5 Things Traders Are Watching Next Week, or 'Uncle Sam Takes on the Euroglut'

5 Things That Matter Most to Traders Next Week

1.            US dollar fade? After several weeks of notching Weekly gains pretty much since early July save a mid-August hiccup, the USD had a bout with gravity this week and appeared poised to register its largest interweek sell-off against the majors since April of this year. 

See how the USD is sinking on our proprietary Weekly USD Activity Index:

 FOMC minutes from Fed’s September policy deliberations stressed “patience” in moving rates higher, rattling the cages of US$ bulls.  Notably, the US dollar didn’t get any airtime in the FOMC’s September statement but the minutes revealed “some participants” expressed concerned about a “further appreciation of the dollar” – enough monetary mojo to zap the greenback. 

We are right at an inflection point between positive and negative on our proprietary Monthly USD Activity Index:

Given the USD’s recent surge to its strongest showing in more than five years, the dollar will be in the spotlight next week.  There are plenty of US economic data to keep us busy including a University of Michigan consumer sentiment print and advance retail sales.

2.            The Euroglut continueth. We could write tomes about the periphery, southern Europe, or the PIIGS but the markets really care about one country now – Germany, and she looked downright sickly this week.  Monday saw a monster miss with German August factory orders that printed at -5.7% m/m and -1.3% y/y. Unsurprisingly, German August industrial production came in at -4.0% m/m and -2.8% y/y on Wednesday and Thursday’s August trade balance of €14.1 billion was way below consensus. There are various Eurozone data we can focus on next week, but traders will pay close attention to Germany’s October ZEW survey of economic sentiment on Tuesday with the previous print of +6.9 in recent memory.

3.            Ebola is front-and-centre now with the pessimists fearing a global pandemic may be unstoppable. A Washington Post article broke down the “ominous mathematics” behind the Ebola with some speculating the rate of transmission could exceed that of the AIDS virus doing its heyday. One WHO official just back from West Africa reported it can only be contained if officials “ensure that at least 70 percent of Ebola-victim burials are conducted safely, and that at least 70 percent of infected people are in treatment, within 60 days.” There are a few obvious trades here including vaccine makers such as Tekmira Pharmaceuticals Corp (TKMR) whose Daily chart below shows a recent two-fold price appreciation. 

Many pharmaceutical indices are also in play as a result at the moment. What? You’ve never traded the ARCA Pharmaceutical Index? More broadly, however, if Ebola expectations begin to displace actual economic activity including the free movement of goods and people, it will assuredly depress global economic activity and lead to possible economic contraction.

4.            China is expected to release September trade data on Monday followed by September FDI on Tuesday and September CPI and PPI on Wednesday.  Traders may be dismissive regarding the reliability of Chinese economic numbers, but as we can see in this USD/CNY Monthly chart below, the Chinese yuan has been a very reliable technical trade lately and these data bear watching.

 USD/CNY and USD/HKD may have shaken off the residual overhang from the recent pro-democracy demonstrations in Hong Kong hence fresh economic data are important. This week’s September services PMI prints were down from August’s tallies but still in positive territory.  These China could take on added significance given the disaster Down Under with Australia's week of wobbly data and an RBA policy decision that held its fire.

5.            After front-month Brent Crude traded as low as US$ 88.33, WTI reached a long-time low of US$ 82.95, Gold sputtered lower to US$ 1182.90, and Silver faded to US$ 16.67, we could easily focus on how the energy complex and metals complex have been on the wrong side of the strong USD trade.  Rather than overstate the obvious, we are going to focus on the UK’s September CPI data due on Tuesday. Sterling has been a great technical trade in recent weeks against the US dollar and on its crosses and a UK CPI print that is off-side from expectations either way could reverberate. This week, UK gilts climbed with yields lower on dovish FOMC meetings out of the US and a BCC business survey that warned of risks to the UK’s economic recovery. Markets have started to price in a UK rate hikes later in 2015 rather than sooner with some market participants expecting a February hike while others eye a move in June. Who will get across the monetary finish - er - starting line first: the Fed or the BoE?

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