All Eyes On ECB & NFP
Neglecting the pessimism triggered by US consumer confidence, which dropped to its lowest level since Nov. 2014, and data on personal spending/consumption, together with downbeat housing market details, the US Dollar Index (I.USDX) managed to mark another positive weekly closing as higher than expected GDP print, positive Durable Goods Orders and overall optimism about the December rate hike helped the USD bulls. On the contrary, the Euro couldn't enjoy positive PMI news as market players remained cautious ahead of this week's crucial ECB meeting that would determine whether the European Central Bank cut its interest rate or extend/expand the QE or practices both these options to counter deflationary crisis. Moving on, the GBP remained negative even if the second estimate of Q3 2015 GDP matched consensus as Consumer Confidence plunged to the lowest since January while the JPY gained against some of its counterparts due to rising safe haven demand. Moreover, commodity currencies, namely AUD, CAD and NZD, closed again in the red region due to Chinese equities' plunge during weekend while Crude and Gold prices extended their downsides as supply glut worries ahead of this week's OPEC meeting kept damaging Crude prices while rising dollar favored yellow metal bears.
As the current week contains start of crucial December month, monetary policy meeting by the ECB and the monthly release of US NFP are likely to gain major market attention. Moreover, headline PMI release from UK and China, EU Flash CPI, monetary policy meetings by the RBA and BoC, coupled with GDP releases from Australia, Canada and Switzerland, are some other details that could maintain the information flow making market players sit on the edge throughout this week.
NFP To Portray Chances Of December Rate Hike
Being the final reading ahead of Federal Reserve's December monetary policy meeting, wherein most market players expect a quarter percent rate hike, the first since 2006, by the US central bank, US job numbers revealing labor market situation during the month of November would gain major attention.
With the labor market strength being a key determinant in forming US Fed monetary policy, continuous improvement by Friday's job numbers, namely Non-farm Payrolls (NFP), Unemployment Rate and Average Earnings, could propel chances of December rate hike that in-turn would provide considerable across the board strength to the greenback. The NFP is likely to witness a pullback from its five month highs marked in October, by printing 201K from 271K prior, while the Unemployment rate is expected to remain unchanged at the lowest since May 2008. Further, the Average Earnings also signals a bit of weakness in earning growth to 0.2% from 0.4% October mark.
Even if the present consensus relating to job reports favors a bit of USD pullback, chances of the December rate hike are less likely to be damaged as recent figures are already quite impressive with NFP staying above +200K and seven years' low Unemployment Rate. Moreover, upbeat actual figures, surpassing the consensus, would provide further strength to the December rate hike calls and may propel the US Dollar against majority of its counterparts.
Other than the labor market numbers, figures relating to US manufacturing activity like Chicago PMI, ISM Manufacturing PMI and Factory Orders, coupled with Pending Home Sales, ADP Non-Farm Employment Change and Fed Chair's Testimony, are some important details that could keep flashing important signals to help determine USD moves.
While Monday's Chicago PMI and Tuesday's ISM Manufacturing PMI signal contrasting views by expectations of marking 54.3 versus 56.2 prior and 50.6 against 50.1 previous number respectively, the Factory Orders, scheduled for Thursday, may reverse prior two months' negative prints with +1.2% gain. Moreover, the Pending Home Sales, also scheduled for Monday, becomes another US indicator to reverse prior months' negative marks with 1.6% gains versus -2.3% contraction marked during September. Moving on, the ADP Non-Farm Employment Change, considered to be early signals for Friday's job report, up for Wednesday publish, bears an optimistic consensus of testing 191K mark against 182K prior while the Testimony by the Federal Reserve Chair, to be published on Thursday, could also hint something relating to US economic strength and the Fed's view of monetary policy, providing help to forecast December rate hike.
Considering the forecasts, major US economics are expected to reveal continuous strength of world's largest economy, favoring December rate hike, the US Dollar is more likely to extend its northward trajectory. Should these numbers depict pessimistic marks, the USD may only witness a pullback and then carry on the up-move unless there are drastic negatives by all the indicators.
ECB Meeting To Determine Future Moves Of The EUR
In addition to the Friday's US labor market numbers, monetary policy meeting by the European central Bank (ECB), on Thursday, becomes important indicator that would direct medium-term moves of the regional currency, Euro. Moreover, monthly release of CPI Flash Estimate, scheduled for Wednesday, may also provide meaningful information to forecast Thursday's central bank actions.
Looking at the market forecasts, Flash estimate of Inflation is likely to surpass its upwardly revised +0.1% mark with +0.2% number and could help ECB avoid further monetary easing while recent disappointments via Inflation and growth numbers have favored the market expectations of fresh monetary policy easing announcements by the ECB wherein the central bank may either cut their benchmark interest rate or extend/expand its QE. Some extremists also expect that the regional central bank can even go a step further and adopt both these measures to quickly come out of current pessimism. The monetary policy decision will be followed by press conference of the ECB President, Mario Draghi, where a prepared statement on the new macro-economic projections, that influence the central bank's monetary policy decision, will be read.
Although market seems to have already priced-in further monetary easing by the ECB, quantum of easing and Draghi's comments would gain much attention. If the central bank disappoints market, together with the support from improvement in CPI, short-covering rally for the EUR can't be denied.
Headline UK PMIs Can Help Forecast Near-Term GBP Trend
Starting from Tuesday, headline PMIs for the UK economy, concerning Manufacturing, Construction and the most important, Services sectors, are scheduled for publish during the current week. While the Tuesday's Manufacturing PMI and Wednesday's Construction PMI indicate a bit of weakness as compared to previous levels, with the Manufacturing PMI expected to mark 53.7 against 55.5 prior and the Construction PMI consensus favor a 58.4 print versus 58.8 previous mark, the Services PMI, on Thursday, is expected test the three month high with 55.1 print against 54.9 prior. As the Services PMI, core to the UK economy, favors continuous strength, downbeat readings from Manufacturing and Construction sectors may have lesser strength to damage the GBP. However, pessimistic readings from all these numbers could provide additional weakness into the UK currency.
Chinese Manufacturing PMIs, RBA and Australian GDP Would Direct AUD Trades
Chinese official Manufacturing PMI and the Caixin Manufacturing PMI won't only reveal the industrial strength of world's largest manufacturing economy, these headline PMIs would also help forecast the AUD moves as the China is largest consumer for Australia.
On Tuesday, the official Chinese Manufacturing PMI is expected to mark another below 50.00 number, favoring contraction with 49.9 against 49.8 prior while the same PMI from Caixin is likely to remain at its previous 48.3 number. Both these important indicators are well in the contraction region and unless a positive mark above 50.00, current pessimism surrounding China is likely to continue dragging down the commodity basket and commodity currencies, including AUD.
Monetary policy meeting by the Reserve Bank of Australia (RBA), scheduled for Tuesday, followed by the Q3 2015 Australian GDP, on Wednesday, Trade Balance on Thursday and Friday's Retail Sales, are some of the top Australian events/announcements that would direct near-term AUD moves.
The RBA isn't expected to alter its current monetary policy and the monthly Retail Sales are likely to grow with the same pace of 0.4%, together with larger Trade deficit of -2.61B against -2.32B prior. Moreover, the GDP is expected to show quarterly growth of 0.7% over 0.2% recorded in the previous quarter. Although, improvement in GDP can help AUD, pessimistic details from China and overall decline in commodity basket could continue dragging down the Australian Dollar during its near-term trading.
Important Details From Canada And Switzerland
Alike its Australian counterpart, the Canadian Dollar is also likely to be affected by its central bank meeting and the GDP announcement while the Swiss GDP and Employment details could help determine near-term CHF trend.
Monthly release of Canadian GDP, scheduled for Tuesday, is likely to maintain its 0.1% growth rate unchanged for the month of September and the Bank of Canada (BoC) isn't expected to announce any monetary policy change during its Wednesday's meeting. However, Crude prices and OPEC meeting, scheduled during the week, would become important for the Loonie, as it is nicknamed. Should the Canadian GDP plunges into negative territory and the OPEC members keep negating the need of production cuts to balance the Crude prices, chances of further CAD declines can't be denied.
Tuesday becomes an important day for CHF as quarterly releases of Q3 2015 Swiss GDP and Employment Level, coupled with monthly Retail Sales, are scheduled for publish during the same day. While the GDP is expected to continue growing with the same pace of 0.2% and the Employment Level is also likely to mark 4.24M number, improvement in monthly Retail Sales, to the highest levels since June 2015, to +0.4% against +0.2% prior, could help the Swiss Franc (CHF) remove some of its recent losses.
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