It would seem that the week on Friday should have been boring, but dollar sales on the weak USA consumer price index indicators breathed life into quotes: inflation continues to decline, and the question of what will happen with the Fed's interest rate after the December FOMC meeting is getting sharper and sharper ...
Inflation can split the unity of the FOMC
On Wednesday, the minutes of the FOMC meeting (three weeks ago) of the US Federal Reserve were published. The minutes continue to signal an impending increase in the interest rate in December. The closer December, the more the market will be concerned with the question “what will happen after", as it usually happens with events, the chance of occurrence of which is over 80%.
According to CME Group, futures are 80% confident that the Fed’s rate will be raised (it's reduced from the previous week)
Nevertheless, discussions and disputes over inflationary perspectives continue to occur, and so weak inflation may prove to be a stumbling block for the subsequent tightening of monetary policy for a long period.
The dominant US statistics of this week was presented on Friday, up-to-date data of the consumer price and retail sales index were published to the attention of the market. And if the reduction in retail sales does not raise any additional questions, then another reduction of inflationary pressure triggers a number of questions - is everything okay inside the FOMC? Inflation is perhaps the most significant argument that can turn the Fed's monetary policy from tightening to neutrality.
Catalonia under the ultimatum
Market participants still expect the ECB to declare a reduction in incentive measures, while Mario Draghi, speaking at an event of the Institute of International Finance (IIF) in Washington, on Thursday, confirmed that the Central Bank would continue to buy back assets until he sees a sustainable improvement of inflation expectations.
Meanwhile, Bloomberg sources say that the ECB's leadership is considering the possibility of reducing the monthly volume of redemption of bonds, at least by half, from January 2018.
Reducing the redemption of assets to 30 billion euros per month from the current 60 billion euros per month is an option, sources note.
Also, the ECB is considering the possibility of extending the duration of the QE program by nine months, sources said.
Carlos Puigdemont, the head of the government of Catalonia, after the referendum, recognized the desire of the “millions of people” of the autonomy to secede from Spain, but did not proclaim independence as it was expected earlier: he signed a declaration of independence and continues to await a dialogue with Madrid. Madrid, in turn, issued a 5-day ultimatum in order that the head of Catalonia explain his position and noted that the proclamation of the independence of the autonomous region is fraught with the introduction of direct rule by Spain in accordance with the country's constitution.
Pound will wait until next week
The pound decided to recoup a few losses from last week and started its growth on Tuesday, after publishing data on the growth in industrial production. Against the background of expectations of an increase in the interest rate by the Bank of England, a slight deviation of data above the forecast was accepted by the markets anomalously positively:
Manufacturing Production m/m 0.4% against 0.2% previous
Industrial Production m/m at the forecast level of 0.2%
Perhaps this is the only significant publication for GBP this week, but the lack of data will be replenished already on Monday: Mark Carney will make a speech next week, inflation data, retail sales, and labor market statistics will be published.
Report on transmitted trading signals
Additional general comments on trading signals, with the purpose of increasing the understanding that occurs among subscribers related to trading signals.
The week was supposed to pass enough quietly, but then Friday happened ...
We should note the absence of a signal on the SE CPI transmitted on 12 October 2017 with the status Delayed. There was a delay in the data from the providers (although the trigger was broken through), and the signal transmission was canceled by the system since the reaction of the pair occurred before the reaction from the news flow. Please note that the delay may pertain to exotic currency pairs, as well as for Australian statistics (except for its interest rate).
Conclusion: do not leave the system unattended and always cancel the trade if you see the movement of the trading pair before the signal.
A Friday’s US CPI - CORE [M/M] signal, which was issued simultaneously with another US report US RETAIL SALES [M/M], turned out to be a good one. A conflict prevention system was working, but fortunately, both indicators were published below the forecasts. The trading signal was caused by the deviation in CPI: -0.1% of the fact from the forecast. Against the backdrop of the Fed's worries about inflation, the decline in the consumer price index below the forecast instantly caused a sell-off of the dollar:
US CPI - Core [y / y] 1.7% (-0.1%) 1.8% 1.7%
US CPI [y / y] 2.2% (-0.1%) 2.3% 1.9%
US CPI [m / m] 0.5% (-0.1%) 0.6% 0.4%
US CPI-Core [m / m] 0.1% (-0.1%) 0.2% 0.2%
The whole package in the "red" allowed enjoying sales at the first level of the S1 trigger
Please note that, before the trade, sales on US RETAIL SALES [M/M] seemed very doubtful, as a number of weather events in the USA threw this indicator out of its usual stride, so the decline in this indicator would not leave anybody perplexed - "what retail sales can be in such natural conditions"!
For other signals, the deviation of the fact of the news from its forecast did not exceed/was not equal to the set triggers, accordingly, there were no safe conditions for trade.
Calendar of upcoming trades
NZ CPI, Tuesday, the key indicator - quarterly inflation rate
UK CPI, Tuesday, the key indicator
UK Average Earnings, Wednesday, the key indicator
US EIA Crude Oil Stocks Change, Wednesday, not recommended for trading
AU Employment Change, Thursday, not recommended for trading
UK Retail Sales, Thursday, the key indicator
US EIA Natural Gas Storage Change, Thursday, recommended for trading only in summer
CA CPI + CA Retail Sales - Core, Friday, a special case of double publication, a conflict prevention system works, in view of this there is a low probability signal.
The full calendar on the page of trading signals.
Please note that for each indicator there is a trading plan-description on a separate page, which is available through the link from the calendar.
Special opinion: what to look for in the market sentiment trading next week
Attitude to the pound will be exacerbated before the meeting of the Bank of England and any messages from its management. A message about "the rise in the interest rate in the coming months" tingled in the ears of the market. Nevertheless, the news about Brexit remains risky, for example, the EU representative Michel Barnier said that there was insufficient progress in Brexit negotiations, which weakened the pound, and the German Handelsblatt reported: “The European Union can offer Britain a two-year transition Brexit deal” that was followed up with the quotes of sterling.
In view of this, on Tuesday, data on British inflation will be considered by the markets particularly acute! Now inflation is quite high at 2.9% and if we see another excess of the fact of the indicator over its forecast (even by + 0.1%), this will be an excellent signal to buy, as it will exert strong pressure on the Bank of England. The same applies to retail sales scheduled for Thursday.
Markets will also be preparing for the publication of New Zealand's quarterly inflation report on Tuesday, and since the Reserve Bank of New Zealand is in a zone of uncertain neutrality, the publication of the consumer price index for the third quarter of 2017 could provoke a significant correction in market expectations. Since NZDUSD has shown irrational growth this week, the CPI data below the forecast may be the most pleasant ones for volatility, which could significantly undermine NZD. We will perceive the sales scenario on this trading signal as optimistic.
The Bank of Canada still hesitates in monetary policy, follows the situation, and for this reason, Friday for the USDCAD can be extremely volatile, CPI and Retail Sales have been prepared for publication. The bank is neutral, which means that any deviation will be a good precursor of strong movements, but we do not single out this signal for attention, since releases are parallel: a conflict prevention system is activated, which significantly reduces the chance of a signal, not so because of a possible conflict between them as because of the temporary backlash between publications, which can also cancel the signal.