Although weaker Home Sales and near six months high Jobless Claims drove down the US Dollar Index during last week of 2015, the greenback index (I.USDX) headed for the third annual winning streak as the Federal Reserve successfully lifted its benchmark interest rate from near-zero levels and conveyed an optimistic status relating to the health of world's largest economy. Contrast to the USD, currencies of Europe, Japan and some other global economies, like AUD, NZD, CHF and CAD, which gained during the dull trading days of last week, were mostly adhered to negative yearly closing with JPY going down for the record fourth year and the Euro slumped for a second year in a row on loose monetary policies. Further, China kept struggling with its economic weakness, as indicated by repeated below 50.00 readings of its headline Manufacturing PMIs, while the Crude prices, which plunged heavily during 2015, recovered a bit as tensions between Saudi Arabia and Iran escalated in last week, giving hope of supply disruptions from major crude producers.
As market players return from year-end holiday season, handful of economic data-points could offer volatile trading sessions during the current week. Notable amongst them are headline PMI numbers from US & UK, monthly details of US labor market and minutes of December FOMC meeting which triggered the Fed's first rate hike since 2006. Moreover, Inflation numbers from China and Europe, coupled with Australian Trade Balance and Building Permits, are some other indicators that might provide busy trading schedule to market participants.
US Job Numbers And FOMC Minutes Could Gain The Limelight
After witnessing another positive yearly close by the US Dollar Index, together with Fed's once in a decade interest rate hike, market players are now likely to focus more on consecutive rate lift-offs by the US central banker. Even if the Federal Reserve, during its latest monetary policy meeting, signaled that it could announce four interest rate hikes during 2016, all of them would be data-dependant and hence increases the importance of all the upcoming economic indicators, including this week's US employment details concerning December month. Moreover, minutes of recently concluded FOMC meeting would also become helpful to determine near-term USD moves as details of what exactly made the policy makers support an interest-rate hike and their preparedness for some more of the same moves during the current year will gain more attention.
As it can be witnessed from the aforementioned chart, US Unemployment has been steadily coming down while the NFP, another important indicator to gauge job market strength, maintained its level above 200K. However, details relating to both these headline job numbers for the December month, scheduled for Friday, can become helpful to see how these indicators are performing and whether the US central bank will be in a better position to follow their forecasted path of four rate hikes a year. While the Unemployment Rate and Average Earnings are less likely to change from their previous 5.0% and 0.2% numbers respectively, the NFP is expected to mark a small correction during the announcement with 202K mark against 211K prior. Even if downbeat numbers can trigger short-term USD decline, the same is less likely to favor drastic south-run unless being extremely passive as these numbers are only the first to be released in 2016.
Minutes of December FOMC meeting, scheduled to be released on Wednesday, can help portray upcoming moves of the greenback. During the meeting, the Federal Reserve matched market expectation of a 0.25% interest rate hike and the Fed Chair spread hawkish remarks relating to the strength of the US economy; however, the central banker held most of its quarterly economic forecast intact and said the upcoming interest moves will be gradual and data-dependent. Given the interest rate hike and upbeat comments from the Fed Chair, details favoring strong US economic outlook may help greenback gain some of its recently lost ground; however, discussions mentioning a delay in rate hike actions might trap the greenback for immediate downside.
In addition the headline events, monthly releases of ISM Manufacturing and Non-Manufacturing PMIs, ADP Non-farm Employment Change and Trade Balance are some other data-points that USD traders might be interested in looking for. Monday's ISM Manufacturing PMI is likely to inch closer to the 50 mark by printing 49.1 number against its more than a two year low of 48.6 marked during previous reading while ISM Non-Manufacturing PMI may continue its up-move with 56.00 mark versus 55.9 prior. Further, the ADP Non-Farm Employment Change, early indicator for Friday's NFP, which is up for Wednesday release, bears the consensus of marking 193K against 217K prior and the monthly Trade Balance details, scheduled for the same day release, may reveal a bit higher deficit of -44.0B compared to -43.9B registered previously. As majority of data-points signal a bit weaker start of USD, actual numbers meeting consensus can pave the way for first negative week of 2016.
EU CPI May Command EUR Moves
While there are fewer events to be published from Europe during the current week, Flash reading of December month CPI, up for Tuesday release, can help determine the inflationary scenario within the troubled region. The headline number is likely marking the highest level in more than a year with 0.4% mark against previously revised +0.2% and can help the EUR extend its recent short-covering rally. Moreover, German Factory Orders, scheduled for Thursday, can also help forecast immediate EUR moves as being the data of region's largest economy. The order growth is likely shrinking from its four month high of 1.8% to 0.1% and can limit the EUR gains. Hence, even if the positive inflation number can favor continuation of short-term EUR recovery, ECB's lose monetary policy, coupled with weaker factory order detail, may confine major gains by the Euro.
PMIs And Trade Balance To Portray Near-Term GBP Trend
Having realized Monday's three month low UK Manufacturing PMI, which printed 51.9 against 52.8 consensus & 52.5 prior, Tuesday's Construction PMI and Wednesday's Services PMI become crucial to base the GBP trades on; Moreover, November month Trade Balance details, scheduled for Friday, can also help depicting the short-term moves of the UK currency. While the Construction PMI is expected to mark 56.1 number against 55.3 prior and the trade deficit is also likely to shrink to -10.5B versus -11.8B, consensus relating to Services PMI reveals weakness into the crucial sector of UK economy with 55.6 mark against 55.9 prior. Journey of downbeat UK economics can continue favoring expectations of delayed interest-rate by the Bank of England, which in-turn might force the GBP traders to maintain their dovish outlook for the UK currency.
Details From China, Australia And Canada Are The Rest To Watch
Following dismal readings of Chinese Manufacturing PMIs, monthly details of inflation numbers from the dragon nation may help determine the inflationary pressure onto the troubled economy. While the CPI is expected to improve a bit from its 1.5% prior to 1.7% and the PPI is also likely to mark -5.8% versus -5.9% prior during their Saturday release, the PPI is still into the negative region. With the inflation numbers still struggling to provide upbeat scenario of world's largest industrial player, actual readings matching the same could add further weakness into the commodity prices and the commodity currencies, namely, AUD, CAD and NZD.
Even if weakness at the China, Australia's largest consumer, keep favoring AUD weakness, recent improvement in Australian data-points helped the nation's central bank, the RBA, avoid further interest rate cuts and triggered a short-covering rally in Aussie prices. Should monthly releases of Australian Building Approvals, Trade Balance and Retail Sales print mark upbeat numbers the AUD can extend its recent advance. The Building Approvals, scheduled for Thursday release, are expected to mark first contraction in three months with -2.8% against +3.9% prior while the Trade Deficit may shrink to -2.98B against -3.31B during the same day announcement. Moreover, Friday's Retail Sales number is also likely to mark a bit slower growth 0.4% against 0.5% prior. While Chinese pessimism and expected downbeat readings may reverse AUD's near-term gains, strong numbers would strengthen the chances of another rate-cut hold and may further strengthen the Aussie, as it is nicknamed.
Canadian Dollar (CAD) has been the victim of weaker Crude prices and sluggish economics; though, recent tensions in middle-east helped the energy price advance which in-turn favored short-covering moves by the CAD. Though, Canadian job numbers for the month of December, coupled with Trade Balance, are likely details that can help forecast immediate CAD moves in addition to tracking updates relating to the Crude. Wednesday's Trade Balance details may trigger CAD recovery with -2.6B deficit against -2.8B prior which can be carried forward with 10.4K addition into the Employment Change versus -35.7K prior and a stagnant Unemployment Rate at 7.1%. Recent geo-political tensions in Middle-East, which helped the Crude price pullback, may offer support to the Canadian Dollar's pullback in addition to the upbeat job numbers, if matched forecasts.
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