Forex Market Outlook 10/3/11
The start of the 4th quarter is not looking so rosy this morning as a continuation of last week's selling has risk aversion heightened to start off the week. And though it has abated a bit, it is possible that we can see a market turn-around as the US session begins as this has become a little bit of a familiar pattern.
There is a lot of fundamental news out this week that will share the spotlight with the Euro debt crisis, including Central bank rate decisions, employment figures and manufacturing numbers. It's probably best to describe the news that is significant in each region, followed by its overall impact in the market in general.
For starters, in the Euro zone EU Finance Ministers are meeting today to discuss the Greek bailout and debt crisis and possible solutions. While no one is expecting anything different from what we have seen of late, if Greece does receive the next tranche of bailout money, then what? There is still no credible plan moving forward and this is bound to play out over the ensuing months. Greece has made the necessary cuts to receive the funds, now it is up to the voting powers to follow through with the agreed upon measures.
PMI figures came in for various regions in the Euro zone and were better than expected, and Wednesday will bring PPI data that may show the level of expectations for inflation. Thursday will be the ECB interest rate policy decision and while there is little expectation that they will reduce the rate, there is speculation that they may increase bond purchase in a form of quantitative easing.
In the UK, home price figures continue to fall though PMI figures came in better than expected. Wednesday's GDP figures could keep the BOE at bay if they come in better than expected. The BOE rate decision also on Thursday is not expected to reduce the rate either, but like the ECB, there could be some further bond purchases introduced. As the data continues to weaken, the BOE may feel the need to act even though inflation is fairly high.
The RBA interest rate decision on Tuesday is expected to produce no change, though they may remain dovish and show flexibility to go either way should global economic conditions warrant a change. Keep an eye on PMI figures coming from China, as a slowdown there will affect Australia. And of course watch the overall market risk themes.
Lost in the mix of this week's data is Friday's Non-Farm Payrolls (NFP) here in the US. The unemployment rate is expected to hold steady at 9.1% and the number of jobs added is at 50K. Personal Incomes declined last week so a weak jobs report will not help the economy and could add further risk to the markets. The US dollar has been the top performer of late so there could be continued strength if risk appetite deteriorates further. Wednesday's ADP employment change may be a harbinger of Friday's NFP, but be aware that there is no correlation between the two figures.
The Japanese rate decision is also due out on Thursday, and don't expect any formal change to policy. The Tankan business sentiment surveys came in better than expected, though they have not returned to pre-tsunami levels. Should the Yen continue to strengthen on risk aversion, the BOJ may be inclined to intervene. The key level to watch is USD/JPY at 76 and it should be noted that they said last week that they have expanded their "intervention warchest".
While last week was pretty light on news, this week is equally heavy. We are bound to see increased volatility as the various data points to different economic outcomes. This all happens with the specter of the Euro debt crisis hanging over the market and ready to reverse any positive news should we get any.
Should Greece receive the next tranche of bailout funding, it will be important to hear what the next steps will be. Without a credible plan going forward, this may just continue the market uncertainty for some time. And should they not receive the next round of funding, then lookout below! So there is clearly great risk in the market, with a downside bias winning at this point.
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