Trading in the first half of this week has been extremely difficult with a dearth of fundamental news on the economic calendar leading to all markets trading in very narrow ranges.  This price action has also been seen across all the major forex pairs with only one or two offering any degree of volatility and opportunities.  The market mood at present is reflective as we now await for the second half of the week to unfold and with an increase in both the number of news items and their relevance we should see some trading opportunities unfold both on Thursday and Friday.

The underlying theme across global markets is the ongoing issue of government money which continues to be thrown into the various economies and which may well lead to sustained inflation in due course.  Thus far the poor benighted tax payer has seen little return on his/her money.  In other markets yields on index linked Treasuries at an all time low largely as a result of the QE programmes but in addition a further cause is the absolute yield on conventional Treasury paper which is also at rock bottom at present.  The forex market is looking for direction at present and commodity currencies such as the Aussie and Canadian Dollar are likely to lead with UK Sterling and the Euro dragging behind.  As always the dollar yen pair is unpredictable and liable to swing in a random fashion around the 90 level, largely as a result of Japan’s fiscal year end when institutions look to repatriate their funds.  The precious metals sector looks positive with a further modest rally forecast and we may see gold push on towards new highs in the next quarter.  The indices continue to defy some market analysts with both the FTSE and Dow recovering from their recent short term reversals and showing positive momentum as we move towards the end of Q1.

Europe

European ministers are now increasingly blaming the speculators once again for the continuing problems with the Greek sovereign debt, in particular the number of short positions taken in credit default swaps.  It was particularly interesting to see Rasmusson lambasting one of the UK hedge fund managers last night on tv by suggesting that the they were directly responsible for exacerbating the current situation.  This is a lazy intellectual argument and much the same as the one put forward when oil rocketed to $147 a barrel.  As is usual in these circumstances there is much debate and discussion about the practice of short selling with threats to control or even ban it outright – all laughable of course and impossible to police given the number of instruments now widely available.   At the moment we have only seen minor skirmishes and no doubt ministers and their advisors will be returning to this battlefield before long.

With no tier one economic releases in Europe this week we can expect the eurodollar to trade sideways with only the possibility of a short squeeze.   With this lack of hard data watch out for the ECB monthly bulletin on Thursday which is an analysis of the recent rate decision coupled with a forecast for the Eurozone economy moving forward.  It is unlikely to contain any surprises but the markets may seize on this in the absence of anything else.

Friday closes again with limited news and the only item to note is industrial production forecast at 0.8%, an improvement of last month’s dismal -1.6% – this could provide a small lift for euro bulls.

Japan

With Japan focusing on its year end there is little news all week and the only items of note being final GDP due out later tonight and forecast at 1% against a previous of 1.1% and revised industrial production due out early Friday morning.  This is forecast to be come in flat at 2.5%.

Switzerland

The key number in Switzerland on Monday was retail sales which showed a healthy growth up from 2.4% last time to 4.4% this time while tomorrow sees the announcement of the latest libor rate which is currently 0.25% which is expected to remain unchanged.  The decision will be followed by a statement from the SNB (Swiss National Bank) where they communicate future monetary policy and their economic outlook which may provide clues for future rate decisions.  Watch out for any reaction in the EURCHF which for the past few weeks has been trading in a most bizarre fashion.

UK

Sterling was helped lower earlier in the week by poor housing data and given a further shove lower this morning by the manufacturing production figures which came in well below forecast and negative at -0.9% against a previous of 0.3%. For those of you who follow the UK the housing market is one of the most important barometers of economic health and it has been calculated that a 1% drop in house prices leads to a 0.7% fall in consumer spending s0 an important market sector to watch.

Very little news for the rest of the week.

Canada

The Canadian dollar was one of the few currencies to have some significant news earlier in the week with housing starts on Monday which came in better than expected at 197k, exceeding the forecast of 188k.  The big number tomorrow is the trade balance which is forecast to be positive at 0.3bn, reversing last month’s negative output of -0.2bn.  This figure represents the difference in value between imports and exports with a positive number indicating that more goods were exported than imported.  This is always a significant release for the Canadian currency as around 65% of Canadian exports are purchased by the US and therefore could be considered a leading indicator for both economies.

Friday sees another important set of numbers for Canada with the employment data which is forecast to see the unemployment hold steady at 8.3% whilst the employment change is positive at 17.5k – not quite so good as last time at 43k but nevertheless trending in the right direction.

Australia

The major release for Australia and the Aussie came this morning with home loans coming out dramatically lower and indeed negative at -7.9%, in stark contrast to the forecast of 2.1%.  The forex market largely ignored this release as the Aussie rallied against both the US dollar and the Japanese Yen confirming our currency forecast of an interim target of 0.92 against the US dollar.

Tomorrow we have the unemployment numbers with the rate forecast to remain steady at 5.3% and the change in job creation to show a positive growth of 15k – not so dramatic as last month’s 52k, but nevertheless again showing a positive sign of recovery.

China

China’s trade balance shrank to its lowest level for a year last month as a surge in imports signalled to the markets that China may overtake the US as the number one economy in the world sooner rather than later, with imports rising a staggering 45% from this time last year.  However, against this it must be remembered exports gained almost 46%. In other news tomorrow sees the release of industrial production which is forecast to increase to 19.5% from last month’s 18.5%.

USA

We have to wait until Thursday for two major releases in the US which are the trade balance data and unemployment claims.  The first of these is forecast at -40.9bn against a forecast of -40.2bn with unemployment forecast at 456k against a previous of 469k so a small fall here.  The week ends for the dollar with retail sales figures which are expected to be negative at -0.1% reversing last month’s positive 0.5%, but with core retail sales just holding firm in positive territory at 0.1% against a previous of 0.6%.  Finally the week rounds off with the UoM (University of Michigan) sentiment index, a leading indicator which shows a mildly bullish outlook at 74, marginally higher than last month’s 73.6.  Watch out for Treasury Secretary Geithner who is due to speak at the Annual Conference of Export/Import Bank in Washington later in the day on Friday.

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A very busy week for fundamental news across all the markets with the highlights including interest rate decisions from the Bank of Canada and the Reserve Bank of Australia followed by the ECB & the UK, all of which are expected to remain unchanged but as always the associated statements will be more interesting.  The week, of course, rounds off with US non farm payrolls and unemployment data so a lively week of trading in prospect:

Australia

The trading week started in Australia with new home sales and the current account figures as the markets now await for four level 1 economic releases: the first of these on Tuesday is building approvals forecast to show a steep decline from last month’s 2.2%, down to 0.7%, a worrying trend should this be the case.  Second we have retail sales which are expected to be positive at 0.8% giving us an improving picture from last month’s -0.7% so in contrast to building approvals a more positive outlook. The third release, and the most important, is the interest rate decision due on Tuesday as well with some analysts forecasting an increase from 3.75% to 4%, although this is far from certain.  This is against the backdrop of last month’s decision when rates where expected to rise but the RBA held them on that occasion.  The decision is accompanied by the associated rate statement which will be provide an insight into the decision.  Should interest rates indeed rise then the Aussie will strengthen as a result, in particular against the Yen and US dollar.

Wednesday sees another big number with the release of the quarterly GDP figures which are forecast at 0.9% against a previous of 0.2% and again if these are on target, or better, should be positive for the Aussie dollar.  Thursday sees the release of the trade balance figures which are forecast at -1.57 against a previous of -2.25 – an improving picture.

As a result of these important numbers we should see some dramatic moves in the Aussie crosses & if the forecasts are correct then we should see 92.50 on the Aussie Dollar.

China

The week started in China with PMI manufacturing figures which came in at 52 indicating an economy in expansion although well down on both February’s and January’s figures of 56.6 and 55.8 respectively so has recent Chinese monetary policy effected the slowdown it was hoping for?   There have also been mutterings that China is now prepared to see the Renmibi rise – we shall see.

Eurozone

No tier one releases for Monday, Tuesday or Wednesday and we have to wait until Thursday when we have the ECB rate decision which is expected to remain at 1%.  This is  closely followed by the press conference, a closely watched event, which consists of 2 elements, the first of which is a pre-prepared statement followed by a question and answer session.  The entire event is usually webcast on the ECB website with a small delay from the real time event.

United Kingdom

The week started early with the release of the manufacturing PMI data which came in flat month on month at 56.6 and fractionally better than forecast at 56.3.  However, this release has been swamped by the avalanche of bearish sentiment towards sterling as a result of election uncertainty and the possibility that UK gilts will soon lose their AAA rating.  Tuesday sees the release of the monthly Halifax housing data which is forecast to show a modest decline in house prices at 0.3% against a previous of 0.6%.  Wednesday’s key data covers the services sector with the release of the PMI data forecast to show a small improvement to 55, up 0.5 from last month’s figure.  However, this index appears to have peaked in December at 56.6 and has been on a downwards slide since suggesting the danger of a double dip recession.

Thursday is all about the BOE (Bank of England) with the interest rate decision and rate statement due at mid-day along with a statement about their asset purchase programme (QE), although the markets are expecting a further 200bn.  This would be the fifth month in a row at this level.  The week rounds off for sterling with PPI input data which represents the change in the price of goods and raw materials purchased by manufacturers and forecast at 0.1%, a steep decline from last month’s 2%.

Switzerland

The only major item for Switzerland is the GDP data due out on Tuesday and forecast to come in at 0.4% against a previous of 0.3% which continues the steady upwards trend following the four consecutive negative numbers of late 2008 and 2009.  Market reaction to this number tends to be seen in the EURCHF which is moving relentlessly sideways although we could see the injection of some life once this data has been released.

Canada

An important day for Canada today which sees the release of GDP figures and uniquely to Canada are released on a monthly basis.  The headline number is 0.4%, no change from last month, and appears to be holding firm.  If the actual is better than forecast then we could see a strengthening of the loonie.  On Tuesday we have the interest rate decision from the Bank of Canada who are expected to keep rates on hold at 0.25% but as always it is the accompanying statement that will be closely scrutinized.

Thursday sees two key releases:  firstly with building permits which are expected to show a decline from last month, down to 1% from 2.4%.  This is followed later in the trading session with the IVEY PMI index forecast to come in dramatically higher at 56, significantly up on last month’s 50.8.  As a leading indicator it is closely watched and anything above 50 is taken as an economy in expansion.

United States

Today starts in the US with the ISM numbers, expected to come in at 57.7, marginally lower than last month’s 58.4.  The ISM is an important release as it measures the relative level of business conditions and is based on a survey of around 400 purchasing managers and generally considered a leading indicator.  If the actual is better than forecast then this should be good news for the dollar.

Tuesday is a quiet day in the US with the next major releases due out on Wednesday which include ADP and ISM non manufacturing.  The ADP data generally provides the market with a good guide to the non farm payroll numbers on Friday as it is based on actual payroll statistics, and the forecast is for -13k against a previous of -22k indicating a gradually improving picture.  Later in the US session we have the non manufacturing PMI data which again shows a marginally improvement picture at 51 against a previous of 50.5.

Thursday continues the labour market theme with the weekly unemployment claims which are expected to show a modest decline from 496k last time to 472k this time around.  Later on we have the month on month pending home sales which are forecast at 1.4%, up from last month’s 1% – which if confirmed should be good news for the US dollar.  The week rounds off on Friday with non farm payroll which still remains obstinately below positive territory with a forecast of -40k against a previous of -20k, coupled with an unemployment rate which has risen fractionally from 9.7% to 9.8%.

Market Watch for this week:

The VIX fear index continues to slide lower which is usually considered positive for equities and is currently sitting at 19.5 and well below the peak of November 2008 when it reached the dizzy heights of 82.  The current trend for the indicator remains bearish and the danger signals will start to appear once the index reaches 16 or below so we still have some way to go in the equity markets to the bull side.

The dollar index closed February breaking fractionally above all three moving averages and confirming the bullish engulfing signal of late 2009 once again.  The weekly chart confirms this optimistic view with prices breaking and holding above the 200 week moving average with the 9 and 14 week crossing above the 40 to add to the bullish sentiment for the US dollar as the index broke above 81 in the early London session.

Elsewhere sovereign debt levels both in absolute and relative terms are likely to be a problem for many governments as they are forced into de-leveraging positions as a result of the excesses of the banking industry.  The forex market continues to be over extended in several areas so we are likely to see corrections in March.  Treasury yields are likely to continue their recent declines with many being forced to seek safer havens.

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The dangers of debt & debt deflation