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Economists Surprised by Jump in Australian Unemployment Rate
"While the market had expected some weakening in labour force conditions in January after the surprisingly good figures in December, the increase in the unemployment rate to 6.4 per cent was worse than feared," said ANZ's co-head of Australian economics Riki Polygenis.
CommSec chief economist Craig James agreed."On the basis of the continued softness of the job market, there seems no barrier to the Reserve Bank cutting interest rates again at the March board meeting," he said.
"Simply, Australia is growing at a far slower rate than its potential."
Trading News Events: U.S. Retail Sales (based on dailyfx article)
Another contraction in U.S. Retail Sales may drag on the greenback and generate a near-term rebound in EUR/USD as it dampens the Fed’s scope to raise the benchmark interest rate in mid-2015.
What’s Expected:
Why Is This Event Important:
The Fed may have little choice but to further delay its normalization cycle as lower energy costs show little evidence of boosting private-sector consumption, and we may see the central bank implement a more dovish twist to the forward-guidance for monetary policy as it struggles to achieve the 2% target for inflation.
Nevertheless, the pickup in job/wage growth may pave the way for a better-than-expected print, and a positive development may spark a bearish reaction in EUR/USD as market participants ramp up bets for higher borrowing-costs.
How To Trade This Event Risk
Bearish USD Trade: U.S. Retail Sales Falls Another 0.4% or Greater
- Need green, five-minute candle following the release to consider a long trade on EUR/USD.
- If market reaction favors a bearish dollar trade, buy EUR/USD with two separate position.
- Set stop at the near-by swing low/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 USD Trade: Private Consumption Exceeds Market Forecast- Need red, five-minute candle to favor a short EUR/USD trade.
- Implement same setup as the bearish dollar trade, just in reverse.
Potential Price Targets For The ReleaseEUR/USD Daily
- Long-term outlook for EUR/USD remains bearish as the RSI retains the downward trend carried over from back in October 2013.
- Interim Resistance: 1.1600 pivot to 1.6110 (61.8% expansion)
- Interim Support: 1.1096 (2015 low) to 1.1100 pivot
Impact that the U.S. Retail Sales report has had on EUR/USD during the previous month(1 Hour post event )
(End of Day post event)
2014
U.S. Retail Sales contracted 0.9% in December, largely driven by lower gas receipts, after climbing a revised 0.4% the month prior. Despite the worse-than-expected print, it seems as though the Fed remains confident in raising the benchmark interest rate in mid-2015 as the central bank anticipates falling oil prices to have a positive impact on the economy as it boosts disposable incomes. Nevertheless, the dollar struggled to hold its ground following the print, with EUR/USD climbing above the 1.1825 region, but the market reaction was short-lived as the pair consolidated throughout the North America trade to end the day at 1.1773.
AUD/USD Spurns ‘News’ and Maintains Range (based on dailyfx article)
AUDUSD weekly candles point to behavior change (adapted from dailyfx article)
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.
US Dollar Fundamentals (based on dailyfx article)
Fundamental Forecast for Dollar: Neutral
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.
USDJPY Fundamentals (based on dailyfx article)
Fundamental Forecast for Dollar: Neutral
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.
GBPUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for British Pound: Neutral
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.
Nikkei forecast for the week of February 16, 2015, Technical Analysis
The Nikkei initially gapped higher at the open of the week, and then fell to fill the gap during that time. The resulting candle was a hammer, which shows that there is significant underlying bullish pressure. The market looks as if it is going to try to break out above the 18,000 level, which would have us buying for the long-term, and aiming for the 20,000 level next. We think it will eventually do that, and that pullbacks offer value that we are going to pick up without hesitation.
S&P 500 forecast for the week of February 16, 2015, Technical Analysis
The S&P 500 broke higher during the course of the week, as we are testing the 2100 level now. If we get above there, this market should continue to go much higher and as a result we would be very bullish and hanging onto any long positions. If we pullback from here, we think that there should be plenty of support all the way down to the 2000 handle, where there should be plenty of support and as a result we are willing to go long on both of those scenarios.