Key Fundamental Factors this Week (10/27-10/31)

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Key Fundamental Factors this Week (10/27-10/31)

In a light week of US fundamental factors, the USD was mixed. We also had some better than expected data in the Eurozone, but they were nothing to write home about. The EUR was still pressured. This week will likely shake up the USD with several data points and most importantly the FOMC decision and statement – markets believe the Fed will announce its intent to completely wind down QE.

Monday (10/27)

German Ifo Business Climate (October)
Forecast: 104.6
Previous: 104.7
german ifo business climate

(click to enlarge; source: forexfactory.com)

US Pending Home Sales (September)
Forecast: 1.1%
Previous: -1.0%

Tuesday (10/28)

US Durable Goods Orders m/m (September)
Forecast: 0.4%
Previous: -18.4%
Core Durable Goods Orders m/m (September)
Forecast: 0.5%
Previous: 0.4%
Durable goods data has been volatile because of July’s surge in aircraft sales, which explains the strong data in July and then the -18.4% in August. September data is suppose to stabilize a bit, but still support a strong USD unless sales growth was much lower than expected.

US Conference Board Consumer Confidence (October)
Forecast: 87.4
Previous: 86.0
consumer confidence US

(click to enlarge; source: forexfactory.com)

The USD should continue to benefit from good confidence data. The 86.0 reading in September came off a high on the year at 92.4, which was also the highest since Oct. 2007.

Wednesday (10/29)

The FOMC is scheduled to meet due on Tuesday. The bank is expected to hold rates but finalize tapering of QE. There have been some dissent within the committee but it looks like QE will indeed be completed done with, a scenario that should keep the USD strong. On the other hand, not completely tapering QE can be very USD-negative. The other key theme will be the timing of the next rate hike, which seems to be shifting further from mid-2015. If the FOMC still sees mid-2015 as the timeline, the USD should remain strong.

The RBNZ is scheduled to vote on its monetary policy. It is expected to hold rates at 3.50%. Inflation has been sliding, and the economy is adjusting to the bank’s rate hike campaign earlier in the year. It is now in a wait and see mode. The RBNZ statement is not likely going to be hawkish this time around. We should not expect much from it. However, we should note that the past couple of statements have mentioned the strength of the NZD as an issue. The bank will likely continue to say that the kiwi should be lower, but if it doesn’t we can expect the currency to stabilize and find reprieve after a few sharply bearish months.

Thursday (10/30)

German Prelim CPI m/m (October)
Forecast: -0.1%
Previous: 0.0%
Inflation has been flat in the previous couple of months and the CPI is expected to dip slightly in October. Growth and inflation data out of Germany and the Eurozone in general have been soft, indicating that the ECB will remain in a period of stimulus measures and possibly even add QE to the mix.

Germany’s economy is teetering on recession, and if inflation becomes negative, we should see continuing pressure on the euro.

Advanced US GDP q/q (Q3)
Forecast: 3.1%
Previous: 4.6% (revised up from 4.0%)
us gdp q3

(click to enlarge; source: forexfactory.com)

Jobless Claims this Week:
Forecast: 277K
Previous: 283K

Janet Yellen is due to speak in Washington DC. The event is not based on monetary policy, so we shouldn’t expect much from this. But it is always good to watch her tone and assess whether they bank is still projected to raise rates mid-2015.

Friday (10/31)

AUS PPI q/q (Q3)
Previous: -0.1%

The Bank of Japan is scheduled to meet to discuss monetary policy and is expected to vote on extending its historic stimulus measures. Any mention of a shift away from the current pace of stimulus will likely give the JPY tremendous strength.

EU CPI Flash Estimate y/y (October)
Forecast: 0.4%
Previous: 0.3%
Core CPI Flash Estimate y/y (October)
Forecast: 0.8%
Previous: 0.8%

If the annual CPI does indeed rebound to 0.4% in October, the EUR might see some temporary relief. Otherwise, data this week, which are all likely to remind the market of the vulnerable economy in European, should keep the EUR pressured.

CAN GDP m/m (August)
Forecast: 0.0%
Previous: 0.0%
CAN GDP

(click to enlarge; source: forexfactory.com)
The Canadian economy is at a standstill in terms of GDP growth. Two consecutive flat months means that the Bank of Canada will not likely be considering rate hikes any time soon.

US UM Consumer Sentiment (Revised)
Forecast: 86.4
Previous: 86.4
umich sentiment

(click to enlarge; source: forexfactory.com)
This index marks sentiment at the highest this year, and second only to a higher reading in 2013, in the past 7 years.

EUR and USD outlook:
With the USD consolidating its gains and EUR rebounding against losses, this week’s data has a good chance of breaking these consolidation and initiating a continuation of USD-strength and EUR-weakness.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.