Saturday, February 21, 2015

Fundamental outlook for Feb 22 - Feb 28

As part of my fundamental analysis, I'll try to create weekly outlooks for each currency, combining news events with each central banks' bias. Ideally, we want to short currencies where the news has been bearish and the central bank dovish, and long currencies where news has been bullish and the central bank hawkish.

The best currency pairs to trade would be where one currency is bullish + hawkish, and the other currency bearish + dovish.



News over the last week has been mostly bearish. Of particular note was the dovish tone of the FOMC minutes that were released on 18 Feb.

18 Feb: Building permits 1.05m vs 1.08m forecast - mildly bearish
18 Feb: PPI m/m -0.8% vs -0.4% forecast - bearish
18 Feb: FOMC Meeting minutes - bearish
19 Feb: Unemployment claims 283k vs 293k forecast - bullish
19 Feb: Philly Fed Manufacturing Index 5.2 vs 8.8 forecast - bearish

Overall news: Bearish
Federal Reserve bias: Mildly hawkish
Outlook for this week: Neutral

The most important event this week is Federal Reserve Chairwoman Yellen's testimony on the 24th and 25th of Feb. Monthly CPI is also released on 26 Feb. I expect the USD to remain neutral unless Yellen makes some hawkish comments. 


Looks like Greece will remain with the euro for now, after receiving a 4-month bailout extension. EUR news has also been bearish for all of last week.

17 Feb: German ZEW Economic Sentiment 53 vs 55.4 forecast - mildly bearish
20 Feb: French Flash Manufacturing PMI 47.7 vs 49.7 forecast - mildly bearish
20 Feb: German Flash Manufacturing PMI 50.9 vs 51.8 forecast - mildly bearish
21 Feb: Greece 4-month bailout extention - bearish

Overall news: Bearish
ECB bias: Ultra-dovish
Outlook for this week: Bearish

I'm anticipating that Greece's extension will be bearish for the EUR. ECB President Draghi will speak on 24th and 25th Feb, so we can expect major volatility during those days. Other news release during the week will probably be secondary.


JPY news has been mixed last week, but leans on the bearish side. GDP growth is below expectation, but Japan's trade balance has improved. The Bank of Japan issued a mildly optimistic economic forecast for Japan, but indicated it will continue QE for as long as necessary.

16 Feb: Prelim GDP q/q 0.6% vs 0.9% forecast - bearish
18 Feb: BoJ Monetary Statement - to continue QE for as long as necessary - mildly bearish
19 Feb: Trade balance -0.41T vs -0.95T forecast - bullish

Overall news: Mildly bearish
BOJ bias: Mildly dovish
Outlook for this week: Mildly bearish

No major news event for this week, although BoJ monetary policy meeting minutes come out on 23rd Feb. However, in the context of the BoJ's statement on the 18th of Feb, I don't think there'll be any surprises. The BoJ seem content to "carry on business as usual". Four medium-impact news items are scheduled for 27th of Feb so there could be some volatility that day. Otherwise I'm looking for JPY to break down this week. 


GBP news has been mostly good. The Bank of England remains relatively dovish, however. The BOE revealed that all nine voting members voted to keep interest rates on hold during their last meeting. But there is speculation of an interest hike in mid-2016, so I am classifying the BOE as marginally hawkish. 

17 Feb: CPI y/y 0.3% vs 0.3% forecast - neutral
18 Feb: Average Earnings Index 3m/y 2.1% vs 1.7% forecast - bullish
18 Feb: Claimant Count Change -38.6k vs -25.2k forecast - bullish
18 Feb: Bank of England votes 0-0-9 vs 0-0-9 forecast - mildly bearish
18 Feb: Retail Sales m/m -0.3% vs -0.1% forecast - mildly bearish

Overall news: Mildly bullish
BOE bias: Marginally hawkish
Outlook for this week: Mildly bullish

There isn't much major news coming out this week. A second estimate of quarterly GDP comes out on the 26th of Feb, although I believe it's influence will be muted. Overall, I would look for breakouts on the upside. 


CAD news has been mixed. Sales figures are conflicting. 

18 Feb: Wholesale Sales m/m 2.5% vs 0.4% forecast - bullish
20 Feb: Core Retail Sales m/m -2.3% vs -0.7% forecast - bearish

Overall news: Neutral
BOC bias: Dovish
Outlook for this week: Mildly bearish

I am leaning towards the bearish side. The Bank of Canada is dovish. In light of the mixed news, I don't see reason to be bullish. 

There's a BoC speech scheduled on 24th Feb, and Core CPI m/m will be released on 26th Feb. I expect Poloz will use the speech to talk down the CAD. 


Last week's been quiet for the AUD. The only item of note was the release of the RBA's minutes, where the RBA stated that the AUD was still "overvalued". The economic forecast remains positive, but is subdued.

17 Feb: RBA Meeting Minutes states AUD is "overvalued" - bearish

Overall news: Mildly bearish
RBA bias: Dovish
Outlook for this week: Mildly bearish

The AUD looks to be quiet this week as well. The only major news event is the release of quarterly Private Capital Expenditure on 26th Feb. The AUD will probably range, with a chance of a downside breakout.


NZD has mostly enjoyed favourable news last week. Dairy prices and retail sales have beaten expectations. 

16 Feb: Retail sales q/q 1.7% vs 1.3% forecast - mildly bullish
17 Feb: GDT Price Index +10.1% - bullish
18 Feb: PPI Input q/q -0.4% vs -0.2% forecast - mildly bearish

Overall news: Mildly bullish
RBNZ bias: Marginally hawkish
Outlook for this week: Mildly bullish

NZD Trade Balance figures come out on the 25th Feb, and Business Confidence on 27th Feb. If positive figures come out, I believe the NZD will easily breakout on the upside. Bad figures will probably see the NZD retrace and consolidate.


A quiet week for the CHF. SNB chief Jordan held a speech on the 17th Feb, reaffirming that the SNB will continue to intervene in the forex market (presumably to devalue the CHF).

17 Feb: SNB Chairman Jordan speech - SNB will be active in forex market - bearish

Overall news: Bearish
SNB bias: Dovish
Outlook for this week: Bearish

There are no major CHF events this week. I expect a slow and steady CHF decline.


Looking for longs: GBPCHF, NZDCHF, and possibly GBPJPY, NZDJPY
Looking for shorts: EURGBP, EURNZD

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