Currency Analyst since 2010

Nov. 25-29: Forex fundamentals

By Elizaveta Belugina, Kira Iukhtenko, FX BAZOOKA

- US data

- Carney speeches

- Bank of Japan's meeting minutes

Last week US dollar gained versus JPY and commodity currencies (AUD, NZD, CAD), but declined against EUR and GBP. Demand for euro rose was bolstered by the unexpectedly robust German business sentiment data and comments of Mario Draghi who played down the possibility of negative deposit rates. Pound rose as the Bank of England’s Governor Mark Carney indicated that the forward guidance timelines may be revised if the current pace of recovery continues.

The most important releases due this week in America include housing data (pending home sales on Monday; building permits and housing starts on Tuesday), CB consumer confidence on Tuesday; durable goods orders and unemployment claims on Wednesday. These data may influence the expectations of tapering in December – the latest FOMC meeting showed that some officials want to advance tapering timelines. Keep an eye on US 10-year yields – high yields will definitely rule out that option. Also note that by the end of the week we may see the impact of the month-end flows: investors may want to diversify from USD. On Thursday US banks will be closed in observance of the Thanksgiving Day, so we’ll have volatile markets with low trading volumes.

This week we’ll hear more from the BoE. On Tuesday the central bank’s Carney is to testify on inflation to parliament’s Treasury Committee and on Thursday the BoE is to publish its semi-annual Financial Stability Report (the release will be accompanied by Carney’s speech). Also note that the second estimated of the UK GDP will be released on Wednesday (no revisions are expected from the preliminary growth estimate of +0.8%). As for the euro area, keep an eye on inflation and unemployment figures due on Friday.

JPY was sold off on the past week amid the Bank of Japan’s promises to continue the aggressive QE as long as needed. The BOJ meeting minutes on Tuesday could lift the veil on whether the regulator is planning to implement additional monetary easing measures in the coming months. Japan is also scheduled to release a batch of important data on Thursday and Friday: retail sales, CPI, unemployment rate and industrial production. All the forecasts except for the retail sales are positive. The new week started with a positive sentiment as Iran agreed to curtail its nuclear activities and in return won an easing of “certain sanctions” on oil, auto parts, gold and precious metals. As a result, demand for JPY as a safe haven weakened.

AUD made a big slide as the Reserve Bank of Australia’s Governor Stevens successfully talked it down mentioning the possibility of the currency intervention by the RBA. Still, according to the IMF, the currency remains overvalued. On Monday we’ll hear from the RBA’s Deputy Gov Lowe and Thursday will be marked by important private capital expenditure data – a sharp downturn’s expected.

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