Daily Forex Fundamentals – November 18, 2013

London Session Recap

  • Euro zone current account below estimates, trade balance as expected
  • BOE systemic risk survey results puts pressure on pound pairs
  • ECB official Mersch remarks worst is over in euro zone

Despite weaker than expected euro zone current account data, the euro was able to hold its ground against the U.S. dollar and most of its counterparts as ECB official Mersch mentioned that the worst may be over for the euro zone. In addition, ECB official Nowotny pointed out that, even if inflation is below target for now, there’s no need to adjust monetary policy immediately.

The British pound, on the other hand, suffered a selloff a few hours into the London session when a BOE survey on systemic risk revealed that respondents were growing more concerned about the impact of low interest rates on house prices.

Up ahead, data on Canada’s foreign security purchases is due and it is expected to print an increase from 2.08 billion CAD to 6.71 billion CAD, reflecting stronger demand for the Canadian dollar. Also due in the next few hours are the U.S. TIC long-term purchases and the NAHB housing market index, both of which are expected to have minimal effect on dollar pairs.

Asian Session Recap

  • Optimism for Chinese reforms lift AUD and NZD
  • ECB official insists there are more options after negative deposit rates
  • Nikkei holds on above 15,000

The Chinese government recently published their detail set of economic and fiscal reforms, resulting to optimism and risk taking during the Asian trading session. The Nikkei stock index was able to stay above the 15,000 mark, although USD/JPY retreated from a high of 100.40 back to the 100.00 major psychological support.

Meanwhile, the euro was weighed down by comments from ECB official Praet, who said that the central bank will not run out of easing options even if they do decide to implement negative deposit rates. EUR/JPY filled its weekend gap and is finding support around the 135.00 mark.

In the next few hours, we will see the euro zone current account balance and trade balance. Both are expected to widen, with the current account surplus projected to rise from 17.4 billion EUR to 18.4 billion EUR and the trade surplus estimated to reach a 14.3 billion EUR reading. Take note though that weaker than expected figures might push the euro lower against its counterparts.

U.S. Session Recap

  • Empire State index surprises to the downside at -2.2 vs. 5.2 estimate
  • U.S. industrial production, capacity utilization, import prices below expectations
  • Canadian manufacturing sales at 0.6% as expected

The U.S. economy churned out another round of bleak figures last Friday, confirming incoming Fed head Janet Yellen’s assessment that the economy is underperforming. The Empire State manufacturing index plummeted from 1.5 to -2.2, reflecting worsening conditions, instead of improving to the estimate at 5.2.

The downbeat outlook for the U.S. economy caused the U.S. dollar to open lower for the week, with weekend gaps seen on GBP/USD, AUD/USD, USD/CAD, and NZD/USD. Earlier today, the U.K. reported a 2.4% decline in house prices for November, erasing part of the 2.8% increase seen last month.

There are no major economic releases lined up for today’s Asian trading session so major currencies might be in for quiet trading over the next few hours. Do keep tabs on how Asian equity markets are faring since this could have an impact on risk appetite. Further gains in the Nikkei could mean more upside for yen pairs, such as USD/JPY and EUR/JPY.

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