Analysis written BY retail traders FOR retail traders
Weekly wrap: Monday 17th to Friday 21st October 2016
The week had a relatively lacklustre start with the market still considering comments late on Friday from Fed Chair Yellen who failed to really reveal any significant forward guidance on policy. She struck a balanced tone commenting that running the US economy hot for a period could provide significant benefits by increasing the labour participation rate, encouraging discouraged workers back into the labour market, while at the same time citing risks associated with ultra-accommodative monetary policy. US news for the rest of the week remained largely as expected with the most notable being CPI coming in at 0.3% against a 0,2% prior. All in all a positive week for the USD and we continue to see a 64% chance of an interest rate increase in December according to the Fed futures.
The Euro didn’t have such a successful week reaching seven-month lows against the dollar by late Friday trading. Indicator releases were largely as expected with CPI coming in flat at 0.4% and core CPI at 0.8% early in the week The main event was as ever Mario Drahgi and the ECB press conference; as expected there was no change in the current interest rates and very little relating to forward guidance, although the ECB did confirm that more information would be available in December and this would give them a much better feel of plans for the next few months. Drahgi confirms that there was little evidence of increasing inflation and the feeling is that additional tweaks to easing will be made in December, be that a change in the timetable or amount. The Eurozone still remains extremely fragile due to political issues such as immigration, the Italian banking crisis and uncertainty around Brexit.
Brexit continues to dominate the GBP although this week saw some broad stabilisation after the chaos of the last few weeks. The UK economy continues to remain fairly resilient considering recent economic and political turmoil, CPI beating expectations at 1% along with core CPI at 1.5%. House prices remain strong although retail sales did disappoint later in the week which took some of the steam out of GBP bulls. Theresa May has her first European summit this weekend where it remains to be seen if the CAD / EU CETA Trade deal difficulties will boost or weigh on Stirling.
The BOC kept interest rates on hold at 0.5% earlier in the week although the bank remained on the dovish side of the fence citing that although exports had improved they were still below expectations and that the US political uncertainty was also having an impact. They also confirmed that additional stimulus measures had been actively discussed at the recent meetings but it was felt that now was not the right time. While manufacturing sales was significantly above expectations earlier in the week and core CPI on target, retail sales missed which added to further selling pressure on the Canadian dollar towards the end of the week in line with oil. We could see a small recovery in the Canadian dollar early next week should there be agreement between Canada and the EU on a CETA free-trade agreement.
The Aussie had a difficult week last week with disappointing jobs data suggesting that perhaps the Australian economy isn’t in as good a position as had been led to believe. While the unemployment rate remained unchanged, the participation rate dropped significantly suggesting that more people have been discouraged and have stopped looking for employment. This reversed gains made earlier in the week following remarks from the RBA governor commenting that current interest rates were suitable and that there were no immediate plans to increase easing.
A relatively good week for the New Zealand dollar on the news front with the week starting with CPI beating expectations at 0.2% despite being down on its prior 0.4% print. While all indications are that the RBNZ continues to be on an easing pathway, with a good chance of an interest rate cut in November, the key data which will probably influence this will be CPI figures due to be released early next month.
Source: Article written by Andi Thornton
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