Thin Trading Ahead

Daily Analysis - 26/11/2015

Volume To Remain Subdued With US Financial Markets Closed for the Thanksgiving Holiday


Low volumes are likely to keep currency markets trading flat today with no major news events to look forward to as US markets close for the holiday. The Asian trading session saw the release of the Australian private capital expenditure data while the European session is devoid of any major news or Central Bank speeches to go by.

BoJ Minutes Reveal Output Gap Concerns

The Bank of Japan's Meeting Minutes from the monetary policy review conducted on October 30th was revealed yesterday. The minutes indicated that the BoJ was worried by the rising output gap and the effects it could have on delaying the Central Bank's 2.00% target inflation rate. The rising output gap, according to some members of the BoJ also meant that the Central Bank's quantitative easing was not operating as expected. The BoJ's minutes revealed that the BoJ pushed back the timing of meeting the inflation target by another six months on account of low energy prices, towards the second half of the 2016 fiscal year. Although the BoJ's minutes did not incline strongly to any bias, the Japanese Yen strengthened in early trading yesterday before giving back gains against the US Dollar. USDJPY touched a daily low of 122.254 yesterday but managed to climb back higher to 122.759.


Fed’s PCE Inflation Gauge Remains Weak

The PCE price index released yesterday showed that the consumer spending was weaker than expected in October while personal income managed to come out largely stable. The PCE index, which is the Federal Reserve’s preferred gauge of inflation (instead of CPI) showed that consumer prices remained subdued amid the slump in energy prices and the ongoing strength in the US Dollar. The Core PCE index which excludes food and energy was flat in the month of October, missing estimates of 0.10% growth while September figures were revised modestly higher to 0.20%. On an annualized basis, the PCE Price Index was unchanged at 1.30%, matching estimates. Despite posting unimpressive numbers, the fact that inflation did not fall dramatically continues to keep the markets favoring a Fed rate hike in December. S&P 500 Futures closed on a bullish note yesterday, coming off a strong doji candlestick which could point to a continued uptrend.


WTI Holds Onto Gains Despite Higher Inventories

WTI crude oil futures for January 2016 delivery closed on a bullish note yesterday at $43.19 a barrel, posting a 7-day high. The gains in crude oil came after the US Department of Energy weekly crude oil inventories recording the level of commercial stockpiles showed a smaller than expected increase in oil inventories in the US, which was supported by a drop in the number of rigs used for drilling according to Baker Hughes figures. Also, considering that the US markets are closed today, traders’ likely preferred to square positions in crude oil ahead of the holiday weekend leading to a continued short squeeze in the energy markets. On a weekly chart however, crude oil remains bearish despite announcements earlier this week from the Saudi Arabia cabinet that it was willing negotiate with non-OPEC members in a bid to stabilize prices.


Kiwi Gains on a Weaker Aussie

The New Zealand Dollar managed to post modest gains led by data released late yesterday evening which showed that the New Zealand economy recorded a trade deficit of nearly NZD$963 million in the month of October, beating estimates of NZD$937 billion deficit. There was a modest downward revision to the previous month's numbers with the trade deficit revised down to NZD$1.222 billion. Exports from New Zealand were little changed since September and the lower dairy and wood prices were offset by a rise in volumes. On the other hand, the Australia's capital expenditure data released earlier today was weak, declining -9.20% for the third quarter, missing estimates of a -2.80% contraction. The previous quarter's capex data was also revised lower from -4.00% to -4.40% in what marks one of the worst slumps in spending in decades. The Australian dollar eased back from an 8-week highs against the New Zealand dollar to 1.0690.


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