Week Ahead: Trading Outlook

Key Events This Week: November 31st – December 4th

Tuesday: JPY – BOJ Kuroda Speech, AUD – RBA Rate Decision & Statement, EUR – German Unemployment
Wednesday: EUR – EZ CPI, PPI, CAD – BOC Rate Decision & Statement
Thursday: EUR – ECB Rate Decision & Statement, USD – Yellen’s Congress Testimony
Friday: USD – Unemployment, Non Farm Payrolls, CAD – Unemployment Rate

Overview

• USD Was fairly mute over a thinned holiday week. Expectations for December lift-off are now fully loaded and USD long positioning saturated presenting the risk of a squeeze. Data flow was mixed though December lift-off view intact with USD grinding higher over last week. Markets now look ahead to the upcoming NFP print on Friday, the last employment data before the Fed’s December monetary policy meeting.

• EUR The single currency was sent sharply lower last week on news that the ECB are considering further easing with either staggered charges placed on Banks holding on to cash or increased debt purchasing. The policy divergence which drove EUR lower at the beginning of the year is now firmly back in place heading into both the ECB and Fed December monetary policy meetings. With EURUSD down significantly heading into this week’s meeting and the heavy Dovish rhetoric abounding on news wires markets will be looking for a significant move from Draghi to to extend price lower. Traders will also be watching EZ CPI data on Wednesday.

• GBP Sterling was another victim of “verbal intervention” last week as comments by BOE members sent the Pound lower. BOE Governor Carney, in testimony to the treasury committee, said that he foresees low rates in the UK for a long time to come with BOE’s Haldane opining that the risks to UK inflation and growth are skewed to the downside. UK 3Q GDP came in as expected at 0.5% confirming the slowdown from the previous 0.7% print in April-June with net trade hitting an 18 year low. An absence of key domestic data will leave GBP trading off EUR & USD flows.

• JPY The Japanese Yen was firmer last week benefiting still from positive investor sentiment following recent Hawkishness from the BOJ, who despite still struggling with downward inflationary pressure, are sounding optimistic over the economic outlook and as such have clearly ruled out further easing this year. Japanese inflation data showed headline CPI came in as expected at 0.3% though core slightly undershot expectations missing by 0.1%. Attention this week will be on BOJ’s Kuroda who speaks on Tuesday.

• AUD The Aussie tumbled from weekly highs of .7280 as iron ore prices dropped to their lowest levels in 6 years. Recent improvements in Australian labour market conditions, accompanied by an optimistic RBA have seen the Australian Dollar rebounding over recent weeks but concerns around China still weigh on the Aussie’s trading outlook. Further concerns arise from the latest domestic capital expenditure data which showed business investment down more than 9% in 3Q suggesting a weaker 3Q GDP print next week. However, the Aussie’s inability to break significantly lower on this data weakness suggests that bearish positioning in the currency is over-crowded leaving risk of an upside squeeze a possibility. Traders look ahead to the RBA rate decision on Tuesday where any further optimism in the accompanying statement could fuel another move higher in the Aussie.

• CAD The Canadian Dollar enjoyed a much needed rebound last week spurred on by a similar bullish correction in Oil prices. The move in Oil was partly driven by escalating tension in the Middle East but also upon reports that Saudi Arabia, the world’s largest Oil producer, have pledged to do whatever necessary to stabilise Oil prices. The upcoming BOC rate decision is the main focus, especially given the continued slide in Oil prices, though with the Fed seemingly on course to raise rates in December it is not expected that the BOC will further reduce rates this year.