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British Pound Could Close Out Week with a Bang on UK GDP

British Pound Could Close Out Week with a Bang on UK GDP

2014-10-24 03:23:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Dollar’s Fundamental Limitations Come into View After Third Advance
  • British Pound Could Close Out Week with a Bang on UK GDP
  • Euro Calendar Packed Next Week – Volatility or Indecision?

Dollar’s Fundamental Limitations Come into View After Third Advance

Despite another spurt of optimism amongst the risk-sensitive financial market benchmarks and modest setback in rate measures, the Dollar enjoyed its third consecutive advance this past session. This climb is just enduring enough to draw the market’s attention and trip short-term technical barriers (EURUSD below 1.2700 and USDJPY above 107.50) but not intense enough to build confidence that a push to four-year highs was imminent for the Dow Jones FXCM Dollar Index (ticker = USDollar). Despite the proximity to the multi-year high set at the beginning of this month, the fundamental current carrying us higher lacks the quality to ensure reinforce impulsive capital inflow. To hit that stride, we would need to reinvigorate recently-drained US rate expectations or generate extreme risk aversion.

If we are looking for a common banner for which to inspire the Dollar to either collapse or rally, next week’s docket carries the proper cannon fodder. We will have the opportunity to light a fire under rate expectations and/or broader investor sentiment. The most loaded event risk ahead is the FOMC rate decision on Wednesday (due at 18:00 GMT). Since St. Louis Fed President James Bullard remarked last week that a delay in the final Taper should be considered, a specter of central bank amnesty has lingered in the market. He is not a voter this year or the next, and his sentiments weren’t even shared amongst the dovish ilk. However, the faith and dependency heaped on stimulus these past five years tends to generate more than its fair share of interest. Calling an end to QE3 will make the Fed’s wind down ‘real’. Furthermore, if the statement that accompanies the decision doesn’t soften its tone materially, the discount to the FOMC rate forecasts will start to backtrack – lifting the Dollar and weigh capital markets. The following day’s 3Q GDP release (Thursday, 12:30 GMT) will play towards the same concern. However, its contribution will be as an accelerant or break to the Fed response.

British Pound Could Close Out Week with a Bang on UK GDP

With much of the FX market checking out through the final 24 hours of trade this week in deference to the heavy docket next week, there is one major that is still on the line for a possible fundamental shake up. Not only is the Pound facing UK 3Q GDP today (8:30 GMT), but the listings further out are comparatively unimpressive. That means a strong reaction to the growth report can generate can evolve into a momentum and perhaps even a trend. Forecasts heading into the release are for 0.7 percent expansion in the past quarter (previously it was 0.9 percent) and a 3.0 percent annual clip (previous was 3.2 percent). If realized, that would still be an enviable pace in the Developed World. Yet, Sterling traders are more sensitive to moderation of their hawkish positioning and will respond as such. A beat, in turn, could revive hope of a 1Q 2015 hike.

Euro Calendar Packed Next Week – Volatility or Indecision?

Though the Fed Decision is arguably the highest profile event risk for the global financial markets next week with the market holding out sentiment on its sleeve, the Euro’s docket is arguably more extensive and likely more illuminating. Monetary policy and economic health will be considered in equal parts. Out of the gate, investors will be responding the results of the ECB’s stress test due on Sunday. Too few failures will be considered a hollow review. Too many and the market will have a new worry to add to recession and deflation fears. Attempting to stabilize the situation, the central bank’s asset purchases started this past week will likely continue. Details of the purchases will be released Monday and each Monday thereafter. Beyond that, we have Spain’s 3Q GDP, Germany’s jobs, and Eurozone CPI among much more.

Yen Crosses Likely to Move More on Fed Decision than BoJ Decision

USDJPY’s rally Thursday looked to have more support from broader risk appetite than the Dollar’s bid. The major yen crosses – with the exception of NZDJPY – climbed between 1.1 and 0.9 percent. Yet, the risk bid that would imply was once again not firm footing as its acceptance was not universal across the financial system. Risk trends are most likely to command the Yen’s next move. And for that reason, next week’s FOMC rate decision will carry a greater impact than the BoJ’s own policy outcome. The US central bank’s efforts play to international investors emotions. Japan’s officials struggle to inspire participants in their own market.

New Zealand Dollar: Will RBNZ Add Fuel to the Kiwi’s Fire?

Among a range of central bank rate decisions next week (Fed, BoJ, Russia and Brazil), the RBNZ’s ruling promises to be the most complicated. After four consecutive hikes – making Kiwi the highest yielding major – Governor Bollard took a neutral stance recently. And yet, a neutral-for-longer view has a more detrimental impact for the New Zealand dollar than a dovish view for currencies like the Yen.

Emerging Markets Diverge Again from Risk Thrust, Russia

Once again, Emerging Markets were not looking to play ball. While equities in the Developed World rallied, the higher-yielding areas were struggling. The MSCI EM was slightly lower through Thursday and volume further tumbled. In the FX world, the Brazilian Real is heading up before second round elections; but the Russian Ruble’s fresh record low and expected rate hike next week remain the focus.

Gold Breaks Bull Run, Rally or Collapse May be Ahead on Collective Central Bank Actions

Gold’s three-week rebound looks to have lost its grip. The precious metal suffered its biggest drop (0.8 percent) since it bottomed out at the beginning of the month. The three-day slide looks like a mirror of the USDollar’s three-day advance. Next week, the FOMC will keep gold bugs tuned into US affairs. Yet, we shouldn’t lose sight of the broad, global economic and monetary policy assessment at hand.

**Bring the economic calendar to your charts with the DailyFX News App.

ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

21:45

NZD

Trade Balance (New Zealand dollars) (SEP)

-625M

-472M

New Zealand’s Trade balance has been falling this year and it has recently turned into a trade deficit this year.

21:45

NZD

Balance (YTD) (New Zealand dollars) (SEP)

1530M

2018M

21:45

NZD

Exports (New Zealand dollars) (SEP)

3.50B

3.52B

21:45

NZD

Imports (New Zealand dollars) (SEP)

4.20B

4.00B

1:30

CNY

China September Property Prices

China’s Property market has been entering into a slowdown this year

2:00

CNY

Conference Board China September Leading Economic Index

With China beating expectations on growth and on the PMI figures this week, this release might not change the market’s expectation of China’s growth.

6:00

EUR

German GfK Consumer Confidence Survey (NOV)

8

8.3

It has been rising despite the anemic growth in the Euro-Zone

8:30

GBP

Gross Domestic Product (YoY) (3Q A)

3.00%

3.20%

GDP has been rising at a YoY basis this year If the growth meets expectations, it isn’t likely to change the market’s expectation of a rate hike as the BOE minutes that were published showed that the majority of the members voted to hold interest rates unchanged. Any weakness in GDP would add to the market expectations of the BOE not raising rates.

8:30

GBP

Gross Domestic Product (QoQ) (3Q A)

0.70%

0.90%

8:30

GBP

Index of Services (3Mo3M) (AUG)

0.90%

1.00%

Has been increasing at steady pace this year

14:00

USD

New Home Sales (SEP)

470K

504K

New home Sales have been increasing this year. Lower interest rates and a stronger economic growth can lead to higher home sales

14:00

USD

New Home Sales (MoM) (SEP)

-6.80%

18.00%

GMT

Currency

Upcoming Events & Speeches

8:20

EUR

ECB's Praet Speaks in Milan

9:00

EUR

Euro Area Releases 2nd Quarter Debt

10:00

EUR

ECB Announces 3 year LTRO Repayment

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

14.0100

2.3800

12.7000

7.8165

1.3650

Resist 2

7.5800

5.9600

7.2900

Resist 1

13.5800

2.3000

11.8750

7.8075

1.3250

Resist 1

7.3285

5.9000

6.7400

Spot

13.5606

2.2369

10.9846

7.7577

1.2762

Spot

7.2567

5.8823

6.5737

Support 1

13.0300

2.0700

10.2500

7.7490

1.2000

Support 1

6.7750

5.7850

6.3145

Support 2

12.8350

1.7500

9.3700

7.7450

1.1800

Support 2

6.0800

5.7550

6.1300

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.2752

1.6142

108.78

0.9614

1.1314

0.8812

0.7900

137.65

14.0100

Res 2

1.2728

1.6115

108.56

0.9593

1.1293

0.8792

0.7880

137.38

13.5800

Res 1

1.2704

1.6089

108.33

0.9573

1.1273

0.8771

0.7859

137.10

13.5606

Spot

1.2656

1.6035

107.89

0.9532

1.1232

0.8731

0.7818

136.55

13.0300

Supp 1

1.2608

1.5981

107.45

0.9491

1.1191

0.8691

0.7777

136.00

12.8350

Supp 2

1.2584

1.5955

107.22

0.9471

1.1171

0.8670

0.7756

135.72

14.0100

Supp 3

1.2560

1.5928

107.00

0.9450

1.1150

0.8650

0.7736

135.45

13.5800

v

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

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