Forex Market Review & Upcoming Forex News Calendar (04/30 ~ 05/04)

Uncertainty once again dominated European headlines this week along with an initial focus shift in the U.S. market away from risk as the prospects for QE3 diminished.  However, earnings reports provided much needed positive tone in markets this week, helped global equity indices make steady gains, although outlook remains bleak for various European nations on the political resistance to further austerities.

In France, Socialist candidate and austerity skeptic Franois Hollande beat Nicolas Sarkozy by a narrow margin in the first round of election. In the Netherlands, a far-right party that was part of the governing coalition refused to sign off on deeper budget cuts and withdrew from the government, undercutting the position of conservative PM Rutte. In Germany, the April manufacturing PMI was very weak, while outside the euro zone the Czech Republic saw huge anti-austerity protests against the government. In Spain, unemployment hit 24.4%, levels last seen in the early 1990s, and S&P cut the nation’s sovereign ratings by two notches to BBB+.

The FOMC decision on Wednesday appeared to further reduce the chances of QE3 after the Fed increased its GDP and employment forecasts while maintaining a tight band on inflation, for more information, please read my detailed Post FOMC Analysis.  Initial US weekly jobless claims jumped a bit higher again, generating cautious words from analysts worried about next Friday’s payrolls data with the possibility of a tick up in the all important Unemployment Rate… The U.S. week ended with Advance US Q1 GDP reading that missed expectations by 0.3%, although the positive surprise in personal consumption eased some concerns.

In UK, GDP data was below expectations and put the UK into a technical recession (first since 2009). The GBP/USD earlier hit six-month highs at 1.6170 prior to the GDP release but slumped below the 1.61 handle as the QoQ GDP moved into negative territory;  however market saw a huge reversal towards the end of the week and broke above the 1.6250 level on the fact that analysts are seeing strong divergence between recent economic data versus GDP… Focus are likely going to be on the May PMIs as any weakness should provide reasons for sell-off.

In Australia, lower than expected inflation signaled possible central bank action at the next meeting in May. Analysts are speculating that there could be a cut in June as well as May. Year on year inflation of 1.6% was the lowest level since Q3 2009, with trimmed means inflation also at the lowest level in 5 quarters at 0.3% q/q… With RBA Meeting scheduled on May 1, traders are likely to sell-off on speculations of an imminent rate cut…  Of course, the key will be on the accompanied statements by RBA after the rate decision as dovish tone may add more pressure to the sell-off.

In Japan, BOJ increased its asset buying scheme by net 5 Trillion Yen (less than expected) and released its semi-annual economic forecasts which raised its GDP and CPI outlooks for the next two years. FY12/13 GDP growth forecast to +2.3% from +2.0% prior and FY13/14 GDP growth forecast to +1.7% from +1.6% prior. On inflation, BOJ raised FY12/13 CPI forecast to +0.3% from +0.1% prior and FY13/14 CPI forecast to +0.7% from +0.5% prior… BOJ is maintaining a solid tone in its easing policy, which are likely to add more bearish sentiment to the currency in the medium to long term.

In conclusion, EUR is likely to remain neutral as the market waits for more news out of Europe… although considering the slight gain into the end of the week, one has to agree that most negative sentiments for the combined currency have been priced in already.  GBP is likely to be driven by the PMIs this week as traders await for the first sign of negative news to dump Sterling.  AUD and NZD are targets of SELL on Rally as both central banks are monitoring currency strength closely; AUDUSD could correct sharply due to the upcoming RBA meeting, and if RBA were to be dovish or signal additional easing, expect to see AUDUSD drop to the 1.0000 level for the very least.  CHF is likely to remain unchanged as new SNB chairman Jordan tries to convince the market of SNB’s resolve (good luck with that), but one cannot rule out intervention.  USD will follow the results of NFP on Friday as the market speculates FOMC’s next move.  CAD is likely to remain strong on speculation for possible rate hike in the future… as a matter of fact, out of all the major central banks, BOC is most likely to hike rates next.  JPY is likely to weaken gradually after the initial disappointment in the less than expected easing… let’s face it, no one is going to BUY JPY if the market were to remain robust with BOJ promising more easing in the future.

Here are the tradable reports for the week (4/30 ~ 5/04)

1. Mon April 30, 3012 – 8:30am EST – CA GDP m/m
2. Tue May 1, 2012 – 12:30am EST – RBA Interest Rate Decision
3. Tue May 1, 2012 – 4:30am EST – UK Manufacturing PMI
4. Tue May 1, 2012 – 10:00am EST – US ISM Manufacturing PMI
5. Wed May 2, 2012 – 8:15am EST – US ADP NFP Report
6. Thu May 3, 2012 – 4:30am EST – UK Services PMI
7. Thu May 3, 2012 – 7:45am EST – EU ECB Interest Rate
8. Thu May 3, 2012 – 8:30am EST – EU ECB Press Conference
9. Thu May 3, 2012 – 10:00am EST – US ISM Non-Manufacturing PMI
10. Fri May 4, 2012 – 8:30am EST – US Non-farm Payroll (NFP)

 

Thanks,