dollar experienced a very turbulent week, tumbling down and recovering, but not against the euro. Close elections in the UK, an important rate decision in Australia, employment data from New Zealand, Australia, Canada and the all- important US non-Farm Payrolls release are key events. These are the highlight events on Forex calendar for this week. Here is an outlook on the top events coming our way.

The Federal Reserve downgraded its economic outlook amid soft growth data.  The Fed admitted recent weakness in the first quarter relating it to temporary factors. Inflation will have to climb back to 2% and the job market needs to improve further before a rate hike is announced. However, the Fed believes the US economy will rebound in the second quarter.  Meanwhile, jobless claims released last Thursday, surprised markets with a 34,000 fall in the number of claims nut not all data points impressed.  The biggest winner was the euro, that broke critical resistance and seems unstoppable. Poor data weighs on the pound towards the elections and central banks weigh on the kiwi and the Aussie.

1. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia kept its cash rate at 2.25% for the second consecutive month in April, as the majority of policy makers decided against another rate cut. The last rate cut in February was designed to boost growth in non-mining sectors. RBA governor Glenn Stevens notes in his rate statement that further easing measures will be announced in the next few months. No change in rate is expected this time, but there is no 100% consensus. This means that a rate cut will hit the Aussie, and another “no cut” is set to boost it.
2. US Trade Balance: Tuesday, 12:30. The U.S. trade deficit narrowed in February to the lowest level since 2009, reaching $35.4 billion. Economists expected deficit will rise to $41.3 billion. However, the strong dollar, weak global demand and lower crude oil prices probably impacted trade balance in February. Despite the low deficit, economic growth slowed considerably in the first quarter. Exports declined 1.6% to $186.2 billion, the smallest since October 2012, while imports from China fell 18.1%, pushing the politically sensitive U.S.-China trade deficit down 21.2 percent to $22.5 billion. Trade deficit is expected to grow to 39.7 billion in March.
3. US ISM Non-Manufacturing PMI: Tuesday, 14:00. The U.S. non-manufacturing sector continued to expand at a slower pace in March, as service companies increased their export orders. Economists expected Non-Manufacturing PMI to reach 56.6. The majority of respondents’ were positive about business conditions and the overall economy. The ISM’s new orders index increased to 57.8 in March from 56.7 in February. The export index jumped to 59.0 from 53.0. The ISM business activity index declined to 57.5 from 59.4 in February and 61.5 in January. Non-manufacturing PMI is expected to reach 56.2 in April.
4. NZ employment data: Tuesday, 22:45. New Zealand’s employment market expanded 1.2% in the fourth quarter of 2014, compared to 0.8% growth in the previous quarter. Economists expected a 0.8% rise in the number of new positions. Despite the bigger than expected job gain, the unemployment rate increased to 5.7% from 5.4% in the third quarter, posting the highest unemployment rate since Q1 2014. Analysts estimate an average of 5.2% in 2015. New Zealand’s employment is expected to grow by 0.7% in the first quarter, while the unemployment rate is forecasted to decline to 5.5%.
5. US ADP Non-Farm Payrolls: Wednesday, 12:15.  The U.S. private sector registered the smallest job gain in more than a year, adding 189,000 positions in March. The reading was below market forecast of 227,000 jobs and weaker than the 212,000 increase in posted the previous month. Harsh winter, a strong dollar and weaker global demand were partial causes for the disappointing jobs release.  ADP private sector employment is expected to grow by 185,000 in April.
6. Janet Yellen speaks: Wednesday, 13:15. Federal Reserve Chair Janet Yellen will speak in Washington DC. She may speak about the recent FOMC rate decision the state of the job market. Market volatility is expected.
7. Australian employment data: Thursday, 2:30. Australia’s labor market expanded by 37,000 new jobs in March, pulling the unemployment rate down to 6.1%. The majority of jobs asses were full time positions. Economists expected a lower gain of 14900 positions and forecasted unemployment of 6.3%. Productivity has climbed increasing employers’ demand for workers. Improved job prospects expected to lift household incomes and boost the economy. Australian labor market is forecasted to expand by 3,100 jobs, while the unemployment rate is expected to reach 6.2%.
8. US Unemployment Claims: Thursday, 12:30. The number of Americans filing new claims for unemployment fell last week to the lowest level since 2000, indicating the weakness in the labor market during March was only temporary. The number of initial claims plunged 34,000 a seasonally adjusted 262,000, beating forecasts for 290,000 new claims. The four-week moving average declined l 1,250 to 283,750.
9. UK elections: Thursday, initial results expected late in the US session. After 5 years of a Conservative-LibDem coalition, incumbent David Cameron boasts an recovering economy while Labour leader Ed Miliband points to deteriorating standards of living. The markets would prefer a Conservative government, the current coalition or at least an outright majority for Labour. However, things look much more complicated, with both leading parties expected to fall short of a majority and a hung parliament also on the cards – an uncertain situation with negative ramifications for the pound. Polls are too close to call, making it an interesting event indeed.
10. Canadian employment data: Friday, 12:30. The Canadian economy unexpectedly added 28,700 jobs in March, beating forecasts of jobs contraction. The majority of jobs were part-time positions, but employers also cut 28,200 full-time jobs. The main gain was detected in the service sector. RBA Governor Stephen Poloz stated that first quarter growth will be badly affected by the recent oil price collapse. The labor participation rate edged up to 65.9% from 65.7%. The unemployment rate remained at 6.8% while expected to tick up to 6.9%.
11. US Non-Farm Payrolls: Friday, 12:30. US non-farm payrolls disappointed in March showing job growth of 126,000 positions, far below the 246,000 gain expected by analysts and following 295,000 job addition in February. Meanwhile the unemployment rate remained stable at 5.5% in line with market forecast. The employment-population ratio remained at 59.3%, while the participation rate edged down to 62.7% in March from 62.8% in the prior month. US private sector is expected to gain 231,000 jobs, lowering the unemployment rate to 5.4%.

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Sergey Golubev, 2015.05.02 12:59

US Dollar Fundamentals (based on dailyfx article)

Fundamental Forecast for Dollar: Neutral

• The Dollar dropped to a two-month low this past week and closed out April with its first monthly decline in 10 months (DXY)
• Will this week’s NFPs offer a clearer signal on rate expectations than this past week’s GDP/FOMC combo?

This past week, the USDollar posted its first drop on a monthly basis in 10 consecutive months. At the same time, the week ended on a rally that closed out the period little changed. We are in a phase of technical and fundamental limbo. A correction for the Greenback is not without its merits: the Dollar’s exceptionally consistent run can be overinflated by trend-following speculative interests that need to retrench and rate speculation has softened alongside the quality in data. Then again, the currency’s and economy’s ‘relative’ appeal is still exceptionally strong. With the Dollar transitioning from a steady bull trend to a period of consolidation and now suffering its most painful slide in a year, the burden to generate momentum on this week’s fundamental themes will be more evenly distributed.

For fundamental traders, the most recognizable catalyst in the week ahead will be the April labor statistics due on Friday. It is not unreasonable to peg the NFPs the week’s top event risk. It is an easy-to-interpret indicator and taps directly into what has driven the Dollar and FX market generally through the past year: monetary policy expectations. However, there will be hurdles to overcome for this data to lock in a definitive currency move. The most prominent obstacle for the report will be its Friday release. There will be plenty of anticipation, but confirmation comes late in the week.

In the data itself, the elements that cut closest to the key determinants for monetary policy will carry the most weight. The unemployment rate is already well beyond levels previously set as targets, so its up- or downtick will generate lower amplitude waves. The missing element in the timing of the Fed’s liftoff is tangible inflation pressure. For that reason, the earnings data will likely prove the most important update. The current consensus is for a 2.3 percent increase in wages year-over-year, which would match the strongest pace since 2009. Should the data meet or ‘beat’ this forecast, it would tip the uneasy equilibrium in rate speculation that we were left with following this past week’s poor 1Q GDP reading and the FOMC’s suspiciously status quo statement. Alternatively, a ‘miss’ is likely to carry less weight as it fighting a current whereby the Fed remains well ahead of the policy curve.

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Sergey Golubev, 2015.05.03 08:30

EUR/USD Retains Bullish Pattern Despite Thin Market Participation (based on dailyfx article)

• Euro Resilience Pushes Retail Positions to Extremes- 1.1300 Still in Focus.

• AUD/USD Outlook Mired by Speculation for Reserve Bank of Australia (RBA) Rate Cut.

• EUR/USD outperforms against its major counterparts, but lack of momentum to break/close above the 1.1300 handle (78.6% retracement) raises the risk for former support to turn into new resistance; need a break of the bullish RSI momentum for conviction/confirmation a near-term top is in place.
• With the narrowing risk for a Greek default/exit, positive data prints paired with the upbeat tone from the European Central Bank (ECB) may spark a ‘taper tantrum’ in the euro-area over the near to medium-term.

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Sergey Golubev, 2015.05.03 08:39

Monthly Forex Forecast: May 2015 (based on dailyforex article)

The USD has fallen meaningfully in value over the past 1 month and 3 month periods. This is a significant quantitative change in the market and is suggestive of continuing USD weakness over the coming month. Next, it should be noted that both the GBP and the JPY have been enjoying steady movement overall for many months, with the GBP rising and the JPY falling. Over the past 3 months, we are also seeing strong turnarounds from bearish to bullish in CAD and NZD, and in AUD to a lesser extent. This suggests that the current month will see rises in GBP, CAD, NZD and AUD, and falls in USD and JPY – in these orders of preference.

Many traders believe fundamental factors should either be ignored completely, or taken as the primary factor to consider in entering or exiting a trade. Fundamental analysis is best used as a final filter in deciding whether to take a trade that already looks good from a technical perspective.

Therefore let’s consider the aforementioned currencies from a fundamental perspective. Both the GBP and the CAD have higher base rates than the USD. Of the three currencies, the market probably sees the next rate rise as most likely to come in the GBP, closely followed by the USD. The USD is seen as having the strongest economy, but that perception is arguably under threat now. The CAD may be impacted by the price of oil with a positive correlation, and the price of oil is bouncing back and rising strongly. Overall it seems that the fundamental factors are mixed and questionable enough to probably not be a block in the direction of the trades discussed.

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Sergey Golubev, 2015.05.04 05:41

EUR/USD weekly outlook: May 4 - 8 (based on investing.com article)

The euro backed off two-month highs against the dollar on Friday after reports indicated that the U.S. economy may be stabilizing after a recent soft patch.

EUR/USD was down 0.22% to 1.1198 late Friday, still not far from two-month peaks of 1.1289.

The Institute for Supply Management reported that activity in the manufacturing sector was stable in April, after slowing in the five previous months.

The ISM manufacturing index came in at 51.5 in April, matching the March reading, which had been the lowest since May 2013.

Another report showed that U.S. consumer sentiment rose in April to its highest level since January.

Separately, the Commerce Department said construction spending fell 0.6% to an annual rate of $966.6 billion in March, the lowest level since September.

The reports, while mixed, fuelled optimism that the U.S. economy has turned a corner after a recent bout of weakness.

The dollar had received a boost after a report on Thursday showed that the number of Americans filing new claims for jobless benefits fell to a 15-year low of 262,000, pointing to healthy growth in the labor market.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last up 0.53% to 95.38 late Friday, after falling to two-month lows of 94.47 on Thursday.

Data earlier in the week showed that the U.S. economy grew just 0.2% in the three months to March, slowing from 2.2% in the final quarter of 2014. It was the slowest rate of growth in a year.

The weaker-than-expected data prompted investors to push back expectations on the timing of an initial rate hike by the Federal Reserve to later this year from midyear.

In its rate statement on Wednesday the Federal Reserve said recent indications of a slowdown in growth were probably due to “transitory factors.”

Demand for the euro continued to be underpinned after data on inflation and bank lending earlier in the week added to signs that the recovery in the region is gaining traction.

Sentiment on the single currency was also boosted by hopes that Greece is moving closer to an agreement with its international lenders on a package of economic reforms needed to unlock bailout funds.

In the week ahead, investors will be focusing on Friday’s U.S. nonfarm payrolls report, for a fresh indication on the strength of the economic recovery. Service sector reports from the euro zone will also be closely watched.

Monday, May 4

• The euro area is to produce revised data on manufacturing activity.
• Later in the day, the U.S. is to publish figures on factory orders.

Tuesday, May 5

• In the euro zone, Spain is to publish its monthly employment report.
• The U.S. is to release trade data, while the Institute of Supply Management is to release a report on service sector activity.

Wednesday, May 6

• The euro zone is to publish revised data on service sector activity and a report on retail sales.
• The U.S. is to release its monthly ADP nonfarm payrolls report and later in the day Fed Chair Janet Yellen is to speak at an event in Washington DC.

Thursday, May 7

• In the euro zone, Germany is to publish a report on factory orders.
• The U.S. is to publish the weekly report on initial jobless claims.

Friday, May 8

• The U.S. is to round up the week with what will be the closely watched government nonfarm payrolls report.

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Sergey Golubev, 2015.05.04 22:44

Forex technical analysis: EURUSD peeks below a support level (based on forexlive article)

So it is a slow grind and may just rebound off the next support, but the EURUSD has touched (and is taking a peek below) the 100 hour MA (blue line in the chart below) at the 1.1135 level currently.

There are reports that the IMF will cut off support for Greece. IMF Lagarde and Greece's Tsipras are holding a telephone conference.

European commission president Juncker says Greece exit for Euro area is no option and that Europe must show solidarity with Greece.  

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Sergey Golubev, 2015.05.05 08:43

• past data is 2.25%
• forecast data is 2.00%
• actual data is 2.00% according to the latest press release

if actual > forecast (or previous data) = good for currency (for AUD in our case)

[AUD - Cash Rate] = Interest rate charged on overnight loans between financial intermediaries. Short term interest rates are the paramount factor in currency valuation - traders look at most other indicators merely to predict how rates will change in the future.

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Australia Trims Key Rate By 25 Bps To Record Low

The Reserve Bank of Australia lowered its benchmark interest rate by a quarter point as inflation outlook provided the space for monetary policy easing.

As expected by economists, the policy board governed by Glenn Stevens on Tuesday decided to cut the cash rate by 25 basis points to a record low of 2.00 percent, effective May 6.

This was the second reduction this year. The bank last reduced the rate by 25 basis points in February.

"The Board judged that the inflation outlook provided the opportunity for monetary policy to be eased further, so as to reinforce recent encouraging trends in household demand," the bank said in a statement.

Today's rate cut is unlikely to be the last in this cycle, Paul Dales chief Australia & NZ economist at Capital Economics said.

MetaTrader Trading Platform Screenshots

AUDUSD, M5, 2015.05.05

MetaQuotes Software Corp., MetaTrader 5

AUDUSD M5: 117 pips price movement by AUD - Cash Rate news event

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Sergey Golubev, 2015.05.05 10:09

"Although lately I’ve been treating a longstanding bear-market target in the low $800s as practically a done deal, my trading partner, John Boutiette reminded me last week that, from a purely technical standpoint, such an outcome would not even become probable, let alone certain, until sellers trash the 1120.50 midpoint support shown. So far, the low of the 43-month-old bear market is 1134.10, leaving about $13 of room before we have reason for deep concern. And just to be sure, I’ll stipulate that the June contract close beneath 1120.50 for two consecutive months before we assume the 808.50 target is in play. Meanwhile, that midpoint support should be regarded not only as a minimum downside objective for now, but as a potential spot to try bottom-fishing with a tight stop-loss."

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Sergey Golubev, 2015.05.05 14:58

• past data is -35.9B
• forecast data is -41.2B
• actual data is -51.4B according to the latest press release

if actual > forecast (or previous data) = good for currency (for USD in our case)

[USD - Trade Balance]  = Difference in value between imported and exported goods and services during the reported month. Export demand and currency demand are directly linked because foreigners must buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers.

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"The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that the goods and services deficit was $51.4 billion in March, up $15.5 billion from $35.9 billion in February, revised. March exports were $187.8 billion, $1.6 billion more than February exports. March imports were $239.2 billion, $17.1 billion more than February imports.

The March increase in the goods and services deficit reflected an increase in the goods deficit of $14.9 billion to $70.6 billion and a decrease in the services surplus of $0.6 billion to $19.2 billion.

Year-to-date, the goods and services deficit increased $6.4 billion, or 5.2 percent, from the same period in 2014. Exports decreased $11.7 billion or 2.0 percent. Imports decreased $5.3 billion or 0.8 percent."

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Sergey Golubev, 2015.05.06 10:38

USD/JPY Technical Analysis: Treading Water Near 120.00 (based on dailyfx article)

The US Dollar corrected narrowly lower after seemingly completing an upside breakout against the Japanese Yen late last week. A daily close above the 38.2% Fibonacci expansion at 120.68 exposes the 50% level at 121.41. Alternatively, a reversal below trend line resistance-turned-support at 119.56 opens the door for a challenge of the April 3 lowat 118.71.

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Sergey Golubev, 2015.05.06 14:14

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Sergey Golubev, 2015.05.07 07:54

EURUSD rotates toward broken trend line (based on forexlive article)

The EURUSD has rotated lower after the surge higher. The pair is down testing the broken trend line on the 4- hour chart. That level comes in at 1.1326.

A move back below is needed to show the sellers are taking back some control.  Risk defining level for dip buyers (stop below 1.1317 (50% of the last trend leg higher).

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Sergey Golubev, 2015.05.08 07:15

Goldman Sachs sees upside risks in nonfarm payrolls despite soft ADP (based on forexlive article)

Goldman Sachs sees nonfarm payrolls matching the 230K consensus estimate, despite just 169K jobs in Wednesday's ADP employment report.

"While labor market indicators were mixed in April, the employment components of service sector surveys were strong and better weather conditions should provide a boost. In addition, we see some upside risk to our forecast from a calendar effect," they wrote.

The market is likely priced below the 230K consensus, somewhere closer to 200K, so a stronger reading would give the US dollar a lift.