Daily FX Trading Update: Japan Slips Back in Recession – Nov. 17, 2014

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Daily FX Trading Update: Japan Slips Back in Recession - Nov. 17, 2014

Profit-taking and FX trading risk appetite combined forces to weigh on the US dollar last Friday, even as the economy posted stronger than expected reports. Consumer spending picked up by 0.3%, as shown by the headline and core retail sales figures, while consumer confidence improved from 86.9 to 89.4. This sets the tone for stronger overall growth in the US, which could keep the Fed on track to taper sometime next year. For today, only the industrial production and capacity utilization reports are due.

The euro staged a strong recovery towards the end of the FX trading week, as the region managed to avoid posting a negative growth figure. Germany showed a 0.1% expansion while France chalked up stronger than expected 0.3% GDP growth, allowing the euro zone to post a 0.2% GDP reading for Q3. The final CPI also came in line with expectations at 0.4% instead of reflecting weaker inflationary pressures. Italian and euro zone trade balance are up for release today, along with a speech by ECB Governor Draghi.

FX Trading Fundamentals

The pound took a break from the recent FX trading selloff and made a small pullback to the dollar while consolidating to the yen. UK construction output was weaker than expected at 1.8% versus the estimated 3.7% increase for the third quarter. Earlier today, the UK Rightmove HPI indicated a 1.7% decline, weaker compared to the previous 2.6% gain. No other reports are up for release from the UK today.

The franc continued its advance against the dollar and the euro on Friday, still supported by hopes of a gold referendum and lower odds of SNB intervention. There were no reports released from Switzerland then, as the franc also drew support from the fact that the euro zone economy didn’t contract recently. For today, there are no reports due from the Swiss economy.

The yen gained FX trading ground during the release of the latest GDP report from Japan, as the economy fell back in recession, which lowers the odds of another sales tax hike next year. The economy contracted by 0.4% for Q3 while the previous quarter’s reading was downgraded from -1.7% to -1.8%. There are no other reports due from Japan today, leaving traders to price in expectations for Prime Minister Abe’s announcement regarding a snap election and delaying the tax hike.

The comdolls regained ground on FX trading risk appetite, as the Loonie got an additional boost from stronger than expected manufacturing sales data. The report marked a 2.1% gain versus the estimated 1.3% increase. There are no major reports due from the comdoll economies today, leaving risk sentiment at the driver’s seat of price action.

To contact the reporter of the story: James Brennan at james@forexminute.com

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.