Dollar falls from five-year high vs yen on Fed uncertainty

Weekly outlook

This week on the Markets

1. European Union December Markit Manufacturing PMI, Mon., 16th December, 8:58 a.m.

At 51.6 down from 51.9 in October, Markit Eurozone PMI remained above 50 in November and signalled a modest easing in the rate of expansion for the second month. Output growth in manufacturing stabilised at a robust rate and remained stronger than service sector expansion, which eased to the weakest since August. Private sector employment in the Eurozone fell the twenty-third consecutive month, with the rate of job losses accelerating marginally for the second consecutive month. Manufacturers reported small drop in payrolls since July, while employment at the services sector fell at the strongest since August. We expect that November Manufacturing PMI will rise to 51.9

2. U.K.’s November Consumer Prices, Tue., 17th December, 9:30 a.m.

U.K. inflation slowed more than economist forecast in October and is now the closest it’s been to the Bank of England’s 2 percent target since September 2012. Consumer prices rose 2.2 percent from a year earlier compared with 2.7 previous month, according to the Office for National Statistics in London. The median forecast of economists in a survey called for 2.5 percent. Core inflation slowed to 1.7 percent, the least since September 2009. Bank’s quarterly reports that will be published this week will show whether faster growth gas prompted officials to revise their view that the key interest rate can stay at a record low until late 2016. While deflation risks prompted the European Central Bank to ease policy last month, in U.K. the prospect of pickup in prices weigh against such move. We expect that November consumer prices will remain the same from the previous year and rise 0.2 percent from October.

3. European Union November Consumer Prices, Tue., 17th December, 10:00 a.m.

Euro-area inflation cooled to the slowest in almost four years in October, further moving away from the European Central Bank’s goal. The annual rate fell to 0.7 percent, the lowest since November 2009, from 1.1 percent in September, the European Union Statistics Office said in Luxembourg. The median estimate of economists called for the rate to stay at 1.1 percent. Separate data shows that unemployment in eruo-are stays at a record high of 12.2 percent. The data mark the ninth straight month that the rate has been less than the ECB’s 2 percent ceiling, and they prompted BNP Paribas SA and JPMorgan Chase & Co. to forecast an interest rate cut by the ECB in December. The central bank, which will publish new economic projections, has said there is a “subdued outlook” for inflation in the 17-nation euro-area. Henyep expects that the consumer prices will rise to 0.9 percent from and stay at an unchanged level from previous month.

4. U.S. November Consumer Prices, Tue., 17th December, 1:30 p.m.

The cost of living in the U.S. declined in October for the first time in six month, showing inflation remains below the Federal Reserve’s goal. The consumer-price index dropped 0.1 percent, reflecting cheaper energy, clothing and new cars. After a 0.2 percent gain the prior month, the Labor Department report shows in Washington. The median forecast of economists called for no change. Excluding volatile products, such as food and fuel, the so-called core-measure rose 0.1 percent. Companies from Wal-Mart Stores Inc. to Macy’s Inc. are holing the line on prices to attract more consumers heading into the holiday-shopping period. Limited inflation also gives Fed officials the flexibility to maintain their $85 billion-a-month bond purchase program to stimulate the economy. Henyep expects that in November, U.S. consumer prices will rise 0.1 percent from the previous month and will be 1.3 percent up compared to previous year.

5. U.K.’s October Employment Data, Wed., 18th December, 9:30 a.m.

U.K. unemployment edged closed to the Bank of England’s key threshold in the third quarter and a narrower measure of joblessness dropped for the 12th month in October amid signs that the recovering is gathering strength. The jobless rate as measured by the International Labour Organisation standards declined 7.6 percent the lowest since 2009, from 7.7 percent in the three months through August, the Office for National Statistics said in London. That matched the median estimates of the most economists polled earlier. Claims for unemployment dell by 41,700 last month, more than the 30,000 drop predicted. The Bank of England raised its growth forecasts last month and said officials now estimate unemployment has a better-than-evens change of reaching the 7 percent threshold for considering an interest-rate increase in the third quarter of 2015, almost a year earlier than previously seen. We expect that October claims for benefits will fall 35,000

6. U.S. Fed Interest Rate Decision, Wed., 18th December, 7:00 p.m.

One of the most important data of the week, Federal Reserve Policy Committee Members will be reviewing and deciding whether the base interest rate needs to be changed. It has remained untouched during the last members’ meeting. This interest rate affects the whole range of interest rates set by commercial banks, building societies and other institutions for their own savers and borrowers. It also tends to affect the exchange rate. It is all predetermined by the inflationary outlook with weighing country’s current conditions and developments that the decision will be made upon. Like the last time, we don’t foresee that the Feds will take a step to change the rate this time

7. U.K.’s November Retail Sales, Thurs., 19th December, 9:30 a.m.

U.K. retail sales unexpectedly fell in October as consumers reduced spending on household appliances, clothing and automotive fuel. Sales including fuel dropped 0.7 percent from September, when they rose 0.6 percent, the Office for National Statistics said in London. The median forecasts of economists called for no change in sales. The drop was partly due to slump in clothes sales as warm weather prompted consumers to put off buying winter wear. The report underscores the challenges facing households as prices continue to rise three times faster than wages. While the Bank of England raised its growth forecasts, Governor Mark Carney said interest rates would remain at a record-low 0.5 percent until officials were sure the recovery was secure. WE expect that November sales will be up by 0.3 percent this time

8. U.K.’s Q3 Gross Domestic Product, Fri., 20th December, 9:30 a.m.

Britain’s economic recovery accelerate in the third quarter as investment and house building helped to offset the biggest drop in exports in more than two years. Gross domestic product increased 0.8 percent, matching and initial estimate, the Office for National Statistics said in London. Business investment rose 1.4 percent, while exports dropped 2.4 percent, with net trade knocking 0.9 percentage point from GDP. The Bank of England raised its growth forecasts last month and brought forward the expected timing for unemployment to reach the 7 percent threshold for policy makers to consider raiding the key interest rate. Governor Mark Carnet also affirmed officials’ guidance that they won’t rush to raise the rates while there is slack in the economy. Growth is primarily being driven by domestic factors as the euro are, Britain’s biggest trading partner, struggles to recover. We expect that third quarter growth in U.K. will be at 0.8 percent

9. Canadian November Consumer Price Index, Fri., 20th December, 1:30 p.m.

Canadian consumer prices advanced at a 1.1 percent pace for a second month in September, close to the bottom of the central bank’s target range, on gains in shelter and food costs. The core rate, which excludes eight volatile products, also matched August’s pace at 1.3 percent, Statistics Canada said in Ottawa. Economists surveyed earlier forecast inflation of 1.0 percent and core inflation of 1.4 percent. Governor Stephen Poloz said last week that growth has “disappointed” and the economy is operating below the level the Bank of Canada expected six month ago. The bank predicted in July that inflation will stay below 2 percent target until the second quarter of 2015. The gain in total inflation was curbed by 0.3 percent decline in gasoline and a 0.1 percent fall in health and personal care products. Henyep expects that November price growth will be at 0.1 percent from previous month

10.U.S. Q3 Gross Domestic Product Annualized, Fri., 20th December, 1:30 p.m.

The U.S. economy expanded more in the third quarter than initially estimate as unsold merchandise piled up at the fastest rate since early 1998, setting the stage for a possible slowdown in the final three months of the year. Gross domestic product rose at a 3.6 percent annual rate, from an initial estimate of 2.8 percent and the strongest since the first quarter of 2012, the Commerce Department in Washington said. The boost in inventories accounted for almost half the gain in growth, while household spending cooled and business investment in equipment stagnated. Less inventory accumulation combined with the 16-day federal government shutdown are projected to weigh on the world’s largest economy this quarter. At the same time, fewer jobless claims and a pickup in employment indicate improving corporate sentiment, a sign that at least some of the stockpiling was in anticipation of stronger demand. We expect that third quarter gross domestic product in U.S. will be at 3.6 percent unchanged.

Chart of the week

Dollar falls from five-year high vs yen on Fed uncertainty

FUNDAMENTALS**

The dollar dropped from five-year highs against the yen Friday as investors reduced bets on the greenback amid caution ahead of a U.S. Federal Reserve policy meeting next week that may herald a wind-down of its massive stimulus measures.

While market participants in general expect the Fed to pare back its stimulus no later than March, a growing number expect a small reduction in the Fed's asset purchases from next week. The central bank holds a two-day policy meeting Dec. 17-18.

"The dollar has retraced all its gains against the yen and this is mostly positioning ahead of the Fed meeting and profit-taking on the strong dollar trend we saw this week," said Greg Moore, currency strategist, at TD Securities in Toronto. "There's a lot of uncertainty going into the meeting and some are talking about a small taper next week, although that is not our view. We still think the Fed will wait until January to make any announcement."

COT Weekly Report

HY Markets commitment of traders (COT) weekly report is based on the data published every Friday by the U.S. Commodity Futures Trading Commission (CFTC). It seeks to provide investors with up-to-date information on futures market operations. It contains reportable (commercial and non-commercial holdings) and non-reportable positions. However, the non-commercial holding is an important signal of the futures traders’ sentiment that can be a very powerful trading tool to help anticipate market direction. Therefore, by looking at the net position changes, it will help determine the likelihood of a trend continuing or coming to an end in the near future.

How do I read the Non-commercial net position changes?

Positive means a net long position, and negative means a net short position. When the net position changes show that the net long position is decreasing, this indicates the market sentiment is down and vice verse, when the net long position is increasing, it indicates the market is optimistic.

How to read the open interest net changes?