WEEK AHEAD: NOV 22

Short Description

Fed minutes, RBNZ & EUR/GBP...

Video Script

Hi everyone, welcome to another preview of the week ahead in forex and financial markets. I’ll be discussing the extreme weakness of the euro and strength of the British pound, as well as oil prices finally getting a more sustained backpack. Then of course I’ll highlight the data you need to watch in this week’s economic calendar including the RBNZ meeting and FOMC minutes. Stay right there!

 

The euro has been looking soft for a while but the decline really hit an extreme this week. EUR/USD hit a 16-month low, EUR/JPY has fallen 450 pips in the last month and EUR/GBP is back to its lowest since before the covid-19 pandemic. I think we can attribute the euro-weakness to a divergence in monetary policy. Forex traders increasingly don’t respect the inflation-fighting credentials of Christine Lagarde’s European Central Bank, while other central banks like the Bank of England look set to hike rates this year.

 

That’s why I’m especially interested in EUR/GBP. This currency pair has been in a tight trading range around 0.85 for six months but looks like it just broke lower. Beyond that, 0.83 has been major support since Brexit and if it gives way could open a big new long-term downtrend.

 

The other thing I wanted to touch on was oil. As we all know, the price of oil has been rising furiously, and we asked the other week whether it was heading to 100 dollars per barrel. The price has swung lower on the possibility of a coordinated release of strategic reserves among major countries including the US and China. If this happened, it could undermine the influence of OPEC and see the oil price weaken significantly

 

I will just stop at this point to remind you to give this video a thumbs up but slamming the like button! Thanks very much!

 

Let's switch gears to this week’s economic calendar highlights. The big data is really clustered in the first half of the week. We kick off with the PBOC rate decision on Monday but consensus is for no change. More interesting will be the services and manufacturing PMIs out of Europe, the UK and the US. Purchasing managers have remained remarkably optimistic despite the supply constraints so I’m just looking to see if there are any signs that optimism is fading to give us some clues on what to expect as far as economic growth in the fourth quarter.

 

The Reserve Bank of New Zealand decides rates on Wednesday and things could get a little spicy! A recently-released survey carried out by the RBNZ showed inflation expectations in New Zealand have reached a 10-year peak. Respondents now expect 2.96% inflation in two-years time. There is now speculation the central bank could hike 50 basis points to help lower those expectations but it seems like a quarter-percentage point hike is in the bag. Later on Wednesday the preliminary US Q3 GDP release is expected to stay unchanged from the 2% advance number.

 

Then the big one is the FOMC minutes. As usual they will be a bit stale because the decision to begin tapering QE but talk down chances of a rate hike was made before the release of the big 6.2% October CPI number. Still they could still be a market-mover if the talk amongst policy-makers differs from the quite dovish official statement.

 

Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.