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Weekly Digest - CPI readings, Markit PMIs and NFP jobs data

Wednesday, January 8, 2020 4:21 PM GMT

Introduction 

During the open trading-sessions before and after the new year celebrations, the forex markets experienced significant volatility offering up tremendous opportunities, for both Traders and Investors in the ZuluTrade copy-trading community, to bank considerable profits. As suggested in our previous weekly digest communique; Asian countries don’t necessarily celebrate the Christmas period in the same manner as western nations, the economic powerhouse China simply conducts business as usual. And it was China’s decision, whose central bank announced a significant monetary stimulus package in order to bolster growth, which caused the risk-on sentiment in western markets to recommence, as we entered the New Year. 

China’s central bank, the PBOC, made the surprise announcement overnight on January 1st that it was lowering the amount of cash Chinese banks were required to hold, the eighth time such a decision has been enacted since 2018, which will free up approximately $115 billion for business lending, to boost the Chinese economy.  The decision was particularly bold based on the fact that China’s economy appeared to be stabilizing. The move by the PBOC was translated by analysts as an indication that Chinese authorities have confidence that the USA v China trade war and tit for tat tariff issues, will also be resolved. 

CopyTrade Economic News at ZuluTrade

The bullish and optimistic start to 2020 was short-lived, the risk-on sentiment was cut short overnight on Thursday when news broke that USA forces had assassinated a prominent Iranian military figure general, Qassem Soleimani, in Iraq. The news caused oil to spike in price, whilst USA equity market futures immediately sold off, particularly the NASDAQ 100 which is highly sensitive to supplies from overseas and overseas sales markets. Oil, both Brent crude and WTI, rose by up to 4.5% as the news of the military action broke. 

However, the rise in oil price was modest in comparison to the spike after a Saudi oil refining facility was taken out in September 2019  when the price of oil surged by the largest amount most on record, circa 20%, after the devastating attack increased concerns about the instability in the world’s most important crude oil producing region. The September attack was deliberately timed to derail the huge Saudi Aramco share floatation and Iran was blamed by the USA for the attack. Therefore, for analysts and market commentators scrambling for a reason why the Iranian general and several of his guards were assassinated, the September attack could have been the motivation for the delayed retaliation.


In our recent weekly digest communiques, we’ve discussed the subject of save haven securities and their correlated behavior in relation to other riskier securities. The rush to safe havens was immediate, after news broke of Qassem Soleimani’s death. Investors and Traders sought refuge in both precious metals, such as gold and Japan’s yen, which is often the currency of favour during times of market turbulence caused by geo-political events.

CopyTrade Economic News at ZuluTrade 

The rise of JPY during Friday’s sessions, capped an excellent week of currency-trading opportunities for ZuluTrade Traders and Investors in the copy-trading industry who remained alert to the wide-ranging movements. Accessing this link will reveal which Traders in ZuluTrade identified the rise in JPY and took advantage of the trading conditions.  It’s also worth noting that the proprietary, algorithmic, tool our technical engineers have developed, ZuluGuard, can prevent you from being exposed to excessive movements, which occur in the opposite direction to your position, if utilised correctly.  

As illustrated in the chart above, GBP/JPY sold off sharply, by -0.95%, during the day’s trading sessions, this pattern was replicated in other currency-pairs, where JPY was the counter-currency. The time-frame used is a 2hr time-frame, a frame often preferred by both day-traders and swing-traders as in their opinion it filters out the trading noise and perfectly chimes with the opening of FX trading sessions, from east to west. Using a combination of MACD, ADX, DMI, RSI, PSAR, Bollinger Bands and simplifying price-action by way of Heikin Ashi bars, is often cited by Traders who favour deep technical-analysis, as a combination which generates strong decision-making criteria, if Traders make their decisions when all the signals align. 

Are crypto-currencies also developing safe haven status? 

We’re not the only analysts who’ve noted that during times of market turbulence brought about through global events, crypto-currencies such as bitcoin appear to developing safe-haven reputations.  

CopyTrade Economic News at ZuluTrade

Unlike national currencies, bitcoin isn’t linked to a particular government, or national economy. There’s also the issue of an ultimate cap on supply. Crypto-coin investors claim this gives the investment a value similar to precious metals, such as gold. Bitcoin has also shown an inverted  correlation to equities’ behaviour recently. However, there’s a counter theory which gained traction, as stocks slipped on Friday and BTC/USD rose. Certain analysts suggest rises don’t reflect cryptocoins’
 safe-haven credentials, but simply accentuate the potential for quick gains.

Economic calendar events and data releases this week which are likely to impact markets 

Monday January 6th begins with the publication of European data including German retail sales figures, expected to reveal a marginal improvement to 1.0% growth year on year up to November. The Sentix investor confidence reading for the EZ is expected to reveal a sharp rise, to 2.6 for January, a reading which (if met) could cause EUR to rise. 

Several Markit PMIs are also published, covering both the Eurozone and U.K. economies. The majority of the readings are forecast to reveal little change, although focus will be on the U.K. services PMI metric, which is forecast to show a modest improvement to 49.1 from 49. Still below the critical 50 level which separates contraction from expansion. The U.K. service sector accounts for close on 80% of the U.K. economy, therefore, if this metric misses or beats forecast GBP could react accordingly. 

On Tuesday January 7th the U.K. parliament returns from its recess, naturally, any Brexit statements or developments, as the U.K. prepares to exit on January 31st, could affect the price of GBP. The Swiss franc, CHF, will come under scrutiny as European markets open, due to the publication of the Swiss economy’s latest inflation data. EZ CPI will also be published later in the London-European session, expected to show a rise to 0.3% in December from -0.3% in November, a result which could impact on the value of EUR. Retail sales for EZ are also predicted to show a reversal to growth, from -0.6% to 0.6% in November. 

CopyTrade Economic News at ZuluTrade

In the New York session two data releases pertaining to the USA economy will be of interest, namely the trade balance (deficit) which is forecast to reduce to -$43.9b for November, and the latest ISM non manufacturing metric, expected to improve to 54.5. The latest USA factory orders for November are predicted to show a fall of -0.7% with USA durable goods orders to fall by -2.0% for the same month. A combination of data beating forecasts could be bullish for USD

Wednesday January 8th should reveal that German factory orders in November have improved to 0.2% from -0.4% according to Reuters, a result which could impact on the price of EUR. As the New York session opens USA data including: mortgage applications, the ADP employment number, crude oil inventories and consumer credit, will come under scrutiny. 

Thursday January 9th begins with a raft of German economic data for November, published at 7:00am U.K. time including: industrial production, trade balance, imports and exports. The overall analysis could impact on the value of EUR, based on Germany’s position as the powerhouse of EZ growth. The outgoing Bank of England Governor, Mark Carney, will deliver one of his final speeches in London, naturally, analysts will listen carefully for his opinion on the impending January 31st E.U. exit and Traders will quickly price sterling accordingly. 

North American data published in the afternoon session will mainly focus on Canada’s housing sector data; both housing starts and permits for November are expected to reveal a significant improvement, which could cause CAD to adjust versus its peers. Both new unemployment and continuous unemployment claims are forecast to reveal modest improvements in the USA, when the data is published. 

Friday January 10th is a day when analysts and Traders will mainly concentrate on employment and unemployment data relating to the Canadian and USA economies. Traditionally, the first Friday of the month coincides with the publication of the up to date NFP job creation statistics. Reuters are forecasting a number of 162k for December, from 266k in November. How such a number (if met) will be analysed will be curious to witness. Will Traders deduce that the bulk of seasonal employment occurred in November, or will such a number be regarded as disappointing? 

CopyTrade Economic News at ZuluTrade

Canada’s latest unemployment and employment data is predicted to reveal significant improvements. The overall unemployment rate is expected to fall to 5.8%, employment growth up by 25k in December. Both positive metrics could cause CAD to rise, if the predictions are met or beaten.

Disclaimer

The views expressed do not constitute investment or any other advice /recommendation /suggestion and are subject to change. Reliance upon information in this material is at the sole discretion of the reader. Opinions expressed in the report do not represent the opinion of ZuluTrade Copy Trading Platform and do not constitute an offer or invitation to anyone to invest or trade.

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