USD/CAD Fundamental Analysis December 19, 2014 Forecast

The USD/CAD eased a bit after traders pushed the pair too high on the stronger US dollar. The recovery of oil prices also helped support the CAD which is trading at 1.1583. Oil prices rebounded a bit as traders attributed the rebound to traders who had bet on lower prices closing out positions. Oil prices have plunged nearly 50% since June to the lowest level in more than five years.

It’s generally expected the Fed will move to hike rates sometime next year, around mid-2015. But a string of strong economic data points, including November’s blowout employment report, had suggested the Fed could move to increase rates sooner than expected. The Fed also said that the timing of such increases depends on economic data.

Meanwhile, inflationary pressures in the United States remain very tame. The consumer price index for November was down 0.3 per cent from the month before. Economists had expected a drop of 0.1 per cent. Inflation rose at an annualized pace of 1.3 per cent. That is well below the two per cent level that the Federal Reserve and most other central banks target.

Thanks to the pressure in the commodity sphere, the currency has acted as a tailwind for Canadian investors who’ve invested in the U.S market. Recently, the Canadian dollar hit a five-year low versus the USD, and this decline has significantly accentuated USD-based stock returns.

EUR/GBP Fundamental Analysis December 19, 2014 Forecast

The EUR/GBP dipped a few points to trade at 0.7879 after UK retail sales soared above expectations. Monthly and Annual data was much better than expected. Retail sales rose at their fastest annual rate in more than 10 years in November, thanks to the effects of Black Friday, official figures show. Sales rose 6.4% compared with November last year, the highest annual increase since May 2004.

A leading European Central Bank member told The Wall Street Journal, sent one of the clearest signals to date that the ECB is poised to embark on large-scale asset purchases early next year, as the bank grapples with a weak economy and dangerously low inflation.

ECB Coeure also provided details of the ECB’s plans to publish minutes of its policy meetings starting next year, saying the accounts should be released four weeks after meetings and will be “substantial” in providing the balance of views among officials. ECB President Mario Draghi, have signaled that the bank is ready to embark on broad-based asset purchases, known as quantitative easing, if needed to keep inflation from staying significantly below the ECB’s target of almost 2% for too long.

GBP/USD Fundamental Analysis December 19, 2014 Forecast

The GBP/USD gained just a bit showing little reaction to the strong retail sales print today. The pair reached 1.5650. Consumer sales are up by an astonishing 6.4% year-on-year. That’s the strongest increase since mid-2004. Analysts were expecting retail sales to rise about 4.4% in November compared to last year. Christmas shopping typically gets underway at around this time of year. Sales had risen 4.6% on the year in October.

Black Friday hit the UK much harder than people had expected, and that had a massive effect. Spending on electrical goods rose 32% compared to November last year.

The pair had dropped 1.12% after the FOMC meeting boosted the overall confidence towards the US economy and its currency. Meanwhile, the BoE are still divided on rate hike and nation’s inflation is seen falling below 1% amid plunging oil prices.

The vote of the MPC remained unchanged in December, with the majority of policy makers believing that weak inflation outlook warranted maintaining interest rates intact at all-time low of 0.5%. The BoE officials, however, voted unanimously to keep the size of its asset purchases unchanged at 375 billion pounds. Martin Weale and Ian McCafferty reiterated their call for a lift in the benchmark rate to 0.75% to keep a lid on future inflationary pressures. Earlier in the week, the Bank of England Governor Mark Carney said the UK economy could benefit from the recent slump in oil prices

EUR/USD Fundamental Analysis December 19, 2014 Forecast

The EUR/USD continued to decline against the strong US dollar and is trading at 1.2330 after mixed comments from many of the EU leadership leaving markets uncertain as to Mario Draghi’s prospects of rolling out massive programs next month. The sell-off in the oil price will push inflation further down in the coming months, to new multi-year lows. To overlook the effect of the lower oil price, we will keep a close eye on core inflation in the coming months. Since the start of the year, core inflation showed signs of bottoming out, which was encouraging, but in the meantime, core inflation is again at its record low level of 0.7% Y/Y. It will be interesting to see whether second-round effects will also push core inflation further down, to new record lows in the coming months.

In the meantime, market-based measures of inflation expectations remain on a firm downward trend, falling to ever new lows, indicating that markets believe the latest ECB actions will be insufficient to tackle deflation risks. The steep downtrend in the ECB’s closely-watched 5yr 5yr forward indicates that inflation expectations are no longer “firmly anchored”, which keeps the ECB under pressure to take further action.

Deflation fears have intensified again in recent weeks as the sell-off in the oil price continues unabatedly, affecting also prices of other commodities. Eurostat confirmed that Euro zone’s consumer prices rose 0.3% in November from the same month last year on falling fuel and heating oil prices, which subtracted 0.22 percentage points from the final result. Measured on a monthly basis, inflation in the Euro bloc fell 0.2%, compared with a 0.1% decline in October. Excluding energy, food, alcohol and tobacco, core consumer prices rose 0.7% in November.

USD/JPY Fundamental Analysis December 19, 2014 Forecast

The USD/JPY  soared to trade at 118.57 after the US dollar climbed on Janet Yellen’s press conference. The US dollar soared to trade above 89.25 and gave back a few points in the Asian session as traders booked profits.  The dollar rose to almost a five-year high as Federal Reserve Chair Janet Yellen indicated that the central bank is on pace to increase interest rates as early as April. The greenback gained against most of its major peers as officials replaced a pledge to keep borrowing costs near zero for a “considerable time” and held the rate at zero to 0.25 percent, where it’s been since 2008.

In Japan imports dropped 1.7 percent in November from the year before to ¥7.08 trillion, declining for the first time in three months as crude oil prices plunged across the globe, government data showed Wednesday. The balance in goods trade remained in the red for the 29th straight month.

EUR/JPY Fundamental Analysis December 19, 2014 Forecast

The EUR/JPY eased by 7 points as the euro fell in Wednesday’s session after Janet Yellen’s press conference.  The euro fell to its lowest level against the dollar since Dec. 9, at $1.2320, after Yellen’s comments. The dollar also rose to its highest level against the Swiss franc since Dec. 9, at 0.9745 franc.

The euro had earlier weakened after a European Central Bank policymaker signaled the likelihood of the central bank purchasing government bonds.

The euro declined after European Central Bank Executive Board member Benoit Coeure told the Wall Street Journal there is broad consensus among policy makers for added monetary stimulus to revive euro-area inflation. ‘It’s not that much of a question on whether we should do something,’’ he said. “but more a discussion on the best way to do it.”

The central bank’s president, Mario Draghi, said on Dec. 4 that “all assets but gold” are under consideration for purchase as officials seek to step up aid to the economy. Coeure’s comments remind the market that European stimulus “is looming, just around the corner, on the day the Fed is thinking about raising interest rates next year

AUD/USD Fundamental Analysis December 19, 2014 Forecast

The AUD/USD recovered to trade at 0.8142 adding 16 points after touching a low of 0.8126. The US dollar surged weighing heavily on the commodity currencies.  Shares, commodities and currencies saw volatile trade late in the US session as analysts tried to make sense of the Federal Reserve’s latest policy statement.

Markets were expecting the statement to provide clear guidance on when the Federal Reserve will raise interest rates from near zero, following improvements in the US economy. The Fed’s statement dropped the “considerable time” phrase and replaced it with a line saying it will be “patient” in normalizing interest rates.

The later rally in the US dollar was sparked by Fed chair Janet Yellen’s press conference, in which she appeared to give clear guidance on when an interest rate rise would be possible. That means January and March are out and April is a possibility. On oil prices, Dr Yellen said the fall in prices was an overall benefit for the US economy and the Fed will look through its effects on inflation.

National Australia Bank says the outlook for growth in Japan and the Eurozone is poor, but recent free trade agreements and population growth should assist Australia amid subdued economic conditions.

Speaking at the bank’s annual general meeting today, chairman Michael Chaney said the global economic outlook was subdued, but Australia could expect reasonable conditions going forward.

“2015 is shaping up to be another year of moderate economic activity in Australia and we expect there to be significant differences between economies and regions around the world,” Mr Chaney said.