19/10/2015

Fundamental Analysis

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

Major events this week (October 19-23)

Day/Time (GMT) Flag Currency Event Period Actual Forecast Previous

MONDAY

2:00 am CNY GDP Q/Y Quarter 3 6.9% 6.8% 7.0%

2:00 am CNY Industrial Production YoY September 5.7% 6.0% 6.1%

TUESDAY

12:30am AUD Monetary Policy Meeting Minutes

12:30 pm USD Building Permits September 1.17M

12:30 pm CAD Wholesale Sales MoM August 0.0%

WEDNESDAY

8:30am GBP Public Sector Net Borrowing September 11.3B

2:00 pm CAD BOC Rate Statement

THURSDAY

8:30 am GBP Retail Sales MoM September 0.2%

11:45 EUR Minimum Bid Rate 0.05% 0.05%

12:30 pm CAD Core Retail Sales MoM August 0.0%

12:30 pm USD Unemployment Claims October 17 255K

FRIDAY

7:30 am EUR German Flash Manufacturing PMI October 52.3

12:30 pm CAD Core CPI MoM September 0.2%

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

New Zealand Even though low borrowing costs are likely to inflame the housing market, Reserve Bank of New Zealand Governor Graeme Wheeler hinted that further interest rate cuts were on table even as recent fundamentals have been more positive. Yet, Wheeler underlined that the central bank needed to have "sufficient capacity to cut interest rates if the global economy slows significantly". The comment on further easing being likely echoes Wheeler's wording in the monetary policy statement on September 10, where the central bank cut the official cash rate a quarter point to 2.7% for the third time in three months. The next review of interest rates is due on October 29, before the next full Monetary Policy Statement on December 10. Euro zone German investor confidence dropped to the lowest level in a year, as the diesel emissions scandal at Volkswagen and slowdown in emerging markets took their toll. The ZEW Center for European Economic Research said its index of investor expectations, which aims to foresee economic developments six months ahead, plummeted to 1.9 in October down from 12.1 in the previous month. That was the seventh straight decline and compared with economists median forecast for a drop to 6.5. Nevertheless, the German economy remains resilient, while solid growth in the US and other key export markets should balance the weakness in trade with China. Yet, the recent report on German inflation provided no relief for the ECB, who have been struggling to revive inflation in the Euro zone. German consumer prices declined 0.2% on month in September, while in annual terms, consumer inflation was flat in September. UK The UK jobless rate dropped to the lowest level in seven years in August, while proportion of people in employment rose to the highest level since records began in the 1970s. The unemployment rate came in at 5.4% for the three months through August, compared with 5.5% in the three months to July, as the number of unemployed people dropped by 79,000 to 1,77 million. The Office for National Statistics reported employment surged by 140,000 over the period, increasing the number of people in work to 31.12 million. The employment rate also reached a record high of 73.6%. While the decline in consumer prices boosted consumers' purchasing power, Britons also enjoyed growth in wages, which rose 3%.

Key highlights of the week ended October 16

EUR

“While a deteriorating inflation outlook in the US has increased the risk of a delay of the Fed's first hike to next year, the same problem in the euro zone is raising the likelihood of additional ECB measures to stimulate the economy before the end of this year” - Rabobank

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

S&P/ASX 200 Index 0.29% 5,408.24

S&P/ASX 300 Index 0.28% 5,360.32

Trends* Q4 15 Q1 16 Q2 16

MAX 1.38 1.21 1.24

75% percentile 1.13 1.11 1.12

Median 1.09 1.07 1.07

25% percentile 1.06 1.05 1.03

MIN 0.96 0.97 0.95 * the data is based on international banks’ forecasts

Impact

Euro zone slips into deflation in September, urging ECB to consider extra stimulus

High

The Euro zone slipped again into deflation, Eurostat confirmed the

earlier estimate. Consumer prices in the currency bloc recorded

negative growth for the first time since March, adding to signs that

the ECB’s ongoing stimulus programme might not be sufficient to

support the region’s economy and return inflation to the targeted

level of just below 2%. The consumer price index in the 19-nation

bloc declined 0.1% in annual terms in September after the 0.1% rise

a month earlier. However, the gauge was slightly more positive

when measured on a monthly basis, with prices climbing 0.2%

compared to flat growth in August and 0.2% forecast. At the same

time, the core CPI, which stripped out volatile components such as

energy, food, alcohol and tobacco, edged higher 0.9% on year in

September.

Persistently weak and even sub-zero inflation readings are building

the pressure on the European Central Bank to deploy further easing

measures. ECB Governing Council member Ewald Nowotny said

more needed to be done to support inflation. Nowotny added that

the additional measures should involve structural tools as well as

measures to underpin demand.

16.10 open price 16.10 close price % change

EUR/USD 1.1386 1.1348 -0.33%

EUR/GBP 0.7363 0.7351 -0.16%

EUR/CHF 1.08191 1.0829 +0.09%

EUR/JPY 135.37 135.58 +0.16%

USD

“The rebound in confidence signifies that consumers have concluded that the fears expressed on Wall Street did not extend to Main Street” - University of Michigan

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

S&P/ASX 200 Index 0.29% 5,408.24

S&P/ASX 300 Index 0.28% 5,360.32

Trends* Q4 15 Q1 16 Q2 16

MAX 132 135 136

75% percentile 125 127 128

Median 123 125 125

25% percentile 121 122 123

MIN 86 110 112 * the data is based on international banks’ forecasts

Impact

US consumer sentiment rebounds strongly in October High

US consumer sentiment bounced back strongly in October despite

headwinds from a strong US Dollar and sluggish demand that

weighed on the industrial sector, particularly manufacturing. The

University of Michigan said its consumer sentiment index surged to

92.1 in the reported month from 87.2 in September, whereas

economists had expected a modest upturn to 89.0. The survey's

current conditions sub-index jumped to 106.7 this month from 101.2

in September. Six months out from now, the forecast was 82.7,

which was up from the month prior’s 78.2, according to the survey’s

index of expectations. Meanwhile, expectations by Americans for

the inflation rate dropped from an expected 2.7% within the

upcoming year to 2.8% in September.

In a separate report, the Fed said industrial output declined 0.2% on

renewed weakness in oil and gas drilling after sliding 0.1% in August.

Industrial production rose at an annual rate of 1.8% in the third

quarter. At the same time employers offered 5.37 million vacant

positions in August, compared with the market consensus for the

5.58 million job openings, the Labor Department reported. The

preceding month’s figure was revised to 5.67 million from 5.75

million reported initially.

16.10 open price 16.10 close price % change

AUD/USD 0.7329 0.7264 -0.89%

USD/CHF 0.9506 0.9537 +0.33%

USD/JPY 118.89 119.44 +0.46%

NZD/USD 0.6852 0.6808 -0.64%

CNY

“Continued downward pressures from real estate and exports caused gross domestic product (GDP) growth to drop to 6.9 percent” - Louis Kuijs, Oxford Economics

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

S&P/ASX 200 Index 0.29% 5,408.24

S&P/ASX 300 Index 0.28% 5,360.32

Trends* Q4 15 Q1 16 Q2 16

MAX 0.82 0.78 0.82

75% percentile 0.65 0.64 0.65

Median 0.63 0.62 0.61

25% percentile 0.61 0.60 0.60

MIN 0.59 0.56 0.55 * the data is based on international banks’ forecasts

Impact

China’s economy grows 6.8% in Q3, weakest since 2009 High

The world’s second biggest economy posted its weakest quarterly

economic growth since the global financial crisis, building pressure

on policy makers to slash interest rates further and deploy

additional support measures to avert “hard landing”. China’s

economy expanded by 6.9% on year in the third quarter, slightly

better than economists forecasts for a 6.8%. While better than

expectations, growth was still the slowest since the January-March

period of 2009, when the economy expanded by 6.2%. China's

slowdown has not come as a surprise to policy makers, who have

been shifting focus from investment-driven growth to a consumer-

led economy over the last few years. However, the extent of the

slowdown has fuelled concerns. The Chinese economy grew at its

weakest rate in 24 years in 2014, and is set to grow at an even

weaker pace this year, likely missing the government's goal of 7%.

Other September figures also pointed to stubborn weakness in the

Chinese economy. Manufacturing output increased 5.7% in

September from a year ago, against forecasts for a 6% rise, while

fixed-asset investment (FAI), a key driver of the economy, surged

10.3% in the first nine months of the year, below estimates of

10.8%.

16.10 open price 16.10 close price % change

AUD/NZD 1.0695 1.0668 -0.25%

EUR/NZD 1.6617 1.6657 +0.24%

GBP/NZD 2.2569 2.267 +0.45%

NZD/USD 0.6852 0.6808 -0.64%

CAD

“Looking ahead, we expect manufacturing activity to rise through the remainder of 2015 and into 2016” - Jonathan Bendiner, TD Bank economist

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

S&P/ASX 200 Index 0.29% 5,408.24

S&P/ASX 300 Index 0.28% 5,360.32

Trends* Q4 15 Q1 16 Q2 16

MAX 1.40 1.41 1.42

75% percentile 1.35 1.36 1.36

Median 1.33 1.34 1.33

25% percentile 1.30 1.31 1.30

MIN 0.88 1.18 1.10 * the data is based on international banks’ forecasts

Impact

Canada’s manufacturing sales decline in August amid drops in petroleum and coal industry

High

Canada’s manufacturing sales declined in August following three

monthly increases in a row, StatsCan reported. However, the decline

appeared to be less than economists had predicted. Canadian

manufacturing sales edged lower 0.2% to $52.1 billion in the

reported month, whereas analysts had expected a decrease of 1.0%.

The biggest drops came in petroleum and coal product industry,

which slid 5.2%. Notable declines were also recorded in motor

vehicle parts, and aerospace products. Partially offsetting these

declines were strong gains in the auto assembly industry, which rose

+6.7% and wood manufacturing +5.1% industries. Auto assembly

sales have increased 20.6% since April, reaching its highest level of

sales since March 2007.

At the same time inventories increased 0.5%, the second straight

monthly rise. As a result, the inventory-to-sales ratio edged higher

to 1.41 from 1.40 in July. Unfilled orders climbed0.2% while new

orders were down 5.6%. Excluding the volatile aerospace category,

unfilled orders added 0.1%, while the 1.0% decline in new orders

was more muted.

16.10 open price 16.10 close price % change

AUD/CAD 0.9427 0.9378 -0.52%

CAD/CHF 0.7389 0.7382 -0.09%

EUR/CAD 1.46476 1.46544 +0.05%

USD/CAD 1.2864 1.2914 +0.39%

JPY

“The overall price trend is improving, and consumer prices are expected to accelerate toward our 2 percent inflation target” - Haruhiko Kuroda, BoJ Governor

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

S&P/ASX 200 Index 0.29% 5,408.24

S&P/ASX 300 Index 0.28% 5,360.32

Trends* Q4 15 Q1 16 Q2 16

MAX 157 157 162

75% percentile 137 136 137

Median 134 134 134

25% percentile 132 131 131

MIN 115 121 121 * the data is based on international banks’ forecasts

Impact

BoJ Kuroda sees inflation trend improving, consumer spending recovering

High

Bank of Japan Governor Haruhiko Kuroda said that consumer prices

excluding fresh food and energy are climbing more than 1%,

indicating the overall inflation trend is steadily improving. Moreover,

Kuroda added that consumer spending, which accounts for 60% of

Japan’s economy, started to recover, hitting a more optimistic note

on the overall economy despite growing expectations for extra

stimulus. Household spending increased 2.9% from a year earlier in

August, after falling for two consecutive months. Nevertheless,

Kuroda acknowledged that exports and factory output weakened

due to a slowdown in emerging markets.

Kuroda's optimism about the economy suggests he does not see the

need to ease monetary policy, though many economists expect the

BoJ will ease its policy further at a planned October 30 policy

meeting. The central bank will mostly likely expand its 80-trillion-

yen-a-year asset purchase programme as poor results of other

indicators, including industrial output, machinery orders and

inflation expectations, reinforced such speculation. Economists are

generally less optimistic than Kuroda about consumption, as

consumer confidence weakened in September.

16.10 open price 16.10 close price % change

AUD/JPY 87.139 86.783 -0.41%

CAD/JPY 92.421 92.487 +0.07%

EUR/JPY 135.37 135.58 +0.16%

USD/JPY 118.89 119.44 +0.46%

Monday, October 19, 2015 7:30 GMT

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

Major events of the previous week (October 12-16)

Day/Time (GMT) Flag Currency Event Period Actual Forecast Previous

MONDAY

5:20 pm CAD BOC Gov Poloz Speaks

11:50pm JPY Monetary Policy Meeting Minutes

TUESDAY

12:30am AUD NAB Business Confidence September 5 1

Tentative CNY Trade Balance September 60.3B 46.9B 60.2B

8:30 am GBP CPI YoY September -0.1% 0.0% 0.0%

9:00 am EUR German ZEW Economic Sentiment September 1.9 6.8 12.1

WEDNESDAY

1:30 am CNY CPI YoY September 1.6% 1.8% 2.0%

8:30am GBP Claimant Count Change September 4.6K -2.3K 1.2K

8:30am GBP Average Earnings Index 3m/y August 3.0% 3.1% 2.9%

12:30 pm USD Retail Sales MoM September 0.1% 0.2% 0.2%

THURSDAY

11:00 am AUD Unemployment Rate September 6.2% 6.2% 6.2%

12:30 pm USD CPI MoM September -0.2% -0.2% -0.1%

12:30 pm USD Unemployment Claims October 9 255K 269K 263K

FRIDAY

6:35 am JPY BOJ Gov Kuroda Speaks

12:30 pm CAD Manufacturing Sales MoM August -0.2% -0.6% 1.7%

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

Chart SMA (55) – Simple Moving Average of 55 periods SMA (200) – Simple Moving Average of 200 periods Forecasts

EXPLANATIONS

Third Quartile – separates 25% of the highest forecasts

Second Quartile – the median price based on the projections of the industry

First Quartile – separates 25% of the lowest forecasts

Dukascopy Bank SA, Route de Pre-Bois 20, International Center Cointrin, Entrance H, 1215 Geneva 15, Switzerland tel: +41 (0) 22 799 4888, fax: +41 (0) 22 799 4880 research@dukascopy.com

Disclaimer Everything in this article, including opinions and figures, is provided for informational purposes only and may not be interpreted as financial advice or solicitation of products. Dukascopy group assume no responsibility for the completeness or the accuracy of any data contained in this article. Financial figures indicated in this article have not been verified by the Dukascopy group. Views, opinions and analyses are those of the author of the article, and are not endorsed by the Dukascopy group. Dukascopy group waive any and all warranties, express or implied, regarding, but without limitation to, warranties of the merchantability or the fitness for a particular purpose, with respect to all information in this article. Dukascopy group shall under no circumstances be responsible for any direct, indirect, consequential, contingent or any other damages sustained in connection with the use of this article.

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Technical Indicator

The trade surplus in Switzerland contracted in August, as the strength of the Swiss Franc hit demand in the European Union and China. According

to the FSO, Switzerland's trade balance amounted to 2.87 billion francs in the August, compared with a downwardly revised 3.58 billion francs

registered in the previous month. However, the actual figure beat the market expectation of 2.75 billion francs surplus. The latest report also

showed that real exports slipped by 2.4% on a monthly basis in the reported period after decreasing a revised 2.3% in July. Year-on-year, exports

decreased by real 2.1% in August but slower than the 4.9% decline seen in July. Similarly, real imports declined 4% versus a 1.8% drop a month

ago. On an annual basis, imports slid 7.4%, reversing July's 1.7% increase.

Meanwhile, the Swiss foreign trade remains under the pressure due to the strengthening Franc and the recent SNB's monetary changes. The

appreciation in the Swiss Franc from mid-January has been reflected in sharp declines in both export and import prices. In the meantime, the SNB

kept its benchmark rate on hold last week at a record low of -0.75% and revised its inflation expectations downward, as a result of the drop in oil

prices.