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Canadians release revised employment data after error found; BoE Governor speech leaves market confused; little life out of Europe sees EUR under pressure

Currencies
Canadians release revised employment data after error found; BoE Governor speech leaves market confused; little life out of Europe sees EUR under pressure
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By Ian Dobbs*:

A lack of direction in the wider market has eventuated as geo-political tensions ebb and flow and the global economic data remains patchy.

Adding to the clouded picture were mixed messages from Bank of England Governor Carney that have added some volatility to the UK Pound over the past week.

Meanwhile from Canada, a re-release of key employment data did the same thing to the CAD after the initial release was found to be completely wrong.

The Euro remains under pressure with little sign of life coming from the European economy, and gains in the USD have stalled thanks in part to further declines in long term interest rates.

Geopolitical tensions have kept the market on its toes, although there has been little evidence of an escalation in Ukrainian situation to date.

This weekend’s Jackson Hole Symposium should prove interesting with speeches from Janet Yellen and Mario Draghi. Ahead of this we have the FOMC and BOE minutes to digest.

Major Announcements last week:

·  ZEW European Economic Sentiment 23.7 vs 41.3 expected

·  Japanese Prelim. GDP -1.7% as expected

·  UK Unemployment rate 6.4% as expected

·  US Retail Sales 0.0% vs +.2% expected

·  NZ Retail Sales +1.2% vs 1.0% expected

·  European Inflation +.4% as expected

·  European GDP Q2 -.2% vs -.1% expected

·  Canadian Employment numbers revised higher after error

·  Canadian Manufacturing +.6% vs +.5% expected

·  US UoM Consumer Sentiment 79.2 vs 82.7 expected.

NZD/USD

Around this time last week the New Zealand dollar traded down to its recent low of 0.8409. However, there is strong support around 0.8400, as the failure to break below there saw the currency stage something of a recovery. Better than forecast retails sales numbers on Thursday also helped. But critically, the NZD failed on the topside just ahead of resistance at 0.8520. This left the currency looking vulnerable and today’s release of the much weaker than expected Producer Price Index was the trigger for another round of selling. The pair now trades back around 0.8435, and all the focus remains on the downside. Any break below 0.8400 would open the way for a move toward 0.8200 over the coming weeks. Key to near term direction however, will be tonight dairy auction. Another weak result could well see that downside support broken. From the US this week we also have some key releases with inflation, the Fed minutes and the Jackson Hole Symposium all scheduled over the coming days. With the markets expecting the Fed and Janet Yellen to remain very ‘dovish’ there is the risk of strong USD appreciation should that not be the case.

DIRECT FX Current level Support Resistance Last wk range
NZD / USD 0.8440 0.8400 0.8600 0.8409 - 0.8514

NZD/AUD (AUD/NZD)

Over the past four weeks this pair had settled into a comfortable range trading between 0.9060 and 0.9160 (1.0920 - 1.1040). Earlier this morning however, the lower NZ dollar end of that range gave way which triggered some stop loss selling. The move was driven by very soft producer prices data out of New Zealand that would suggest there is little in the way of pipeline inflation pressure in the economy. This immediately saw the NZD come under pressure and the pair trade down through 0.9060 (up through 1.1040). The Australian dollar has also benefited from mostly improving data over the past week and it was given another small boost after the RBA minutes were released. When the pair pushed below 0.9060 (1.1040), the focus remains on the downside and a test of the psychologically important 0.9000 level (1.1110). Below there and support at 0.8920 (1.1210 resistance) beckons. We have a speech from RBA Governor Stevens to look forward to tomorrow, but aside from that there is largely only second tier data out from either country over the course of the week.

DIRECT FX Current level Support Resistance Last wk range
NZD / AUD 0.9038 0.9000 0.9200 0.9037 - 0.9132
AUD / NZD 1.1028 1.0870 1.1111 1.0951 - 1.1066

NZD/GBP (GBP/NZD)

Support around 0.5000 (resistance around 2.0000) held again on a NZ dollar downside attempt early last week and we saw a sharp recovery from that level after the release of the Bank of England Inflation report. Governor Carney’s focus in that report on the lack of wage growth was taken as a sign that the BOE are in no hurry to raise rate. This saw the UK Pound come under heavy selling pressure and as such the cross to the NZD quickly jumped to 0.5100 (1.9608). But over the weekend a press article has Carney suggesting the Bank doesn’t need to wait to see wage growth before hiking and this has caused a correction with the GBP finding good support. Add to that today’s soft NZ Producer Prices data and the cross is now focused back on the NZD downside trading around 0.5040 (1.9841). We can expect plenty more volatility over the coming days with a number of releases that could influence. Tonight’s dairy auction will be important for the NZD, while from the UK this week we get inflation, the BOE minutes and retail sales data. Over the long term time horizon I expect an eventual break below 0.5000 (above 2.0000) and a move towards 0.4750 (2.1053), but whether we see the start of that this week will largely be data dependant.

DIRECT FX Current level Support Resistance Last wk range
NZD / GBP 0.5047 0.5000 0.5200 0.5009 - 0.5100
GBP / NZD 1.9814 1.9231    2.0000 1.9609 - 1.9964

 NZD/CAD

The New Zealand dollar saw gradual appreciation against the CAD in the middle of last week, helped by better than forecast retail sales data. The pair managed to trade up to 0.9380 before running out of momentum. Since then a couple of releases have turned the tide back to the downside, with key support around 0.9180 currently been tested. A revised reading of Canadian employment on Friday helped boost the CAD after the previous result was found out to be an error. Then earlier this morning NZ producer prices data was much weaker than forecast which would suggest there is little in the way of pipeline inflation pressure in the local economy. As such the NZD came under heavy selling pressure and pushed the cross towards 0.9180. A break below there would be a negative signal and see the pair trading at levels last seen in February. Key to near term direction will be tonight’s dairy auction, with any further fall in dairy prices weighing heavily on the local currency. From Canada this week we have wholesale sales, inflation and retails sales to draw focus.

DIRECT FX Current level Support Resistance Last wk range
NZD / CAD 0.9197 0.9100 0.9300 0.9197 - 0.9381

NZD/EURO (EURO/NZD)

Continued soft data out of Europe has kept the Euro under pressure, although moves in the NZD have really driven the pair this week. A small recovery in the New Zealand dollar mid last week, helped by better than forecast NZ retails sales data, saw this pair bounce from 0.6300 to a high of 0.6362 (from 1.5873 to a low of 1.5718). Sideways trading from there ensued until this morning’s NZ PPI data that was much weaker than forecast. This saw the NZD marked sharply lower and as such the cross to the EUR is now focused back down on the 0.6300 (up to 1.5873) level. Key to near term direction will be tonight’s dairy auction. The NZD looks and feels vulnerable and another decline in dairy prices could see some key levels in the NZD come under pressure. A sustained move below 0.6300 (above 1.5873) would open the way for further NZ dollar losses to toward 0.6175 (gains toward 1.6194). From Europe this week we have manufacturing and service PMI number to draw focus.

DIRECT FX Current level Support Resistance Last wk range
NZD / EUR 0.6318 0.6300 0.6562 0.6291 - 0.6362
EUR / NZD 1.5828 1.5385 1.5875 1.5718 - 1.5897

 NZD/YEN

The New Zealand dollar appreciated against the Japanese Yen mid last week, helped by better than forecast retail sales data. This appreciation was likely just a corrective bounce within the broader trend lower that has been in place since mid-July. Helping to confirm that view was this morning’s NZ producer prices data that was much weaker than forecast. This immediately saw the pair under renewed pressure and the downside looks to be the more vulnerable side, at least for now. Key to near term direction will be tonight’s dairy auction with any further fall in dairy prices weighing heavily on the local currency. The only data of note from Japan this week is the trade balance, although it is unlikely to influence the currency to any large degree. Important support comes in around 85.90 with any break below there targeting 84.00.

DIRECT FX Current level Support Resistance Last wk range
NZD / YEN 86.60 85.50 87.50 86.01 - 87.26

AUD/USD

The past week has been a largely positive one for the Australian dollar. Improvements in business confidence, consumer sentiment, and house prices have all helped the AUD make gains against the USD. In the last couple of hours the RBA minutes have also given the AUD a small boost, although there was nothing ground breaking in them. The pair now trade just below minor resistance at 0.9340. A move above there would open the way for gains toward 0.9450. Governor Stevens is set to speak tomorrow and this provides the only other highlight on the AUD economic calendar. From the US however, there are a number of key releases and events scheduled. Inflation data tonight will be followed by the Fed minutes and then we have the Jackson Hole Symposium on the weekend. Any hint at a slightly more ‘hawkish’ stance from the Fed will see the USD make good gains.

DIRECT FX Current level Support Resistance Last wk range
AUD / USD 0.9338 0.9250 0.9450 0.9251 - 0.9336

AUD/GBP (GBP/AUD)                            

The Australian dollar has seen solid appreciation against the UK Pound this week. It has been helped by gains in business confidence, consumer sentiment and house price data. The sharpest move came in the wake of the Bank of England (BOE) inflation report and comments from Governor Carney around the lack of wage growth. This caused a wave of selling to hit the GBP and even though a weekend article has countered those comments to a degree, the AUD has maintained most of its gains against the GBP. The cross could easily have a look up over 0.5600 (under 1.7857), although there is a lot of resistance between that level and 0.5640 (1.7730). I would expect a short term top to be put in place somewhere between those two levels. Selling above 0.5600 (buying below 1.7857) is there for recommended for those looking to purchase GBP with Australian dollars. The focus now turns to UK data in the form of inflation, the BOE minutes and retail sales figures.

DIRECT FX Current level Support Resistance Last wk range
AUD / GBP 0.5585 0.5440 0.5640 0.5510 - 0.5594
GBP / AUD 1.7905 1.7730 1.8382 1.7878 - 1.8149

AUD/EURO (EURO/AUD)

It has been a largely positive week for this pair with the Australian dollar outperforming the EUR on the back of gains in business confidence, consumer sentiment and house prices. The Euro itself is struggling to finds buyers as data from the region has been universally disappointing. The pair now looks like testing levels over 0.7000 (under 1.4286), although there is plenty of resistance between there and 0.7035 (1.4215) which will likely cap the AUD topside for now. Tomorrow we have a speech from Governor Stevens to digest while from Europe this week we have the manufacturing and service PMI number to draw focus.

DIRECT FX Current level Support Resistance Last wk range
AUD / EUR 0.6992 0.6850 0.7100 0.6921 - 0.6989
EUR / AUD 1.4302 1.4184 1.4599 1.4309 - 1.4448

AUD/YEN

The Australian dollar has outperformed the Yen this week making gains to the 95.87 level. A sharp dip on Friday evening came on the back of reports of a flare up in the Ukraine which cause some risk aversion, but it was short lived and the pair eventually continued its march higher. Australian data has been mostly supportive with improvements in business confidence, consumer sentiment and house prices. The big fall seen in Japanese GDP data was largely expected in the wake of the sales tax increase and of more importance will be how the economy recovers over the coming months. The pair is approaching a strong band of resistance between 96.10 and 96.50. I expect this area to cap strength in the near term. Tomorrow we have a speech from Governor Stevens to digest while from Japan this week we only have trade balance which is unlikely to influence the currency to any large degree.

DIRECT FX Current level Support Resistance Last wk range
AUD / YEN 95.84 94.50 96.50 93.63 - 95.87

AUD/CAD

The Australian dollar has seen a slight outperformance of the CAD this week, although trading has been somewhat choppy. Improved reading from business confidence, consumer sentiment and house prices have all helped the AUD. The surprise re-release of Canadian employment data caused a sharp drop in the pair as the CAD found buyers, but it was only short lived and AUD gains have outpaced those of the CAD since then. There is still plenty to come this week that could influence. Tomorrow we have a speech from Governor Stevens to digest while from Canada we get wholesale sales, inflation and retail sales data.

DIRECT FX Current level Support Resistance Last wk range
AUD / CAD 1.0175 1.0100 1.0240 1.0116 - 1.0175

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Market commentary:

A lack of direction in the wider market has eventuated as geo-political tensions ebb and flow and the global economic data remains patchy. Adding to the clouded picture were mixed messages from Bank of England Governor Carney that have added some volatility to the UK Pound over the past week. Meanwhile from Canada, a re-release of key employment data did the same thing to the CAD after the initial release was found to be completely wrong. The Euro remains under pressure with little sign of life coming from the European economy, and gains in the USD have stalled thanks in part to further declines in long term interest rates. Geopolitical tensions have kept the market on its toes, although there has been little evidence of an escalation in Ukrainian situation to date. This weekend’s Jackson Hole Symposium should prove interesting with speeches from Janet Yellen and Mario Draghi. Ahead of this we have the FOMC and BOE minutes to digest.

Australia

Last week was a relatively positive one for Australia with improvements in business confidence and consumer sentiment along with stronger than expected house price gains. Wage growth however remains subdued and this is a trend seen in many parts of the developed world at the moment. In the last few hours we have seen the minutes from the last RBA meeting and these have held little in the way of surprises for the market. The bank believes a period of stability in rates is the most prudent course of action and that the AUD remains high by historical standards. The see signs of improvement in non-mining investment and labour demand although it will take some time before unemployment begins to fall. Governor Stevens is scheduled to speak tomorrow and this provides the only other highlight of the week.

New Zealand

Last week was a reasonably quiet one for economic data out of New Zealand. We did get a better than expected result from retail sales which came in at +1.2% and this gave the currency a small boost. Yesterday we saw the Performance Services Index which jumped to 58.4 from 54.7 prior, although this data isn’t a big market mover. Earlier this morning we have also seen Producer Prices data and this was a surprise coming in much weaker than forecast. PPI input printed at -1.0% against expectations for +0.7% and the output figure was -0.5% vs expectations for +0.8%. These would indicate a lack of pipeline pricing pressures in the economy, although the declines were mainly driven by lower dairy and energy prices. With data like this we could easily see the market in general push out the date the next RBNZ hike to March next year. However, the key release of the week could well come tonight with the latest Global Dairy Trade auction from Fonterra. 11 of the past 12 auctions have resulted in declines, with the last couple down more than 8% each. At some point prices should stabilize but it’s tough to say just when that will happen. In USD terms prices have already fallen 41.4% from February’s peak. This has been a key factor in the NZD pulling back from recent highs.

United States

Mixed data from the US last week has failed to influence current market sentiment which is that the Fed will be in no hurry to raise rates once they end quantitative easing purchases. Disappointing retail sales and consumer sentiment data was offset to a degree by a better than forecast result from industrial production and some upward revisions to Q3 GDP estimates. This week could prove very interesting, with a couple of key events scheduled. The first is the release of the minutes from the last Fed meeting. These hit the wires on Thursday morning, and they will be followed by the Jackson Hole Symposium at the weekend. In the past, that symposium has been used to signal policy changes by the Fed, so plenty of attention will be paid to what Fed Chair Janet Yellen has to say at the event. If we get any indication from either of those two events that the Fed are becoming a little more ‘hawkish’ the USD should find good support. Other releases this week include inflation, housing starts and existing home sales.

Europe

Data from Europe continues to disappoint and of particular concern will be the recent softness in figures from Germany which to date has been the core of Eurozone growth. Even the Bundesbank have said the outlook for Germany in the second half of 2014 has dampened. GDP and inflation forecasts are being revised lower by the market and this is pressuring the EUR which should remain on the back foot over the coming weeks. The focus this week will be on manufacturing and service sector PMI numbers set for release on Thursday. French manufacturing is expected to remain in contraction territory, while the German manufacturing index is forecast to moderate to 51.8 from 52.4 previously. At the end of the week we get a speech from ECB president Draghi at the Jackson Hole Symposium in the US. Although the ECB are expected to remain on hold until at least December, the market will be keen to see if there is any hint of further potential easing’s from the central bank. It is likely Draghi will also take the chance to talk the EUR down further.

United Kingdom

Bank of England (BOE) Governor Carney has been sending out some very mixed signals recently and as such the UK Pounds has been pushed around a bit. Last week the BOE inflation report paid particular attention to the lack of wage growth and its implications for the degree of slack in the economy. This saw the GBP come under serious pressure as many interpreted that to mean rate hikes won’t be coming sooner than expected i.e. late in the first quarter of 2015. Over the weekend however, Governor Carney was quoted in a Sunday times article saying he does not have to wait for real wages to turn positive before raising rates. He only needs to be confident that wages are going to grow sustainably, and that he would be comfortable with being the first of the big four central banks to raise rates. This has helped the GBP recover some of its losses, but it has also left the market a little confused. The UK employment market remains strong and last week’s reading of GDP showed the highest year on year rate since 2007 coming in at +3.2%. Although the latest monthly house price figures have shown a dip, it’s largely as a result of the time of year and since July 2013 prices are still up 5.3%. There is little reason for interest rates to still be at the emergency lows of 0.5% although the BOE don’t seem in any hurry to raise them. Tonight we get inflation data which is expected to come in at +1.8%, this will be followed by the BOE minutes on Wednesday and retail sales on Thursday. These releases provide plenty of opportunity for further volatility in the days ahead.

Japan

April’s sales tax increase was always going to hurt Japanese growth in the second quarter, the only question was by how much. Last week we got the answer with a quarterly GDP figure of -1.7%. On an annual basis the fall was 6.8% although this was a little better than the forecast for -7.1%. Although these figures seem frightening, they really only just reverse the pre sales tax implementation boost that was seen. What will be of more importance is how quickly the economy recovers. Data over the coming weeks and months will therefore be critical in judging the success or failure of President Abe’s measure to boost the economy, known as ‘Abenomics.’ This week the only release of note is the trade balance on Wednesday.

Canada

About ten days ago, on Friday August 8th, Canada released their monthly employment data and it was a shocker coming in at just +0.2k against expectations for +25.4k. The CAD came under all sorts of pressure as a result. It seems however that ‘human error’ in the calculation of that data caused an incorrect figure to be released so last Friday, they re-released the data with the corrected result. Employment for July was actually +41.7k with the unemployment rate dropping to 7.0% from 7.1% previously. As you would expect the CAD found support from the ‘correction’ and Statistics Canada swear the error was an isolated incident. To add to the positivity at the end of last week we also saw manufacturing sales data that printed at +0.6% against expectations of +0.4%. That’s the fifth gain in the past six months. This week the focus turns to wholesale sales, inflation and retails sales figures set for release on Thursday and Friday.

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Ian Dobbs is a currency analyst with Direct FX You can contact him here »

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