After two weeks of trading on light data releases, we will soon experience a busy week with the next FOMC meeting to be held this Thursday morning. The US Dollar has retreated in these recent two weeks – a correction of its 11-week climb. Having said that, the bull trend is not yet over and the retracement most probably was a short adjustment. Fundamentally, there will be a great chance of the Fed ending the QE3 this week, whilst European and Japanese policy makers may look to introduce more stimulus programs over the next two years. Also, the bets are on for a stronger Dollar by hedge funds and other large speculators are still increasing, implying the Dollar may soon be back to rally again.
Recent weak data showing Germany’s slowdown and record low inflation level places more pressure on the ECB to consider additional categories of assets for its purchase program, even though it has just started to purchasing covered bonds.
The outlook of commodity currencies is also bearish. The Kiwi Dollar has broken the upward channel and is heading to the month low of 0.77. The highest interest levels amongst Western nations have curbed the space of economic growth of this export-oriented country. The export data showed that New Zealand’s exports to China fell 30% year on year in the last month, which was the biggest decline since July 2005. This fact may cause the NZDUSD to fall to a lower level.
Led by a surging Japanese market, the Asian stock markets rallied on Friday. The Nikkei Stock Average pushed up 1% – the third large rise last week. The Shanghai Composite was flat at 2302, as domestic investors worry about new rounds of IPOs. The ASX 200 gained 0.54% to 5412. In European stock markets, the UK FTSE was down 0.47%, the German DAX lost 0.66% and the French CAC Index slid 0.69%. The US market rose on bright earnings, halting a four-week slide with the S&P 500 capping its best week since 2013. The S&P 500 rose 0.7% to 1965. The Dow once gained 0.76% to 16805, while the Nasdaq Composite Index edged up 0.69% to 4484.
On the data front, the German Ifo Business Climate will be out at 20:00 AEST and US Pending Home Sales is out at midnight.
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