Markets Search for Direction

With the clamour for unwinding the Fed’s stimulus getting louder, uncertainty over the timing of the withdrawal of QE3 still persists. Markets will look for answers when the central bank releases the minutes of its latest policy meeting later this week. For the week ahead, market participants are looking forward to the revised UK and German GDP data and a slew of manufacturing PMIs across the Euro zone for gauging the strength of economic recovery in Europe. Taking cues from the recent flurry of positive economic releases in the UK, the CBI expects the nation’s 2013 GDP to grow at twice the pace projected by the Chancellor in his March budget.

Pound Sterling – UK Markets

The Pound traded under pressure against the US Dollar on Friday, as traders remained cautious amid continued speculation that the Fed might soon begin to unwind its current monetary stimulus programme. Meanwhile, in the aftermath of the latest string of upbeat economic data from the UK, the CBI raised its 2013 and 2014 economic growth forecast for the nation citing improving consumer confidence and credit conditions. Moreover, the overall labour market situation is also likely to improve, as the agency expects the unemployment rate in the UK to fall to 7.6% next year. Meanwhile, Rightmove indicated that annual house prices in the UK continued to climb at a steady pace for August. In the meantime, global sentiment is expected to drive sentiment in Sterling in today’s trading session amid a lack of domestic macro releases. Against the backdrop of the recent upbeat data, the revised second quarter GDP release later this week will be keenly followed by traders for further direction. Also, public sector net borrowing and the CBI trends survey will gain modest market attention this week.

US Dollar – US Markets

The US Dollar exhibited strength on Friday, as traders fear the possibility of the US central bank withdrawing its monetary stimulus in the coming months. Besides, rising yields of benchmark US sovereign bonds also stoked speculation that an alteration to the Fed’s current monetary policy stance is in the offing. The economic data released on Friday proved to be a mixed bag, as consumer confidence unexpectedly deteriorated for August while housing starts grew for July. Meanwhile, the greenback is trading in a tight range against the majors in today’s trading session, as markets search for direction due to lack of global economic triggers. The minutes of the last FOMC meeting later this week will be scrutinized for hints on policymakers’ thoughts on tapering QE3. Furthermore, market participants will look for cues from the annual Jackson Hole symposium later this week. Additionally, key housing indicators as well as weekly initial jobless claims report will be eyed for further cues on the US economic health. News flows emanating from the Euro zone during the course of the week will also influence market sentiment.

Euro – European Markets

The common currency has failed to recover from Friday’s losses, with the Euro-US Dollar pair trading in a tight range in today’s trading session. Another set of mixed US economic data on Friday weighed on the currency pair, amid persistent speculation that the Fed is likely to slow down the pace of its bond buying programme next month. With little on the European economic calendar, the Euro is likely to trade in a tight range against the majors in today’s trading session. On the back of buoyant economic data in the Euro zone during the past few weeks, manufacturing and services PMIs across Europe due later this week will give further cues on the progress made by the currency bloc for August. Additionally, the Euro zone consumer confidence and the revised second quarter GDP data in Germany scheduled during the course of the week will also gain market attention. Apart from the European macro data, the minutes of the Fed’s last policy meeting could prove crucial for determining the direction of risk appetite during this weekly trading session.

Other Currencies – Highlights

The New Zealand Dollar has continued its recent uptrend against the greenback this morning, as services activity in New Zealand expanded the most in almost a year, pointing towards robust domestic services sector. Additionally, data revealed that producer prices rose in the second quarter led by higher dairy prices. However, the Kiwi Dollar was undeterred by reports of another dairy issue in New Zealand. Later today, the Reserve Bank of New Zealand’s inflation expectations report will grab market interest and determine traders’ risk appetite. Additionally, tomorrow's speech by the central bank Governor, Graeme Wheeler, on macro-prudential policy will gain market attention. Besides, during the course of the week, macro data from both sides of the Atlantic, including the US FOMC minutes and PMI data across Europe will be eyed by market participants for further direction.