Forex Market Review And Upcoming News Calendar For November 12 ~ 16, 2012

Barak Obama was re-elected this week as the president by a narrow margin in a close race. Equity markets responded with three consecutive sessions of sharp sell-offs, driving both DJIA and S&P to retest the lows in August; on Friday, market seemed to have bottomed out, signaling that perhaps the market has overreacted…

In Europe, the saga continues with Greece as the parliamentary vote over Troika approved austerity measures were scheduled on Wednesday and budget votes for the week after.   Leading up to Wednesday, uncertainty still dominated the market as the vote could have gone either way, although the vote was passed finally with a narrow margin, 153 out of 300, traders now focus on the upcoming EU meeting on November 12 as EU leaders discuss the fate of  the €31.5B tranche of bailout payment to Greece.

Risk aversion sentiment continued to dominate the European and global market, exacerbated by ECB to keep rates steady while  and offered no new initiatives.  The EU Commission’s economic forecasts cut the 2012 and 2013 GDP outlooks for nearly every European nation, including Germany.

In China, the red nation began its once-a-decade leadership transition on Thursday after releasing a slew of positive October data, reinforcing the idea that China has not only avoided a hard landing, but also pulled off a stable political transition as new leaders assumed power.  With CPI dropping to a 33-month low of 1.7% from 1.9% in September, the PBoC now has the room it needed to adjust to a more easy monetary policy.  Other data out of China showed its economy has stabilized: Industrial production came in 0.2 points above expectations at 9.6%, the biggest increase in five months; Retail sales rose 14.5%, showing stronger domestic demand.

In Australia, the Reserve Bank of Australia (RBA) surprised the markets by keeping rates on hold at 3.25%, surprising over 70% of analysts who predicted a rate cut.  With higher than expected CPI data as well as signs of stability in China, RBA felt that the current rate is appropriate, or code word for “no more rate cuts in 2012”.

In New Zealand, the kiwi fell sharply after a surprisingly weak employment report, as Q3 jobless rate spiked to a 13-year high of 7.3%.  With CPI falling below the RBNZ’s current target and now worse than expected employment figures, it is likely for RBNZ to cut rates during the next meeting.

In conclusion, I believe with the uncertainty in Europe and the potential for Greece to pass the deadline on November 16, there should be a continued pressure on the Euro; therefore, I’m more inclined to SELL EUR on rally, as the current market does not favor risk.  GBP should follow EUR, although it is considered a bit of an alternative to EUR, so we should see some neutrality and resilience, but at the end of the day, if EUR were to weaken significantly, just the strength on the USD should drive all European currencies lower, including the GBP… So I would prefer to stay out of GBP, as the trade is more on EUR shorts.  JPY should remain at the current level, but I’m still looking to SELL on rallies, especially considering that BoJ wants to see a weaker JPY, therefore the medium to long-term view on JPY should be SELL.  CAD has gone above the parity level, reflecting the strength in USD against commodities; although I’m a firm believer that Fundamentals will eventually catch up, the recent bout of risk aversion is definitely driving this currency lower.  I recommend to SELL USDCAD around resistance levels, because there should be a correction soon.  As far as CHF is concerned, I recommend to stay out of it for the time being, it may be a while before CHF finds its footing as weakness in Euro is driving the currency weaker due to SNB’s policy to keep the EURCHF peg.  As far as AUD is concerned, I am looking for potential BUY on dips.  Especially against NZD or JPY, as both currencies should remain weaker against AUD for the short to medium time-frame.  NZD is now a SELL on rally trade, as recent economic data and risk sentiments are suggesting traders to dump NZD, therefore we should either stay out of NZD, or sell it.

Here’s the list of tradable releases for the week:

  1. Tue November 13, 2012 – 4:30am EST – UK CPI y/y
  2. Tue November 13, 2012 – 4:45pm EST – NZ Retail Sales
  3. Wed November 14, 2012 – 8:30am EST – US Core Retail Sales
  4. Thu November 15, 2012 – 4:30am EST – UK Retail Sales
  5. Thu November 15, 2012 – 8:30am EST – US Core CPI