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Feeble Inflation is a Global Concern

Weak inflation remains the main concern across the global economies, as data released last week from China, UK, the Eurozone and the US illustrated stubborn consumer inflation in several major economies. The US Dollar closed the week on a soft note with most economic data from the US releasing weaker than expected. Reports ahead of the all-important October third quarter GDP results and FOMC meeting minutes are unlikely to have a strong effect on momentum in the United States this week.

Weekly Review

The New Zealand Dollar closed the week with its third consecutive week of gains. The currency continued to rally despite dovish comments from the RBNZ Governor Graeme Wheeler, who noted that further rate cuts could be delivered. A rate cut of 0.25% looks to be clearly factored in, and if and when the RBNZ does cut rates again it is unlikely to see the Kiwi weaken much. From a weekly perspective, NZDUSD has cleared the support at 0.6712 and looks poised for a test towards 0.727 to establish resistance as long as prices stay above 0.6712. New Zealand’s quarterly CPI was the main data point which increased 0.3% for the quarter, above estimates but remaining well below the RBNZ’s target rate. There is no fundamental bias to support the rally in the NZDUSD and the price action is more reflective of a short squeeze and the Dollar’s weakness for the moment.

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The Week Ahead

The ECB will take the spotlight this week as Eurozone inflation data remains subdued. While various ECB officials have been sending mixed signals about the ECB's potential asset purchase expansion, it is likely that this week's press conference could see policy unchanged as Draghi strikes a dovish tone. The Euro's exchange rate has appreciated quite strongly in recent weeks; a verbal talk down of the Euro could be inevitable. EURUSD has reversed off the resistance level near 1.1448 and could potentially dip towards the trend line’s dynamic support near 1.1228. Economic data for the US this coming week is light with no major data expected except for housing numbers. Federal Reserve members are expected to speak over the week, including Janet Yellen who will give her remarks at an event later in the week. The US Dollar could take a back seat as more active news events are likely to shape the market flows this coming week. In line with this notion, Chinese GDP numbers are due out early Monday. Expectations are for a soft 6.8% print down from the previous 7.0%. A miss on GDP estimates could see sentiment sour as investors scurry to safe haven assets, potentially setting the tone for the week ahead.

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