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Monday, 10 March 2014

Forex Weekly Outlook Mar. 10-14


The US dollar and the Japanese yen were sold off as the market mood improved. Will we see more falls? Rate decisions in Japan and New Zealand, US employment and retail figures as well as PPI and Consumer confidence are the major events on our calendar. Here is an outlook on the highlights of this week.
The US Non-Farm Payrolls surprised to the upside with 175K, far better than the 150,000 rise projected by economists. This most probably cemented another round of tapering in March. However, it wasn’t the dollar’s week:Draghi’s lack of action sent the euro to new highs and the Aussie enjoyed a nice recovery thanks to good data. The crisis in Ukraine, which helped the safe haven dollar and yen, fell back from center stage and played against these currencies, but it is not over. Let’s start:
Updates:
  1. Japanese rate decision: Tuesday. Bank of Japan maintained its monetary policy in February, stating that the economy was moving in line with the central bank’s projections, indicating monetary stimulus will not get bigger. However in case of downside risks, the BOJ will act and adjust its policy. The GDP release showed external demand has weakened in emerging market economies affecting growth, but domestic demand has remained strong. The bank also forecasts that the current account balance will also improve once exports strengthen alongside global recovery.
  2. US Federal Budget Balance: Wednesday, 18:00. The U.S. government’s deficit continued to decline in January reaching $10.4 billion. The ongoing reduction totaled 36.6% in the first four months from a year ago, signaling further improvement in the nation’s economic condition. The Congressional Budget Office expect deficit to reach $514 billion in the current budget year while last year deficit reached $680.2 billion. The US Senate passed legislation to suspend the debt ceiling until March 16, 2015 eliminating more risk for budget wars. U.S. government’s deficit  is expected to reach $223.2 billion.
  3. NZ rate decision: Wednesday, 20:00. New Zealand’s central bank kept rates unchanged in February but gave a strong hint for a rate hike this month. While inflation has been moderate, inflationary pressures are predicted to rise over the next two years. The RBNZ’s decision followed strong data indicating the economy is growing faster than the central bank had projected, while inflation got closer to the RBNZ’s 2% target. A rate hike to 2.75% is expected this time.
  4. Australian employment data: Thursday, 0:30. Australia’s unemployment rate worsened in January increasing to 6.0% its highest level in a decade. The Australian economy shed 3,700 jobs due to a turbulent transition away from mining and the jobless rate increased from 5.8% in December, mainly full time positions. Australia is facing an economic transition following the termination of the mining boom, reflected by a big drop in mining related investment. Other sectors in the economy will have to fill in the gap and start contributing to growth. Australia’s unemployment rate is expected to remain unchanged at 6% while the Australian economy is predicted to add 15,300 new jobs.
  5. US retail sales: Thursday, 12:30. US retail sales edged down in January, amid cold weather Americans spent less on automobiles and clothes following the rise in the end of 2013. Retail sales fell a seasonally adjusted 0.4% after a 0.1 percent drop in December. However, economic slowdowns caused by winter weather are usually transformed to stronger growth once temperatures rise again.  Nevertheless economic growth in the first quarter is expected to be well below 2% annual rate compared to the 3.2% rate in the final quarter of 2013. Meanwhile Core retail sales excluding volatile spending on autos, gas and building supplies, remained flat compared with December with a drop in purchases of clothing and furniture because of rising prices. Retail sales are expected to gain 0.3%,  while core sales are forecasted to rise 0.2%.
  6. US Unemployment Claims: Thursday, 12:30. The number of Americans queuing for unemployment benefits fell to a three-month low last week, indicating the US labor market has recuperated from the severe weather. Initial claims for state unemployment benefits declined 26,000 to a seasonally adjusted 323,000, better than the 326,000 projected by analysts. The continuing claims have stayed at higher levels in recent weeks, due to the cold weather preventing some recipients from going out to search for work and causing companies to delay hiring. A rise to 334,000 is expected this time.
  7. US PPI: Friday, 12:30.  U.S. producer prices increased in January, but did not reflect broader price pressures in the economy. The producer price index for finished goods edged up 0.2% on a seasonally adjusted basis, following a 0.4% increase in December. PPI was revised and now includes the wholesale cost of goods and adds services, construction, government purchases and exports for the first time. It now includes a new index that tracks prices of goods and services meant to be sold to consumers. The index, known as personal consumption, rose 0.3%. It’s expected to give a heads up if consumer inflation is about to begin a sharp move up or down. The rise in prices does not indicate any major shift in inflation. Meantime, PPI, excluding the volatile categories of food and energy, edged up 0.2%. Producer prices are expected to gain 0.2%.
  8. US UoM Consumer Sentiment: Friday, 13:55. Consumer confidence in the US remained unchanged at 81.2 points in February, indicating shoppers remained dormant last month. However economists expected the index to decline to 80.6. However, the figure indicated a worsening mood after December’ release showed a three-year high on a monthly basis. Consumer confidence  is expected to rise to 81.9.

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