The Week Ahead 30.11.2014: Focus On Central Bank Decisions And US Employment Report


EUR/USD
A relatively calm week is behind us and an eventful week ahead of us. Investors will be focused mainly on the ECB meeting (Thursday) and the U.S. non-farm payrolls data (Friday). We have also Eurozone PMI (manufacturing on Monday and services on Wednesday), GDP, retail sales (on Wednesday) and U.S. ISM (manufacturing on Monday and non-manufacturing on Wednesday).
What will the ECB do? It will certainly revise downwards its GDP and CPI projections. Moreover, the ECB President Mario Draghi is expected to drop a hint of additional measures (the most probable scenario). On the other hand, he is likely to say more time is needed to assess the effectiveness of the already announced measures (TLTRO). Draghi may also surprise the markets with an immediate decision to broaden the asset purchase program, but in our opinion it is a less probable scenario. In the next step of the ECB would likely target the non-financial corporate bond market. In the opinion of GrowthAces.com the likelihood of announcing the sovereign quantitative easing this week is very low.
GrowthAces.com stays EUR/USD short. Our short-term target is 1.2330. The medium-term outlook remains bearish.

GBP
The Bank of England’s Monetary Policy Committee meets on Thursday, December 4. It is widely expected that the MPC will keep the rate at 0.5% and its stock of asset purchases at GBP 375 bn. We should notice one very important event last week for the GBP traders. MPC member Kristin Forbes in her testimony to the Treasury Select Committee last Tuesday, put herself at the hawkish end of the majority voting for unchanged rates. She is likely to join two dissenters Weale and McCafferty soon. Nonetheless the BOE will probably wait at least until the May General Election before hiking. The GBP/USD is likely to fall slightly in the short term, but the medium-term outlook is mixed. The GBP is likely to remain relatively strong vs. non-USD major currencies.

JPY
The divergence between monetary policies and pace of economic growth in the United States and Japan is a key factor determining the rise in the USD/JPY rate. A key resistance level is 118.98 (November 20, high). GrowthAces.com stays USD/JPY long with the target at 119.80.
CHF
Swiss voters decide on “the gold initiative” in a referendum on Sunday, November 30. Recent polls showed a majority of “No” voters for the gold initiative. The recent polls showed a majority of “No” voters (47% against 38% of “Yes” voters). The “Yes” outcome would force the SNB to hold at least 20% of its assets in gold. The EUR/CHF is likely to went up strongly if the initiative was rejected. Given our bearish forecast for the EUR/USD, we are strongly bullish on the USD/CHF. In our opinion the USD/CHF is likely to be close to 0.9800 this week. The medium-term outlook for this currency pair is also bullish.

AUD
The Reserve Bank of Australia meets on Tuesday. We expect the cash rate to remain unchanged at 2.50%. The bank will likely maintain its conclusion that the most prudent course is likely to be a period of stability in interest rates. The RBA’s decision will probably not have a direct impact on the AUD/USD. The most important macroeconomic releases for the AUD traders this week will be: Australian GDP for the third quarter, retail sales, Chinese PMI and US employment report. In the medium term the AUD/USD will be under pressure coming from low commodity prices and ongoing verbal intervention by RBA officials.

CAD
The Bank of Canada also meets this week (on Wednesday). The bank is widely expected to keep interest rates unchanged. The most important event for the CAD traders will be rather US non-farm payrolls as well as Canadian employment reports (on Friday). The CAD will be also under pressure of low oil prices.