Signals

The Reserve Bank of Australia left Cash Rate at 2 percent as weakness in the Australian dollar has cushioned the blow of China’s weakness and lower commodity prices.

Australian GDP revealed its weakest growth in two years as it posted 0.2 percent in the second quarter, mainly due to the weakness in export volumes, the latest report from the Australian Bureau of Statistics showed. Retail Sales posted an unexpected 0.1 percent dip in July, the first monthly decline since May 2014. Trade Balance report showed a lower-than-expected deficit of –AUD2.46 billion (analysts were expecting –AUD3.10 billion).

The European Central Bank also kept its minimum bid rate unchanged at 0.05 percent on Thursday. In the press conference, ECB chief Mario Draghi said the bank is lowering its inflation and growth forecasts. Inflation is expected to pick up slightly towards the yearend, he noted. The ECB also mentioned that it has changed its rules regarding the limit on bond issue share, increasing the limit to bond issues the central bank can hold to 33 percent from 25 percent.

In other news, the UK Manufacturing PMI came in at 51.5 for August, following a small increase to 51.9 in July. Net Lending to Individuals stood at GBP3.9 billion as expected. On the other hand, Construction PMI came in close to expectations at 57.3 (57.6 forecast).

In the United States, Chicago PMI came in at 54.4 versus 54.7 expected. ISM Manufacturing PMI registered its lowest reading since June 2013 at 51.1, while ISM Non-Manufacturing PMI came in at 59.0. Jobless Claims in the prior week increased 282,000, 9,000 more than the median forecast. The Non-Farm Employment Change showed an increase of 173,000 in August, disappointing and diverging from the 215,000 forecast. Average Hourly Earnings picked up 0.3 percent, and Jobless Rate eased to 5.1 percent.

 Commodities

Gold sellers won for the second week but not much new ground has been covered this time. Downside risk remains, as price has not recovered the $1,200 level despite the big pushes seen in August. $1,200 will remains an area for buyers to conquer moving forward.

After an enduring multi-month slide, a volatile week saw Oil move, for the most part, between the $43 and $49 zone. The move this week was not surprising given the relentless downside force exerted on black gold. Bulls need a move through $50 to keep this going.

Currency Pairs

EURUSD is back to its normal trading range after a wild end to the month of August. The pair is back below the 1.1400 resistance level and some buyers are attempting to poke through it again. It retains it bullish bias as long as price is below 1.1100.

GBPUSD posted its ninth straight bearish day on Friday as sellers attempt to push for a 1.5100 break. This pair would remain in seller’s territory if bulls won’t be able to bring this back above 1.5500. Let’s see if that would be a tall order for bulls, given the recent slump.

USDJPY posted its third consecutive bearish weekly close but this time it was engulfed by the prior huge weekly bar. Due to the recent JPY strength, this pair has a short-term bearish bias while price is below 122. Medium term, this pair is bullish as long as it remains above 120.

The Week Ahead

On Monday, keep an eye on Australia’s ANZ Job Advertisement; Japan’s Leading Indicators; Switzerland’s Foreign Currency Reserves; and Germany’s Industrial Production. Canada and the US will celebrate Labor Day.

Tuesday will offer Japan’s Current Account and Final GDP; Australia’s NAB Business Confidence; China’s, France’s, and Germany’s Trade Balance; Switzerland’s Jobless Rate; and US NFIB Small Business Index.

Wednesday will be much more active with Australia’s Westpac Consumer Sentiment and Home Loans; UK Halifax HPI, Manufacturing Production, and Trade Balance; Canada’s Building Permits, BOC Rate Statement and Announcement; and US JOLTS Job Openings.

Thursday will be extra busy with RBNZ Rate Announcement, Monetary Policy Statement, and Press conference; Japan’s Core Machinery Orders; Australia’s jobs data; China’s CPI, PPI, and New Loans; UK MPC’s Asset Purchase Facility and Official Bank Rate Votes and Rate Statement; US Unemployment Claims and Import Prices.

Friday will cap the week with Japan’s BSI Manufacturing Index; Germany’s WPI and Final CPI; ECOFIN Meetings; US PPI and Preliminary UoM Consumer Sentiment.

There are signs of optimism everywhere and January is starting off the year with much of it.

Business leaders and key government and organization officials trekked to Davos, Switzerland for the annual meeting of the World Economic Forum. This year, the WEF was spread across five days and it concludes today, January 27. In general, the ‘crisis mood’ is over and there was a general sense of optimism. However, top officials were quick to caution that the right policy actions should be made and pursued to further the global economic recovery. “Do not relax,” was one of International Monetary Fund chief Christine Lagarde’s parting words in a WEF closing panel.

Meanwhile, ECB chief Mario Draghi opined the worst of the debt crisis in the Eurozone may be over, and said in a Frankfurt-held speech that the “darkest clouds” have subsided, which he attributed to the decisive policy-related actions made. “We can begin 2013 on a more confident note,” Draghi said.

Notable economic data developments include Germany’s ZEW report of a robust rise of 31.5 in its ZEW Economic Sentiment data for January, much stronger than the 12.2 forecast and is about four-fold of the prior month’s reading. This comes after negative readings from June to November and is the highest reading since May 2010’s 45.8. Euro-area’s ZEW Economic Sentiment also came in stronger at 31.2 versus 14.1 forecast.

UK’s Claimant Count Change data for December also came in with a surprise fall of 12,100, which makes it the lowest jobless claims reading since mid-2011. This rare display of economic strength will be monitored in the coming months to see whether it was a minor blip or the start of a favorable economic trend.

A handful of other key data displayed notable positive readings, such as Germany’s Ifo Business Climate, Flash Manufacturing PMI and Services PMI; US Unemployment Claims; Euro-area Current Account; and US Flash Manufacturing PMI. China’s HSBC Flash Manufacturing PMI also reached a two-year high for its January data.

Commodities

Gold continued to range until the midweek before swooning lower to end the week at $1,658. The $1,700 bear defense had been successful and now all eyes are on the $1,600-50 area. If the $1,650 support breaks down, they will target January’s five-month low at $1,625.

Oil trading on Monday was as quiet as it can get when it traded a mere $0.45 range after trading an equally tight $0.76 trading range on Friday. All these came after price vaulted above the $94.87 resistance last week and rose to the mid-$96.00s. It ended this week with its seventh consecutive weekly gain, its best run in nearly four years. If the upmove persists in to the coming weeks, the next area of contention will come in at the $98-$100 area. Continued economic optimism will prop up black gold.

Currencies

EURUSD started off the week with an uncharacteristic 32 pip trading range on Monday. The subsequent two days remained confined to the broader 1.3260 – 1.3400 range set on January 11. Price action change on Thursday as price managed to close the day just below 1.3400 and it made a follow-through upmove, and succeeded in breaking toward new highs to end the week at 1.3461, ahead of a 1.3478 top which is just 7 pips shy of pushing for a 13-month high. Bulls are still keen on pressing price higher to the 1.3500 and 1.3600 levels.

USDJPY traders were able to set two milestones this week: a daily and weekly close above the 90.00 level for the first time in more than two years. Traders need to recall that price set off a precipitous fall when price fell below the 90 level back in 23 June 2010, which pressured price down to a 75.56 low on October 2011.

GBPUSD continued to weaken after price fell below the all-important 1.6000 level and the 200-day moving average found at 1.5903. Price made back-to-back new lows on Thursday and Friday, after the three-day consolidation which started on Monday broke down and bulls succumbed to intense bear pressure. The fall on Friday conquers the five-month low for Cable, and the last bastion of support for bulls now comes at the 1.5700-50 area. A break of this level will descend price into a potential chaotic fall into the 1.5300-1.5500 lows.

The Week Ahead

Monday opens the week with only a few key releases from the US – Durable Goods Orders and Pending Home Sales. The soon-outgoing Bank of Canada Governor Mark Carney will also impart a speech in Zurich.

On Tuesday, the market will watch for New Zealand’s Trade Balance data, Australia’s CB Leading Index, NAB Business Confidence, Gfk German Consumer Climate, US S&P/Case-Shiller Composite-20 House Price Index and US Consumer Confidence.

On Wednesday, there are Japan’s Retail Sales, Switzerland’s KOF Economic Barometer, Spain’s Flash Quarterly GDP, Euro-area Retail PMI, UK’s Net Lending to Individuals data, and Italy’s 10-year bond auction. US will also release ADP Non-Farm Employment Change, Advance GDP, crude oil inventories, Federal Funds Rate, and FOMC Statement. Germany’s Bundesbank President Weidmann will also give a speech.

On Thursday, New Zealand will announce its Official Cash Rate and Rate Statement. Other news releases include Japan’s Manufacturing PMI, Average Cash Earnings, and preliminary Industrial Production; UK’s Gfk Consumer Confidence and Nationwide HPI; Australia’s HIA New Home Sales, Import Prices, and Private Sector Credit; Germany’s Retail Sales, Unemployment Change, and preliminary CPI; France’s Consumer Spending; Canada’s GDP, RMPI, IPPI; and US Unemployment Claims, Core PCE Price Index, Employment Cost Index, Chicago PMI, Personal Spending, and Personal Income.

February starts this Friday with a host of releases: Japan’s Household Spending and Unemployment Rate; Australia’s PPI; China’s Manufacturing PMI and HSBC Final Manufacturing PMI; Switzerland SVME PMI; Euro-area, Spain, Italy, UK Manufacturing PMI; Euro-area CPI and Unemployment Rate. The US will also release Unemployment Rate, Non-Farm Employment Change, Average Hourly Earnings, Final and ISM Manufacturing PMI, Construction Spending, Revised University of Michigan Consumer Sentiment.

October is drawing to a close, and it has increasingly quieted down towards month-end. There was no dominant or fresh theme for the week, hence consolidation – weakness, for some – reigned. The market chewed on a raft of economic releases and is eagerly anticipating the upcoming US Presidential elections.

On Tuesday, Moody’s Investors Service has downgraded Spain’s five regions, namely Extremadura, Andalucia, Castilla-La Mancha, Murcia, and Catalunya. There was a rumor that Fitch will downgrade rating of the United States, but this was subsequently denied. Fitch maintained that it will resolve the US rating by late 2013.

The US Presidential election is near, and there has been chatter last Tuesday about the helm of the US Federal Reserve. Fed Chairman Ben Bernanke hinted that he will not seek another term once his term ends in January 2014. This talk about Bernanke’s position slightly lifted the dollar. In the recent past, Treasury Secretary Timothy Geithner declared that he’d resign when his term ends by the end of the year, regardless if President Obama wins or not.

Bank of Canada’s Carney maintained a tightening bias on Wednesday and left rates unchanged. BOC also lowered growth expectations and said that a rate hike is ‘less imminent’. Similarly, there were no substantial changes in the US FOMC decision, with the Fed reportedly saying ‘economic activity has continued to expand at a moderate pace’. The Fed maintained its monthly purchasing program of $40 billion worth of mortgage-backed debt aimed at spurring economic expansion.

On Thursday, RBNZ left the cash rate unchanged, but RBNZ monetary statement was not as dovish as expected. Consequently, RBNZ’s Wheeler said the nation doesn’t need quantitative easing and the central bank has scope to cut rates if necessary.

On Friday, Japan’s cabinet approved $5.3 billion worth of stimulus measures. BOJ is widely expected to ease next week.

Stocks and Commodities

The Asian stock market has been dominantly down, with Friday’s best performers only limited to the indices of Singapore, Indonesia, Malysia, and the Philippines. Nikkei, Shanghai, Kospi, and Hang Seng were all down by more than one percent.

On both sides of the Atlantic, Nasdaq, Dow, FTSE 100, CAC40, and DAX eked out small gains on late Friday. S&P 500 was down on Friday and down by as much as 1.5% for the week.

Despite the better-than-expected US GDP data on Friday, Gold failed to end the day at a better price, closing for the third consecutive downweek, its worst performance in over a year. Gold had made a relentless rally starting from mid-August and peaked on October 4 at 1795, its best price in nearly a year, before declining back down to its current price of 1710.

Currencies

For this week, EURUSD printed a bullish close on Monday and spent the rest of the week below 1.3000. After a healthy rally and bullish peak in mid-September, price has continued its consolidation from that point on. EURUSD ended the week confined in last week’s range.

Unlike EURUSD, AUDUSD and GBPUSD ended the week at better prices. GBPUSD tested the bull’s resolve as price broke below the important 1.6000, only to reverse and close the week higher, even pushing price enough to close slightly above 1.6100. AUDUSD stayed inside last week’s range, just like EURUSD did.

USDCAD barely made a move this week and preferred to stay in a 100-pip range.

It closed the week with a mere 20 pips increase from its gap-up weekly open at 0.9943.

The Week Ahead

Next week, Monday would be relatively quiet, and the raft of news releases would get unevenly heavy towards the end of the week. On Tuesday, the market will set its sights on Japan’s rate announcement and Monetary Policy statement, BOJ Outlook Report, BOJ press conference, ECB Draghi’s speech, Italian 10-year bond auction, US Consumer Confidence; On Wednesday, there are Australia Building Approvals data, and Canada’s GDP; On Thursday, China Manufacturing PMI, UK Manufacturing PMI, US ADP Non-Farm Employment Change, Unemployment Claims, and ISM Manufacturing PMI; and finally on Friday, Australia PPI, UK Construction PMI, Canada and US employment data, particularly the always-anticipated US Non-Farm Payroll data.

Moving forward, the near-term risks and events with widespread implications are the arrival of supposed ‘Frankenstorm’ and Hurricane Sandy, and the much-awaited US Presidential Elections on November 6.