EUR/USD
It is going to be a calm week ahead of us. U.S. investors have long weekend due to Thanksgiving on Thursday. That is why we should expect the market volatility to be higher in the first half of the week.
We have German Ifo index scheduled for Monday.
What you should you know about Ifo index
The Ifo Business Climate Index is based on ca. 7,000 monthly survey responses from German firms in manufacturing, construction, wholesaling and retailing. The firms are asked to give their assessments of the current business situation and their expectations for the next six months. They can characterize their situation as “good”, “satisfactory” or “poor” and their business expectations for the next six months as “more favorable”, “unchanged” or “more unfavorable”. The balance value of the current business situation is the difference between the percentages of the responses “good” and “poor”, the balance value of the expectations is the difference between the percentages of the responses “more favorable” and “more unfavorable”.
How can we analyze the balance values to know something more about the economy?Remember these four important rules:
- If the balance value of current business situation was positive and the balance value of expectations was positive the economy is in the boom phase.
- If the balance value of current business situation was positive and the balance value of expectations was negative the economy is in the downswing phase.
- If the balance value of current business situation was negative and the balance value of expectations was negative the economy is in the recession phase.
- If the balance value of current business situation was negative and the balance value of expectations was positive the economy is in the upswing phase.
Now we can take a look at the Ifo Business-Cycle Clock:
The Ifo Business Climate Index is a transformed mean of the balances of the business situation and the expectations. For the purpose of calculating the index values, the transformed balances are all normalized to the average of the year 2005.
What shall we expect on Monday? A slight decline in the assessment of current situation is possible, especially given strongly disappointing German PMI release. On the other hand, we believe that a lot of pessimism has been already been priced in the expectations component of Ifo index. Weaker EUR and lower input prices are likely to improve slightly the expectations component. We expect Ifo Business Climate at the level of 102.8 pts vs. the median forecast of 103.0 and the reading of 103.2 in the previous month.
Another important release next week is Euro zone flash November CPI reading on Friday. It is likely to remain unchanged at 0.4% yoy. Continuation of decline in price of oil products generates a downside risk to the forecast. Core inflation is likely to stay at 0.7% yoy, unchanged from the previous month.
The U.S. Bureau of Economic Analysis will release revised Q3 GDP data on Tuesday. We have also Chicago PMI, consumer confidence and housing market data releases on Wednesday.
We expect the EUR/USD to consolidate near 1.2400 this week. The outlook for the EUR/USD is bearish and investors are getting ready to December 4 ECB meeting.
GBP
The BOE minutes were the main event for the GBP traders last week. The vote to keep the rate unchanged at 0.5% stayed at 7-2, against some analysts’ expectations of more dovish outcome of the minutes. The minutes supported the GBP bulls. Moreover, we had strong retail sales reading and a rise in CPI vs. the previous month. The revision of GDP growth for the third quarter is scheduled for this week (Wednesday), but we do not expect significant reaction from forex traders to the data. We do not expect strong changes in the GBP/USD rate this week.
JPY
We expect the main factors boosting USD/JPY, such as the delay of the sales tax hike and the announcement of snap-elections to gradually weaken. We can see some profit taking on JPY’s selling positions this week, however the medium-term outlook is still bullish. CPI, industrial output, retail sales and employment data are in the economic calendar for this week (late on Thursday GMT). We got long again on the USD/JPY at 117.50. Our target is 119.80.
CHF
The Swiss National Bank Board member Fritz Zurbruegg said that the cap on the franc remains a key part of monetary policy and it will be maintained as long as required. The EUR/CHF closed to the 1.20 limit last week. In our opinion breaking this level is unlikely. The support among Swiss voters for a referendum proposal that would force a huge increase in the central bank's gold reserves slipped last week. Given our bearish outlook on the EUR/CHF, we see a high potential in our USD/CHF long and expect a strong rise just after the referendum.
