Date : 18th January 2016.
CURRENCY MOVERS OF 18th January 2016.THE ECONOMIC WEEK AHEAD
Main Macro Events This WeekUnited States: After the holiday break today (Martin Luther King, Jr. Day), the U.S. economic calendar may offer only limited last-minute insight for the Fed ahead of its policy decision the following week. Not that the markets care, having already priced the Fed out of the picture near-term following the resumption of Asian influenza in the oil and equity markets. The NAHB housing market index is forecast to rise to 62 in January from 61 (Tuesday), while CPI is expected to be a tame at unchanged headline and 0.2% core (Wednesday) and housing starts should rise 0.4% to a 1,178k pace in December. The Philly Fed index may rebound to -7.0 in January (median -5.5) vs -10.2 and initial jobless claims are forecast (Thursday) to sink 15k to 269k for the January 16 week. Existing home sales may snap back 11.3% to a 5.3 mln pace in January relative the 10.5% plunge in December (Friday), with the leading indicators is set to dip 0.1% in December from 0.4%.
Canada: Economic data features manufacturing and wholesale trade (Wednesday). Those reports will be lost in the glare cast by the BoC announcement later that same day, but will provide another round of clues on how Canada’s economy performed in Q4. We expect a 0.7% gain in manufacturing shipments and a 0.5% rise in wholesale shipments, which would be suggestive of some growth in the total economy after the disappointing stall-out in October GDP. The week ends with CPI and retail sales (Friday). CPI is expected to accelerate to a 1.8% y/y pace in December from the 1.4% clip in November, but the pick-up is due to a more difficult annual comparison. CPI is seen falling 0.3% m/m in December, driven by falling gasoline prices. Core CPI is expected to pick-up slightly to a 2.1% y/y clip in December from 2.0% in November, although the index is expected to show a 0.3% m/m drop that is in line with seasonal trends. Retail sales are projected to rise another 0.1% in November after an identical anemic gain in October, with the ex-autos aggregate seen up 0.3% after the flat reading in October.
Europe: Data releases during the week will only fuel the fears of the doves. Final December inflation readings are likely to confirm the German HICP rate (Tuesday) at just 0.2% y/y and the overall EMU HICP number (Thursday) at the same level. Core inflation remains higher at 0.9% y/y, but even this is still far away from the 2% upper limit for price stability and against expectations for an uptick in the headline rate at the end of last year.
United Kingdom: A busy data week looms, which arrives with sterling underperforming and Gilts outperforming as markets push back BoE tightening expectations. We expect data this week will side with this theme, which will includes December inflation data (Tuesday), monthly labour market data, covering November and December (Wednesday), retail sales for December and monthly government borrowing numbers (Friday). We forecast headline CPI at 0.1% y/y in December (median same), unchanged from November. Core CPI is also expected unchanged, at 1.2% y/y (median same). Ebb in economic momentum, renewed energy price declines, and abating wage growth suggests the inflation outlook will remain a benign one for now. Labour data has us expecting an unchanged reading in the official ILO unemployment rate of 5.2% in November (median same). The December claimant count rate is seen rising by 2.9k, down from 3.9k in the previous month. Of particular interest will be average household income, as this is a metric being closely monitored by the BoE. We expect to see a further whittling in wages, to 2.1% y/y from 2.4% and to 1.8% y/y from 2.0% in the ex-bonus reading in data covering the three months to November. We anticipate retail sales to have fallen by 0.2% m/m in December (median -0.3%). The annual comparison is expected at +4.4% after 5.5% growth in the previous month.
China: In China, Q4 GDP (Tuesday) is seen at a 6.5% growth rate, slower than Q3’s 6.9% clip, and disappointing the government’s 7.0% projected pace. With all the recent concerns over growth, this data point will have potential to move global markets. The remaining releases all are due on Tuesday December industrial output will be important for the general outlook and expectations are for a 6.1% y/y growth rate, versus the 6.2% seen in November. December retail sales are penciled in at 11.1% y/y from the prior 11.2%, while December fixed investment likely inched down to 10.1% y/y from 10.2% in November. December foreign direct investment is seen sliding to 1.0% y/y from the previous 1.9% pace.
Australia: Australia’s calendar lacks nourishing top tier data this week, and the Reserve Bank of Australia (RBA) drought continues. However, some second tier economic reports are on the slate: the TD-MI inflation gauge (Monday) and November HIA new home sales (Thursday) may be of some interest. The RBA remains on its customary intermission from appearances or events during January, with the February 2 meeting the next event on their calendar. The RBA left rates at 2.00% in the December 1st meeting, and our base case is for steady policy to begin the New Year. As expected data this week would be supportive of no change in policy at the February meeting.
HEDGE FUNDS DOUBLE THEIR SHORT CRUDE OIL BETS
Crude Oil, MonthlyBrent crude fell over 4% in logging a new 12-year low at $27.70 (WTI low was $28.36) in the March futures contract during the Asian session today, and is presently sitting in the low $28s. The lifting of sanctions against Iran has been the latest selling prompt amid forecasts that this will lead to an increase of 500 kb per day of crude entering the market this year (according to Barclays, cited by the FT). This will add to an already pronounced supply overhang. The recent Morgan Stanley forecast for $20 oil is starting to look reachable.
The price of crude oil has been moving lower with selling pressure related to several fundamental factors. Markets have been worried about slowing growth in China and diminishing demand of oil as the global economic growth is slowing down as well. However, the slide has had more to do with supply than demand. The inventories have been high with production staying at elevated levels even though the rig count has come down significantly. Now the news of Iran embargo and sanctions being lifted has intensified the bearish bets in the oil markets. According to Bloomberg, hedge funds have doubled their bearish bets in the oil markets over the last two weeks. Also, OPEC supply has been on the increase as it has defended the market share and tried to drive US producers out of business.
In the long term picture WTI Crude is near 2003 lows with the next monthly support level at 24 dollars while there are significant resistance levels relatively close at 33.20 (year 01/2009 low) and 37.75 (08/2015).
Crude Oil, 240 minSince January 8th the WTI crude oil futures market has been tied into a bearish channel. After making a new low during the Asian session today crude has rallied a bit and is not far from a resistance at 29.93. Another potential resistance area is near 30.72 level where the bear channel top, 30 period SMA and 23.6 Fibonacci level coincide. Should the market manage to rally even higher and beyond the channel, the 31.42-32.10 area where the upper Bollinger Bands, the 50 period SMA and 38.2% Fibonacci retracement coincide could be a level where the market turns lower again.
ConclusionMarket is trending lower which is a reason to look for low risk selling opportunities. Potential short entry levels are: 29.94, 30.72 and an area at 31.42-32.10. We are interested in shorts if market hits these levels and provides us with sell signals. The market being in the downtrend it makes sense to have both a short term target (Target 1) and a target that is a bit further away. My targets for WTI crude are: Target 1: 28.88 and Target 2: 25.20
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Janne Muta
Chief Market Analyst
HotForex
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