Unrelenting $ strength continued last week and is expected by market participants to continue. Remember however that the unexpected always occurs when it is least expected.
Skewed markets always revert back to the mean. Very skewed markets do so violently. The ultra bullishness is currently off the scale.
We tried to analyze from a fundamentally historic perspective why we believe this to be the case. the MACRO piece can be read here.
$ strength may not be with us for very much longer.
► USD: USD data starts on Tuesday with the release of Building Permits expected at 1.07mn.
This is followed on Wednesday by a lot of important announcements by the FED. Starting with theFOMC Economic Projections. This is the projection for inflation and economic growth over the next 2 years and, more importantly, a breakdown of individual FOMC member’s interest rate forecasts. We then have the FOMC Statement. This is very important as traders focus on the subtle changes in the FED’s language. The Statement is the primary tool the FOMC uses to communicate with investors about monetary policy. It contains the outcome of their vote on interest rates and other policy measures, along with commentary about the economic conditions that influenced their votes. Most importantly, it discusses the economic outlook and offers clues on the outcome of future votes. Next up is the Fed Fund’s Rate which is expected to remain at less than 0.25%. This is the rate which banks lend balances held at the Federal Reserve to other banks on an overnight basis.
Lastly we have the FOMC Press Conference.
On Thursday we have the customary Unemployment Claims figure estimated to show that a further 297,000 joined the ranks of claimants.
lastly, also on Thursday we have the Philly Fed Manufacturing Index anticipated at 7.3.
► EURO: Euro news starts on Monday when we hear the ECB Governor speaking.
On Tuesday we have the German Economic Sentiment figure thought to be 58.9.
Lastly on Thursday we have Targeted LTRO which measures the total value of money the ECB will create and use to loan to Eurozone banks.
► GBP: A busy Wednesday ahead for STG. Firstly we have Average Earning Index expected at 2.2%. This measures the change in the price businesses and the government pay for labour, including bonuses. This is followed by the Unemployment number which is thought to show a decline of 31,000.
Next we have the important MPC Official Bank Rate votes which is expected to show 0-0-9 meaning that zero members voted for a rate hike, zero for a decrease and all nine for voted to maintain rates at the current level.
Lastly we have the Government Annual Budget Release which outlines the government’s budget for the year, including expected spending and income levels, borrowing levels, financial objectives, and planned investments.
► YEN: Yen news starts on Monday when we have the Monetary Policy Statement.
On Tuesday we have the BOJ Press Conference and the Trade balance forecasted at -1.21tr.
This is followed on Wednesday by the Monetary Policy Meeting Minutes, Preliminary Industrial Production, retail Sales, Household Spending and lastly by Tokyo Core CPI which is a measure of the change in the price of goods and services purchased by consumers in Tokyo, excluding fresh food.
► AUD: Only two items of news for the AUD starting on Monday with the Monetary Policy Meeting Minutes. This is a detailed record of the RBA’s most recent meeting, providing in-depth insights into the economic conditions that influenced their decision on where to set interest rates.
On Thursday the RBA Governor speaks. Volatility is expected during his speech as traders look for interest rate clues in his speech.
► CNY: There is no news of note this week for the CNY.
OUR VIEW: A busy week in term of FED, BOJ and ECB announcements.
Will current USD strength continue? Whilst it is impossible to identify when a trend changes, being early to the short side of the trade may prove financially very rewarding. This is not a recommendation but a mere observation. The market is now so heavily bull weighted that once the correction starts, the follow through may be both violent and deep.
Greece still overhangs the Euro but market participants are tiring of that story. We need a fresh round of worries to keep us occupied.
Stay nimble. Good luck trading.
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