Nov. 18-22: fundamentals for the week
By Elizaveta Belugina, FX BAZOOKA
We expect the last week’s theme of continued stimulus to move on into this week. Every day there will be speeches from the FOMC officials. On Wednesday the Fed will release the minutes of its latest meeting. Any unexpected comments about QE tapering will move the market. Most of the FOMC officials favor earlier tapering and the minutes can be less dovish (USD-positive).
Taking into account the remaining uncertainty about the timing of the US stimulus tapering, the economic data from the US will be, as usual, very important. Don’t miss the releases of American CPI, retail sales and existing home sales on Wednesday (Nov. 20) and PPI, unemployment claims and Philly Fed manufacturing index on Thursday (Nov. 21). Note that retail sales have to show some growth after correction in September or USD won’t be able to rise in the short term.
European figures will also be in the limelight, especially taking the fact the euro zone’s economic recovery slowed down in Q3 and French economy actually contracted. Watch German ZEW economic sentiment on Tuesday (Nov. 19), France’s, Germany’s and euro zone’s manufacturing and services PMIs on Thursday and German Ifo business climate on Friday (Nov. 22).
Also stay aware of fact that the euro zone authorities have to reach an agreement on handling and funding banks that fail the coming ECB stress tests by the end of the year, the US has an unfinished budget battle to fight. So, there may be tensions ahead on both sides.
As for JPY, the Bank of Japan will meet on Thursday (Nov. 21). Compared with the Fed and the ECB, the BOJ’s policy is the most aggressive in providing monetary stimulus. The BOJ is expected to maintain its ultra-loose policy this month.
For AUD this week will be also influenced by the central bank. The Reserve bank of Australian will release meeting minutes on Tuesday morning. On Wednesday and Thursday we’ll get comments from the RBA Assist Governor Debelle and the RBA Governor Stevens. Also note that at the end of last week demand for higher-yielding currencies increased as Chinese prospects became more optimistic after the nation’s government had released its reform plan details. If the market gets an impression that these reforms will be undertaken in the foreseeable future, risk appetite could stay lifted in the coming weeks.