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Currency Outlook: New month, new ECB meeting.

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The ECB holds a meeting this week
Alberto M.


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September is almost over but the only central bank meeting this week is the European Central Bank Monetary Policy Making meeting. The ECB meets on Thursday, and the eyes of the market will be glued to the press conference after the meeting, where ECB’s President, Mario Draghi, will make public how “sizable” the ABS plan will be, or whether a Quantitative Easing tapering program will be enforced in the following months to try to hold the poor situation of the Euro.

The economic situation of the USA is much better, and the FOMC (Federal Open Market Commitee) suggested that rates hikes are possible before mid 2015, due to the exceptionally good health of the USD. Investors and traders will have a glance of the current status of USD through the economic readings to be released this week. Particularly important are the Non-Farm Payrolls, which showed a slightly smaller number than expected at the beginning of September.

United Kingdom and Japan will have relatively calm weeks. The Sterling will thank this rest after the intense previous weeks, when the Scottish referendum drew the attention of every market participant.

USD Outlook:

The upcoming week presents a busy agenda for traders interested on the United State economy. Several important indicators will be released which will serve to predict how likely is to see a rates hike before mid 2015. The stimulus program ends this month and the current situation of US economy is far better than that of Europe.

As this week is the first Thursday and Friday of October, the unemployment indicators are released. In particular, the US Non-farm Payrolls, the US Unemployment Claims. In addition, the Trade Balance, which serves as a gauge of the relative strength of USD with respect to foreign currencies, will be released. Finally, the US ISM Manufacturing and Non Manufacturing PMIs readings will become available by the end of the week.

The expected results of all this readings suggest that the US economy keeps growing, but the markets will be paying special attention to unemployment data, due to the fact that last month readings were lower than expected. Nevertheless, this will be a good week for the Dollar.

EUR Outlook:

Another high volatility week for the Euro starts. On Monday, inflation data of the EuroZone is released. In particular, Consumer Price Indexes of Germany and Spanish, and the CPI Flash estimate of the EZ are released on Monday. The goal of the European Central Bank is to achieve an inflation level of 2%. The readings from this indicators will reveal how sizeable the Asset Backed Security plan of Draghi is going to be.

A few other economic indexes will be revealed prior the ECB MPM meeting, to be held on Thursday. In particular, German Retail Sales and Unemployment Rate are going to be released early this week.

The critical day for the foreign exchange market this week is Thursday. The ECB meeting and press conference will determine whether the ABS plan will be enough to remedy the situation in Europe, or if a Quantitative Easing tapering program will be used by the ECB to try to improve the economic situation of the European Union. The cold reception of the TLTRO (targeted longer-term refinancing operations) suggests that more measures have to be taken, and since rates have already been lowered to its lower bound, non conventional measures are expected. This means that investors are about to live a mediocre week for the Euro.

GBP Outlook:

The Sterling has left behind the Scotland Independence claim and now investors can focus on economic data. Although the Bank of England Monetary Policy Meeting does not take place until the next week, an event that will have a huge impact on the foreseeable future of the pound, the economic indicators to be released this week will indicate how likely rates rise is.

The economic indicators releases for this week are the BBA Mortgage Approvals, the Public Sector Net Borrowing, the Nationwide HPI and the CBI Realized Sales. The expected estimates of these indicators suggest that after the political volatility spike caused by the Scottish referendum, the GBP keeps growing at a good pace. Everything suggests that this will be a good week for the GBP.

JPY Outlook:

The previous week was a calm one for Japan, and this one will slightly more interesting, with a few events gauging the state of the asian economy. On Monday, Retail Sales and Household Spending are released.

Tankan Manufacturing and Non-Manufacturing indexes readings are disclosed on Tuesday, and the Final Manufacturing PMI of August is revealed on Wednesday. Investors will have to wait until the next week to discover if the Bank of Japan will embrace new policies. However, the present week will be mediocre for the Japanese currency.

CAD Outlook:

The previous week was a weak one for CAD, especially when compared to that of the greenback juggernaut. The fundamental analysis of the evolution of CAD this week is based on the following major events for the currency: The release of the Gross Domestic Product, the Raw Material Price Index and the Industrial Product Price on Tuesday, the release of the Royal Bank of Canada Manufacturing PMI on Wednesday and the release of the exports and imports on Friday.

The Gross Domestic Product indicator is a key indicator to gauge the growth of an economy. Unlike most countries GDP releases, which happens quarterly, GDP data is released on a monthly basis in Canada. The previous release of GDP was better than expected, with a 0.3% reading, above the predicted 0.2%. On the other hand, the forecast for the Raw Material Price index is not so promising, with a negative estimate of -1.7%. The trade balance, which is the difference between exportations and importations, has shown positive readings in the latest releases, and the forecast is 1.5 billion CAD.

All this predictions suggest that this will be a good week for the Canadian Dollar.

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