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Analysis

Australia Sheds Jobs in January; Jobless Rate Worst in 13 Years

The Australian Bureau of Statistic reported that Employment Change in January suffered a bigger loss in jobs, -12,200 compared to only its expectation for -4,700. On the bright side, the reading for December was revised higher, from 37,400 to 42,300. The Participation rate was steady at 64.7 percent. Unemployment rate ticked up to 6.4 percent, the highest level since August 2002. South Australia’s jobless rate of 7.3 percent led the employment weakness (other states with higher jobless rate include NSW, Queensland, and Victoria; unchanged in Tasmania).

German Trade Balance was much better at EUR21.8 billion in December, the latest figures from Destatis show. Meanwhile, Prelim Gross Domestic Product increased 0.7 percent during the fourth quarter of 2014, a considerable increase which is the second strongest increase in the last six quarters.

In the United States, Retail Sales’ headline and core reading were both weaker in January (-0.8 percent and -0.9 percent, respectively) despite the decline in gas prices to its lowest level since 2009. Meanwhile, the latest report from the Department of Labor showed that there was an increase in Americans who filed for unemployment claims last week. Jobless Claims was 304,000, that’s 22,000 higher than the median forecast.

Commodities

Near-term support at $1,200 held this week amid very narrow range trading that happened. The fact that price failed to reach $1,200 despite low volatility is a good indication of strength, so bulls must keep the pressure so they can push price back toward $1,300 in the short term.

Volatility remains but Oil did not reach a new high. Price stayed within the prior week’s range and the $50 support is holding so far. There is still a very long uphill climb before bulls can get confident of the situation. $50 to $60 would remain critical for both sides.

Currency Pairs

EURUSD is showing some signs that it might take a break from the weakness that’s been plaguing the pair since late 2014. Although minor, the three consecutive bullish weeks are an indication that price might attempt further advances in the near term. 1.16 remains as a critical area for now.

USDJPY reached a new weekly high but sellers right near the top greeted bulls on Thursday and Friday. The good news is that there is a relatively thick layer of support around 118 and more just below, and this could aid bulls in their quest for 120.

Again, GBPUSD did better than EURUSD this week as the former has made considerable upstrides in the last three weeks. Bulls must target a break of the 1.5650-1.5700 area in the next 5-15 days to keep the momentum on their side.

The Week Ahead

Monday will be light on news activity. The lineup includes New Zealand’s Retail Sales; UK Rightmove HPI; Japan’s Prelim GDP; Australia’s New Motor Vehicle Sales; and Eurogroup meetings. The US will observe Presidents’ Day today.

Tuesday will have Australia’s Monetary Policy Meeting Minutes; UK CPI, RPI, HPI, and PPI Output; Eurozone and German ZEW Economic Sentiment; ECOFIN meetings; Canada’s Foreign Securities Purchases; US Empire State Manufacturing Index, Mortgage Delinquencies, and NAHB Housing Market Index; and New Zealand’s GDT Price Index.

Wednesday will start with Japan’s Monetary Policy Statement and BOJ presscon; UK Average earnings Index, Claimant Count Change, Jobless Rate, and MPC Official Bank Rate and Asset Purchase Facility Votes; Canada’s Wholesale Sales; US Building Permits, PPI, Housing Starts, Capacity Utilization Rate, and FOMC Meeting Minutes.

Thursday will be quiet except for Japan’s Trade Balance; Switzerland’s Industrial Order Expectations; ECB Monetary Policy Meeting Accounts; US Jobless Claims and Philly Fed Manufacturing Index.

Finally, on Friday, activity will pick up a bit with Flash Manufacturing PMI and Flash Services PMI from France, Germany, and the Eurozone; UK Retail Sales and Public Sector Net Borrowing; Canada Retail Sales; and US Flash Manufacturing PMI.

RBA Cuts Rates; US NFP Improves but Jobless Rate Worsens

RBA surprisingly slashed its Official Cash Rate by 25 basis points to 2.25 percent from 2.50 percent on Tuesday. Meanwhile, the Bank of England decided rate stayed at 0.50 percent and GBP375 billion, respectively.

Markit reported UK Construction PMI surged to 59.1, well above the 56.9 median forecast. The January rebound was close to November’s 59.1 reading. Meanwhile, Services PMI also came in better than forecast at 57.2 and was just a tad lower than November’s 58.6 reading.

CAD Ivey PMI slumped to 45.4 its weakest reading since February 2011. On the other hand, Building Permits, Unemployment Change and Jobless Rate all were better at 7.7 percent, 35,400, and 6.6 percent, respectively.

In the United States, the latest report from the Department of Labor showed that there were fewer Americans who filed for unemployment claims last week. Jobless Claims was lower than expected at 278,000 compared to its 287,000 forecast. Trade deficit in the US widened to its largest in two years to -$46.6 billion in December. The November deficit has been revised from -$39 billion to -$39.8 billion.

US Personal Spending and Personal Income diverged, -0.3 percent and 0.3 percent, respectively. Core PCE Price Index was flat. ISM Manufacturing PMI came in lower than expected (53.5 versus 54.9 forecast).

US Non-Farm Payrolls for January rose 257,000 compared with expectations for a 236,000 rise. The Unemployment Rate inched up to 5.7 percent.

Commodities

Gold had a difficult time sustaining gains and staying close to $1300 this week. Price declined $57 before settling the week with a close at $1,233. Critical support is around $1,200. Near-term resistance remains at $1,300.

Finally some respite was seen in Oil as it registered its second consecutive bullish weekly close this week. Price pierced through the $50 level easily and managed to rise as high as $54 before closing the week just above $52. The $50 mark must hold if bulls want to keep price from falling again.

Currency Pairs

EURUSD failed to keep gains it made through 1.1500 and ended the week virtually unchanged. This would be a blow to the pair, more so if the 1.1300 fails to hold in the coming week. Bulls need to push through 1.1600 to negate a significant amount of bearishness in this pair.

USDJPY was supposed to have an uneventful week until Friday when the pair surged through 119 and closed above this level. The pair could then attempt a move to 120 to break the status quo.

GBPUSD did better than EURUSD this week as the former managed to print its second consecutive bullish week. However, GBPUSD still needs to break the ceiling past 1.5600 to gain a better foot hold this February.

The Week Ahead

Monday will start the week with the release of Japan’s Current Account and Consumer Confidence; Australia’s ANZ Job Ads; and Canada’s Housing Starts. The two-day G20 meetings will also start today.

Tuesday with Japan’s Tertiary Industry Activity; Australia’s NAB Business Confidence and HPI; China’s PPI and CPI; Switzerland’s CPI and Jobless Rate; UK NIESR GDP Estimate, Manufacturing Production and Industrial Production; and US JOLTS Job Openings and Mortgage Delinquencies.

Wednesday will only have Australia’s Home Loans; China’s New Loans; and Eurogroup meetings.

On Thursday, there will be a raft of news such as Business NZ Manufacturing Index; Australia’s MI Inflation Expectations and jobs data; Japan’s Core Machinery Orders; BOE Inflation Report, Inflation Letter, and BOE Governor Carney’s speech; US Retail Sales and Jobless Claims; and EU Economic Summit.

On Friday, there will still be news to watch out for such as RBA Governor Stevens’ speech; France, Italy, and Germany’s Preliminary GDP; Eurozone Flash GDP; Canada’s Manufacturing Sales; US Import Prices and Preliminary UoM Consumer Sentiment.

The European Central Bank Launches its quantitative Easing Program

The European Central Bank’s decision to hold rates at 0.05 percent was widely expected, and so is Mario Draghi’s move to apply quantitative easing. Large-scale government bond purchases will be executed to the tune of EUR60 billion each month.

The Bank of Canada surprised the market with a rate cut on Wednesday, amidst the declining price of oil. Slashes overnight rate target to 0.75 percent while most analysts expected it to stay at one percent.

Canada’s economic data also posted dim pictures. The CPI main and core figures are down by 0.7 percent and 0.3 percent respectively. Foreign Securities Purchases grew much less than expected at CAD4.29 billion versus expectations of CAD7.23 billion. Manufacturing Sales slide more than anticipated, while Wholesale Sales slipped 0.3 percent, the lowest figure in eight months. Retail Sales grew 0.4 percent in November.

Meanwhile, the Bank of England’s MPC voted 9-0-0 in favor of maintaining rates last Wednesday. This was after five months where two policymakers have continuously voted in favor of hiking rates. Plunging oil prices have increased the risk of low inflation in the horizon. MPC Asset Purchase Facility votes were also 9-0-0.
In the United States, the latest report from the Department of Labor showed the Jobless Claims for the prior week rose to 307,000, which is 6,000 more than anticipated. Housing Starts grew 1.09 million while Building Permits came in less than expected at 1.03 million.

In China, the GDP and Industrial Production published reports were better than forecast at 7.3 percent and 7.9 percent, respectively. Fixed Asset Investment came in line with the median estimate of 15.7 percent.

Commodities

Gold is poised to close January at its best close in many months and years. Price breached $1,300 this week and printed its third consecutive bullish week. If $1,300 does not present a considerable resistance, then we would likely see $1,400 soon.

Oil printed another bearish week; in fact, it’s seventh in the last 10 weeks. This time, it made a strong close just above the $45 level. With no significant negating force seen so far, this is destined to move toward $30-$40.

Currency Pairs

EURUSD got pummeled this week as it dropped over 560 pips from its weekly high of 1.1679. This week, it hit its sixth straight weekly decline, and it’s poised to go for parity soon. Stay away from its tracks.

USDJPY lost a lot of attention as traders focus on the EUR this week. USDJPY stayed afloat around 118 and closed the week nearly unchanged and just below this level. Traders will continue to go on a wait and see mode on this pair.

The sixth straight weekly decline was much milder in GBPUSD as its cousin the EURUSD gets pummeled lower. Nevertheless, Cable is now down below the 1.5000 psychological level and it could be sold further toward 1.4500.

The Week Ahead

Monday will be an abbreviated day in terms of news. There will be Japan’s Trade Balance and BOJ Monetary Policy Meeting Minutes; New Zealand Credit Card Spending; Germany’s Ifo Business Climate; Eurogroup meetings; and UK BBA Mortgage Approvals. Australia will celebrate Australia Day.

Tuesday will be much more packed with Australia’s NAB Business Confidence; China’s CB Leading Index; UK Preliminary GDP; ECOFIN meetings; US Durable Goods Orders, S&P/Case-Shiller Composite-20 House Price Index, New Home Sales, and US Consumer Confidence.

Wednesday will be unusually brief with Australia’s Consumer Price Index and Trimmed Mean CPI; GfK German Consumer Climate; US FOMC Statement and Rate Announcement.

On Thursday, New Zealand will be out early with its announcement of its Trade Balance data, Official Cash Rate and Rate Statement. These will be followed by Australia’s CB Leading Index and Import Prices; Japan’s Retail Sales; UK’s Nationwide HPI and CBI Realized Sales; Germany’s Unemployment Change and Preliminary CPI; EZ M3 Money Supply; and US Unemployment Claims and Pending Home Sales.

Friday will have an abundant mix of economic releases, such as New Zealand’s Building Consents; Japan’s Household Spending, Preliminary Industrial Production, and Tokyo Core CPI; Australia PPI and Private Sector Credit; Germany’s Retail Sales; UK Net Lending to Individuals; Spain Flash GDP and Flash CPI; Italy Monthly Unemployment Rate; Canada’s GDP; and US Core PCE Price Index, Advance GDP, Employment Cost Index, Chicago PMI, and Revised University of Michigan Consumer Sentiment.

Market Carnage on Swiss National Bank Shocker

The Swiss National Bank surprised the market as it decided to remove the EURCHF cap for the first time in over three years. Funds and brokers were caught on the wrong side of the market, causing some of them to shut down due to bankruptcy. FXCM, the largest US retail FX broker, suffered massive capital hit but Leucadia National came in to its rescue with capital infusion. The market carnage is still fresh, so it may take time before the dust settles. The SNB also slashed Libor rate to negative 0.75 percent from negative 0.25 percent.
In terms of PMI data, the US and UK posted weak readings. UK Construction PMI was slightly weaker at 57.6 while Services PMI was much weaker at 55.8. Meanwhile, US ISM Non-Manufacturing PMI was weak at 56.2 Canada led the pack with a better-than-expected Ivey PMI of 55.4.

In the United States, the latest report from the Department of Labor showed the Jobless Claims for the prior week rose to 316,000, the highest reading since the early part of September. Empire State Manufacturing Index advanced to 10.0 this January, after suffering a -3.6 reading in December. Meanwhile, Philly Fed Manufacturing Index plunged to 6.2, its lowest level since February.

Commodities

Gold pushed northward further this week with close to $65 advance, putting it close to the $1,300 even more. Tougher resistance is found around $1,350. We may have just seen the bulls set the tone for the entire month.

Finally, we have seen some respite for bulls as Oil has closed virtually unchanged this week following a drop to as low as $44. Buyers should take advantage of this situation by pushing price toward $55-$60 as soon as possible.

Currency Pairs

EURUSD declined for the sixth straight week on the back of the removal of the EURCHF cap. The pair dropped a little over 400 pips and it is slowly closing in on the 1.1000 level. Buyers need to bring price back toward 1.2000.

USDJPY eased again this week as buyers failed to take out the 118 level for the second week. Further selling could pull this pair toward 114-115 in the next 1-3 weeks.

GBPUSD declined for six straight weeks as well. However, unlike EURUSD, Cable put up an inside bar this week and closed in the mid-1.51s. With Dollar strength intact, this pair is still on its way to ward 1.48 to 1.50.

The Week Ahead

Monday will be very quiet except for a few news releases, particularly Australia’s New Motor Vehicle Sales; Switzerland’s PPI; Germany’s Bundesbank Monthly Report; and Canada’s Foreign Securities Purchases. The US will be on holiday to celebrate Martin Luther King Day.

Tuesday will start early with New Zealand’s NZIER Business Confidence; China’s GDP, Fixed Asset Investment, Industrial Production, and NBS Press Con; Germany’s ZEW Economic Sentiment; US NAHB Housing Market Index; and Canada’s Manufacturing Sales.

Wednesday will start early again with New Zealand’s CPI; Australia’s Westpac Consumer Sentiment; BOJ’s Monetary Policy Statement and Press Con; UK Claimant Count Change, Unemployment Rate, Average Earnings Index, MPC Asset Purchase Facility and Official Bank Rate Votes. This will be followed by Canada’s Wholesale Sales, Bank of Canada Overnight Rate Announcement, Rate Statement, Press Conference, and Monetary Policy Report; and US Housing Starts and Building Permits. Today is also day 1 of the 4-day World Economic Forum annual meetings

Thursday will be just as busy with Business NZ Manufacturing Index; Australia’s MI inflation Expectations; Spain’s Unemployment Rate; UK Public Sector Net Borrowing and CBI Industrial Order Expectations; ECB Rate Announcement and Press Con; US Jobless Claims.

Friday will still be active with China’s HSBC Flash Manufacturing PMI; Euro-area, France, and Germany Flash Manufacturing PMI and Services PMI; UK and Canada Retail Sales; Canada CPI; US Flash Manufacturing PMI and Existing Home Sales.

On Sunday, Greece will hold its much-anticipated Parliamentary Election.

US, UK PMI Slide; US Post Better December Jobs Outlook

The Bank of England was the lone central bank active this week and announced an unchanged position in terms of interest rates. They left the Official Bank Rate at 0.50 percent. While the Asset Purchase Facility remained the same at GBP375 billion

In terms of PMI data, the US and UK posted weak readings. UK Construction PMI was slightly weaker at 57.6 while Services PMI was much weaker at 55.8. Meanwhile, US ISM Non-Manufacturing PMI was weak at 56.2 Canada led the pack with a better-than-expected Ivey PMI of 55.4.

In the United States, jobs outlook looks better with current published readings. December’s Non-Farm Employment Change was better than forecast at 252,000, while the Unemployment Rate improved a notch to 5.6 percent. Trade Balance deficit improved to an 11-month low, -$39 billion, thanks to lower crude oil prices. Meanwhile, the latest report from the Department of Labor showed the Jobless Claims rose to a slightly higher-than-expected 294,000 claims.

Commodities

Gold carved a bullish week to start the new year and it was a key milestone as it ended above the $1,200 level. The next area of resistance is the nearby $1,250 area ahead of $1,350. Another bullish week could set the tone for the entire month.

Oil has now printed its sixth weekly loss out of seven, and there seems to be no end in sight so far. A bearish weekly close below the $50 mark last week could spur this commodity to head for the $30 in short notice.

Currency Pairs

EURUSD posted its fourth weekly consecutive loss after buyers failed to secure the 1.2000 level. The weekly low at 1.1753 blasted through the multi-year low set on June 2010 at 1.1875 and this opens up the pair into further losses ahead.

USDJPY suffered its first considerable loss in the past four weeks after bulls encountered selling pressure at and above the key 120 level. We would likely see this back and forth movement in the next few weeks.

GBPUSD also carved its fourth consecutive weekly loss just like EURUSD. But unlike the latter, Cable has yet to break its own key level at 1.5000. Buyers should take this opportunity to swing price back toward 1.5500 so they can negate further bearish pressures.

The Week Ahead

Monday will be very quiet except for a few news releases, particularly Australia’s ANZ Job Ads and Home Loans; and Bank of Canada’s Business Outlook Survey. There will be a bank holiday in Japan due to ‘Coming of Age Day.’

Tuesday will produce more activity with Japan’s Current Account and Bank Lending; UK CPI, RPI, and PPI Input; China’s Trade Balance and New Loans; Italy’s Industrial Production; US JOLTS Job Openings and Federal Budget Balance.

Wednesday will be busy, starting with the European Justice Court Ruling on the legality of the European Stability Mechanism and Fiscal Compact. Other news will follow like Eurozone Industrial Production; US Retail Sales, Import Prices, and Business Inventories.

Thursday will have Japan’s Core Machinery Order; Australia’s Unemployment Rate and Employment Change; US PPI, Jobless Claims, Philly Fed Manufacturing Index, and Empire State Manufacturing Index.

Finally, Friday will cap the week with Japan’s Tertiary Industry Activity; Switzerland’s PPI; UK Retail Sales; Eurozone Final CPI; US CPI, Capacity Utilization Rate, Industrial Production, and Preliminary UoM Consumer Sentiment.

US, UK PMI Data Disappoint; Spanish Flash CPI Increase Weakness

The Spanish National Statistics Institute announced a continued weakness in the country’s Flash Consumer Price Index. The December figure declined 1.1 percent, its sixth straight negative reading, and the biggest decline ever recorded since 2011.

Friday, January 2, was kept busy by data mostly out of Europe. Markit published a weaker than expected UK Manufacturing PMI, as the December figure decreased to 52.5, or the lowest reading in the last three months. The Bank of England reported that Net Lending to Individuals increased to GBP3.3 billion (the biggest in the last 4 months), while M4 Money Supply was flat for the second month in a row in November.

Meanwhile, in the United States, ISM reported that Non-Manufacturing PMI declined to 55.5, surprising analysts whose median forecast was 57.6. The December data is the lowest reading since June’s 55.3 reading. The latest report from the Department of Labor showed the Jobless Claims rose to 298,000, which was 11,000 higher than forecast. Chicago PMI came in much weaker than anticipated at 58.3.

Commodities

Gold continues to trade inside a tight range below the important $1,200 level, with one instance where price shot through toward $1210 fleetingly. We do not suggest taking any position right now; better wait for price to stabilize above $1,200.

Oil is poised to continue its bearish drop after sinking five out of the last six weeks. The $50 level would be critical and all eyes are on it right now. Unless we see certain signs, the $30-$40 area seems to be a definite possibility right now.

Currency Pairs

EURUSD completed its third bearish consecutive week previously and we could see a strong push below 1.2000 very soon. This will put the multi-year low set on June 2010 at 1.1875 in very critical danger.

USDJPY last traded in the 120s, close to the new multi-year high set on December at 121.83. We expect the 120-121 area to become a pivot in the coming weeks and months.

GBPUSD bears are roaring right now as they made a freefall move – as predicted – on the last day of December through the 1.5500 level. If that level is not revisited this coming week, we could see increased push toward 1.5100.

The Week Ahead

Monday will only have a few news announcements on the pipeline, namely Germany’s Preliminary CPI; Spain’s Unemployment Change; Switzerland’s SVME PMI; and UK Construction PMI. US FOMC Member William will give a speech in a Boston conference entitled “Housing, Unemployment, and Monetary Policy”.

Tuesday will open with Australia’s Trade Balance; China’s HSBC Services PMI; Services PMI from Spain, Italy, and the UK; UK BOE Credit Conditions Survey; Canada’s RMPI and IPPI; New Zealand’s GDT Price Index; and US ISM Non-Manufacturing PMI and Factory Orders.

Wednesday will be more active with Germany’s Retail Sales and Unemployment Change; Switzerland’s Foreign Currency Reserves; Eurozone CPI Flash Estimate and Jobless Rate; Canada Trade Balance and Ivey PMI; US ADP Non-Farm Employment Change, Trade Balance, and FOMC Meeting Minutes.

Thursday will begin with Australia’s Building Approvals; Eurozone Retail Sales and PPI; BOE Official Bank Rate and MPC Rate Statement; Canada’s NHPI; and US Jobless Claims.

Friday will be the highlight of the week, starting early with New Zealand’s Retail sales; China’s PPI and CPI; France’s Industrial Production; UK Manufacturing Production, Trade Balance, and Industrial Production; Canada’s Building Permits, Jobless Rate, and Employment Change; and US Jobless Rate, Non-Farm Payroll, and Average Hourly Earnings.

Swiss National Bank Starts Negative Interest Rates; UK Publishes Robust Data

The US Federal Reserve decided to put their respective interest rates on hold at 0-0.25 percent. The shocker was the Swiss National Bank’s decision on Thursday to introduce negative interest rates with an initial -0.25 percent.

Meanwhile, the UK led the pack this week with generally stronger than expected data. CPI has been reported by the Office for National Statistics to have gained one percent, its slowest pace since 2002 on lower oil prices. Votes on the MPC Official Bank Rate and Asset Purchase Facility came in as expected (2-0-7 and 0-0-9, respectively), while Unemployment Rate remained steady at 6 percent for the third straight month. Claimant Count Change decreased by 26,900, which was better than forecast and prior reading’s decline. UK Average Earnings Index improved 1.4 percent. Retail Sales, at 1.6 percent, turned out to be much stronger than forecast and the previous reading’s 1 percent gain. CBI Realized Sales surged, to 61, its best reading since 1988 and just over double than the current forecast.

In the United States, the latest report from the Department of Labor showed the Jobless Claims rose to 289,000, which was 8,000 lower than forecast. The NAHB Housing Market Index came in at 57, weaker than forecast and the previous reading. Building Permits and Housing Starts came in close to expectations.

Commodities

Gold slashed through both sides of the important $1,200 level for a second week. However, this time price sellers have won, albeit barely. Expect more moves on both sides of $1200 in the coming weeks.

Oil thrusted down to a new low in the 53s as weakness persists. Major levels have been breached, and we should expect selling momentum ease if buyers can push price back through $70 which looks unlikely as of this time.

Currency Pairs

EURUSD made a strong u-turn this week as it declined 350 pips from top to bottom. The pair encountered selling pressure early this week just above the 1.2550 level, and the move snowballed downward until Friday to new lows. Sellers are now targeting the 1.2000-1.2100 area.

USDJPY made an early dive this week toward the mid-115s, but this got quickly supported by dip-buyers who brought price to the 119s. If buyers control this pair, they will attack 120-121 until year-end.

GBPUSD had trouble finding a clear direction this week, but eventually sellers dominated. The pair closed at the second lowest weekly close in the last five trading weeks. The pair will try to test the 1.5600 level again next week as bears gain more control. This time, a freefall could happen past 1.5500.

The Week Ahead

The coming week will be unusual since Tuesday will be the most packed day ahead of Christmas.

Monday will have Australia’s Westpac Consumer Sentiment; Bank of Japan’s Monthly Report; Eurozone’s Consumer Confidence data; and US Existing Home Sales.

Tuesday will start early with New Zealand’s Trade Balance; France’s Consumer Spending; UK Current Account, Final GDP, and BBA Mortgage Approvals; Canada’s GDP; and US Revised University of Michigan Consumer Sentiment, Durable Goods Orders, Personal Spending, Personal Income, Final GDP, and New Home Sales. Japanese banks will be closed to celebrate the Emperor’s birthday.

Wednesday will be brief with Australia’s CBI Leading Index; Switzerland’s KOF Economic Barometer; and US Jobless Claims.

Thursday is Christmas Day so many countries will be on holiday. The only data coming out are Japan’s Monetary Policy Meeting Minutes and BOJ Kuroda’s speech.

Japan will again take center stage on Friday with the release of Household Spending, Tokyo Core CPI, Preliminary Industrial Production, Jobless Rate, Average Cash Earnings, and Retail Sales.

Japan’s PM Secures Election amid Low Voting Turnout; RBNZ, SNB Held Rates Steady

Prime Minister Shinzo Abe’s ruling coalition enjoyed a sweeping victory in Sunday’s snap elections. The win gives him and the Liberal Democratic Party with an assurance of 317 seats out of the 475-member lower house and controlling a super-majority in the house. Despite the low voter turnout, Abe believes the coalition win is due to the public’s support. He commented that, “I believe the public approved of two years of our ‘Abenomics’ policies.” Abe vows to continue with his plan to rid the country of deflation. “I promise to make Japan a country that can shine again at the centre of the world,” he pronounced.

Following four central bank announcements last week, the Swiss National Bank and Reserve Bank of New Zealand maintained their rates this week. RBNZ kept its Official Cash Rate at 3.50 percent, while the SNB decided to leave its Libor Rate at less than 0.25 percent.

In the United States, Retail Sales grew to 0.7 percent in November as shoppers enjoyed amid a growing job market and low gas prices. Core reading also edged up 0.5 percent. Meanwhile, Jobless Claims for the prior week also came in better than expected, 294,000 versus its 299,000 forecast. Preliminary University of Michigan Consumer Sentiment rose to 93.8, an eighth year-high this December for the same reasons that boosted Retail Sales.

Commodities

Gold climbed further this week but the last three days’ decline erased some of the gains. Bulls need to secure their control of $1,200 so that price could move higher further going forward. Initial resistance is at $1,250 ahead of $1,300-30.

Oil continued its drop this week. Price declined $9 to a $56 low, for the first time since May 2009. Major support in the coming months is the $30-$35 area. Again, it is sensible not to fight the strong momentum.

Currency Pairs

EURUSD produced a 250-pip reversal this week after reaching a 1.2246 low on Monday. Price needs a little more push north through 1.2600 to get a better traction for this bounce. A move down through 1.2400 could negate the bullish effort, though.

Finally, we saw the first bearish weekly close after seven straight bullish ones. The week’s range was 440 pips and price is now back in the 117-118 area. I expect 118 would be a critical battle area going forward.

GBPUSD has a milder bounce higher (215 pips) compared to EURUSD, but nevertheless this is advantageous for the ailing bulls. Cable has to pass through 1.5850 to gain higher ground in the coming days and weeks. 1.5600 should hold and bulls will be safe, at least in the short term.

The Week Ahead

With 2014 drawing to a close, this will be the final busy week for December.

Monday begins with Japan’s Tankan indices; Australia’s New Motor Vehicle Sales and Mid-Year Economic and Fiscal Outlook; UK CBI Industrial Order Expectations; Bundesbank Monthly Report ; Switzerland’s PPI; US Empire State Manufacturing Index, Capacity Utilization Rate, Industrial Production, and NAHB Housing Market Index.

On Tuesday, there will be Australia’s Monetary Policy Meeting Minutes; China’s HSBC Flash Manufacturing PMI; UK CPI, RPI, PPI, HPI, Bank Stress Test Results, BOE Financial Stability Report, and FPC Statement; Flash Manufacturing PMI and Flash Services PMI for France, Germany, and the Eurozone; Germany’s ZEW Economic Sentiment; Canada’s Foreign Securities Purchases and Manufacturing Sales; and US Housing Starts and Flash Manufacturing PMI.

Wednesday will start early with New Zealand’s Current Account. Japan’s Trade Balance will come next, then UK Claimant Count Change, Average Earnings Index, Jobless Rate, and MPC Asset Purchase Facility and Official Bank Rate Votes; Switzerland’s ZEW Economic Expectations; US CPI, Current Account, FOMC Economic Projections, FOMC Statement, and US Federal Funds Rate; and Canada Wholesale Sales.

Thursday will have New Zealand’s GDP; Switzerland’s Trade Balance; Germany’s Ifo Business Climate; UK Retail Sales; EU Economic Summit; US Jobless Claims and Philly Fed Manufacturing Index.

Friday will cap the week with BOJ’s Monetary Policy Statement and Press Conference; Germany’s PPI and Gfk Consumer Climate; UK CBI Realized Sales and Public Sector Net Borrowing; and Canada CPI and Retail Sales.

Four Central Banks Rates Put on Hold; US Non-Farm Payrolls Surge

Four central banks made their respective rate announcements this week and all of them decided to maintain their respective rates. The Reserve Bank of Australia left its Cash Rate at 2.50 percent; Bank of Canada left its Overnight Rate at 1 percent; Bank of England maintained its Official Bank Rate at 0.50 percent; and the European Central Bank decided to keep its Minimum Bid Rate at 0.05 percent.

The Australian Bureau of Statistics reported mostly rosy data. Company Operating Profits turned out to be surprisingly positive in the third quarter with a gain of 0.5 percent, following a previous reading of -7.5 percent. Building Approvals surged 11.4 percent in October, reversing the previous month’s 11.2 percent decline. Current Account deficit decreased to –AUD12.5 billion, Retail Sales edged up 0.4 percent, and Trade Balance improved to –AUD1.32 billion. Meanwhile, GDP inched up 0.3 percent.

In the United States, Non-Farm Employment Change surged 321,000 in November while Jobless Rate stayed at 5.8 percent. Meanwhile, Jobless Claims came in close to expectations at 297,000, following the previous weeks 314,000 reading. ISM Non-Manufacturing PMI improved to 59.3 in November, while ISM Manufacturing PMI came in at 58.7.

Commodities

Gold started the week with a very volatile move as it stretched across a $79 range. Price closed the week just below $1,200. We could see more volatile moves in the coming days, so traders should stay alert. Near-term resistance at $1,250.

Following a quick touch of new lows, Oil struggled to make a footing at the $70 during its first attempt this week. Weakness resumed immediately which sent price lower, ending the week in the mid-65s. As mentioned before, $50 to $60 would serve as the next critical area. Avoid fighting the momentum.

Currency Pairs

EURUSD smashed through recent support this week to achieve new lows and closed nearby. If there are still bulls waiting in line, they should be able to get through the 1.2400-1.2600 zone of sellers to achieve a glimmer of hope in this bearish pair.

USDJPY blasted higher with nearly 400 pips as it hit its seventh consecutive bullish week. The pair is now trading in price levels last seen in July 2007 and it could continue to work its way higher. USDJPY remain a buy potential in dips.

Another tight weekly range was traded in GBPUSD this week as bulls continue to struggle in holding off bearish moves. The pair closed the week into fresh territories and closed it not far away. There is a serious concern for a move toward 1.5000.

The Week Ahead

Monday will be back with a busy Asian session. We will witness the release of Japan’s Current Account, Bank Lending, and Final GDP; Australia’s ANZ Job Advertisements; China’s Trade Balance; Switzerland’s CPI and Retail Sales; Eurogroup Meetings; Germany’s Industrial Production; Canada’s Housing Starts and Building Permits. Italy will observe Immaculate Conception Day.

Tuesday will be news-light as it only has Australia’s NAB Business Confidence; Germany’s Trade Balance; UK Manufacturing Production and NIESR GDP Estimate; ECOFIN Meetings; and US JOLTS Job Openings.

Wednesday will be a very brief but packed news day with Australia’s Westpac Consumer Sentiment and Home Loans; Japan’s BSI Manufacturing Index and Consumer Confidence; China’s New Loans, CPI and PPI; France Industrial Production; UK Trade Balance; and US Federal Budget Balance.

Thursday will be a critical day as New Zealand and Switzerland will announce their respective interest rates announcements and monetary policy statements. Japan will publish its Core Machinery Orders and Tertiary Industry Activity data. Meanwhile, there will be other news releases such as Australia’s MI Inflation Expectations and jobs data; Eurozone Targeted LTRO; Canada’s NHPI; United States Retail Sales, Jobless Claims, and Import Prices.

Friday will cap the week with New Zealand’s Business NZ Manufacturing Index; China’s Industrial Production and Fixed Asset Investment; Eurozone Industrial Production; US PPI and Prelim UoM Consumer Sentiment.

Swiss Rejects Gold Initiative; Oil Price Deteriorates

Switzerland’s pre-referendum projections were upheld as the Swiss voted to reject the Gold Initiative. The “Save our Swiss Gold” initiative was voted down, 73 percent (anti) to 23 percent (pro). The referendum, if passed, involved preventing gold sales, repatriating Swiss-owned gold and storing gold reserves within the country, and mandating that gold must make up at least 20% of the assets ($540 billion in total) held by the SNB.

In the United States, Jobless Claims rose 313,000 in the previous week, greater than the 287,000 projection. Prelim GDP gained 3.9 percent compared to its estimate of only 3.3 percent.

US CB Consumer Confidence declined to 88.7 in November after bouncing to 94.1 in October. Durable Goods Orders and Pending Home Sales dipped surprisingly, -0.9 percent and 458,000 respectively. Meanwhile, Chicago PMI, Revised UoM Consumer Sentiment, and New Home Sales all came in lower than forecast.

In other news, Statistics Canada said September Retail Sales advanced 0.8 percent while the core reading turned flat. Current account deficit was reduced by CAD1.5 billion to 8.4 billion during the third quarter. Gross Domestic Product came in as expected at 0.4 percent.

Commodities

Gold buyers had early trouble setting a strong pace above the $1,200 level. They tried but easily gave up, and this led to a subsequent three-day decline until Friday’s $27 drop. This gave gold its first weekly decline in four weeks. Continued weakness would spell trouble for the yellow metal.

Oil traders saw an $11 decline this week as the $70 level failed to give support to the ailing commodity. Since price is smashing through lower supports, we could see more volatility in the coming weeks. $50 to $60 could be the next critical area.

Currency Pairs

EURUSD managed to close the week higher despite the new multi-year low etched on Monday. The pair could see more consolidation in the same area, but bulls would need to push this higher so they can get out of this price glut. A move through 1.2700 would ease the bearish momentum.

USDJPY printed a weekly inside bar, breaking the five-week streak of higher weekly highs and lows. This could be the first sign of exhaustion in the current strong trend. Nevertheless, any downside moves is likely to be met by buyers. Watch 117-118.

GBPUSD closed the week unchanged as the pair encountered strong resistance above the 1.5800 level. Buyers need to make a second attempt to push through 1.5800. Some indicators are showing divergences, and this could aid the buyers in the coming weeks.

The Week Ahead

This Monday will be relatively packed with news throughout the day. It will begin with New Zealand’s Overseas Trade Index, succeeded by Australia’s Company Operating Profits; China’s Manufacturing PMI and HSBC Final Manufacturing PMI; Japan’s Capital Spending and Final Manufacturing PMI; Manufacturing PMI for Spain, Switzerland (SVME), Italy, UK, and the US. Fed members Dudley and Fischer will also give their respective speeches.

Tuesday will have Australia’s Building Approvals, Current Account, and RBA Rate Announcement and Statement; Japan’s Average Cash Earnings; Spain’s Unemployment Change; UK’s Construction PMI; New Zealand GDT Price Index; and US Fed Chair Yellen’s speech.

Wednesday will have Australia’s GDP; China’s Non-Manufacturing PMI and HSBC Services PMI; Spain, Italy, and UK Services PMI; Eurozone Retail Sales and Final Services PMI; UK Autumn Forecast Statement; Canada BOC Rate Announcement and Statement; US ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI and Beige Book.

Thursday will also be busy with Australia’s Retail Sales and Trade Balance; UK Halifax PMI, Official Bank Rate, Asset Purchase Facility, and MPC Rate Statement; ECB Rate Announcement, Statement, and Press Conference; US Jobless Claims; Canada’s Ivey PMI.

Friday will have a quiet Asian session, followed by gradual pickup in activity from then on. There will be Germany’s Factory Orders; Switzerland’s Foreign Currency Reserves; Canada’s Trade Balance, Employment Change, Jobless Rate, and Labor Productivity; US Non-Farm Employment Change, Trade Balance, Jobless Rate, Factory Orders, and Average Hourly Earnings.