EUR/JPY Weekly Fundamental Analysis, October 27-31, 2014, Forecast

The EUR/JPY  closed the week on a positive note as traders moved away from the safety f the yen as sentiment shifted back to the positive side. This weekend’s ECB stress test is keeping euro traders alert. The pair is trading at 137.01. Data that showed strong manufacturing growth for the eurozone in October continued to support the euro Friday, even as reports circulated that 25 European banks had failed European Central Bank stress tests. The official results of the tests are due Sunday. Despite inflation remaining extremely low across the eurozone and signs that the recovery is weakening in the single currency bloc, the European Central Bank kept its interest rates unchanged at its monthly meeting. Analysts are now looking for Mario Draghi’s assessment of the extraordinary measures introduced in June and details of any further measures.

In the latest Wall Street Journal survey of 13 economists who closely watch BOJ policy, nine of them said the central bank has effectively pushed back the time frame for achieving 2% inflation to “three years” from “two years,” as its price target appears increasingly hard to meet.

“‘About two years’ is a fuzzy concept that probably means they think they can achieve the goal at some point within fiscal 2015,” ending in March 2016, said Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute.

The BOJ has already muddied the waters surrounding the time frame through the language used in its price forecasts and by the governor himself. People familiar with the bank’s thinking have also said that BOJ officials are using a much looser concept of the price target timetable than a strict interpretation of a spring 2015 finish line.

AUD/USD Weekly Fundamental Analysis, October 27-31, 2014, Forecast

The AUD/USD gained 31 points to reach 0.8792 after Chinese PMI numbers printed at forecast.  The Reserve Bank will now be mulling over its forecasts for the November statement on monetary policy which will be released on November 7.  Despite some significant changes in markets and likely the underlying forecasts for the Australian dollar and commodity prices we do not expect them to change their core views. These are that growth will be well below trend in the second half of 2014; remain below trend in 2015. The fall in the Australian dollar will impact forecast considerations? Consider the discussion on growth in the May statement where the Australian dollar had risen from TWI 69 and $US0.89 in February to TWI 71 and $US0.93 in May.

Recent statements from the RBA seem to confirm that it is likely to maintain its downbeat forecasts in the November statement.  The lower Australian dollar and the fall in the oil price are likely to see the RBA stick with its call of 2.75 per cent for underlying inflation in 2015. That forecast does match our own forecast for underlying inflation in 2015 of 2.8 per cent.

There are no major economic indicators in the coming week. But the economy is generally seen as a puzzle, and to reveal the picture behind the puzzle, there are a number of things to watch over the coming week. The consumer price index (CPI), a key measure of inflation, rose 2.3 per cent in the year to September, the Australian Bureau of Statistics said on Wednesday.

The headline CPI was expected to rise by 0.4 per cent in the December quarter for an annual rate of 2.2 per cent, according to an AAP survey of 13 economists.

The ABS said seasonally adjusted CPI rose 0.1 per cent in the September quarter, and was up 2.2 per cent in the 12 months to September.

NZD/USD Weekly Fundamental Analysis, October 27-31, 2014, Forecast

The NZD/USD gained 33 points to trade at 0.7855 ahead of the central bank rate decision this week. New Zealand’s trade deficit widened more than expected in September as falling prices for logs and dairy products weighed on exports while imports were boosted by an incoming aircraft.

The kiwi’s trade deficit widened to $NZ1.4 billion ($A1.30 billion) in September, from a revised August deficit of $NZ489 million and a shortfall of $NZ221 million in the same month a year earlier, according to Statistics New Zealand. That was nearly double the $NZ700m deficit forecast in a Reuters poll of economists.

Exports fell 5.3 per cent to $NZ3.61 billion from the same month a year earlier, just above the Reuters forecast of $NZ3.5 billion. Imports rose 23 per cent to $NZ4.97b, beating the $NZ4.2 billion expected in the Reuters poll. Excluding large aircraft, imports rose 13 per cent to $NZ4.5b.

New Zealand has benefited from strong terms of trade this year as demand for dairy products and logs in China bolstered exports, while a historically high kiwi dollar keeps down the cost of imported goods

USD/JPY Weekly Fundamental Analysis, October 27-31, 2014, Forecast

The USD/JPY ended the week back over the 108 level trading as high as 108.3 as the US dollar reasserted its dominance. The Federal Reserve may provide some clarity next Wednesday with the release of their latest monetary policy statement. Markets expect the Fed to fully wind down their once-massive quantitative easing program, but opinions are divided about whether policy makers will signal that interest rates will begin to rise before next summer. Recent US economic data has been mixed, and with the nation’s sluggish economic recovery jeopardized by growing problems in Europe and elsewhere, the Fed may be reluctant to tighten in the first half of 2015. In economic news, US new home sales inched up 0.2% to an annual rate of 467,000 in September from the revised August rate of 466,000.

The dollar finished the week 1.1% higher against the yen Friday afternoon, benefiting from strong economic data out of the U.S. and Europe. As risk aversion has faded USDJPY has shifted back to trading on fundamentals, driving it higher. This week is an important one, with significant data releases, including retail sales, industrial production, national CPI, household spending and the jobless rate.

EUR/GBP Weekly Fundamental Analysis, October 27-31, 2014, Forecast

The EUR/GBP will open the new week at 0.7876 as the pound remained weak after retail sales tumbled and the euro rebounded for no specific reason ahead of the ECB stress test results due on Sunday. he results of the ECB’s check-up on banks will be made official on Sunday. 105 banks passed the test, while 25 banks are said to fall short of ECB standards, Bloomberg reports.

Meanwhile, sluggish earnings results from some of Europe’s key companies are also raising fears about the health of the global economy.

News of another high-profile Ebola case in the US also had investors on edge today, while relatively upbeat German consumer confidence figures were brushed aside.

In economic news, German consumer climate for November improved unexpectedly, survey data revealed. The forward-looking consumer confidence index rose slightly to 8.5 in November from 8.4 in October, market research group GfK said. The score was forecast to fall to 8.

The UK economy grew at a slower pace in the third quarter, preliminary estimates from the Office for National Statistics Office showed. Gross domestic product climbed 0.7% from the second quarter, when it grew 0.9%.

USD/CAD Weekly Fundamental Analysis, October 27-31, 2014, Forecast

The USD/CAD gained on Friday to close the week at 1.1241 after the Bank of Canada meeting and stronger US data. The dollar weakened against other major currencies on Friday in cautious trade ahead of next week’s Federal Reserve monetary policy meeting, expected to mark an end to its massive asset-purchase program.

Crude oil and gold both ended the week on down notes weighing heavily on the Canadian dollar. Traders also looked ahead to the first reading of third-quarter gross domestic product in the United States and August GDP data for Canada.

The oil boom that powered Canada’s recovery from its 2009 recession is turning into a bust for the nation’s dollar. Canada’s currency tumbled this month to a five-year low of C$1.1385 per U.S. dollar as the price of oil, the country’s biggest export, fell 30% from a June peak. Without a sustained increase in crude, the local dollar will weaken at least another 4% to C$1.18, according to Toronto-Dominion Bank and Royal Bank of Canada, the nation’s two biggest lenders.

EUR/USD Weekly Fundamental Analysis, October 27-31, 2014, Forecast

The EUR/USD closed the week on a positive note at 1.2669 after rumors that only 25 banks failed the ECB stress test ahead of the actual release which is scheduled for Sunday. The results of the ECB’s check-up on banks will be made official on Sunday. 105 banks passed the test, while 25 banks are said to fall short of ECB standards, Bloomberg reports. Meanwhile, sluggish earnings results from some of Europe’s key companies are also raising fears about the health of the global economy. Analysts are confident that because banks have been taking action for months now to plug any holes in their balance sheets, there will not be any nasty surprises.

News of another high-profile Ebola case in the US also had investors on edge today, while relatively upbeat German consumer confidence figures were brushed aside.

The euro rose on Friday ahead of an official report on the health of the euro zone’s main banks as investors continued a trend of covering their short-positions leading to buying of the currency against the U.S. dollar. The dollar weakened against other major currencies Friday in cautious trade ahead of next week’s Federal Reserve monetary policy meeting, expected to mark an end to its massive asset-purchase program.