Key Forex Afternoon Notes:
- Australia consumer inflation expectations 4%, from 3.2% previously
- Employment change -12.2k vs. -5k; unemployment rate 6.4% vs. 6.2%;
- Germany CPI m/m -1.1% vs. -1%; CPI y/y -0.4% vs. -0.3%
- Eurozone industrial production m/m 0% vs. 0.2%; y/y -0.2% vs. 0.3%
- BoE inflation report hearing
- US Retail sales m/m -0.8% vs. -0.4%; Core retail sales m/m -0.9% vs. -0.5%
- Weekly US initial jobless claims 304k vs. 287k
- Canada HPI m/m 0.1% vs. 0.1%
Later:
- US business inventories m/m
- BoE Fisher speech
- RBA Stevens speech
Markets got off on a volatile start with the Australia unemployment report, which came out worse than expected as the unemployment rate ticked higher. The Aussie decline across the board and pulled down the Kiwi dollar as well. Expectations are starting to price in another rate cut from the RBA by mid year 2015, however a lot is left to be seen considering China is also expected to cut rates, which should help support the Aussie and the Kiwi dollars.
The Yen was relatively stable; trading from yesterday’s weakness, but surprise comments by BoJ that further monetary easing was being put on hold saw a sharp strengthening of the JPY, resulting in more than 1% losses on the Yen cross currency pairs. The markets however managed to stabilize few hours later with the Yen easing back again. USDJPY spiked down to intraday lows of 118.87 before managing to rally higher trading near 119.5 levels.
Data from Eurozone saw German CPI fall below estimates both on the monthly and annualized basis, while industrial production in Eurozone also weakened. The Euro was choppy as the markets are primarily focused to the outcome of the Greece negotiations. Expect the single currency to continue ignoring the economic data in the short term. Ahead of the US trading session open, EURUSD was trading near 1.13 while GBPUSD bullish setting a new intraday high of 1.536.
The main takeaways from the BoE’s inflation hearing report was that the Central Bank acknowledged that the labor market slack was being picked up quicker than expected and that it would result in an interest rate hike at the same pace. In regards to inflation, the BoE see’s inflation at 0% for Q2 of 2015 with a possibility of turning negative in Q3 before bouncing back towards the end of year. Medium term inflation was revised up expecting inflation to rise above the 2% target by 2017 Q3. The report overall was bullish as was widely expected, supporting the GBP pairs all across the board.
The US session saw the release of the retail sales data which disappointed for the second consecutive month on the headline, falling -0.8% while on the core, falling -0.9%. Weekly jobless claims also rose above estimates at 304k. The USDJPY promptly fell below 119.5 levels, while EURUSD was trading comfortably above 1.13 and GBPUSD breaking above 1.535 handle. The Aussie and Kiwi dollars which were weaker in the day also managed to turn around keeping their short term bullish momentum, rising back to trade close to the opening prices for the day.
