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Based out of Auckland, New Zealand, we bring an institutional trading experience to the retail market.

APAC should be hogging most traders’ attention in the first half of the coming week. China and New Zealand take the spotlight up to Wednesday. A sprinkling of US and European data helps to round out the offerings.

*Please note; Author is working from UTC +13 when determining the timeline of data releases.

What Will Traders Be Watching This Week?

22 Nov – 26 Nov, 2021

Monday, November 22:

China opens the week and reveals its 1Y Loan Prime Rate. The People’s Bank of China (PBoC) has kept the 1Y Loan Prime Rate at 3.85% for the past 18 months. No change in the rate is expected on Monday. However, looking to a long-term change, China’s Premier Li Keqiang noted on Friday that China is facing “many challenges” in managing the downward pressure on its economic growth and rising commodity prices.

Tuesday, November 23:

New Zealand releases data on Retails Sales (Q3) in the lead up to the country’s Central Bank Interest Rate decision on Wednesday. Retail Sales in the last two quarters rose 3.3% and 2.8% respectively. A projected -0.5% is expected in Q3 as the country’s largest city has been in lockdown for the entire Q3 period.

European and Great Britain Markit PMI Composite data (NOV) is also released on Tuesday. Aggregating the data from the economies’ Manufacturing and Service sectors, the PMI is a broad indicator of economic expansion or retraction. Although still firmly within an expansionary range, a slight pullback in the PMI values is expected for both economies.

Traders

 

Wednesday, November 24:

US Markit PMI Composite data (NOV) is up next. Unlike Tuesday’s PMI data, US PMI is expected to lift ever so slightly from 58.4 to 58.8.

As mentioned above, the Reserve Bank of New Zealand (RBNZ) will be updating the market as to its Interest Rate decision. A 25 basis point hike to 0.75% is all but guaranteed at this point. Speculation of a 50 basis point hike has emerged in reaction to Inflation Expectation in the country, reaching 2.96% in two years. Although, such a significant hike is unlikely and deviates from RBNZ precedence.

 

Thursday, November 25:

Thursday is all about the United States. For October, durable Goods Orders, New Home Sales, and Personal Spending data are released in quick succession. Any beat or miss in the slightly optimistic forecasts for these data points should be pounced upon by traders.

The FOMC minutes are then released later in the morning. Fed representatives have been vocal about their stance on inflation, employment, and the need to keep a loose monetary policy for the short term, all last week. These notes should be reflected in the FOMC minutes.

Traders

Friday, November 26:

A quiet Friday closes the week. South Korea’s Interest Rate decision should be watched closely. A 25 basis point increase is possible, which would bump the Interest Rate to 1% from 0.75%. Analysts are split as to its likelihood as the South Korean Government has other tricks up its sleeve to curb rising prices (such as removing fuel taxes).

You might think that the economic news might be slowing down this week after the week we have just had. Alas, that is not so; this week's forex market might be just as choppy with some critically important reports emanating from Japan, China, Europe, and the UK, in particular.

What Are Forex Traders Watching At Week's End?

Wednesday

Due on Wednesday, US Retail Sales growth for October is anticipated to increase by 0.7%, the same as September's Retail Sales growth. However, with supply constraints potentially inspiring people to complete some Xmas shopping early, a surprise beat might be on the cards for this report.

Back over the Atlantic, the UK releases its CPI data for October. The YoY CPI for the UK currently stands at 3.1%, after edging down from 3.2% in September. Septembers CPI dip might be temporary, and several factors indicate that CPI could rise with Octobers data. Chief among them is the flow-on effect expected from the UK factory gate prices rise to 6.7% in September, from 6.0% in August.

Thursday

On Thursday, it is Canada's turn to release CPI data. After Septembers data, Canada's inflation rate was running at an 18-year high of 4.4%. Market consensus is pointing toward a fifth straight increase in the CPI, to 4.6%, while TradingEconomics predicts an even more significant leap to 4.9%.

Friday

We end the week with Japan noting its CPI data for October. Sustainable price growth in Japanese consumer prices is in doubt moving forward. Last month, CPI hit 0.2%, after remaining below 0.0% since the latter half of 2020. However, Japanese businesses are largely absorbing the rise in their input costs, whether temporary or permanent, rather than passing them onto consumers.

Inflation data from outside the US should pique traders interest this week. Several major economies will be reporting on actual inflation figures experienced during September 2021.

Will they match their forecasted values, or will the data follow US inflation and surprisingly creep upward?

 

Who should be watching the inflation data?

Traders of the Great British Pound, South African Rand, Euro, Canadian Dollar, and the Japanese Yen should circle these dates in their economic calendars.

 

Why does the Inflation data deserve special attention this week?

While inflation data is usually closely watched, the surprising inflation figures released in the US last week means traders should be extra vigilant with their inflation watching.
US Inflation data

Last week, the US inflation rate (September, YoY) surprised the market by beating expectations. Inflation in the US was expected to report at 5.3%, level with the rate reported in August. However, the actual figure arrived ten basis points higher (5.4%) and returned inflation to the 13-year high seen a month earlier in July 2021.

As it stands, Trading Economics is forecasting inflation in the US inflation rate (October, YoY) to rise another ten basis points to 5.5%. If inflation were to cross 5.6%, a new 30-year record would stand (US inflation Jan, YoY, 1991 was 5.7%).

Calendar Dates to Circle:

United Kingdom, GBP,
Inflation Rate YoY September

Wednesday, 7:00 pm (NZDT)
What is the forecast for Sep: 3.2%
UK Inflation data

South Africa, ZAR,
Inflation Rate YoY
 September

Wednesday, 9:00 pm (NZDT)
What is the forecast for Sep: 4.9%
SA Inflation data

European Union, EUR,
Inflation Rate YoY September

Wednesday, 10:00 pm (NZDT)
What is the forecast for Sep: 3.0%
EU Inflation data

Canada, CAD,
Inflation Rate YoY September

Thursday, 1:30 am (NZDT)
What is the forecast for Sep: 4.1%
CA Inflation data

Japan, JPY,
Inflation Rate YoY September

Friday, 12:30 pm (NZDT)
What is the forecast for Sep: -0.4%
Japan Inflation data

USDCAD D1

The USD has enjoyed a decent level of upside against the Canadian Dollar since the end of May 2021. This is visible in the D1 timeframe. In this time, the Loonie has travelled from 1.202 to 1.255 per USD.

In the channel that it is currently caught, the CAD reached a low of 1.280. This low occurred at the beginning of this week, intraday Monday.

It appears the USD got a little ahead of itself, and once the pair closed higher than the 200MA, it set out to quickly correct itself. Since this time, the Canadian Dollar has strengthened by 2.5 cents, with the USD closing lower for the past three days.

Channel support currently holds between the 61.8% and 50.0% retracement as of June 23 (Asian session).

USDCAD H4 

USDCAD H4

On the shorter time scale, H4,  we can see that Canadian Dollar bulls have tested the 1.252 price level. The rejection at this level might indicate that the bullish impetus that the CAD held earlier in the week has begun to run itself down. For one thing, WTI Crude/Brent Oil prices have settled down. Barring more conflict among the OPEC+ members, the price of Oil should affect the USDCAD pair a little less moving forward.

WTI H4

Keep an eye on US stocks and the possibility of another big selloff. Much like that experienced on Monday this week, where the SPX500 dropped ~100 points. If the SPX repeats this situation, expect the CAD to be denied a pass down through the 1.252 price level in the short term.

US stocks have been on a three-day run with impressive earnings reports, injecting a buoyancy to the markets.

SPX500 H4

Friday’s earning reports are not as interesting (from a media perspective) as those dropped earlier in the week. On Friday, we will be keeping an eye on American Express (NYSE: AXP) and Honeywell International (NASDAQ: HON). However, the market at large it probably the better target of your focus on Friday. It will be interesting to see if the market euphoria carries into the close of the week, or if fatigue sets in, and US indices finish the week in red.

Inflation is on everyone’s mind. Not a day goes by without Blomberg Television asking me, on one of the offices 43-inch screens right in my line of sight, if inflation across the major economies, seen thus far, is:

Inflation is not globally homogeneous, of course. Rather, it presents differently in different countries. So, with this in mind, let's review some inflation data from the major economies around the world. It will be prudent to examine the tone that the respective Central Banks around the world are projecting.

Inflation rates (YoY), as of June*, May**, Quarter 1***

US Inflation

inflation rate

Inflation in the US hit 5.4% as of June 2021, its highest value in thirteen years. 5.4% may seem impressive, but don't be fooled. Accounting for the majority of inflation are massive increases in the price of vehicles (new, but mainly used) and fuel (both up ~45% since last year), as supply constraints affect car makers globally and fuel recovers from abnormally low prices in 2020. It is almost unfair to compare fuel prices of this year to that of last year.

Moving forward, now that fuel prices are stabilsed (somewhat), a question we can ask ourselves is how long the inflation of car prices is likely to last and what hurdles may still exist that are hampering these production lines?

The big dog: US Federal Reserve

Knowing the primary catalyst of inflation is vehicles and fuel, The Fed position on inflation appears rational.

The narrative from the US Federal Reserve is that the current bout of inflation is Transitory. As in, it is not likely to stick around for too long. Fed Chair Jerome Powell has had to reiterate that this is The Fed's position repeatedly during his public appearances.

Powell has done a good job in quelling hawkish sentiment for the most part. Albeit, an unavoidably hawkish announcement from The Fed came in June when it bought forward its estimate for when the next few rate hikes could occur. This announcement was taken as Hawkish because it contrasted so much with the typical messages coming from The Fed. After all, the rate hikes are still anticipated to be more than a year away.

Canada and UK more Hawkish than The Fed

Central Banks around the world are generally echoing the sentiment of The Fed. In that, they are playing it relatively safe and trying to avoid prematurely pulling stimulus or pulling back too aggressively.

However, ultimately, the tone from the other Central Banks are a touch more hawkish than The Fed. For example, the Bank of Canada (BoC) and the Bank of England (BoE) have already begun slowing their bond-buying programs by billions each week.

The Hawkish nature of the BOC and BoE is interesting because Canada and the UK are dealing with considerably lower inflation values. Speculatively, a few reasons for their respective tone might be:

- The BoE and BoC are viewing the current bout of inflation as permanent.
- The BoE and BoC are less confident in their ability to control an unwanted level of inflation.
- Or simply, global markets are far more sensitive to announcements coming out of The Fed, and thus an extra-conservative tone must be taken by Powell and Co. Comparatively, the tones of other Central Banks are then taken as Hawkish.

PBoC, Inflation and Jobless Claims - Week ahead

The markets continue to grapple with the immediate effects of the Coronavirus. The second wave in pockets of the world has forced cities to take active measures to control the virus. Melbourne, Australia has gone into a secondary lockdown while Florida and Los Angeles see cases surge, with the Mayor of Los Angeles stating that the city is “on the brink” and a Democratic representative from Florida reports the outbreak is “totally out of control.” Here is your week ahead

Monday, 20 July – Peoples Bank of China Interest Rate decision

PBoC's Interest Rate

China’s Central Bank, the Peoples Bank of China has been wary of cutting interest rates, even during the peak of the pandemic. Ma Jun, a PBOC adviser, stated in early April, “The PBOC doesn’t use its bullets all at once. China has plenty of room in monetary policy.” The PBOC has kept interest rates at 3.85%, after dropping it 30 basis points from 4.05% in April. However, forecasts and estimates expect the PBoC to keep rates as is at 3.85% this week ahead.

Tuesday, 21 July – Inflation rate YoY Bank of Japan

With 660 new cases of the Coronavirus yesterday, Japan has struggled to keep ahead of the virus after the world praised it for its lighter approach to restrictions. However, that approach, as seen similarly from Australia, has not bode well for the country. Japan has seen triple-digit daily increases for the whole month of July. This has caused consumption and spending to decrease dramatically. Analysts predict an inflation rate of 0.1%; however, there is a high chance that this may be pushed to the downside, which may put downward pressure on the JPY.

 Tuesday, 21 July – Reserve Bank of Australia minutes

Australia is continuing to grapple with the effects of the Coronavirus, with Melbourne being put back into lockdown and the state of Victoria imposing mandatory mask restrictions. With RBA minutes earlier in the year having a tone of optimism, likely, that tone will not continue here. The second lockdown is a massive blow to the country, socially and economically. The Trans-Tasman bubble between New Zealand and Australia has been delayed, with economic activity in the state of Victoria plummeting. We may see Aussie weakness against its New Zealand counterpart as Australia reels back their reopening.

 Thursday 21st July – Canada Consumer Price Index (CPI)

Canada continues to post double-digit daily Coronavirus cases as they, too, implemented a looser lockdown restriction like Japan and Australia.  We saw a drop in the CPI from March to April as citizens decreased their spending. We saw a slight increase in the Month of May, however, analysts expect to stabilize around 137 for the month of June.

Thursday 23 July, US Initial Jobless Claims

US Initial Jobless claims. Source: Bloomberg

With Initial Jobless Claims posting the smallest decline since March last week, the US jobs market is showing a slight rebound. However, we are all aware of the current situation with the Coronavirus cases in the US. Florida and Los Angeles are posting daily record numbers every week, while President Donald Trump focuses on reopening the economy and the US-China trade deals. I expect this number to slowly creep up as the full effects the second wave of the Coronavirus becomes evident. Analysts predict Jobless Claims to drop to 1.29m from 1.3m previously.

We have seen this mindset in the market, which discounts negative news and rallies on positive news. This is partially due to liquidity propping up many markets. Investors and traders must take this into account when placing trades.

Trade safe!

Commodity currencies strengthen as demand for oil and metals increase

Commodity currencies are set to advance as manufacturing and oil usage rise across the world.

The returns of the CAD & AUD against the USD. Note: Lower is better as it means the USD is depreciating against the respective currencies.

The Australian dollar and the Canadian dollar have been stuck within their respective consolidation zone, strengthening over the past couple of days. As the correlation between commodity currencies and commodity prices remain relatively strong, with the Bloomberg commodity index advancing 2.5% to 63.24, the highest since the start of April.

Commodity currencies getting a boost from demand

As China’s oil demand starts to reach pre-Coronavirus levels, manufacturers have started to purchase more iron and copper from Australia. However, tensions between the two countries have slowly risen, possibly dampening the likelihood of a breakout. In this case, China slapped an 80% tariff on Australian Barley exports, a $330 million industry. Many analysts speculate that these tariffs are in response to Australia’s strong push for an independent investigation into China's response regarding the Coronavirus. However, it is more likely due to the Australian government subsidizing exports barely, enabling exporters from Australia to sell them barely at lower than market prices – a process also known as “dumping.”

However, Adam Kibble, an investment specialist at Inisght, is bullish on the Australian dollar, seeing it rally to 70c against the greenback by year-end. Furthermore, he told Bloomberg that “Exiting the virus earlier [Australia], compared to Europe and the U.S., will be very positive for the Aussie.”

Moreover, with the Canadian dollar being sensitive to the change in oil prices, the price of the black gold has strengthened the loonie against the U.S. dollar. As a result, the boost cushions agriculture and commodity exporters into the U.S. Furthermore, other oil sensitive currencies such as the Norwegian Krone and Russian Ruble have strengthened over the past two days as demand for oil increases.

In spite of these currencies rising, today was generally a risk-off day after the risk-on rally yesterday. Here are the leading market moves:

As a senior analyst at Blackbull markets, Andre Almedia did some excellent technical analysis on the USD/CAD pair. You can watch it here.