4 major central bank interest rate announcements line up for this week.  High volatility presents more trading opportunities, great news for traders.

 Last week, we saw WTI Oil fell below $49 a barrel on fresh disagreements between OPEC nations.  Iraq is reluctant to scale back on their production, which could encourage other oil producing nations to follow the lead.  UK Prelim GDP exceeded expectations, came in at 0.5% versus 0.3%.  The previous figure was revised upward from 0.6% to 0.7%.  US Advance GDP also came in at 2.9%, higher than consensus of 2.5%.  The previous figure was also revised upward from 1.2% to 1.4%.

All the above will pale in comparison to what is going to happen this week.  4 Central Banks will take the stage, accompany by a slew of important data.  With an upbeat CPI, we expect Reserve Bank of Australia (RBA) to keep interest rate unchanged and remain neutral in their statement.  This could well support the Aussie against its counter parts this week.  Bank of Japan (BOJ) seems to be waiting for Fed to act, at least that is what we think they are doing.  It would be a surprise to many if they make any changes to their existing monetary policies.

Brexit fear has driven the sterling to a 30-year low, even though data has shown the UK economy remains resilient after the referendum.  The main reason is because the data are unable to show the full impact of Brexit at this moment.  Investors are looking beyond and concern about the uncertainties arising from Brexit.  Bank of England (BOE) will release their interest rate decision and inflation report.  BOE Governor Mark Carney has no reservation in voicing his concern on possible Brexit risk and he is ready to act again when necessary.  If he scales back growth forecast in the upcoming report, continues to reiterate his concern and express his readiness to ease, it could spell trouble for the sterling.  However, a slightly upbeat report is good enough to give the sterling some support.

US presidential election is round the corner.  There is minimal expectation on a rate hike this week, but investors will definitely be looking for clues in the FOMC statement, either to increase or scale back their bet on a December rate hike.  We think Janet Yellen is going to make investors hold on to the hope of a December rate hike.  A possible game changer could be the non-farm payroll on Friday.  Any figure around 175K will keep the hope of rate hike alive; an upside surprise will almost confirm it.

With the BOE, FOMC and a slew of US and UK data, the GBP/USD is likely to be the most volatile pair for this week and ideal for short-term breakout play.


Our Picks

GBP/USD – Sell on breakout.  Hawkish Fed and Dovish BOE could possibly push this pair below 1.21.  A conservative play would be to wait for breakout.

 FM WMR 20161031-GBPUSDH4.png

AUD/NZD – Slightly bullish.  A neutral RBA against a dovish RBNZ* could provide support for this pair.

* Reserve Bank of New Zealand

 FM WMR 20161031-AUDNZDH4.png

OIL/USD (WTI) – Slightly bearish.  We expect the downtrend to be intact, unless there is positive development in the effort to limit production.  Consider to Sell on rallies.

 FM WMR 20161031-OILUSDH4.png


Top News This Week (GMT+8 time zone)

Australia: Cash Rate.  Tuesday 1st November, 11.30am.

We expect figures to remain unchanged at 1.5% (previous figure was 1.5%).

US: Federal Funds Rate.  Thursday 3rd November, 2am.

We expect figures to remain unchanged at 0.5% (previous figure was 0.5%).

UK: Official Bank Rate.  Thursday 3rd November, 8pm.

We expect figures to remain unchanged at 0.25% (previous figure was 0.25%).



Fullerton Markets Research Team

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