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The 10 Tradeable Events This Week

Posted on: 05 March 2018 , by: Boris & Kathy , category: Market Review

FX Weekly with Boris and Kathy

Risk aversion returned to the FX market last week driving equities and currencies lower.

At first, it was Federal Reserve Chairman Jerome Powell’s hawkishness that sent stocks tumbling but the losses were exacerbated by President Trump’s steel and aluminium tariffs. In the past month, the U.S. dollar appreciated when stocks fell but this time, the U.S. is the one stirring up the trouble so the greenback was the casualty. A number of major currencies fell to multi-month lows on the back of risk aversion including the Australian and Canadian dollars which dropped to their lowest level in 2 months. Sterling also fell to its weakest level in 6 weeks but USD/JPY was hit the hardest, falling to its lowest level in nearly 15 months. There are no less than 10 market moving events on the FX calendar this week but the resistance from foreign nations and the threat of a trade war could overshadow elections in Europe and central bank rate decisions. 

Here are the 10 events that will impact FX trade this week - 

  1. Italian Election
  2. Germany SPD Vote Results
  3. European Central Bank Rate Decision
  4. Reserve Bank of Australia Rate Decision
  5. Bank of Canada Rate Decision
  6. Bank of Japan Rate Decision 
  7. Non-Farm Payrolls 
  8. Canadian Employment Report
  9. UK PMI Composite Index
  10. Australian Q4 GDP

5 Day Return vs. USD 26 February - 02 March 2018

 

Weekly Trade Ideas: Don't miss these market moving opportunities identified by BK Forex. Download here

US DOLLAR

Data Review

  • New Home Sales -7.8% vs. 3.5% Expected
  • Advance Goods Trade Balance -$74.4b vs. -$72.3b Expected
  • Durable Goods Orders -3.7% vs. -2.0% Expected
  • Durable Goods Orders Ex Transportation -0.3% vs. 0.4%
  • House Price Index 0.3% vs. 0.4% Expected
  • Consumer Confidence 130.8 vs. 126.5 Expected
  • Conf. Board Present Situation 162.4 vs. 154.7 Prior
  • Conf. Board Expectation 109.70 vs. 104 Prior
  • Personal Consumption 3.6% vs. 3.8% Expected
  • GDP Annualized 2.5% vs. 2.5% Expected
  • Core PCE 1.9% vs. 1.9% Expected
  • Chicago PMI 61.9 vs. 64.1 Expected
  • Pending Home Sales -4.7% vs. 0.5% Expected
  • Personal Income 0.4% vs. 0.3% Expected
  • Personal Spending 0.2% vs. 0.2% Expected
  • Real Personal Spending -0.1% vs. -0.1% Expected
  • PCE Deflator (MoM) 0.4% vs. 0.4% Expected
  • PCE Core 0.3% vs. 0.3% Expected
  • Manufacturing PMI 55.3 vs. 55.9 Expected
  • ISM Manufacturing 60.8 vs. 58.7 Expected
  • ISM Employment 59.7 vs. 54.2 Prior
  • U. of Mich. Sentiment- 99.7 vs. 99.5 Expected
  • U. of Mich. Current Conditions 114.9 vs. 115.1 Prior
  • U. of Mich. Expectations 90.0 vs. 90.2 Prior

Data Preview

  • ISM Non-Manufacturing Composite - Potential for upside surprise given stronger manufacturing ISM index
  • Factory and Durable Goods Orders - Durable goods and factory orders are volatile and difficult to predict but can be market moving
  • ADP Employment Change - ADP is market moving because it’s a leading indicator for NFP but its also hard to predict
  • Trade Balance - Potential for upside surprise given slightly stronger manufacturing ISM index
  • Beige Book Release - Likely to echo the Fed’s optimism
  • Non-Farm Payroll Change- Non-farm payrolls is very market moving but hard to predict and best traded reactively. This month’s report isn’t going to change the Fed’s plan to hike in March

Key Levels

  • Support 105.00
  • Resistance 108.00

The U.S. dollar extended its slide on Friday when Canada, the European Union and China blasted President Trump’s decision to impose tariffs on steel and aluminium imports. Canada called the tariffs unacceptable, but it was the EU and China that threatened to take their own protective measures if the U.S. proceeds with their plans. The European Union has already called a meeting next week to discuss a response. The first step would be to appeal to the WTO – this happened under President George W Bush but it took a year and a half before the tariffs were lifted. The WTO declared the steel tariffs under Bush as a violation of America’s WTO tariff-rate commitments and threatened $2B in penalty sanctions. Bush ignored the threat, preserved the tariffs until the EU countered with tariffs on oranges and cars and finally he backed down. Foreign leaders may not be as patient with President Trump and could respond more quickly to specific tariff threats and actions. Either way, trade tensions will intensify before they improve which means further losses for USD/JPY. 

The threat of a trade war should overshadow U.S. data including the upcoming non-farm payrolls report because regardless of whether payrolls are strong or weak, there’s no question that Fed Chair Jerome Powell will raise interest rates later this month. With FOMC voter Dudley calling four rate hikes gradual, the dot plot forecast will also be revised upwards. Based on data, USD/JPY should appreciate into the jobs report but politics easily overshadows economics. If China starts talking about their own tariffs or expresses less desire to buy U.S. Treasuries (again), USD/JPY will break 105 quickly and aggressively. Aside from the NFP report, non-manufacturing ISM, the trade balance and Beige book are also scheduled for release in the week ahead. 


BRITISH POUND

Data Review

  • GfK Consumer Confidence -10 vs. -10 Expected
  • BRC Shop Price Index (YoY) -0.8% vs. -0.6% Expected
  • Net Consumer Credit 1.3b vs. 1.4b Expected
  • Net Lending Sec. on Dwellings 3.4b vs. 3.6b Expected
  • Mortgage Approvals 67.5k vs. 62.0k Expected
  • PMI Manufacturing 55.2 vs. 55.0 Expected
  • Construction PMI 51.4 vs. 50.5 Expected

Data Preview

  • Services and Composite PMI- Potential for downside surprise given slightly weaker manufacturing activity and consumer confidence
  • Visible Trade Balance, Industrial and Manufacturing Balance- Potential for downside surprise given slightly weaker manufacturing activity

Key Levels

  • Support 1.3700
  • Resistance 1.4000

Last but certainly not least, it should be no surprise that Prime Minister May’s Brexit speech failed to instill confidence among sterling traders and U.K. investors. Brexit negotiations are not going well with the European Union proposing terms that the PM finds unacceptable. She insisted that the UK would be leaving the customs union but seemed willing to consider a “customs partnership” in which the UK would offer the same requirements as the EU on imports and a “highly streamlined customs agreement” to facilitate border activity. On the Northern Ireland border issue, her speech failed to provide any meaningful solution. Instead she reiterated that they did not want a hard border and threw the ball back into the EU’s court by saying they can’t find a solution on their own, “it is for all of us to work together.” In a nutshell, after all of this week’s developments, the U.K. is no closer to a Brexit deal. In the week ahead, the PMI composite index and trade balance are the main reports on the U.K. calendar. This is likely to take a back seat to all of the rate decisions and political events happening in other parts of the world. 


EURO

Data Review

  • EZ Economic Confidence 114.1 vs. 114.0 Expected
  • EZ Industrial Confidence 8.0 vs. 8.0 Expected
  • EZ Services Confidence 17.5 vs. 16.3 Expected
  • EZ Consumer Confidence 0.1 vs. 0.1 Expected
  • GE CPI 0.5% vs. 0.5% Expected
  • GE GfK Consumer Confidence 10.8 vs. 10.9 Expected
  • GE Unemployment Change -22k vs. -15k Expected
  • GE Unemployment Claims Rate 5.4% vs. 5.4% Expected
  • EZ CPI Core (YoY) 1.0% vs. 1.0% Expected
  • EZ CPI Estimate (YoY) 1.2% vs. 1.2% Expected
  • GE Manufacturing PMI 60.6 vs. 60.3 Expected
  • EZ Manufacturing PMI 58.6 vs. 58.5 Expected
  • EZ Unemployment Rate 8.6% vs. 8.6% Expected
  • GE Retail Sales -0.7% vs. 0.7% Expected
  • EZ PPI 0.4% vs. 0.4% Expected

Data Preview

  • GE and EZ Services and Composite PMI Revisions- Revisions are difficult to predict but changes can affect euro
  • EZ Retail Sales- Potential for downside surprise given significantly weaker French retail sales. German sales were better but still low.
  • European Central Bank Rate Decision- ECB likely to express optimism but avoid changing forward guidance
  • GE Trade Balance, Current Account Balance and Industrial Production- Will have to see how factory orders fare but manufacturing activity deteriorated in Jan and euro was strong

Key Levels

  • Support 1.2150
  • Resistance 1.2450

Right out of the gate, the euro will be in focus with elections in Italy and the results of Germany’s Social Democrats’ ballot vote due over the weekend. All of the SPD votes will be in by Friday and the results will be announced shortly after. There are 2 outcomes – SPD members vote yes and Merkel forms a coalition government.If the SPD votes no, there will either be new elections or Merkel may try to form a minority government. The former is positive for the euro and the latter is negative. In Italy, polls open on Sunday and the results are expected by Monday. The 5 Star Movement is in the lead and a victory by this anti-euro party would be dangerous for the currency. A coalition government where no single party has majority would be less negative for EUR/USD whereas the only unambiguously positive outcome would be a victory for the current government. In addition to these political risks, the European Central Bank also holds its March meeting and investors will be eager to see if they change their forward guidance. Despite hawkish comments, there are reports that they will wait until the summer which is not surprising given trade tensions, equity market volatility and a widespread slowdown in economic activity, as shown in the table below.

Eurozone Economy - Central bank Meeting


AUD, NZD, CAD

Data Review

Australia

  • AiG PMI Manufacturing 57.5 vs. 58.7 Prior
  • Chinese Non-Manufacturing PMI 54.4 vs. 55.0 Expected
  • Chinese Manufacturing PMI 50.3 vs. 51.1 Expected
  • Chinese Composite PMI 52.9 vs. 54.6 Prior

New Zealand

  • Trade Balance -566m vs. 0m Expected
  • Terms of Trade 0.8% vs. 0.5% Expected
  • Consumer Confidence 0.6% vs. 4.2% Prior
  • Building Permits 0.2% vs. -9.5% Prior

Canada

  • Current Account Balance -$16.35b vs. -$17.65b Expected
  • RBC Canadian Manufacturing PMI 55.6 vs. 55.9 Prior
  • GDP 0.1% vs. 0.1% Expected
  • Quarterly GDP Annualized 1.7% vs. 2.1% Expected

Data Preview

Australia

  • AiG PMI Services and Composite- Potential for downside surprise given lower manufacturing PMI index
  • Retail Sales and BoP Current Account Balance- Will have to see how service sector activity fares
  • Reserve Bank of Australia Rate Decision - RBA will maintain its neutral policy bias
  • Q4 GDP- Will have to see how retail sales fare but trade activity was very weak in fourth quarter
  • Trade Balance- Potential for upside surprise given stronger manufacturing activity in January
  • CH Trade Balance- Chinese data is very market moving but hard to predict and Feb data is prone to Chinese New Year distortion

New Zealand

  • N/A

Canada

  • IVEY PMI- Markit reported weaker manufacturing activity but the recent trend has already been veryweak
  • International Merchandise Trade- Potential for downside surprise as manufacturing activity continues to weaken
  • Bank of Canada Rate Decision- Data suggests less optimism for BoC
  • Employment Report- Could see improvement after last month’s terrible numbers

Key Levels

  • Support AUD .7700 NZD .7200 CAD 1.2700
  • Resistance AUD .7850 NZD .7450 CAD 1.3000

Cautiousness is also expected from the Reserve Bank of Australia and the Bank of Canada. The Australian dollar ended the week near its lows on the back risk aversion and softer Australian data. Unlike the Eurozone, which is seeing data pull back from multi-month or multi-year highs, there hasn’t been any meaningful traction in the Australian economy over the past few months. Since the last meeting in March, retail sales declined, consumer confidence fell, job growth slowed, consumer inflation expectations eased, housing activity slowed and the trade deficit doubled. The only good news is that the weaker U.S. dollar is driving commodity prices higher and for the time being, service and construction activity remains healthy keeping business confidence stable. The RBA has very little reason to change their neutral policy bias so the reaction in the Australian dollar should be limited. Instead, the more recent economic reports such as service sector PMI, retail sales, Q4 GDP and China’s trade balance could have a bigger impact on how the currency trades but ultimately we think AUD and NZD will take its cue from the market’s appetite for U.S. dollars.

AU Economy - Changes Since Last RBA Meeting

USD/CAD traded higher every day this past week with the latest move taking the pair within 5 pips of its 7-month high. Weaker data, NAFTA uncertainty, risk aversion and lower oil prices made the Canadian dollar the worst performing currency. As the number one supplier of both steel and aluminiumto the U.S, Canada is a huge victim of the tariffs and all of this could be a step towards the U.S.’ NAFTA withdrawal. Prime Minister Trudeau is hoping for an exception but we are not optimistic. The possibility of greater trade troubles for Canada means USD/CAD could break 1.30. The Bank of Canada may not say much about this issue at their upcoming meeting but its certainly going to be a cause for a concern. Canadian data has taken a turn for the worse since their last policy meeting with retail sales, employment, GDP, the trade balance and manufacturing activity weakening. Consumer prices and building permits are one of the few economic indices that are up. Job growth could re-bound after last month’s soft numbers but the Bank of Canada’s outlook and trade war developments should have a greater impact on USD/CAD. 

Canada Economy - Central Bank Meeting