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.
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.
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
How To Trade This Event Risk
Bearish USD Trade: U.S. Retail Sales Falls Another 0.4% or Greater
AUD/USD Spurns ‘News’ and Maintains Range (based on dailyfx article)
AUDUSD weekly candles point to behavior change (adapted from dailyfx article)
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
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
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)
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
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
Nikkei forecast for the week of February 16, 2015, Technical Analysis
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.