There is an eerie sense of calm in markets at present, with little news out this week and most central banks remaining accommodative with monetary stimulus. Volatility remains near all-time lows, inflation remains low but is stable and has shown signs of an uptick. Markets are also fairly un-phased by conflicts in the Ukraine and Iraq/Syria, with the Ruble strengthening towards its 2014 highs to finish the day at 33.60 against the US Dollar yesterday.
Fed officials expressed some concerns about this low volatility in the FOMC Meeting Minutes, released overnight.
“Signs of increased risk-taking were viewed by some participants as an indication that market participants were not factoring in sufficient uncertainty about the path of the economy and monetary policy”
However the minutes were largely a business-as-usual affair, with the continued agreement that the current QE program would be wound down with continued 10 Billion reductions followed by a final 15 Billion reduction in monthly asset purchases at the final meeting, in October. This would mean the program is concluded at the end of October.
The Pound saw some larger moves after the release of month on month Manufacturing and Industrial Production on Tuesday – the former saw a fall of 1.3% against an expectation of a 0.4% increase, and the latter decreased 0.7% against an expectation of a 0.3% increase. The Pound fell sharply on the news, by half a cent, however as has been the case recently the currency found an awaiting bid on the buying opportunity. The Bank of England makes its interest rate decision tonight, and while there are no expectations of a rate increase, the event is still likely to cause some volatility.
Australian Employment data came out this morning, followed by the Chinese Trade Balance. The employment data was mixed, with the unemployment rate ticking up slightly to 6.0% from 5.9%, and the number of new jobs added beating expectations, at 15,900 compared to analyst forecasts of 12,300. The rise in the unemployment rate was related to a slight rise in the participation rate. China’s trade balance data saw the trade surplus fall to 31.6 Billion from 35.9 Billion, a weak read for the exporter and indicative of weakness in iron ore demand – a key Australian export. The data led to a selloff in the AUD, which fell half a cent after the news to settle around support at 0.9400.
Remaining news of note will be US Unemployment claims and the BoE Rate decision – neither are expected to reveal anything dramatic, but there is potential for some movement in an otherwise quiet week.
Pepperstone is proud to announce the addition of two new currency pairs: USDRUB and USDTHB.
These pairs give Pepperstone traders the ability to access new exposure to regions previously not available to the majority of MT4 traders. Included below is a breakdown of what to expect from these new pairs from a historical and current perspective.
Russian Ruble (USDRUB)
The Ruble, in one form or another, has been the official currency of Russian and Soviet countries for around 500 years.
The modern Ruble was born out of the turbulent 90’s that saw the Asian financial crisis in 1997 and the resulting Russian crisis of 1998. The crisis period saw several speculative attacks on the value of the Ruble before the Russian government was eventually forced to devalue the currency and default on its debts when its foreign exchange reserves were depleted. This allowed the currency to float and ended the peg to the US dollar.
In 2014 the Ruble has seen increasing volatility in the wake of the Ukrainian crisis and associated uncertainty – making the currency an exciting pair to trade in the current geopolitical environment.
Thai Baht (USDTHB)
Following the Asian Financial Crisis of 1997, the Thai government was forced to abolish the pegged exchange rate policy that had historically tied the Thai Baht to the US Dollar, enabling a freely floating market exchange rate. The Thai Baht now floats onshore as the THB and offshore as the THO.
Through intervention in 2006, the Bank of Thailand enabled an onshore-offshore differential of 10% variation between the two markets. More recently, political unrest in Thailand has seen increased volatility in daily trading ranges, which translate into increased trading potential for retail investors.
To view these exciting new pairs within your MT4 Platform simply Right Click on Market Watch and select ‘Show All’.
It should be a fairly quiet trading week, with little high impact news out early – though trading should pick up over Wednesday and Thursday as the FOMC minutes are released as well as employment data for several countries.
The FOMC minutes for the previous Federal Reserve meeting are released on Wednesday this week. Given the lack of other high impact news, traders may look for any clues in the minutes towards concerns over euphoria in stock markets and high yield credit, as well as volatility compression that seems a feature of the current market environment. As employment data released last week continues to confirm the US recovery is well under way, analysts will be on the lookout for any hints that rate rises are being discussed. Given that inflation remains low and that the recent uptick in inflation is considered transitory, this may not eventuate at this meeting.
US Unemployment claims are also due to be released on Thursday – volatility in employment data has dropped off in recent weeks so any surprise change could signal a shift in trend and spark some movement in currency markets.
Wednesday also sees the release of Chinese CPI data, which will be looked at to confirm China’s recent bounce in economic strength. The CPI release, along with Thursday’s Australian employment data should provide some movement in the Aussie Dollar and the AUD/NZD cross – which has been falling since 2011 on commodity price weakness and RBNZ rate rises. A strong employment figure could signal the RBA’s rate cuts are finally taking hold and swing expectations towards the next move being a rise in the cash rate.
Pound volatility should increase with the release of Manufacturing PMI on Tuesday, as well as the BoE monetary policy decision on Thursday. The Pound has been hard to keep down since Mark Carney suggested that rate rises were likely to occur sooner than the market expects. Traders will find either some confirmation or disappointment in the BoE release this week.
Thursday’s perfect storm of data releases caused some volatility in currency markets overnight, though not as much as might have been expected. The Euro, AUD and NZD fell half a cent on the release of US Non-Farm Payrolls. The Non-Farm figure beat expectations of 214,000 – coming in at 288,000 new jobs added.
The strong data comes in the wake of a large contraction in the US economy in Q1 this year of 2.9%. The disparity is due to the delay in reporting for first quarter data, with the GDP figure reflecting data that is already several months old. Given that the economy contracted strongly in the first quarter, a bounce back in hiring is not surprising.
The release saw currencies such as the Euro and the Australian dollar fall, as an improvement in US data typically implies less monetary stimulus from the Federal Reserve. The ECB press conference and rate decision went as expected and offered little for traders to get excited about. Mario Draghi reiterated the bank’s commitment to its goals and discussed particulars of the recently announced Targeted-LTRO’s.
The Pound refused to be kept down by the US data, having continued its strength in the wake of BoE Governor Carney suggesting that rate hikes were likely to come sooner than the market was expecting. This week’s PMI figures helped the Pound to rise a further 80 pips, as both the Construction and Manufacturing data showing expansion and beating expectations, while the Services PMI figure showed expansion it failed to meet expectations – coming in at 57.7 against analyst expectations of 58.1.
The Australian dollar continued its free fall, after RBA Governor Glen Stevens spoke at a conference of economists on Thursday, discussing the stubbornly high exchange rate and indicating that “we think that investors are under-estimating the likelihood of a significant fall in the Australian dollar at some point.” The fall in the AUD reached 1.7 cents by the release of Non-Farm Payrolls, to leave the AUD at 0.9330.
US markets are closed today for Independence Day, and quiet trading is expected after European markets close.
US Dollar and Yen weakness has been a theme this week in the lead up to Thursday’s anticipated news releases, with some minor weakness in Gold. Risk assets are in vogue with the AUD, Pound and Euro all rallying through the start of the week.
The NZD has been a laggard, due to a weak NAB business confidence reading of 42.8, where analysts expected a number closer to 53.5. AUD strength following the RBA Rate Statement has also helped cap the NZD’s rally, as traders bought the AUD/NZD cross – which rallied almost a cent after the release.
The AUD was bought heavily following the release of Tuesday’s RBA Rate Statement – the RBA decided to leave rates on hold at 2.50%, which was in line with analyst expectations. The RBA’s tone was also fairly neutral. Having sold off slightly in the lead up to the announcement, the market may have been pricing in some dovish wording regarding economic growth or the stubbornly high exchange rate. The AUD rallied just under one cent following the statement, however today’s trade balance showed a deterioration in to deficit of 1.91 Billion, which surprised the market in to a decline of half a cent. The Aussie currently trades around 0.9450.
The Pound has rallied strongly so far this week, helped by yesterday’s manufacturing PMI figure, which came in better than expected at 57.5 against expectations of 56.7 – the currency rallied 70 pips over the rest of the day to reach 1.7160, which is the strongest the Pound has traded against the US Dollar since 2008. Construction and Services PMI are still to be released this week, tonight and Thursday night respectively.
The Euro has also rallied half a cent after the Euro Area Flash CPI showed no renewed slide in to deflation – holding steady at 0.5% – and US Pending Home Sales surprised to the upside with a read of 6.1%, beating expectations of a 1.4% rise.
With weakness in most safe havens, such as the US dollar, Yen, Gold and US Treasuries – markets appear to be expecting Thursday’s much anticipated data releases to be supportive of further dovish central bank action. The ECB releases its monetary policy decision for the month on Thursday, along with US Non-Farm payrolls and the US Unemployment Rate.
After a quiet previous week, traders have some much needed volatility to look forward to, particularly during Thursdays US open. Thursday sees the release of several key measures due to the US bank holiday on Friday – Non-Farm Payrolls and the Unemployment Rate will now be released on Thursday, at the same time as the ECB press conference.
Early trading this week is dominated by the Eurostat CPI Flash Estimate, which comes out later today. The release is important, as traders are looking ahead to Thursday’s ECB meeting for further easing measures. A change in inflationary pressures will affect sentiment and positioning in the lead up to the meeting. Last month the ECB acted to halt a slide in to deflation by announcing two targeted LTRO programs and a historic move towards a negative deposit rate. Markets liked the policies, though the Euro has not fallen as some might have expected – traders may be waiting to see what else Mario Draghi can offer.
On Tuesday, the RBA releases its monetary policy decision and rate statement. The RBA has detailed that a period of stable interest rates can be expected, so analysts are not anticipating any change this month. However, a market reaction may be found in any changes to the wording of the statement – a hint of concern over inflation, or alternatively concern over sluggish economic growth, may swing sentiment despite no change in rates. Also out on Tuesday will be the final figure for HSBC Manufacturing PMI for China – the previous flash estimate surprised to the upside, and traders will be looking to confirm this expansion.
Wednesday has some potential for market volatility, with ADP Non-Farm Employment released, as well as a speech by Fed Chair Janet Yellen at the IMF. However given the importance of Thursday’s simultaneous announcements, many traders will wait for clarity before putting on large positions.
The release of a surprisingly bad Q1 Final GDP figure for the US was downplayed by economists on Wednesday, however markets reacted positively to the news on the assumption that poor economic data implies delayed monetary policy tightening by the Federal Reserve.
The final change in US GDP in Q1 was -2.9%, down from expectations of -1.8% and well below the initial estimate of 1.2% growth from back in April. The downward revision to expectations was initially blamed on worse than expected weather, however the final revision was driven largely by a revision to healthcare spending.
The bad data was accompanied by similar poor results in month on month Core Durable Goods Orders, falling -0.1% against expectations of a 0.3% increase. USD based pairs rallied on the simultaneous release, with the Euro and AUD rising half a cent, and NZD rising three quarters of a cent. Since the implementation of the Fed’s extraordinary monetary policy, bad US news has been seen as positive for most other currencies against the USD, as it is often assumed that this gives the Fed more room for stimulus measures – it is yet to be seen whether this relationship will hold as the Fed moves closer towards tightening monetary policy.
In Britain, BoE Governor Carney spoke on Thursday at a press conference for the Financial Stability Report. Carney discussed macro-prudential rules to combat out of control house price rises, particularly in London. Macro-prudential is an alternative and complimentary measure to higher interest rates as a way to combat rising house prices.
Because most home purchases are in part debt funded, limits on loan-to income ratios or similar measures can be an effective way to control rising house prices without needing to raise interest rates severely. This is especially important in an economy such as the UK, where inflation remains low and house price inflation is high – interest rate rises may be appropriate to combat a housing bubble, however the rest of the economy is not necessarily overheating. The pound neither rose nor fell substantially during the press conference, remaining in a range of 20-30 pips before falling 40 pips on the release of US unemployment claims.
Today’s schedule is fairly quiet, with mainly German Preliminary CPI of note. This release, and the Euro Area Flash Estimate on Monday, will be closely watched due to the ECB monetary policy decision next week. Thursday is set to be fairly volatile – a combination of Non-Farm Payrolls, Unemployment Claims, the Unemployment Rate, the Trade Balance and the ECB Press Conference should make for heavy trading as all are announced at the same time.← Older posts