Forex Market Review – Focus Turns Towards Asian Countries
With Monday’s bank holiday out of the way, normal trading is set to resume today. After last week’s important central bank announcement from Europe, this week sees a greater focus on Asian countries starting with Japan and China.
Japanese GDP and Current Account balance were released yesterday, with Japanese GDP growth coming in slightly better than expected at 1.6% quarter on quarter, against expectations of a 1.4% change. While better than expected, traders should be mindful that with the implementation of a rise in the sales tax in April that this beat in expectations may not continue in to the next quarter. The current account balance moved back in to surplus, but not to the extent that was expected by analysts, reaching only 0.13 trillion yen against and expected 0.23 trillion surplus.
The Bank of Japan delivers its monetary policy statement on Friday – with growth and inflation making progress towards targets it is not apparent that a change of policy is on the cards.
Chinese data also came out stronger than expected to start the week – the trade balance beat expectations of a 22.6 billion surplus, coming in at 35.9 billion, and year on year CPI Inflation increased to 2.5% ending last month’s slump to below 2%. USD/CNH remains stuck trading in a range since the end of April, though the AUD has rallied through the start of the week on the back of this news.
Wednesday night into Thursday sees the release of some important Australian and New Zealand data. The Reserve Bank of New Zealand is expected to announce an increase to the Cash rate of 0.25% on Wednesday night, taking the rate from 3% up to 3.25%. The NZD has been losing ground against the AUD despite this expected change, so the decision is not necessarily fully priced in to the market yet. Following on from this is the Thursday release of Australian employment figures – the unemployment rate is expected to worsen slightly to 5.9%, up from 5.8% currently.
The week is capped off by the release of US data on Thursday and Friday. Retail sales and unemployment claims are expected to improve, with retail sales forecast to increase 0.5% month over month and weekly unemployment to ease slightly to 306,000 as the economy continues to improve despite the removal of the Federal Reserve’s stimulus measures. This is followed on Friday by US PPI data, which is expected to increase weakly by 0.1%.
While Asian currencies can expect volatility this week, some traders may wait until the FOMC statement next week for direction on USD based pairs. The reaction to the ECB’s easing measures has not been felt strongly in the Euro exchange rate just yet – traders may be looking forward to next week’s FOMC statement, where the Fed is anticipated to continue reducing its monthly asset purchases by 10 Billion per month. If the Fed proceeds with reducing QE, this could begin to weigh upon currencies such as the Euro as the USD would be expected to strengthen.