u.s. core cpi figures could be critical for the euro and...
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U.S. CORE CPI FIGURES COULD BE CRITICAL FOR THE EURO AND THE YEN; WILL THE BANK OF ENGLAND KEEP RATES STEADY?
WEEKLY OUTLOOKMonday, 8th May, 2017
Mon 8th May 2017, 06:00 GMT
EURUSD NEUTRAL GBPUSD BEARISH Matthew Ashley & Steven Knight
The Euro performed relatively strongly throughout last week as the Frenchelection polls continued to adjust towards Macron. In addition, the EU RetailSales figures also proved relatively robust rising to 0.3% m/m. However, it wasreally the weaker U.S. FOMC decision which drove the pair higher after thecentral bank largely retreated to their data dependent mantra. Subsequently,the Euro finished the week higher around the 1.0998 mark. Moving forward,keep a watch on the U.S. Retail Sales figures, forecast at 0.6% m/m.
The Cable had another week in the green as the pair largely followed ourforecast from last week and rose to challenge resistance at 1.2965 followingsome strong gains in the UK Manufacturing and Services PMI figures. Inaddition, the uncertainty around the U.S. Fedʼs path to rate hikes also buoyedthe pair and saw it close the week out around the 1.2977 mark. Movingforward, itʼs set to be a busy week for the Cable with the Bank of England setto meet on rates as well as the release of the NIESR GDP Estimate.
USDJPY NEUTRAL AUDUSD NEUTRAL
The USDJPY was buoyant last week as the pair rallied in response to thestronger than expected U.S. Non-Farm Payroll numbers and the rise in theISM Non-Manufacturing PMI. Subsequently, a gradual appreciation was seenand the pair closed the week out around the 112.62 mark. The week ahead isalso looking busy for the USDJPY with the U.S. Core CPI and Retail Salesfigures due for release. In particular, the market will be looking for some strongCPI gains given that they are seeking some hints as to the timing of rate hikes.
The Aussie Dollar closed the week substantially lower despite its excellentperformance on Monday and Tuesday. The losses accrued almost entirelyon Wednesday which saw the pair slide by more than 100 pips in responseto the uptick in the US data released during the session. However, theweaker Australian trade data also weighed on the pair, extending lossesmodestly as the week came to an end. Moving on, both the Australian andUS Retail Sales should be worth monitoring.
NZDUSD BEARISH XAUUSD BEARISH
The Kiwi Dollar experienced some wide swings in sentiment last weekwhich reflected the hot and cold nature of the economic news. However,ultimately, the stronger NZ employment data and the continuedimprovement in global dairy prices won out which saw the pair defy itstechnical bias to close the week somewhat higher. As for the week to come,the RBNZ is making its OCR decision which will be the main focus for mosttraders.
Gold prices were in free fall last week as the metal slid lower in response toboth decreasing political risks and the broadly stronger US data released inthe latter half of the week. More precisely, the shrinking chances of a LePen victory accompanied by robust US employment data saw an increasedappetite for risk which buoyed stocks as traders shifted away from safehavens. Looking ahead, the US CPI and Retail Sales figures should be infocus.
Mon 8th May 2017, 06:00 GMT
EURUSD NEUTRAL
Last week was fairly positive for the Euro with the pair producing steadygains despite volatility around the French election result. However, as theweek progressed the election polls continued to swing towards Macron,which alleviated the risk given that he is a pro-EU candidate. However, thepair rallied significantly following the release of the U.S. Federal Reserveʼsdecision on interest rates. As expected, the FOMC held rates steady but itwas really the statement following the event that disappointed the market.Instead of providing a hawkish outlook, Chairperson Yellen was morereserved and suggested that further rate hikes would need to remain “DataDependent”. Subsequently, the Euro roared around 90 pips higher and,therefore, closed the week out around the 1.0998 mark.
Looking ahead, there isnʼt much in the way of Euro centric news for themarket to focus on in the week ahead, except for the French election result.Subsequently, the marketʼs focus will likely be upon the U.S. economicnews with the JOLTS Job Openings and Core CPI numbers to be central.The JOLTS metric has been forecasted at 5.67 million but given the recentsharp fall in unemployment I would question where the excess capacity forthese roles will come from. It would appear that many of these roles arebeing created out of thin air and only represent part time, low hour roles.Subsequently, the JOLTS numbers can often be taken with a grain of saltbut the market does monitor them and so should you. In contrast, the CoreCPI figures are critical and will be closely watched given their role informing the Fedʼs rate outlook. Subsequently, expect plenty of volatilityaround their release, especially if they exceed the forecasted 0.2%.
From the technical perspective, the pairʼs recent rally has brought the RSIand Stochastics Oscillator into strongly overbought territory. In addition,from a mean reversion point of view price action is aching for a reversalback towards the 12 and 50 EMAʼs. Subsequently, our initial bias for theweek is neutral but we suggest you watch the pair closely as a breakdownback towards the 1.09 handle is possible. Support is currently in place forthe pair at 1.0819, 1.0569, and 1.0495. Resistance exists on the upside at1.1058, 1.1138, and 1.1343.
10/05 12:00 ECB President Draghi Speaks
11/05 12:30 Unemployment Claims1.1058 1.0819
12/05 12:30 Core CPI m/m
EUR
USD
USD
Mon 8th May 2017, 06:00 GMT
GBPUSD BEARISH
The Cable provided a strong performance last week as the currencyreacted to some gains in the UK Manufacturing and Services PMIʼsto 57.3, and 55.8, respectively. This saw a fairly constantappreciation for the GBP which was further buoyed by the vacillationfrom Fed Chair Yellen over future rate hikes. It appears that the lackof forward guidance from the Federal Reserve is impacting thegreenbackʼs strength and, therefore, benefitting the GBP.Subsequently, the pair rallied through most of the week to close rightin the middle of a key zone of resistance at 1.2977.
Looking ahead, the Cable is likely facing a frenetic week with therelease of the Bank of Englandʼs decision on interest rates, as wellas the NIESR GDP Estimate, due for release. The BoEʼs monetarypolicy committee is likely to keep the official bank rate on hold at0.25% but expect plenty of forward guidance from the bank,especially considering that inflation continues to rise. Additionally,the NISER GDP Estimate is due out on Friday and is estimate at0.4% q/q which is likely to be relatively accurate this time around.However, any deviation could cause a spike of volatility for the pair.
From a technical perspective, the pairʼs rally has taken it to a keyzone of resistance around 1.2965-75 and the RSI and StochasticOscillators are now strongly within reversal territory. Subsequently,our initial bias is bearish for a corrective pullback towards supportaround the 1.29 handle in the coming week. However, keep a closewatch on volatility from the BoE and NIESR GDP releases as theymay impact the pairʼs trend direction. Support is currently in place forthe pair at 1.2754, 1.2830 1.2625. Resistance exists on the upsideat 1.2965, 1.3121, and 1.3335.
08/05 23:11 GBP BRC Retail Sales Monitor y/y
11/05 11:00 GBP Official Bank Rate1.2965 1.2830
11/05 14:00 GBP NIESR GDP Estimate q/q
Mon 8th May 2017, 06:00 GMT
USDJPY NEUTRAL
Last week was highly positive for the USDJPY as the currency pairwas buoyed by a range of stronger U.S. economic data. Inparticular, the release of the latest round of NFP figures showedgains of 211k jobs which are highly supportive of the pair. Inaddition, the ISM Non-Manufacturing PMI figures printed at 57.5 withthe result proving substantially above the market estimates. Therewas little economic data due out on the Japanese side of the fencewith just a relatively poor Flash manufacturing PMI of 52.7 tocontend with. Subsequently, the pair gained some traction andrallied throughout most of the week to close around the 112.62mark.
The coming week will be a busy one for the USDJPY pair with arange of fundamental data due for release. In particular, the U.S.Core CPI figures will be closely watched given that the market islooking for any hint they can get their hands on regarding future ratehikes. The latest round of U.S. Retail Sales data will also be followedgiven the aforementioned reasons. On the Japanese side theAverage Cash Earnings figures are due for release, and expected tocome in at an anaemic 0.4% y/y. Subsequently, there are plenty ofdata points for the market to mull over in the coming days but thefocus is likely to remain with the U.S. centric releases.
From a technical perspective, the RSI and Stochastic Oscillators areclosing in on overbought territory in light of the recent rally.Additionally, price action is also facing some key resistance aroundthe 113.00 handle which could also stall its advance. Subsequently,our initial bias for the week ahead is neutral given the mountingpressure for a moderation or corrective pullback. Support is currentlyin place for the pair at 112.51, 111.58, and 110.24. Resistanceexists on the upside at 113.03, 113.74, and 114.38.
09/05 00:00 JPY Average Cash Earnings y/y
11/05 12:30 USD Unemployment Claims113.03 112.51
12/05 12:30 USD Core CPI m/m
Mon 8th May 2017, 06:00 GMT
AUDUSD NEUTRAL
The Aussie dollar spent the first two sessions of last week surginghigher as a result of not only some softer US figures but the CashRate decision from the RBA. Nevertheless, this buoyancy was not tolast as a subsequent uptick in the US ADP NFP figure to 177K andan accompanying jump in the ISM Non-Manufacturing PMI to 57.5saw a sentiment swing back towards the USD, despite the Fed alsoelecting to keep rates static. Ultimately, this saw the pair tumble byover 100 pips but, unlike the wider market, these losses failed tomoderate in the proceeding sessions as the Australian TradeBalance of 3.11B kept selling pressure intact as the week closed.
As for what lies ahead, there are a number of Australianfundamental news items to watch out for but the Retail Sales and MIInflation Expectations figures are likely to be the major risk events.This stems largely from the fact that the AUD has never truly shakenoff the recessionary fears that weighed on it following the negativeGDP results over the past few months. As a result of this, if we seeRetail Sales fall short of the forecasted 0.3% outcome or if theInflation Expectations suggest that the RBAʼs target band is notgoing to be reached, losses could extend.
On the technical front, the AUD remains beholden to a decliningtrend line but losses should moderate somewhat in the comingweek, potentially leading to a near-term ranging phase. Specifically,the AUD is currently in conflict with a robust historical reversal zonewhich could remain intact without some sizable fundamentalpressure being applied. This being said, the EMA, MACD, andParabolic SAR readings all remain bearish which will severely limitchances of a substantial recovery occurring. Resistance will be seenat 0.7450, 0.7503, and 0.7531. Support will kick in at 0.7407,0.7368, and 0.7314.
09/05 01:30 AUD Retail Sales m/m
10/05 00:30 AUD Westpac Consumer Sentiment0.7450 0.7407
12/05 12:30 USD Retail Sales m/m
Mon 8th May 2017, 06:00 GMT
NZDUSD BEARISH
The Kiwi Dollar had a rather torrid week, initially rallying stronglybefore sharply correcting lower and then surging higher onceagain as Friday closed. This mixed performance largely reflectedthe unpredictable nature of the fundamental data which includedboth better than expected and worse than expected US figures.However, the large slip in NZ Unemployment to 4.9% and theuptick in the GDT Price Index of 3.6% won out overall, seeing theNZDUSD close the week tangibly higher at around the 0.6896.
As for the impending week, the RBNZʼs OCR decision is not theonly news on offer for the pair but it is likely to be one of the mostimportant things to watch for. Expectations are currently that thebank keeps rates on hold at 1.75% but, on the heels of suchstrong employment and dairy price data, we canʼt entirely rule outa hike. Notably, the GDT Price Index has increased from 634 to1055 since the RBNZ began to ease rates in order to help thenationʼs key export industry and, furthermore, unemployment is atits lowest point in almost a decade.
As for the technical readings, the NZD remains largely compliantwith the overarching ABC wave which could cap upside risks andkeep the pair within the 0.6927 - 0.6836 range. Nevertheless, inthe absence of a fundamental upset, we expect to see the NZDmove to the lower end of this range given the bearish EMA biasand Parabolic SAR readings. This expectation is only reinforcedby the fact that the MACD is on the cusp of a signal line crossoverwhich could put further pressure on the pair. Resistance iscurrently in place at the 0.6927, 0.6988, and 0.7041 levels.Support is likely to be felt around the 0.6882, 0.6836, and 0.6760levels.
09/05 03:00 NZD RBNZ Inflation Expectations q/q
10/05 21:00 NZD Official Cash Rate0.6927 0.6882
12/05 12:30 USD Retail Sales m/m
Mon 8th May 2017, 06:00 GMT
XAUUSD BEARISH
Gold was in decline for the entirety of last week which came aslittle surprise given that Macron was ahead in the polls with around60% of the vote. This saw fears of a “Frexit” all but disintegrateand most of the market abandon the risk-off approach that hadbeen in place. However, it was really the notable improvement in anumber of key US employment metrics that spurred the bears intoaction. In particular, upticks in the ADP and Official NFP figures to177K and 211K as well as a dip in the Unemployment Rate to4.4% all helped to see capital flow away from the classical safehaven.
Going forward, the news to look out for will be the Core CPI andRetail Sales figures from the US. Both are expected to be buoyantat around 0.2% and 0.6% respectively so we could have someintensified selling on Friday when these two figures are posted.However, in the lead up, monitor the remarks scheduled fromvarious FOMC members as they could shift the perceivedprobabilities of seeing a rate hike in the next FOMC meeting.
From a technical perspective, gold is looking rather bearish giventhat it has now moved back below the vital 100 day movingaverage. This would be in agreement with the Parabolic SARwhich retains a bearish bias and continues to exert somedownwards pressure on the metal. Nevertheless, we are seeingsome early signs of bullish momentum as a result of theoverbought stochastics which might mean that we have to wait asession or so before losses begin to accrue in earnest. Resistancewill be at its strongest around the 1240.71, 1258.32, and 1282.05levels. On the other hand, support exists at the 1220.80, 1203.19,and 1180.17 levels.
09/05 17:00 USD FOMC Member Rosengren Speaks
11/05 10:25 USD FOMC Member Dudley Speaks1240.71 1220.80
12/05 12:30 USD Core CPI m/m
Mon 8th May 2017, 06:00 GMT
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