The FX Data Week Ahead
Matthew Weller | Nov 17, 2014 04:43PM ET
On a month-to-month basis, the first week of each month has historically been the most impactful for FX traders. Major events like the US Non-Farm Payrolls report, ECB and BOE meetings tend to cluster in the first week of the month, leading to elevated volatility and creating many short-term trading opportunities. While these opportunities will not fade any time soon, traders should also keeping a closer eye on the third week of the month as well. With global central banks shifting their focus to inflation figures, CPI and PPI readings (which are typically released in the third or fourth week of each month) are growing in importance.
This week brings the highly-anticipated release of the PPI (Tuesday) and CPI (Thursday) readings, as well as the minutes from the previous FOMC meeting (Wednesday) from the world’s largest economy. If these reports show even a hint of increasing inflation expectations, it could propel the USD rally to new highs.
Shifting our focus to emerging markets, there are two potentially important central-bank meetings scheduled along the 30 degree longitude parallel.
USD/ZAR: CPI and SARB on Deck
Starting in the south, South African has two key economic announcements this week. First, traders will get their latest look at consumer prices in October (8:00 GMT on Wednesday). Inflation has been ticking lower since peaking at 6.6% y/y in Q2, dropping to 5.9% in September; the South African Reserve Bank (SARB) explicitly targets a range of 3-6% for inflation, and with oil prices dropping sharply over the last few months, inflation should continue to moderate heading into the end of the year.
More importantly, the SARB will complete its final monetary policy meeting of the year on Thursday. The central bank is not expected to change interest rates from their current level of 5.75%, but it may revise down its expectations for GDP growth and inflation moving forward.
Turning our attention to the chart, a drop in actual or forecasted inflation this week could reinvigorate USD/ZAR’s recent uptrend. Rates pulled back to the 50-day MA near 11.08 last week, but the pair is bouncing from that support level today, and the RSI indicator remains in bullish territory (>40). Overall, a recovery toward the 6-year high at 11.40 is favored as long as rates remain above the 11.00 level, and this week’s economic data may provide the catalyst to drive the rand lower.
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Source: FOREX.com
USD/TRY: CBRT
The other EM central bank that will announce its monetary policy decision on Thursday is also on the 30 degree longitudinal line. The Central Bank of the Republic of Turkey (CBRT) will have to weigh the toxic trio of rising inflation, rising unemployment, and economic contraction in its upcoming meeting. Expectations are for no change to monetary policy, though a case could be made for a modest interest rate cut to try to stimulate the economy and labor market.
Regardless, USD/TRY is consolidating in the middle of a developing symmetrical triangle on the daily chart, suggesting a neutral bias is appropriate for now. A surprise cut could drive USD/TRY to the top of its range near 2.27, while a more optimistic economic assessment from the CBRT may take rates down to the bottom of the triangle at 2.20. Either way, longer-term traders may want to wait for a breakout from the triangle pattern for more certainty before trading in either direction.
Source: FOREX.com
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