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Currency Outlook: US NFP great readings and FOMC minutes

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Expect a good Week for the US and Canadian Dollars
Alberto M.


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Last week closed with a great reading for the United States unemployment rates. The Non-Farm Payrolls was much higher than the estimate from the analysts, and it erased the bad memories of the August number, which was slightly lower than predicted.

On Europe, the European Central Bank meeting and subsequent press conference by Mario Draghi was not very informative. The ECB is not going to lower interest rates even further, but the details of the unconventional measures to be taken have not been revealed yet. In particular, the size of the ABS plan is still a great unknown to investors.

This week major events are the meetings of the central banks of Japan and England for their respective monetary policy making. The Bank of Japan committee meets on Tuesday morning but no changes in interest are expected. The board of the Bank of England meets on Thursday morning and the market expect to learn from the BoE governor Mark Carney when the gradual raise of interest will take place.

USD Outlook:

As mentioned previously, the exceptionally good readings of the Non-farm Payrolls last week had an extremely positive influence on the greenback. This week a few more employment releases wait ahead. The JOLTS Job Openings is important because the Fed pays close attention to it to assess the status of the labor market in United States. In addition, on Thursday, the US Department of Labor publishes the Jobless Claims.

However, the most important event for the USD this week is the publication of the Federal Open Market Committee Minutes, next Thursday. The importance of this release stems from the fact that it may give some hint on when the raise of interest rates by the Fed will take place.

The economy of US is strong, and it is growing faster than that of other countries. In particular, the situation of US is much better than the situation of the Euro-zone, which is facing an slowdown of its growth. For these reasons, this will be a good week for the USD.

EUR Outlook:

Mario Draghi’s words last week in the press conference after the European Central Bank Monetary Policy Making meeting had a somewhat positive impact on the confidence of investors in Europe. However, the Euro still is facing problems, and the measures taken by the EBC seem not to be enough. Moreover, the President of the ECB did not reveal any detail on the size and the structure of the incoming Asset Backed Security (ABS) Purchasing Plan, information most market participants were expecting from his speech. Mario Draghi speaks again this week at the International Monetary Fund (IMF) meeting that takes places in Washington. It is possible that he reveals more information on the ABS plan during his speech. Whatever the content of the speech is, Draghi’s words always have an impact on the markets.

From an economical viewpoint, this week the French and German governments publish their Trade Balance and Industrial Production. This data will serve to predict how Q3 ended for the Euro-Zone, and how pressing is the need for more unconventional measures from the ECB. Although the situation may seem to have improved slightly for Germany, which is the strongest economy in Europe, this may not be enough for the Euro. I predict this will be a mediocre week for the Euro.

GBP Outlook:

As every first week of a Month, this Thursday the Bank of England meets to decide its Monetary Policy for this month. After the volatile situation of the Scottish Independence Referendum last month, the GBP has stabilized and is presenting a slight growth. BoE Governor, Mark Carney said a few months ago that a raise in interest rates was going to start and gradually increase starting from Q4 2014. Investors expect that more details on this statement will be released after the BoE MPM. In addition to the interest rate decision, on Thursday the BoE will decide whether to inject more capital into the market by the Asset Purchasing program. However, the previous economic releases suggest that this will not be the case.

Although the BoE meeting is by far the most important event for GBP this week, market participants will also be paying attention to the economic data released this week. The most important indicators this week are the Industrial Production and Manufacturing Production indexes, which serve to gauge the Secondary Sector growth of UK economy, and the Trade Balance. The Trade Balance, which measures the difference between exports and imports, is a key indicator of the strength of a currency against foreign currencies. This releases are expected to show a small growth of the Sterling strength, and this suggest that this will be a good week for GBP.

JPY Outlook:

This week presents a busy agenda of economic events for the Japanese currency. On Tuesday, the Bank of Japan meets to decide the interest rate for this month. After the meeting, the BoJ Monetary Policy Statement will make public any further economic measure to help JPY. The words of BoJ Governor Kuroda at the BoJ Press Conference will attract the attention of investors interested on the term structure of Japan for the near future. On Wednesday, the BoJ releases its Monthly Economic Survey and on Thursday, the BoJ MPM minutes are released, and the economic information on which the BoJ decision is based will be publicly available.

Although shadowed by the BoJ meeting, the Leading Economic Index and the Coincident Index releases will have an impact on JPY on Tuesday. On Wednesday, the Eco Watchers Survey and the Foreign Investment in Japan are the main economic releases, together with the Machinery Orders, which gauges the growth of Japan industry. The Machine Tools Orders and the Bank lending are released on Thursday, a day before the important Consumer Confidence Index, which reveals the sentiment of the population with regards of Japan economic situation.

The previous weeks have shown not great overall evolution for JPY, and it seems this is not going to change this week, which will probably be a mediocre week for JPY.

CAD Outlook:

The most important events for the Canadian currency are the releases of employment data on Friday. The Net Change in Employment, the Participation Rate and the Unemployment Rate are the key indicators on the status of the labor market in Canada.

Last month estimate for Employment Change was positive, however, the change was actually -11.0 thousand. This month release will reveal whether last month reading was simply an outlier. On the other hand, the Unemployment Rate has been steady, on 7.0% for the last two months. Since the estimate for Employment Change is positive, I expect this will be a good week for CAD.

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