Forecasts

Weekly Trading Forecast: A Packed Docket Looks to Keep Markets to the Fire

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A late bloom of volatility this past week will be met with a broad range of fundamental fuel spanning from sentiment surveys to August NFPs and Jackson Hole Symposium to G-20 summit.

US Dollar Forecast – Yellen Breathes Life Into the Dollar But A Trend Takes More Force

It has been months since the market has looked at the Dollar with as much interest as the currency was paid through the close of this past week.

British Pound Forecast – GBP/USD Eyes Lower Bounds Ahead of More Fed Rhetoric, NFP Report

The key developments coming out of the U.K./U.S. next week may spur further losses for GBP/USD as the Bank of England (BoE) remains poised to further embark on its reestablished easing-cycle, while Federal Reserve officials talk up expectations for a 2016 rate-hike.

Japanese Yen Forecast – Could the Japanese Yen Finally Break Down?

The Japanese Yen fell versus the US Dollar for the first week in five on the heels of a US Federal Reserve-led Dollar surge.

Australian Dollar Forecast – Australian Dollar May Fall Further on Fed vs. RBA Policy Bets

The Australian Dollar may continue to fall for a third week as US jobs data bolsters Fed rate hike speculation while domestic news-flow sends dovish signals.

Canadian Dollar Forecast – Will Canadian GDP Highlight Continued Pressure in Exports?

Canadian economic data of recent hasn’t been very positive; and this makes the Canadian economy like pretty much every other major economy on the planet Earth at the moment, where a lack of growth coupled with continued disappointment in economic numbers is painting a fairly negative picture for near-term economic prospects.

New Zealand Dollar Forecast – Fonterra’s Higher Milk Price Forecast Boosts Kiwi

The New Zealand Dollar has lost the pace of its recent rise, but the trend remains definitively higher. Economic data continues to be more positive than economist’s expectations as even the recent 25bp rate cut was less than some that expected a possible 50bp cut.

Chinese Yuan Forecast – Yuan Range to Extend on Mixed PBOC, Fed Policy

Fed Chair Yellen’s comments on monetary policy on Friday led to the widest trading range of the week for the Dollar/Yuan after relatively quiet price action for the four days prior.

Gold Forecast – Gold Prices Heavy on Yellen- Outlook Hinges on NFP

Gold prices are lower this week with the precious metal down 1.34% to trade at 1324 ahead of the New York close on Friday. The move comes on amid a fresh batch of central bank rhetoric with officials continuing to suggest that the door remains open for a September rate hike.

Weekly Trading Forecast: A Packed Docket Looks to Keep Markets to the Fire

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Euro Traders Look to US Dollar for Next Major Moves

Quantitative analysis, algorithmic trading, and retail trader sentiment.

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Euro Traders Look to US Dollar for Next Major Moves

Fundamental Forecast for Euro: Neutral

The Euro surged to multi-month highs versus the US Dollar despite a fairly uneventful week for both Europe and the US. And indeed the release of official minutes from both from both the European Central Bank and US Federal Reserve’s recent meetings did little to alter market outlook. A fairly sparse economic calendar next week promises little in the way of foreseeable volatility, but the recent Euro rally makes it clear we can’t rule out sharp currency swings.

It would take major surprises out of the coming week’s European Markit PMI industry surveys or German IFO business confidence figures to elicit big reactions out of the EUR/USD.

Traders will need to look across the pond for a more likely market-mover in the US Federal Reserve’s Jackson Hole Policy Symposium starting August 26. The Federal Open Market Committee left interest rates unchanged and gave relatively little indication it would raise interest rates at its September meeting. And it feels like it was a very long time ago that expectations of Fed interest rate hikes fueled US Dollar gains.

A planned speech from Fed Chair Janet Yellen should shed further light on whether the central bank will keep interest rates lower for longer, and overall risks seem weighed to the downside for US yields and the US Dollar itself. Fed Funds futures currently show a mere 20 percent chance the FOMC will raise interest rates at their September meeting, and the same contracts show only a 50 percent chance that rates will move higher through 2016. It feels like it has been a long time since the US central bank seemed likely to raise interest rates; the US Dollar has fallen fairly consistently as traders adjust to the prospect of lower yields. The Euro has been quick to benefit as it trades at multi-month highs.

The prospects for European interest rates are even worse than that of the US, however; at some point the Euro will need to trade on its own merits. Recent ECB rhetoric suggests the bank is in a “wait and see” mode as it does not want to ease monetary policy further until it sees further signs of persistently low inflation and growth. Its main refinancing rate already stands at 0.00% while its deposit facility rate is strongly negative at -0.40%. Further policy easing seems likely as Overnight Index Swaps predict 20 percent odds of a further rate cut in September. ECB officials have nonetheless expressed discomfort from cutting rates further into negative territory; at a certain point interest rate expectations may have little marginal effect on the EUR.

Event risk for the Euro remains low through the foreseeable future, and the next major move for the EUR/USD would likely come on surprises out of the US. In this sense, trading the EUR/USD seems roughly akin to trading the Dow Jones FXCM Dollar Index. Volatility is certainly possible, but we’re not expecting much out of the EUR side of the trade for some time to come.



Could the Japanese Yen Finally Break Down?

Quantitative analysis, algorithmic trading, and retail trader sentiment.

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Could the Japanese Yen Finally Break Down?

Fundamental Forecast for the Australian Dollar: Bearish

What do retail traders’ USD/JPY trade decisions say about the price trend? Find out here.

The Japanese Yen fell versus the US Dollar for the first week in five on the heels of a US Federal Reserve-led Dollar surge. A relatively busy week of US economic event risk ahead makes further USD-driven volatility likely, and it will be important to watch whether the USD/JPY continues to hold above the psychologically-significant ¥100 mark.

Weaker-than-expected Japanese inflation data should have sent the Yen lower versus the US Dollar (USD/JPY higher) as National Consumer Price Index figures showed the country saw deflation for the fourth-consecutive month. The persistent risk of deflation would normally force the Bank of Japan to cut interest rates further into negative territory and engage in other forms of monetary policy easing—all of which would likely hurt the JPY exchange rate against major counterparts. And yet traders showed little concern as the JPY remained relatively motionless despite the key CPI data disappointment.

The lack of market reaction likely reflects the fact the Bank of Japan has fairly limited scope to ease monetary policy even further. Its “Loan Policy Rate” is already negative, and pushback from Japanese banks will like make the BoJ reticent to push rates further into negative territory. It is also quite clearly running out of room for Quantitative Easing purchases as its total balance sheet currently stands at a whopping 85 percent of national GDP. It is quite literally running out of things to buy as it already owns 40 percent of outstanding Japanese Government Bonds.

The threat of further Bank of Japan easing thus rings a bit hollow as most of the damage on the JPY is arguably done, and this helps explain why markets have proven insensitive to domestic economic data. It would take an especially large surprise out of upcoming Japanese Jobless Rate, Retail Sales, Industrial Production, and Consumer Confidence data releases to force a meaningful reaction out of the JPY and broader markets.

Market attention will instead remain focused on whether the US Federal Reserve is likely to raise interest rates through the foreseeable future. Fed Funds interest rate futures currently predict a 40 percent chance the US Federal Reserve will raise rates in September—up noticeably from the 15 percent seen 10 days ago. All else equal this should support the US Dollar versus the Japanese Yen. And yet recent CFTC Commitment of Traders data clearly shows large speculators remain heavily net-short USD/JPY.

At a certain point these traders will lose patience given the cost of borrowing USD in order to buy the lower-yielding JPY, and the threat of short-covering adds topside risk to the USD/JPY. The coming week’s US Nonfarm Payrolls report could go a long way in improving the odds of a Fed rate hike. It will be critical to watch whether traders may finally force the USD/JPY out of its long-standing trading range. - DR



GBP/USD Eyes Lower Bounds Ahead of More Fed Rhetoric, NFP Report

Central bank policy, economic indicators, and market events.

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GBP/USD Eyes Lower Bounds Ahead of More Fed Rhetoric, NFP Report

Fundamental Forecast for GBP: Neutral

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The key developments coming out of the U.K./U.S. next week may spur further losses for GBP/USD as the Bank of England (BoE) remains poised to further embark on its reestablished easing-cycle, while Federal Reserve officials talk up expectations for a 2016 rate-hike.

With U.K. Mortgage Applications projected to narrow in July, the British Pound stands at risk of facing near-term headwinds especially as the Monetary Policy Committee (MPC) keeps the door open to implement fresh record-low interest rates over the coming months. Indeed, data prints highlighting the risk for an imminent recession may prompt the BoE to implement more non-standard measures in 2016, but it seems as though Governor Mark Carney will continue to rule out a zero/negative interest-rate policy for the U.K. as Deputy Governor Minouche Shafik argues the central bank is ‘acutely aware’ of the lower bounds for policy rates. With that said, the sterling may continue to give back the advance from the monthly low (1.2864) amid the failed attempt to test the August opening-range, but the pair may ultimately face range-bound conditions on a longer-term horizon as market participants weigh the boundaries for monetary policy.

In contrast, the fresh batch of central bank rhetoric emerging from the Fed Economic Symposium in Jackson Hole, Wyoming appear to have nudged interest-rate expectations higher as Fed Funds Futures now reflect a 45% probability for a rate-hike by December, and the dollar may try to stage a larger advance in the week ahead should the key data prints coming out of the U.S. economy put increased pressure on the committee to raise the benchmark interest rate sooner rather than later. With U.S. Non-Farm Payrolls (NFP) anticipated increasing another 185K in August, a positive development may boost the appeal of the greenback especially as ‘Chair Janet Yellen warns ‘the case for an increase in the federal funds rate has strengthened in recent months, and comments from Boston Fed President Eric Rosengren, Minneapolis Fed President Neel Kashkari, Cleveland Fed Loretta Mester and Richmond Fed President Jeffrey Lacker may largely reinforce a more hawkish tilt for the policy outlook as the U.S. economy approaches ‘full-employment.’

GBP/USD Eyes Lower Bounds Ahead of More Fed Rhetoric, NFP Report

In turn, GBP/USD may work its way back towards the lower bounds of the wedge/triangle formation carried over from late-June especially as the pair turns around ahead of the August opening-range, but the pair may continue to face a narrowing range going into September as market participants weigh the diverging paths for monetary policy.



Gold Prices Heavy on Yellen- Outlook Hinges on NFP

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Gold Prices Heavy on Yellen- Outlook Hinges on NFP

Fundamental Forecast for Gold:Neutral

Gold prices are lower this week with the precious metal down 1.34% to trade at 1324 ahead of the New York close on Friday. The move comes on amid a fresh batch of central bank rhetoric with officials continuing to suggest that the door remains open for a September rate hike. Still, our outlook for gold remains unchanged with the technicals leaving room for a move lower before resumption of the broader uptrend.

Remarks made by Fed Chair Janet Yellen at the Jackson Hole Economic Symposium on Friday fueled a sharp recovery in gold prices (which were at the weekly lows) as the she noted that the central bank remains on pace to begin normalization in the months ahead. The rally quickly faltered however as the U.S. Dollar strengthened and stocks softened. On balance, the comments saw little change in the outlook for interest rates with Fed Fund Futures still pricing the first material expectation for a rate hike to be in December (slight uptick in the probability post-Yellen).

Heading into next week, greater emphasis may surround the August U.S. Non-Farm Payrolls report as market participants continue to gauge the outlook for the next Fed rate hike. Indeed on Friday Federal Reserve Vice Chairman Stanley Fischer stated that, “We’ve had very strong hiring reports in the last three months,” and incoming labor data, “will probably weigh on our decision, along with other data that may come in.” In light of the recent rhetoric emanating from the economic symposium, a strong employment report may boost expectations for a 2016 rate hike as Chair Yellen argues the, “case for an increase in the federal funds rate has strengthened in recent months.” From a technical standpoint, the risk remains for further losses near-term before mounting a more significant rally.

Gold Daily

Gold Prices Heavy on Yellen- Outlook Hinges on NFP

The broader outlook remains unchanged from last week. We’ve been tracking the gold trade closely on SB Trade Desk and heading into next week the focus remains lower while below the monthly open / high-day close at 1350/55. A descending pitchfork formation extending off the June highs has continued to guide price action with precision with prices looking to close the week just above the median-line.

Note that bullion is coming off long-term trendline resistance extending off the 2011 record highs and a break below the median-line targets subsequent support targets at 1303 and 1287- are of interest for possible short-exhaustion / long-entries. From a trading standpoint, if we close the week just above support, look for a possible rebound early next week to fade with a move into structural support to offer more favorable entries. Ultimately we’re looking higher in gold with a breach above near-term downtrend resistance targeting 1380. Continue to track this trade and more throughout the week on SB Trade Desk.

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---Written by Michael Boutros, Currency Strategist with DailyFX

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Will Canadian GDP Highlight Continued Pressure in Exports?

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Will Canadian GDP Highlight Continued Pressure in Exports?

Fundamental Forecast for CAD: Neutral

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Canadian economic data of recent hasn’t been very positive; and this makes the Canadian economy like pretty much every other major economy on the planet Earth at the moment, where a lack of growth coupled with continued disappointment in economic numbers is painting a fairly negative picture for near-term economic prospects. However, unlike the rest of the world, Canada hasn’t had the luxury of an uber-dovish Central Bank to continue prodding competitive weakness into their currency in order to keep trade flows afloat.

As my colleague Chris Vecchio and I posited back in January of this year as the CAD sat at 13-year lows, there was a discernable shift in stance from the Bank of Canada. After the election of Prime Minister Justin Trudeau brought grand plans for fiscal stimulus, the BoC and Governor Stephen Poloz were clear in that they were going to take a step back from monetary stimulus measures in order for Mr. Trudeau’s government to embark on implementation of fiscal stimulus.

Of those fiscal measures totaling approximately $12 Billion is the hope for 50 basis points of growth for the Canadian economy. Roughly half of this fiscal stimulus is in the form of child benefits for households, with the Canadian government hoping that Canadians spend this additional cash in order to, eventually; bring inflationary pressure back into the economy. While waiting on this fiscal stimulus to be implemented and to show results, the Canadian Dollar has ripped higher as many other Central Banks have posed dovish stances to weaken their currencies; leaving the CAD exposed to continued capital flows as the BoC continues to be one of the few major Central Banks not actively talking down rates with dovish commentary.

But while waiting for the results of this stimulus to show the paradigm has shifted: Oil prices have risen, and while this is generally a ‘good’ thing for the Canadian economy, this rise in Oil prices has been coupled by a strong Canadian Dollar that has more than offset the benefit of those higher prices. Canada’s trade balance has continued to worsen throughout the year and this is very much against the expectations and plans of Governor Poloz, who had centered his growth narrative on a reversal of the prior negative trend in exports. But, as the Canadian Dollar has continued to strengthen since January, this has made exports less competitive within the current backdrop of near-unanimous dovish Central Banks (FOMC the notable exception); and this has helped to crush Canadian exports at a record clip in the early portion of this year. Continued lag in exports may force the Bank of Canada’s hand before results of Trudeau’s stimulus might begin to show.

We’ll likely hear this addressed at the BoC’s next meeting on September 7th, but for any ‘big’ changes in monetary plans we’re likely going to be waiting for the bank’s next Quarterly Monetary Policy Report to be released on October 19th.

In the meantime, and of particular interest for next week is the delivery of Canadian GDP on Wednesday morning. The expectation is for 1% annual growth and a monthly contraction of -.6% in June. Should this come in below-expectations, we may see markets taking on a stance of weakness in the Canadian Dollar on the expectation that the BoC may get a little more aggressive on policy easing in the coming months.

Due to this high level of opacity in near-term macro trends, we’re instituting a neutral stance on the Canadian Dollar for the week ahead.



Australian Dollar May Fall Further on Fed vs. RBA Policy Bets

Fundamental analysis, economic and market themes

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Australian Dollar May Fall Further on Fed vs. RBA Policy Bets

Fundamental Forecast for the Australian Dollar: Bearish

  • Australian Dollar sinks as Fed’s Yellen boosts rate hike bets
  • US payrolls data may continue to encourage Aussie weakness
  • Domestic news-flow may add fuel to RBA easing speculation

What do retail investors’ AUD/USD trade decisions say about the price trend? Find out here.

The Australian Dollar continued to trade lower last week as hawkish commentary from Federal Reserve Chair Janet Yellen fueled near-term rate hike speculation, weighing on the yield-sensitive currency (as expected). The central bank chief said “the case for an increase in the federal funds rate has strengthened in recent months”, pushing the priced-in likelihood of tightening by year-end to nearly 65 percent and sending the Aussie to a monthly low against its US counterpart.

Looking ahead, Yellen’s confidence will be tested as Augusts’ US Employment figures cross the wires. An increase of 180k in nonfarm payrolls is expected, which would fall closely in line with the average pace of 190k that the Fed Chair approvingly cited in her speech. That suggests a print in line with expectations will probably prove relatively innocuous despite marking a slowdown from the prior month but also do little to further the rate hike narrative. Employment figures have veered north of consensus forecasts in recent months however. More of the same this time around may give rate hike bets a further boost, pressuring the Aussie lower.

On the domestic front, a steady stream of activity data will feed speculation about the RBA’s policy trajectory. Building Permits, Retail Sales and capex numbers are all due to cross the wires. Australian economic news-flow has weakened relative to economists’ expectations over recent weeks and the year-end monetary policy outlook implied in futures prices has steadily eroded despite central bank officials’ downplaying of near-term stimulus expansion prospects. Another soft round of data outcomes may encourage the markets’ dovish disposition, compounding downward-pulling external forces and deepening the selloff.



Fonterra’s Higher Milk Price Forecast Boosts Kiwi

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Fonterra’s Higher Milk Price Forecast Boosts Kiwi

Fundamental Forecast for the New Zealand Dollar: Bullish

The New Zealand Dollar has lost the pace of its recent rise, but the trend remains definitively higher. Economic data continues to be more positive than economist’s expectations as even the recent 25bp rate cut was less than some that expected a possible 50bp cut. The strong economic performance in addition to the higher relative yield of New Zealand Assets is still the highest in the G10, and as we’ve seen the global hunt for yield cannot resist New Zealand.

The week was somewhat diverse with economic results with a worse than expected Trade Balance of N$ (433m) due to a smaller than anticipated exports, which many will blame on the resilient NZ Dollar. However, a positive development came on Thursday when Fonterra Cooperative group raised its forecast milk payout. In a best case scenario, Fonterra Group is looking for a reduction in global oversupply. Fonterra Chairman John Wilson noted that, “Current global milk prices remain at unrealistically low levels, but have started to improve as global demand and supply continue to rebalance.”

Next week’s economic focus will be on Building Permits, which had a prior monthly reading of +16.3% followed by the ANZ Business Confidence Index. Given the migration boom in New Zealand, and the rise in Milk Prices, we could see both readings beat the prior readings and continue the trend of positive economic surprises in New Zealand. has tended to outperform other economies. When looking at Economic Surprises over the past 3-months, the New Zealand Economy has been in line with expectations on average.

From a technical perspective, it’s worth keeping an eye on the 0.7350 level, which the price of NZD/USD has failed to overcome. Much focus is on the US Dollar into the Kansas City Fed’s Annual Jackson Hole Symposium. A more dovish than expected Janet Yellen, and a break above 0.7350 could signal the beginning of the next big move higher in NZD/USD. However, a breakdown below 0.7200 could show that a shift has happened in the market that would lean toward a weaker NZD and/ or strong USD that could eventually bring us below 0.7000.

For now, it appears the trend of high-yielding currencies going bid will continue despite the threats from the RBNZ to cut again this year. It appears the yield is preferred today over the threat of a possible rate cut tomorrow.

NZDUSD Sentiment Shows Retails Continues To Fight Yearly Highs

Fonterra’s Higher Milk Price Forecast Boosts Kiwi

Data source: Speculative Sentiment Index, Chart Source: Python. Prepared by DailyFX Team

The ratio of long to short positions in the NZDUSD stands at -2.40 as 29% of traders are long. Yesterday the ratio was -2.51; 29% of open positions were long. Long positions are 2.1% higher than yesterday and 4.2% above levels seen last week. Short positions are 2.2% lower than yesterday and 11.9% above levels seen last week. Open interest is 1.0% lower than yesterday and 14.3% above its monthly average.

We use our SSI as a contrarian indicator to price action, and the fact that the majority of traders are short gives signal that the NZDUSD may continue higher. The trading crowd has grown less net-short from yesterday but further short since last week. The combination of current sentiment and recent changes gives a further mixed trading bias.

– TY

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