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Forex Weekly Outlook 2/15 –2/19: Quick Scan Overview


Stocks, Forex, Commodities Outlook 2/15—2/19: EU Debt Crisis, Other Market Movers

The following is a one-stop quick scan review for quickly grasping the forces shaping global asset markets. See the instrument specific posts today for more detail on specific instruments AND CHARTS at

Here is a summary and analysis of forces and events that moved all global asset markets last week and that frame our understanding of likely market movers this coming week.

Prior Week Key Market Movers


EU Debt Threat: The Dominant Market Mover Since December And Until It Is Resolved


Key Events –Much Talk, No Action Leaves Greek Bond Default On For April


Likely Scenarios Until Resolution


Thus until there are concrete plans in place to calm markets about impending defaults from Greece and the rest of the PIIGS block, there are two likely scenarios:

  • Better Case Scenario: Risk Asset Markets consolidate and establish a trading range, rising to the upper end of the range on news of an impending solution, chopping around when there is no news, falling to the lower end on news of setbacks to a solution.


  • Worse Case: Markets continue to slide on justifiable fears of a Greek default killing demand for PIIGS block government bonds at rates they can afford, risking at minimum a wave of Southern Europe defaults which likely metastasizes into a second global credit markets seizure and markets crash. In the fall of 2008 it only took Lehman Bros collapse, so all of Southern Europe should produce at least as dire results.


The Likely Solution

Coordinated Worldwide Solution: Cash or Guarantees In Exchange For Possible Loss of Sovereignty  See Euro Weekly Outlook: Debt Crisis’ Impending Judgment Day For the Global Recovery

EU leaders will ultimately win this huge game of chicken and scare the rest of the world into sharing the cost by threatening global economic calamity should the PIIGS default, at least to buy time for a more fundamental solution. Expect plenty of drama and volatility as each side attempts to force concessions from the others in order to show their electorates they made the best deal possible and staved off global economic collapse.

To gather popular support from electorates footing the bill, the likely exchange will be effectively surrendering independence to an international trustee that answers to its financial sponsors and not the local electorates.

Other Market Moving Events This Past Week


  1. Fed Chairman Bernanke's appearance before the House Financial Services Committee was cancelled due to a blizzard, although the Fed released his prepared testimony. Key and related points include:


    1. A Tightening Plan But No Dates
    2. FOMC voting member Bullard later suggested that any spike in inflation expectations would cause the Fed to tighten policy even if the unemployment rate is still high.


  1. Towards the end of the week, the People's Bank of China announced to raise the required reserve ratio for commercial banks by +50bps. Investors were upset by the measure as it might slow down growth and demand for commodities. [repeated below consolidate]


  1. A nearly failed US 30 Year Treasury Auction Warns of Waning Demand For US Bonds


  1. Poor EU Economic Data: A raft of disappointing European preliminary Q4 GDP figures out on Friday accentuated the headwinds facing most European nations in their quest to satisfy Maastrict stability criteria.


  1. Commodities: Responded to early week hopes for EU debt crisis resolution and rose in the early part of the week, aided by technically oversold indicators and their being near strong support levels. They stopped climbing when the EU meeting failed to produce results, but mostly held their gains.


Key Market Movers This Coming Week


The First Tier
  • Additional events surrounding resolution of the EU debt Crisis
  • Additional signs of Chinese economic growth or slowdown will be felt strongly by global equities and the Risk Currencies.
  • Risk Sentiment As Reflected in Major Stock Market Indices, especially the S&P 500. Watch the S&P 500 Daily chart, along with the EURUSD, Gold, and Oil Charts for a complete quick picture of how risk sentiment is affecting global stocks, commodities, and forex markets.
  • Government Bond Auctions in the Major Developed World  -Especially Any Hinting At Lack of Demand


Second Tier

Beyond The Above Key Market Movers For Next Week, The Second Tier Market Movers Include:

Other Major Scheduled Economic Events: The big theme on the economic calendar is inflation figures. However, news on the first Tier topics is likely to override these.

  • Monday: JPY: Preliminary GDP q/q,(affects Asian stocks, Yen) NZD:, PPI Input q/q ( affects interest rate increase expectations for the NZD), USD: Bank Holiday-Presidents Day
  • Tuesday: AUD: Monetary Policy Meeting Minutes, NAB Business Confidence Survey, GBP: CPI y/y, BOE Inflation Letter (both affect interest rate expectations and thus the GBP) EUR: German ZEW Economic Sentiment, CAD: Manufacturing Sales m/m, USD: Empire State Manufacturing Index, TIC Long Term Purchases (shows foreign demand for US securities, affects USD)
  • Wednesday: GBP: Claimant Count Change, MPC Meeting Minutes, USD: Building Permits, FOMC Meeting Minutes
  • Thursday: JPY: BoJ Press Conference, CAD: Core CPI, CPI m/m, USD: Core PPI, PPI m/m, Unemployment Claims, Philadelphia Fed Manufacturing Index, AUD: RBA Gov Stevens Speaks
  • Friday: GBP: Retail Sales m/m, USD: Core CPI m/m




US Dollar Weekly Outlook 2/15—2/19: Key Drivers For Coming Week


The US Dollar is involved in over 80% of all forex trade and almost all commodities are priced in it and hence move with it. Thus its movements are critical to virtually all global asset markets, including equities.



US Dollar Outlook: Bullish as long as there is continued risk aversion courtesy of the EU, regardless of how oversold the EUR/USD becomes

-    Events: Tuesday: Net Long Term TIC Flows, Wed. Housing Starts, Building Permits, Thurs. Producer Price Index y/y, Core PPI, Fri CPI y/y, Core CPI

-    US Dollar drops as markets rise on hopes For EU debt solution, rises as hopes dashed, markets tank

-    US Dollar risks pullback in the context of a broader reversal on futures positioning, but only when growth fundamentals improve, for example, concrete plans emerge for EU resolution

-     Fundamentals underlying current risk aversion will last a while, so will USD rally

-     Fed gives plan but no timeframe for stimulus exit, however UK, EU, Japan and Switzerland are also likely to refrain from meaningful hawkish changes,  meaning the USD can keep rates low without pressure from concern about losing its relative desirability to its fellow low yielders.

-     Lurking in the background, however, are the bond markets, and there is evidence that foreign demand for US Treasuries is waning, and that may yet force US long term rates higher. Great for the dollar, but possibly disastrous for US banks as mortgages reset rates go higher and defaults soar with them.

Euro Debt Crisis: Impending Judgment Day For the Global Recovery

EU Debt Crisis  Casts Doubt on Growth, Interest Rates and Financial Stability of EU, Global Economy



Euro Outlook: Bearish

-     Events: Tues- German ZEW Sentiment, EZ ZEW Sentiment, Wed- EZ Construction Output, Trade Balance, Thurs- EZ Consumer Confidence  Fri-German PMI Manufacturing, Services

-    Judgment Day Approaches:Greece needs about € 30 bln just to pay off maturing bonds in April and May, about € 7 bln in its treasury – default likely to quickly spread to all PIIGS block, risk credit market seizure for government bonds, market crash

-    The EU has no clear plan to deal with Greece and rest of PIIGS block debt

-    Weak 4Q GDP readings add another burden to the euro

-   EURUSD’s steady, descending trend channel  to continue until substantive solution for EU debt mess

-   A number of solutions are possible, but all realistic ones are complex and painful


Just six months ago, the euro was prized as the primary alternative to the US dollar (a currency that has fallen from grace since the financial crisis). Today sentiment has shifted against it:

  • There is little sign of a rate hike from the ECB on the horizon for fear of sinking its weakest members
  • There is a widely divergent picture of economic health and needs among the EU members, and the EU has yet to show it can survive a significant economic crisis that exacerbates these differences, and thus…
  • The very stability of the European Monetary Union has been thrown into doubt.
  • There remains less than 12 weeks for Greece to raise about € 30 bln to pay off maturing bonds or default on them, likely causing the rest of the PIIGS block to be unable to sell bonds and quickly send most of Southern Europe into default or impending default.


For a few of the obvious solutions to the Debt Crisis: See Euro Weekly Outlook: Debt Crisis’ Impending Judgment Day For the Global Recovery

As we’ve noted in Stocks, Forex, Commodities Outlook 2/15—2/19: EU Debt Crisis, Other Market Movers, and in Southern Europe Will Not Be Allowed To Default, the final and most likely outcome is that EU leaders convince the rest of the world to share the financial burden of a PIIGS rescue plan in order to avoid risk of global collapse and damage to sovereign bond markets everywhere. This depends on whether the PIIGS will accept effective loss of sovereignty as they are placed under some kind of trusteeship  to ensure donated funds are properly managed. However, it is far from obvious that they would except such a deep blow to their national dignity and such a dramatic drop in living standard that any austerity plan would likely impose

Any of these will take time to develop once/if one of them can be agreed upon, and April is not far off.

Make no mistake: the EU debt crisis (Greece is just the beginning) is THE dominant threat to the current fragile global recovery and dwarfs all other market drivers at this time.

Japanese Yen Weekly Outlook: Funding Currency Role May Limit Upside



Japanese Yen Outlook: Neutral/Bullish Short Term

-Events: Sun GDP m/m annualized, Tues BoJ Monetary Policy Meeting, Wed- BoJ Target Rate, Fri BoJ Monthly Report

- Yen follows risk appetite trends generated by Greek bailout hopes

- USDJPY maintains the general bias but lacks the momentum and volatility of other yen crosses

- JPY ‘s low likelihood of rate increases limits its appeal to that of a funding currency, which  helps it only as long as carry trades continue to unwind,

- USD’s long term appeal is  based less on unwinding carry trade, more on safe haven and ultimately rising yield appeal

-Thus long term USD/JPY outlook is bullish

GBP Weekly Outlook Summary: Trend Bias Down, Subject To Oversold Bounce




British Pound Outlook: Bearish

- Events: Sunday Righmove House Prices,  Tues- CPI, Core CPI y/y, Wed- BoE Policy Minutes, Claimant Count, Jobless Claims Change, Thurs- Major Banks Mortgage Approvals, Retail Sales m/m

- BOE Holds Dovish Outlook, Maintains Option for Further Easing

- UK Retail Sales Growth Worst in 15 Years in January, Says BRC

- RICS Survey Hints UK House Prices May Decline as Supply Outstrips Demand

- British Pound Finds Channel Support, May Bounce Against US Dollar

- Sentiment and Technical indicators suggest further declines vs. US Dollar, Yen in Near Term

- Close ties to troubled Euro-zone don’t help either

- BoE Remains Among Most Dovish Central Banks, the only one still openly considering more QE, pressuring GBP further

Swiss Franc Weekly Outlook Summary: Strengthening After SNB Intervention?




Swiss Franc Outlook: Neutral

-    Events: Mon- Producer and Import Prices, Thurs, Trade Balance, ZEW Economic Sentiment

-    Short term rising vs. riskier fx to SNB dismay, but ties to troubled Euro-zone a fundamental weakness

-    Consumer prices up 1.0% from a year earlier, but down 0.1% in December

-    Retail sales in December up 4.7% following a 0.1% drop in November

-    The Swiss unemployment rate rose more than expected to 4.6% from 4.4%

-    SNB small scale intervention fails to lift EUR/CHF, as risk aversion threatens to overwhelm SNB

-    Though EUR/CHF support at 1.4650 holds

-    SNB continues to fear deflation, attempt intervention

Commodity Dollar Weekly Outlook Summary: Moving With Risk Appetite, Commodity Prices,  China Growth


Canadian Dollar Weekly Outlook Summary:  Following Oil, Risk Appetite, Inflation May Help




Canadian Dollar Outlook: Neutral

- Events: Tues Manufacturing Sales m/m, Wed Wholesale Sales m/m Thurs CPI y/y BoC CPI Core y/y, Fri Retail Sales m/m, Leading Indicators m/m

- International Merchandise Trade declined by 0.2 billion for a consecutive month in December

- Housing starts in January jumped to 186K from 174K

- 50% Fib Retracement Holding as support for good entry point for long Or short play around 1.0533

- Relative Solidity of Canadian economy and banks an advantage, may give CAD safe haven appeal

- Recent positive economic data includes good news in housing starts

- CPI data may pressure BoC  to raise rates sooner than it wants

Australian Dollar  Weekly Outlook Summary: Moving With Risk, Rate Expectations, RBA Minutes



Australian Dollar Outlook: Down/Neutral Moving with risk appetite dictated by EU debt mess, China Growth, Global Stocks

- Events: Mon - RBA Board Feb Minutes, NAB Business Confidence, Tues- DEWR Skilled Vacancies m/m, Thurs NAB Business Confidence Q4

- Home Loans Contract as Rates Rise

- Employment Rises the Most Since December 2006, Boosting AUD on heightened interest rate expectations

-  RBA Gov. Stevens reiterates interest rates are “likely” to rise further in the quarterly monetary policy statement, and said the improved forecast held by the board includes a “technical assumption” that borrowing costs will climb to 4.50% this year – about in line with expectations though some see up to 5%

- Inflation Expectations Falter in February as stimulus effects fade

New Zealand Dollar Weekly Outlook:  Technical Oversold Bounce With EU Debt Solution Hopes, Risks Further Losses as EU Debt Hopes Fade



New Zealand Dollar Outlook: Bearish

- Events: Mon -  Producer Prices Inputs, Outputs Wed -  ANZ Consumer Confidence Index, Thurs  Credit Card Spending (Jan)

- New Zealand Dollar pulls back as S&P, risk appetite falter on EU debt resolution disappointment

- New Zealand Retail sales drop most in 14 years, disappointing REINZ housing data darken recovery, interest rate expectations, reminds us the NZD is NOT the same as the AUD, more sensitive to risk aversion due to its lesser fundamental appeal

- Yet, NZD ends week higher vs. USD as S&P holds gains