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One Financial Weekly Market ReportAndrei Wogen | One Financial | [email protected] | Week: 01-18 through 01-24

TA B L E O F C O N T E N T S

Overview of Last Week 1

Australian Dollar 2

Japanese Yen 2

UK Pound Sterling 3

Euro "Euro Zone# 5

Canadian Dollar 6

US Dollar 7

New Zealand Dollar 8

China Yuan "on shore# 9

O V E R V I E W O F LA S T W E E K

The highlight of last week was not the ECB nor the Fed nor China...it was Switzerland! More specifically

it was the SNB who decided to suddenly and pretty much out of thin air, remove their currency floor in

EUR/CHF. This move, though was surprising to a lot of the markets, has very likely been discussed for

some time within the SNB. The important part of this move is that it was not hinted at beforehand by the

SNB i.e., forward guidance. The other important part of this is that this puts into question not only the

SNB but all central banks in some ways, in my opinion. To me this also lessens the credibility other cen-tral banks have in terms of what they say and could and actually do in terms of policy. So overall this is a

big event for many reasons. Also too Switzerlands economy is in trouble now most likely and what the

SNB will do is anyones guess at this point. Other events last week as CPI data from the US and the UK

both of which showed continued deflationary-like pressures. The UK in particular has seen quite a drop

in inflation recently and could likely push back when the BoE hikes rates. Overall then, it was a pretty

volatile week and mostly because of the move by the SNB.

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mains weak and continues to fall after a big

jump in the first quarter of last year due to a

hike in the sales tax. As for the consumer,

they continues to be weak both in consump-

tion (retail sales data continues to be weak)

and sentiment. Business conditions also re-

main weak especially in the manufacturing

sector as exports continue to remain weak

while the services sector has stabilized some

after weakening quite a bit last year. As for

the business side of things, things continued

to weaken last week as both Machine tool

orders and Machinery Orders both fell. On a

better note, survey data released showed an

improvement in the current and expected

conditions of Japan. Bank lending also fell

last month a bit. As for the trade sector, the

trade balance narrowed some while the Cur-rent Account increased much more than ex-

pected.

Overall Tone of Japan: Negative 4

Overall Tone of USD/JPY: Positive 2

Overall Relationship (between Japan and the

Yen): Aligned

This week, key data will include industrial production and Capacity utilization numbers on Sunday and then All In-

dustry Activity index on Tuesday and Manufacturing data on Thursday. So some more data to look over for how the

business conditions are in Japan. Other data of importance will be Consumer Confidence numbers, which have been

subdued recently. The key event next week will be the BoJs monthly meeting and rate statement and press confer-

ence. There will likely be no change in their policy but after last weeks surprise SNB move, anything is possible.

There have been rumors going around too that the BoJ will cut its inflation forecasts but keep their growth forecasts

intact. We will see though.

As for the charts, the USD/JPY , this pair has moved lower this week overall. The 115.500 level is the line-in-the-

sand I am watching to tell me when the overall positive sentiment of the USD has changed.

U K P O U N D S T E R L I N G

The United Kingdoms tone continues to be neutral to more negative as current data and economic developments

show a weakening economy. Both the manufacturing and services industries have suffered recently along with sen-

timent of the business community. Industrial production has also weakened some recently. Sentiment of the con-

sumer has also deteriorated in recent months though retail sales have picked up a bit recently. As for the housing

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USD/JPY 4 Hour - 115.50 level white line


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market, this continues to be strong as prices

continue to rise overall though this has given

more wealth to the consumer which has

given yet another problem...rising levels of

debt. House price data rose last week, over-

all though, growth continues to weaken

overall and is expected to do so at least for

the time being. As for inflation this contin-

ues to remain weak, and moved even weaker

than what was expected it would during last

weeks inflation data release. This continued

low inflation though at this point doesnt

seem to be deterring the BoE in terms of

when they will raise rates. Shortly after the

release of the inflation data last week, BoE

Governor Carney spoke and basically said

that he expects the BoE will raise rates soon.

However, the market is not so sure and con-tinues to push back expectations for when

rate hikes will likely happen, a big reason

for the continued weakness in the Pound.

Overall Tone of the United Kingdom: Negative 2

Overall Tone of GBP/USD: Negative 3

Overall Relationship (between UK and the Pound): Aligned

The main event this week will be the release of the BoE meeting minutes. This could be a pretty interesting release

given the recent developments both in the UK and abroad. Inflation and overall growth continues to weaken in the

UK and as far as abroad goes, the Euro Zone in particular continues to be very weak and geopolitical risks continue

to be a risk. I dont expect there will be any change either to the voting count for rate hikes. Currently there are two

for and seven against a rate hike. As for the Banks assessment of the UK economy, I am expecting them to be rather

dovish on their expectations for the UK economy going forward as well as in terms of inflation. Their comments

regarding inflation will be interesting too though their tone will likely run along the lines of them saying something

like, we expect lower oil prices to be a help to the consumer and that inflation will move back up to target. Over-

all then, I expect the Bank will look through the recent low inflation as will other major central banks. The other big

release will be unemployment numbers and the unemployment rate as well as earnings data, which is still being

watched closely by the BoE. Other data will be Retail Sales data, Public Sector Net Borrowing and more house price

data. So a busty week for the Pound and could help determine its direction for a while. The recent down trend int eh

Pound could turn here if the BoE is more confident on the UK economy and inflation as this would mean that rate

hikes are very likely to come and come soon.

As for the charts, the GBP/USD moved a little higher this week but ended mixed overall. The 1.55000 is still the

level I am watching or a sign of change in the overall sentiment of the Pound versus the US Dollar.

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GBP/USD 1 Day - 1.5500 level white line


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E U R O ( E U R O Z O N E )

The overall tone of the Euro Zone continues

to be very negative. Growth is very weak and

inflation continues to move lower. Final infla-

tion data from the Euro Zone saw core infla-

tion actually fall a bit last week which is notencouraging news. German, Italian and Spain

CPI all stayed the same while France CPI

improved a bit. As for the business conditions,

this continues to remain weak in both the

manufacturing and services sector overall.

Sentiment also remains weak. As for the con-

sumer they remain weak both in terms of con-

sumption and more so in terms of sentiment.

The trade picture has improved some recently

in terms of both exports and imports. As for

the political spectrum this remains in disarray

as the member countries continue to be slow

to push through reforms to help revive their

countrys economic conditions especially in

terms of jobs and immigration, among other

things. The central bank is currently very do-

vish and is expected to continue to ease fur-

ther, with the next expected measure to be

announced to be QE. Relating to ECB QE,

last week we heard from the European High

Court on their opinion on whether or not an-

other ECB measure, OMT, is legal or not. Their opinion is

that it is legal but there needs to be guidelines. This is im-portant as it helps to clear the way for full-blown sovereign QE.

Overall Tone of the Euro Zone: Negative 4

Overall Tone of EUR/USD: Negative 4

Overall Relationship (between EZ and the Euro): Aligned

And so we finally come to it.decision day; speaking about the ECB meeting on Thursday which will be the high-

light of the week for not only European markets and the Euro but markets around the world. Speculation has been

building that the Bank will announce QE at this meeting and reports have surfaced that it will be in the range of

!500 billion. So those are the expectations of the markets at this point but I am not so convinced. I am in the camp, a

very small camp too I admit, that thinks the ECB will not announce QE this meeting and will hold off until the next

meeting. Why? A couple of reasons: (1) Greek election: they want to see what the results are of that first; and (2)

they are still trying to figure out how to do it and how much. Doing QE is hard enough work for a central bank like

the Fed but to do it right for the ECB is very difficult indeed. Those are really the only two reasons I can come up

with at this point for why the ECB will not do QE at this point but reasons I think are valid. Now.if they do an-

nounce QE I hope that they refrain from announcing how much they will do and instead say they will do it until in-

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EUR/USD 1 Day- 1.1900 level purple line


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flation expectations and/or actual inflation data rises. The effects will be more positive if they dont announce an

amount. If they however do not announce QE how the Euro and markets in general react will depend I think on the

reasons the ECB gives as to why they will not do QE at this time. So a big week. As for data next week of interest,

German ZEW sentiment numbers will be released on Tuesday, Euro Zone Consumer Confidence data on Thursday

and Manufacturing PMI data from Germany, France and the Euro Zone will be released on Friday. But all eyes (and

ears) will be on the ECB.

As for the charts, the EUR/USD, the pair continues to move lower and broke the 1.1500 level last week. The line in

the sand I am watching for a sign in the change of overall sentiment for the Euro versus the US Dollar is the 1.19000

level. The risk that this could be breached this week is pretty good in my opinion though I am saying this with the

perspective that the ECB will not announce QE at their meeting.

C A N A D I A N D O L L A R

Canada as a whole continues to be weak overall

both in terms of growth and now (maybe) in

terms of inflation. As for growth, recent num-

bers show a slowdown from the previous monthand on an overall basis. As for the economy as

a whole, the manufacturing sector continues to

be somewhat weaker while business confidence

is steady...not falling but not really rising either.

As for the consumer, spending remains mixed,

looking at recent retail sales data numbers

while sentiment has weakened a bit over the

past few months. The biggest downside risk

to the Canadian economy though continues to

be low oil prices. The other downside risk, de-

pending on which side of the argument you are

on, is the housing market which continues to

see gains in house prices and construction. This

strong housing market continues to be a con-

cern of the BoC which continues to maintain a

neutral bias overall. The employment sector is a

positive part of the Canadian Economy.

Overall Tone of Canada: Negative 2

Overall Tone of USD/CAD: Positive 4

Overall Relationship (between Canada and

CAD): Aligned

The big event this week will be the Bank of Canada rate decision and rate statement and press conference. There

will most likely be no change in policy but their tone regarding the economy and inflation will likely be dovish. The

lower oil prices in particular are beginning to take its tole on the Canadian economy and we could hear more about

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USD/CAD 4 Hour - 1.15500 level black line


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this from the Bank this week. The big data release this week will be CPI data on Friday which I expect will continue

to follow the trend of inflation going on around the world right now...which is lower. The question is how low has

CPI gone and has core CPI in particular moved lower as well. The other data to watch is Retail Sales on Friday and

Manufacturing Shipment data on Tuesday. Overall though, CAD continues to be dominated quite a bit by how oil is

performing and last week we saw a pretty sizable bounce in oil which helped lift the Loonie somewhat.

Looking at the charts, the USD/CAD, the pair continues to move higher with the 1.17000 level being the line-in-the-

sand that will signal to me that the overall sentiment of the Loonie has turned positive.

U S D O L L A R

The United States economys tone continues to be

positive overall. Both growth and inflation have

been strong but inflation anyway has weakened

some in the past few months,along with the rest of

the world. This lower inflation has been driven

lower mostly by energy but prices of other goodshave also moved lower. Last week too inflation

moved lower with m/m headline now in negative

territory while core also moved lower. However,

PPI data moved higher overall which is encourag-

ing for the inflation picture. As for growth, this

continues to look good as third quarter GDP num-

bers rose above the 4% handle, above expecta-

tions. However, recent data suggests that fourth

quarter and likely first quarter (of 2015) growth

will likely be lower and show weakness. Recent

manufacturing data as well as services data have

shown weakness in the overall US economy

though. Last week we did have small business

sentiment numbers though which did come in bet-

ter than expected and previous. So a bright spot

there for the business side of things. As for the

consumer, their sentiment remains elevated with

sentiment numbers last week showed yet more

strength while spending is looking a bit weaker

especially after last weeks retail sales data which

came in lower than expected. Much lower. So an

interesting divergence beginning between consumer senti-

ment and what they are doing in light of feeling as good asthey seem to be feeling right now. This is not a good sign for fourth quarter GDP either. As for the housing, this has

weakened some in the last few months as bets on rate rises continue to rise and consumers have taken on more debt,

yet again. So a mixed picture is occurring right now in the US but the markets are still expecting the Fed will raise

rates soon, sometime this year, helping to keep the US rising and the US markets in general fairly well bid. The

other key part of the US economy, the jobs sector, which continues to show improvement overall. However wage

growth remains subdued which will be an increasing concern of the Fed and therefore the markets. As a side note, I

am expecting the Fed will stay on hold through this year on a combination of subdued wages, low global growth and

weaker domestic growth.

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DXY 4 Hour - keeps climbing higher.


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Overall Tone of the United States: Positive 3

Overall Tone of the Dollar Index (DXY): Positive 3

Overall Relationship (between the US and USD): Aligned

This week things are looking quieter. Monthly housing data will be watched as NAHB, Building Permits, Existing

home sales, house price data and housing starts will all be released throughout the week. Also manufacturing PMI

and CB Leading indicator data will be released. Weekly jobless claims will also be released. So a quiet week with

focus turning to the Fed meeting next week. Also as a note, Monday will be a quieter day and a half day for Martin

Luther King day.

N E W Z E A L A N D D O L L A R

New Zealand as a whole continues to have an

overall positive tone to it. Growth remainsstrong while, as continues to be same story, in-

flation continues to weaken especially because

of commodity prices with dairy prices in par-

ticular weakening the most and prices of com-

modities in general continue to fall with milk

prices falling the most. As for the growth story,

though overall growth of New Zealand contin-

ues to be strong, such areas as the manufacturing

sector have weakened some as has business sen-

timent. Trade data has also shown some weak-

ness in the past few months too with the trade

surplus turning into a trade deficit while both

imports and exports have also weakened. As for

the consumer, both sentiment and spending con-

tinues to remain strong overall though last week

we did see some weakness in Electronic Card

sales numbers. The labor market also continues

to show strength as the rate of unemployed con-

tinues to fall and newly employed continues to

rise. As for the housing market this continues to

be strong overall as prices continue to move

higher though there has been some weakness

lately with house price data showing this lastweek. Overall then, the conditions of New Zea-

land is positive though is weakening some. As

for the RBNZ has pulled back on their hawkish

rhetoric and is expected to hold off on rates until at least the

end of this year.

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NZD/USD 1 Day - 0.80500 level white line


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Overall Tone of New Zealand: Positive 2

Overall Tone of the NZD/USD: Negative 2

Overall Relationship (between New Zealand and NZD/USD): Diverged

Inflation data being released this week will be the key data to watch. It will be released on Tuesday. It will cover the

fourth quarter of last year and so the fall in the data will likely be pretty good sized. The one bright spot is that milkprices have stabilized some over the fourth quarter. But the real question is not whether or not inflation will be low,

because the answer to that question is most definitely a yes, the real question will be how the market will view the

data in terms of what the RBNZ will likely do in response. Then the following question, right along with the first

question, is how this inflation will affect the RBNZ and what they do going forward in terms of rates. Really, I ex-

pect the RBNZ will look through lower inflation for now but if it continues to stay low, they will adjust their tone

towards rate hikes and where rates need to normalize at. The other data of interest will be Business NZ PMI data

which will show how business sentiment continues to fair.

As for the charts, the NZD/USD continues to be in a range. The line in the sand I am watching for a sign of the NZD

sentiment turning positive is the 0.80500 level. Though it doesnt look like it wants to get anywhere near there at this

point.

C H I N A Y U A N ( O N S H O R E )

China as a whole continues to weaken as the government continues to implement reforms to begin the task of liber-

alization the Yuan and interest rate markets as well as opening up their financial markets and their overall economy.

Due to these reforms, growth overall continues to be weak and remain continues to weaken further. The manufactur-

ing sector in particular continues to weaken as a whole as has the non-manufacturing sector and the services sector

has improved some over the past couple of months.. As for the consumer, spending and retail sales continue to

strengthen while sentiment has weakened over the past few months. Trade has also weakened as imports and exports

have weakened in the past few months though both exports and imports data last week improved more than expected

though imports continue to be in negative territory. There has been some discussion lately though on just how accu-

rate those numbers really are. But things appear to be improving a bit on the trade side of things. As for inflation,

this also continues to move lower. As for investment and banking, foreign direct investment has continued to im-

prove over the past few months and that continued last month per the data released last week. As for banking, M

money supply shrank and new loans were lower than expected and previous showing continued weakness in the

lending sector of China as the central authorities continue to crack down on the banking and lending industries,

among others.

Overall Tone of Chine: Negative 3

This week, quarter four GDP numbers will be the highlight of the Chinese markets and possibly, depending on the

results of the data, the highlight for global markets, at least to begin the week. Expectations are for a lower number

than previous and so the question will be whether or not it is lower than that. The risk is for a lower than expected

release in my opinion as the manufacturing sector and the consumer as a whole have both been particularly weak in

recent months. The other key data next week will be Retail Sales and Industrial production data as well as house

price data and HSBC Manufacturing PMI data and CB Leading Economic index data. All of this will be watched to

gauge how Chinas growth is now and could likely perform going forward.

As for the charts, the Yuan it has strengthened a tad bit over the past couple few weeks but continues to be in an

overall neutral stance versus the US Dollar right now.

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