Key Events In The Week Ahead - US Growth Focus And Oil Price Trends

Tyler Durden's picture

Last week saw dramatic dispersion among the major FX pairs as global and local influences caused significant moves in most of the key crosses. Goldman takes a look back at the key drivers of that volatility and then focuses on the week ahead as the EU Summit at the latter end is the main event risk while ongoing macro developments will be focused on the incessant rise in Crude oil prices and whether we start seeing knock-on impacts in the real economy.



Goldman Sachs: What Matters in FX This Week : FX Week Ahead: Focus On US Growth Data And Oil Price Trends

It has been a big week for FX; a number of global and local influences have caused significant moves in key crosses and mostly in G10 space. First, the EUR rallied on a trade weighted basis; stretched short EUR positions unwound as progress was made on the Greece PSI and as the market took relief in the avoidance of a more disorderly outcome in the Euro-area. Interestingly the EUR rally happened even despite rangebound performance for risky assets and lack of strong directionality in other dollar crosses (such as $/LATAM or $/NJA). The key event to watch in the week ahead in terms of Euro-area tensions will be the EU summit on Thursday and Friday where the final details of the next Greece assistance package will be discussed.

Second, the JPY continued to depreciate sharply, extending the move that began with the BOJ’s latest balance sheet expansion operation and the shift to an inflation target. As Fiona Lake recently argued, although the shift in JPY fits fundamentally with a convergence towards fair value, the timing of the move is tricky and we have been reluctant to follow the shift particularly in the absence of an analogous move in US front end rates.

That said, the main macro development last week, the ongoing rise in Brent crude oil prices to the highest USD denominated level since last spring (and the highest EUR denominated level ever), was conducive to a shift higher in both in EUR/$ as well as in $/JPY. Our commodity strategy team has been highlighting that the run up in Brent prices over the past month has been driven primarily by a recovery in global growth expectations and hence was in line with our broader views. However, in the past couple of weeks fears of supply disruptions due to Middle East tensions has likely contributed to the increase to over $124/bbl as well. Our relevant top trade hit our target and we recommended clients to close the long July 2012 Brent position. However, we still expect to see Brent crude oil prices to rise to $127.50/bbl on a 12-month horizon, and see the risk to this forecast as increasingly skewed to the upside. For now, however, we expect the better opportunity for a long position in crude oil lies in being long WTI crude oil, and we have recommended a long September 2012 WTI position to take advantage of our anticipated narrowing of the WTI-Brent spread following the reversal of the Seaway pipeline to flow crude oil from the oversupplied US midcontinent to the US Gulf Coast in June.

What this means for FX is 1) currencies like NOK and RUB tend to experience the most positive Terms of Trade shock, while JPY and KRW the most negative one and 2) reserve recirculation dynamics imply EUR/$ buying flows from large commodity producing FX targeting countries.

Finally, more dovish than anticipated BOE minutes led to GBP weakness which we think can extend. Policy expectations in the UK, combined with EUR dynamics and developments in oil prices are bound to lead GBP/NOK lower; hence our new trading recommendation last week.

For the week ahead we will be watching US data closely. Risky assets will need to see the improvement in growth dynamics extend in order for the rally to gain fresh momentum. ISM will be the key release to watch but durable goods and consumer confidence will also be important.

Monday, 27th February

US Pending Home Sales (Jan): Consensus expects 1.0%mom after a 3.5% fall in December.

Israel Monetary Policy Meeting : We and consensus expect no change from 2.50%.

Also Interesting: ECB Asmussen Speech

Tuesday, 28th February

US Durable Goods Orders (Jan): Consensus expects -1.0% mom after 3.0% mom in December.

US Consumer Confidence (Feb): Consensus expects a rise to 63.0 from 61.1 in January.

Hungary Monetary Policy Meeting: We and consensus expect the base-rate to be unchanged at 7.00%

Also Interesting: South Africa Q4 GDP, Philippines Jan exports, Japan retail sales

Wednesday, 29th February

India 2011 Q4 GDP: We expect 6.5%yoy vs consensus of 6.3% yoy after 6.9% yoy in Q3.

Sweden Q4 GDP: We expect 2.8% yoy growth down from 4.6% yoy in Q3 2011.

Euro area CPI (Jan): For core CPI, consensus expects 1.7%yoy after 1.6% yoy in December.

Bernanke Speech (semi annual testimony)

Also Interesting: Fed Beige Book, US GDP Q4 (2nd), Australia/Germany Retail Sales (Jan), South Korea/Japan Jan IP, Thailand Jan Exports, UK Feb Consumer confidence, Switzerland KOF

Thursday, 1st March

South Korea Exports (Feb): Consensus expects 13.7% yoy after -7.0% yoy in January.

China PMI Manufacturing (Feb): Consensus expects 50.8 up from 50.5 in January.

Germany Flash CPI (Feb): Consensus expects 2.2% yoy after 2.1% yoy in January.

US ISM/Global PMI: For ISM, consensus expects a reading of 54.5 in February up from 54.1 in January.

US Personal Income (Jan): Consensus expects 0.4% mom, the same as in December.

Switzerland GDP (Q4): We expect 0.3% yoy vs consensus of 1.0% yoy, down from 1.3% yoy in Q3 2011.

Philippines Central Bank Meeting: We expect the policy rate to be unchanged. Consensus expects a cut of 25bps to 4.00% down from 4.25%.

Russia CB Meeting: We expect no change in the policy rate.

EU Summit begins

Also interesting: Brazil Exports, South Korea/Indonesia/Thailand CPI, Poland Q4 GDP

Friday, 2nd March

Canada GDP (Q4): We expect 2.1% yoy up from 2.0% in Q3 2011.

EU Summit ends

And a tabular summary from SocGen:

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lolmao500's picture

Week ahead on war : War in Syria. War in North Korea. War in Iran.

dannyboy's picture

I don;t think it will be as quick.. They will do it for obama's re-election campaign, so a while yet my guess is august it will start or sometime around there.

sitenine's picture

+ war in Nigeria, war in Yemen, war in Gaza, war in Palestine, war in Falklands, unrest in Libya, unrest in Egypt, unrest in Bahrain, drug war in Mexico, et. al, war everywhere bitchez!

Don't forget the war for your mind.  Thank you ZH for fighting that one for us!

lolmao500's picture

Totally. This is basically a world war... war on all continents...with several powers included.


sitenine's picture

Yes, I am concerned.  Add to that the shit storm going down over some trivial book burning incident - soldiers were pissing on corpses a few months ago, and it didn't set off this kind of rage.  What about Venezuela - they got their gold and disappeared from radar.  Smart.  North Korea is threatening South Korea again only a few months into Un's takeover.  Russia threatened to move against a missile defense shield in very direct and real terms.  Speaking of Russia, do they still have those ships in anchored in Syria?  Iran's ships as well.  Why does Turkey keep bombing the Kurds in Iraq - is this somehow acceptable?  I could go on for fucking hours, but I have to get back to my American Idol show...

PlausibleDenial's picture

Whoa.....don't diss American Idol... My girlfriend loves and really values me watching it with her.  It's like an aphrodisiac if you will:)  And, please there is no formula or chart than can value "that" (getting laid) in terms of gold....

q99x2's picture

Wonder if 11 days until Germany kicks Greece out of the Euro will have any effect other than death by rumor.

TradingJoe's picture

Week Ahead: more looting, more cheating, more lying, more corruption, more "speculation", more hope and change, more "rumors", more "upside",


lolmao500's picture

Yep. We're living the same BS again and again... have been for years.

Me for example, I'm still living in 1999.

Schmuck Raker's picture

I heard they ran out of rumors.

Robslob's picture

The world is in global shame and only the aliens can see we don't deserve to inhabit this planet...DeathStar blast in 3...2...1...

TradingJoe's picture

Hah, do you really think that ANY alien would waste one energy charge for us, an out of control and thus failed experiment?!?!? Me think not!!! Humans are prone to self distruction and they have all the time in the world to watch how we blow up ourselves for the sake of "having"!!!

ISEEIT's picture

In other words.... If you went small on your eur short, be glad and keep covering. Once the easy money gets sucked up, you will be back in the game. Strange moves in FX this last week. Unusual. Something is in the 'force'.

Blah- ha= ha.

knukles's picture

(thought balloon in Valley Girl talk)


Wait a minute.
Are you kidding?
They're having a summit?
Must be important.

Like when I went onto Starbucks, and the barista asked me what I wanted and I said I couldn't make up my mind.  There are just so many things on the menu. 
Hey, so that's why their lines are so long!

navy62802's picture

Looks like we're going to get another Wikileaks release as well.

The Swedish Chef's picture

Haven´t we kinda forgotten this weeks main event? LTRO 2.0? 

Schmuck Raker's picture

I'm just guessing, but....

The 29th may be the date the ECB will disburse funds, though the real action(or none) will be the announcement later(weekend/next week?) of HOW MUCH moola they actually gave away. I don't recall how long it took to find out with LTRO 1.0.


Edit: Nope, I'm wrong.

gekkobear's picture

$TVIX looking to take off!

Mike Jones's picture

Yes! We will see if it trades at a discount or a premium after credit suisse has ceased the issuance of shares for the time being.

steve from virginia's picture

Our commodity strategy team has been highlighting that the run up in Brent prices over the past month has been driven primarily by a recovery in global growth expectations and hence was in line with our broader views.

WHAT global growth expectations?

Japan? Didn't article previously highlight the cash dump in Japan? What about the ongoing China hard landing? How about real estate woes in UK? US is feasting on EU troubles, capital flight. That is not a growth story.

This is the real problem, that the energy prices are rising sharply in the face of recession or near-recession everywhere. There is no compelling growth story anywhere, even in Brazil. QE flowing to central bank reserves won't push crude prices, moral hazard will.

What is that crude price that lets the air out of everything? In 2008 it was $147, the world was awash in shadow-banking funds/repos looking for places to hide. Last spring it was $128 with the last of Bernanke's QE2 and China's stimulus, an outpouring of moral hazard. $128 was almost the death-knell of BAU last year, falling crude prices -- to $110 -- were a ray of hope. Now?

EU gives no moral hazard and the Fed is cautious. BofE and BofJ won't gin up new credit from broken finance transmission structures. Ditto for the EU. This is organic demand w/ hard currency, increased consumption from producers themselves along with purchases by Chindia.

There is no feedback loop to moderate demand. Prices rise until something breaks and demand plummets. I'd stock up on food if I waz you ...



ZeroIQ's picture

I am with you with the oil prices, I think the only thing that goldman enlightens us on is that of their own positions. I also think there is a lot of "liquidity" in the markets to drive prices even higher. I've learned that here on ZH :D

lolmao500's picture

Well ain't that interesting???

He says many Japanese firms that cannot obtain loans from banks are having to rely on Chinese funds to keep their businesses afloat.

sitenine's picture

Interesting.  And I suppose that there will be massive moves in Forex reserves and Treasuries as a result of doing business in something other than USD?  Oh my.  Everyone saw it coming.  Interesting, there are many now in denial.  Go figure.

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