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What to Expect from the Forex Market Next Week 16 – 20 September

Another week has past and some very interesting readings were published. Wednesday Great Britain has published some very good data from the labor market. Its Claimant Count Change has fallen 32.6K and the Unemployment Rate dropped unexpectedly at 7.7%. The next day Australia reported a rise in its Unemployment Rate of 0.1% and RBNZ’s governor said that it expected a rise in the inflation rate in 2014 and they might have to raise the interest rate. Thursday it was also published the Unemployment Claims for USA at a value of 292K, but it might have been a problem with their computerized systems and this number could be revised next week.

The economic calendar for next week looks like this:

Date Currency Forecast Previous
MonSep 16 NZD Westpac Consumer Sentiment 116.6
GBP Rightmove HPI m/m -1.80%
JPY Bank Holiday
EUR Italian Trade Balance 4.13B 3.62B
EUR CPI y/y 1.30% 1.30%
EUR Core CPI y/y 1.10% 1.10%
CAD Foreign Securities Purchases -2.23B -15.41B
USD Empire State Manufacturing Index 9.2 8.2
USD Capacity Utilization Rate 77.80% 77.60%
USD Industrial Production m/m 0.50% 0.00%
TueSep 17 GBP BOE Quarterly Bulletin
AUD Monetary Policy Meeting Minutes
AUD New Motor Vehicle Sales m/m -3.50%
CNY CB Leading Index m/m 1.40%
CNY Foreign Direct Investment ytd/y 7.10%
NZD REINZ HPI m/m -0.50%
EUR Current Account 18.3B 16.9B
GBP CPI y/y 2.70% 2.80%
GBP PPI Input m/m 0.30% 1.10%
GBP RPI y/y 3.20% 3.10%
GBP Core CPI y/y 2.10% 2.00%
GBP HPI y/y 3.40% 3.10%
GBP PPI Output m/m 0.20% 0.20%
EUR German ZEW Economic Sentiment 45.3 42
EUR ZEW Economic Sentiment 47.2 44
EUR Trade Balance 15.3B 14.9B
USD Treasury Sec Lew Speaks
CAD Manufacturing Sales m/m 0.60% -0.50%
USD Core CPI m/m 0.10% 0.20%
USD CPI m/m 0.20% 0.20%
USD TIC Long-Term Purchases -45.3B -66.9B
USD NAHB Housing Market Index 59 59
WedSep 18 NZD Current Account -1.87B -0.66B
AUD CB Leading Index m/m -0.20%
AUD MI Leading Index m/m 0.00%
AUD RBA Assist Gov Edey Speaks
GBP MPC Asset Purchase Facility Votes 0-0-9 0-0-9
GBP MPC Official Bank Rate Votes 0-0-9 0-0-9
CHF ZEW Economic Expectations 7.2
USD Building Permits 0.95M 0.95M
USD Housing Starts 0.93M 0.90M
USD Crude Oil Inventories -0.2M
CAD BOC Gov Poloz Speaks
USD FOMC Economic Projections
USD FOMC Statement
USD Federal Funds Rate <0.25% <0.25%
USD FOMC Press Conference
ThuSep 19 NZD GDP q/q 0.20% 0.30%
JPY Trade Balance -0.81T -0.94T
CNY Bank Holiday
AUD RBA Bulletin
JPY BOJ Gov Kuroda Speaks
JPY All Industries Activity m/m 0.30% -0.60%
CHF SECO Economic Forecasts
CHF Trade Balance 2.74B 2.49B
CHF Libor Rate <0.25% <0.25%
CHF SNB Monetary Policy Assessment
GBP Retail Sales m/m 0.50% 1.10%
GBP CBI Industrial Order Expectations 2 0
CAD Wholesale Sales m/m 1.60% -2.80%
USD Unemployment Claims 323K 292K
USD Current Account -96B -106B
USD Existing Home Sales 5.27M 5.39M
USD Philly Fed Manufacturing Index 10.5 9.3
USD CB Leading Index m/m 0.60% 0.60%
USD Natural Gas Storage 65B
FriSep 20 NZD Visitor Arrivals m/m 1.30%
CNY Bank Holiday
NZD Credit Card Spending y/y 4.70%
JPY BOJ Gov Kuroda Speaks
GBP Public Sector Net Borrowing 11.9B -1.6B
CAD Core CPI m/m 0.10% 0.00%
CAD CPI m/m 0.10% 0.10%
EUR Consumer Confidence -14 -16
USD FOMC Member George Speaks
USD FOMC Member Tarullo Speaks
USD FOMC Member Bullard Speaks

As you can see in the table, Tuesday there will be posted the CPI for Great Britain, the German ZEW Economic Sentiment and the Core CPI for the United States. Wednesday the event of the day and maybe the most important of the week is the FOMC Press Conference. The markets are waiting for details regarding the Quantitative Easing program. Thursday Great Britain will publish its Retail Sales and from USA there will be the Unemployment Claims, Existing Home Sales and Philly Fed Manufacturing index. On Friday Kuroda will have a speech and Canada will report its CPI.

Non-Farm Payrolls Delivers Bad News

The most important indicator of the American labour market, the Non-Farm Employment Change, dissapointed big time with only 169k jobs created last month. On the other side, the unemployment rate  fell to 7.3%, a minimum close to data last reported in January 2009.  As this is an important critaria that Fed considers before deciding on the Quantitative Easing Program, the 18th of September looks like a battle even harder. Currently, the FOMC members are approving Ben Bernanke’s plan to reduce the easing program. Remains to be seen if the data released today will weight enough to influence the date of the tapering (later this year or next year). Economists incline to believe that the Fed’s decison will stay in place because their assessment is based on a broad range of indicators that offers information over a greater period of time.

In any case, United States’ economy shone yestrday in the light of the ADP results, 176k jobs created in the private sector, a decrease in the unemployment rate at 323k and the Non-Manufacturing Index showing an expansion correlated with 58.6 points.

Canada really delivered an improvement in the labour market with a fell in the unemployment rate at 7.1% and an impressionant number of new jobs created last month, 59.2k, mainly because of the boom in part-time jobs.

FOMC About To Change Its Perspectives

As Willian C. Dudley indicated in his last speech, the FOMC members decided that the time to discuss the tapering of the QE3 program has come. Even if there are still doubts concerning this decision, FOMC members decided that risks of an economic downturn have diminished since the Fed started to run this bold program. Yesterday, Moody’s Investors Service started the positive data string with revising its outlook to stable from negative, decision that has been postponed for 5 years before being implemented.

The decision of the rating agency doesn’t necessarily reflect a real improvement of the economy. Actually, it reflect an impulse given to an economy that recovers at a slower pace that before (the labour market started to recover, but not as expected). Economists keep being positive and expect an improvement in the second half of this year, but is difficult to ignore real facts that make these expectations difficult to be accomplish. Thus, high prices on oil, slow growth in exports and increased mortgage rates represents factors that will most probably lead to a poor growth of the economy. Concerning the outlook for the inflation, the  oppininons are devided. The highly accommodative monetary policy supproters (that now had remained less) believe that the inflation is far from reaching the target, while other oppinions are reflecting big expectations about a suitable inflation in short time. Follow the reports on the U.S.’s economy for the next short term in order to understand if the QE3 will be reduced by the end of this year or by the middle of 2014 but, in all cases, this program will be over soon.

FOMC Disappoints again, QE Tapering is a Dilemma

The most important event of the day was by far the publishing of the FOMC meeting minutes. Investors were waiting for details regarding Quantitative Easing. Fed’s Evans, Fisher or Pianalto are expecting a tapering of the QE on September, especially if the economic data would signal an economic recovery of the US.

On these meeting minutes the officials agreed on the fact that the QE should be tapered this year, but it was nothing said about September. So  even though investors did not get a clear point in time when the QE will be reduced, they understood that the good economic data may lead to a modification of the program this year.

The indexes, Dow Jones Industrial, S&P500 and others continued their down move. This reaction was also seen in the EURUSD quotation. After hitting 1.3450 the price of this currency pair dropped back around 1.3350 signaling that EURUSD is not yet prepared for a rally above 1.34.


Chart: EURUSD, Daily

From the technical point of view a Dark Cloud Cover can be seen on the candlestick chart at 1.34. This is a bearish signal which could result in a drop back to 1.33 or even 1.32 till the end of this week. The only positive signal would be a daily close above 1.34.

Which is the position of St. Louis Fed’s Bullard?

Everybody is speaking about the tapering of the Quantitative Easing program, but nobody has any concrete and reliable piece of information. If we are to consider the macroeconomic indicators that describe the U.S.’s economy, it is difficult to take any position. The data is mixed. On one hand, the labour market seems to be giving real signs of improvement, on the other hand, we cannot trust only one set of data. An information that can be trusted is the FOMC Member Bullard’s speech. It looks like between the FOMC members, the only measure which was discussed so far, about the tapering of the QE3, is the starting of discussions about possible plans for reducing the pace of asset purchases. Another thing that we know for sure, is that no final decision will be taken unless the end of the year will meet the same positive results that were met at the end of the first half of 2013. In the best case scenario, the September’s meeting might bring a set of pans, which will be implemented next year, according to the economic conditions.

The main findings of the Bullard’s speech are the following:

- Any decision concerning the Quantitative Easing program is separated from any decision concerning the policy rate;

- There are discussions on whether or not a wider range of labour market indicators need to be taken into consideration, decreasing the importance given to the present key indicators ( the unemployment rate and payroll employment growth);

- FOMC will have to decide if, in taking any tapering decision, it is important to consider the weak evolution of the GDP (starting with the beginning of 2013) or is better having sight of the future evolution, which is expected to be improved, and to trust this presumption?

- The size of the Fed’s balance sheet might pose questions about the most appropriate moment of tapering;

- The inflation is low. In such an environment, the FOMC might remove the policy accommodation;

Why Ending QE3?

The Federal Reserve received today encouraging signals from the U.S. economy. The Consumer Price Index indicated a rise (0.5%) in the price of goods, mainly sustained by the higher cost of gasoline, fact confirmed by the Core Consumer Prices Index that was reported in line with expectations at 0.2% (the last index excludes the energy and food’s costs). It is important to see the inflation being kept under control but on the other side, low values of the index of prices are not much help for the economy. The industrial production has taken a balanced value, particularly sustained by more confident homebuilders. Since January 2006 the house building industry started to lose its pulse and now it seems that it may regain its rhythm.

The positive outlook was maintained by the speech of one of the FOMC members today. Even if the growing rate is not as high as expected, it is stable and represents the ground for the monetary policies that are implemented. If the economy is continuing at this pace, the tapering of QE3 is expected to start later this year with an end in the first quarter of 2014. Further improvements are expected especially in the job and housing market. It is important to remember the fact that United States is seriously affect by the global negative sentiment (recently, the IMF revised down its global growth projections) and the fact that economies like China are slowing down.

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