Your weekly fundamental view (Dec 5-9)

December 05, 2016 12:14

Need to know

This week is data-heavy on important fundamental releases. In our opinion, the main focus is on the ECB Press Conference. We think that ECB is largely expected to keep the size of its monthly bond purchases unchanged beyond its current end date of March 2017, at a pace of around €80bn a month. Coming up:

ISM Non-Manufacturing PMI is on Monday, 5 December. The ISM measures the level of a diffusion index based on surveyed purchasing managers, excluding the manufacturing industry. Why should traders care? If the actual result comes out better than predicted, the USD could bounce. The opposite is true if the result comes out worse than expected.

AUD Cash Rate and Rate Statement released on Tuesday, 5 December. The statement of the official cash rate is important in the overall currency evaluation. We usually see the official rate priced in the markets, so it tends to have less initial impact than this statement and related press conference. The statement is the primary tools of RBA Board communication with investors about monetary policy. Why should traders care? Short-term interest rates create immediate, short-term impact in the markets, by providing cues in the currency evaluation and short-term trade setups. Through the statement, traders can get a hint of future outcomes.

CAD Trade Balance is released on Tuesday, 6 December. Most Canadian exports are purchased by the US. If the number is positive, it means that more goods were exported than imported. Why should traders care? Export demands and currency demands are directly linked because foreigners must buy the domestic currency to pay for the nation's exports.

NZD GDT Price Index is out on Tuesday, 6 December. GDT measures the change in the average price of dairy products sold at auction. Why should traders care? It's a leading indicator of the nation's trade balance with other countries.

AUD GDP is out on Wednesday, 7 December. GDP is the broadest measure of economic activity and the primary gauge of the economy's health. Why should traders care? If the actual result comes out better than predicted, the AUD could bounce. The opposite is true if the result comes out worse than expected.

GBP Manufacturing Production is released on Wednesday, 7 December. Manufacturing makes up the most of total Industrial Production and tends to dominate the market impact. Why should traders care? If the actual result comes out better than predicted, the GBP could bounce. The opposite is true if the result comes out worse than expected.

Crude oil inventories are released on Wednesday, 7 December. A buildup in crude oil inventories usually signals decreasing demand from refiners. On the other hand, a drop would signal that refiners are still producing at elevated levels and the inventory overhang in oil products could continue. This is primarily a US indicator, but it also affects CAD due to Canada's huge energy sector. Previous data showed a decrease of 0.9m barrels, not matching the forecasted 0.7m barrel increase. Why should traders care? The price of petroleum products influences inflation, which impacts oil-dependent industries.

CAD BOC Rate Statement and Overnight rate decision are up on Wednesday, 7 December. The Bank of Canada will release a statement following their overnight rate decision which is expected to remain the same, at 0.5%. Why should traders care? If the actual result comes out better than predicted, the CAD could bounce. The opposite is true if the result comes out worse than expected. The statement itself could also move the CAD.

US unemployment claims are released on Thursday, 8 December. These claims are the earliest national economic data, representing the number of individuals who filed for insurance for the first time during the past week. If the actual result comes weaker than the forecast, it would be deemed good for the currency. Why should traders care? The number of unemployed people is an important signal of the overall economic health and could hint at future monetary policy steps.

EUR Minimum Bid Rate and ECB Conference are out on Thursday, 8 December.

Source: Historical data on minimum bid rate

Following the Italian referendum, the ECB has already committed to stepping up its purchases of Italian government bonds in the short term, to stabilise the bond market. The minimum bid rate should remain unchanged at 0.00% and traders should watch for any clues regarding future monetary policy. Why should traders care? Any deviation from the forecast rate should create movement in the EUR basket. Additionally, a statement that is more hawkish than expected is deemed good for EUR and vice versa.

The University of Michigan preliminary consumer sentiment comes out on Friday, 9 December. There are two versions of this report – preliminary and revised. The preliminary report is released earlier, with a revised report coming out right after that. The consumer sentiment consists of a survey where five hundred consumers ask respondents to rate the relative level of current and future economic conditions. If the actual numbers come out better than expected, it will be good for currency and the dollar should rise. Conversely, if the numbers come out worse than predicted, USD will weaken. The current forecast is 94.3. Why should traders care? This report shows financial confidence in the US economy, which is a leading indicator of consumer spending.