Forex Weekly Outlook October 27-31

http://www.forexcrunch.com/calendar-event/?id=8aede7bf-5556-4433-b0fb-943dc87bff8d

25 EU banks to fail ECB stress tests, according to leak

FXStreet (Łódź) - Bloomberg, which got hold of ECB's draft document with the outcome of EU banks' stress tests, has reported that 25 of the financial institutions out of the total 130 under investigation have failed.

No more details have been given, but according to estimates Deutsche Bank, ING and three large French banks have the biggest capital shortfall. The official results will be published this Sunday.

--------

Sunday EU bank stress tests outcome publication in focus - BTMU

FXStreet (Łódź) - Derek Halpenny, European Head of Currency Strategy at the Bank of Tokyo Mitsubishi UFJ looks at the possible results of ECB's EU banks' stress tests and the market reaction. 

Key Quotes

"The much anticipated AQR and stress test results will be released on Sunday at 12 noon CET and will likely garner much attention for the markets on Monday morning. The focus initially will probably be on the capital short-fall of the 130 banks tested based on the asset quality review (unlikely); the baseline stress test scenario (possibly) and the adverse stress test scenario (probably)."

"The AQR is based on balance sheets as of the end of 2013 and so there will be an added complication in the reported results of banks that may have failed but have since the end of 2013 recapitalised already. Newswires have reported capital that has been raised already to be in the region of EUR 40-50bn while ECB President Draghi has stated that balance sheet “strengthening” over the past year has been in the region of EUR 200bn, taking account of asset disposals, and capital-raising through share issuances and retained earnings."

"The market appears to be braced for an overall capital short-fall in the low tens of billions. The results will also clarify exactly how much capital has already been raised since the end of 2013 when the AQR assessment was conducted – so this figure should perhaps be included in the capital short-fall total and on that basis, we may have a capital short-fall total between EUR 50-100bn."

"The key though will be credibility and transparency and given the work that has gone into this exercise and given it will form the basis for the ECB becoming the new main banking supervisor under the Single Supervisory Mechanism, we think there is a much higher chance of a more credible and transparent exercise."

"Evidence suggests (see chart above) that demand for loans in the euro-zone has picked up and if this is the case, resolving the supply-side of the banking lending equation will be key for a sustained pick-up in bank lending taking place. Assuming the combined capital figure range I mentioned above is roughly accurate we do not expect the euro to move significantly on these results although we do think they may well prove very important for a more sustained recovery in bank lending over the medium to long-term."

-----------

http://www.forexcrunch.com/forex-weekly-outlook-october-27-31/

http://www.forexcrunch.com/category/forex-weekly-outlook/us-dollar-forecast/

Forex Weekly Outlook October 27-31

Currencies were mixed in the past week, with the greenback gaining against the euro and the yen, while sliding against the the Aussie and the loonie. The Fed decision is the highlight of the week, alongside Yellen’s speech, GDP in the US and Canada and two additional rate decision. These are a few of the events on our calendar for this week. Follow along as we explore the Forex market movers.

US data looked quite solid in the past week, with inflation and housing both edging above expectations. Also jobless claims kept up, and there is a growing sense that QE is going to end as planned, defying Bullard’s words in the previous week. In the euro-zone, optimism comes from German data but not from France, and the ECB has also corporate bonds on its agenda. The UK has seen disappointing retail sales and no rush to raise interest rates. Chinese GDP came out above expectations and supported the Aussie, but CPI took it away. The kiwi suffered more from its own CPI, while the loonie got a boost from a mildly more hawkish BOC, in the background of the Ottawa shooting. Where are currencies headed next? Let’s start:

Updates:

• German Ifo Business Climate: Monday, 9:00. German business climate index, based on a monthly survey of about 7,000 respondents, declined in September to 104.7 from 106.3 posted in August. Economists expected a higher reading of 105.9. Sentiment worsened across the board amid the prolonged crisis in Ukraine impacting more than 6,000 German firms and the weak recovery in the Eurozone economy. Nevertheless, the German Bundesbank forecast a positive end to the year despite the recent slowdown. German business sentiment is expected to reach 104.6 this time.
• US Durable Goods Orders:  Tuesday, 12:30. US durable goods orders plunged in August due to volatility in aircraft orders. Orders dropped 18.2% after a strong rise of 22.6% in July. However the overall growth trend remained strong. Meantime, Core orders excluding transportation advanced by 0.7% in August after a 0.8% decline in the previous month. Core orders reflect the true trend, rising 17.2% in the three months to August. The rise in orders is also reflected by the constant improvement in the US job market with fewer layoffs and increase hiring. Durable goods orders are projected to gain 0.4% , while Core durable goods orders  are expected to increase by 0.5%.
• US CB Consumer Confidence: Tuesday, 14:00. U.S. consumer confidence worsened in September, falling to 86 from 93.4 in the prior month. Economists expected a milder decline to 92.2. The strong decline may be explained by less favorable assessments of the current job market condition. Consumers expected economic growth to stall in the following months ahead. The outlook index declined to 83.7 from a revised 93.1 reading, while the present conditions index fell to 89.4 from a revised 93.9.
• US FOMC Statement: Wednesday, 18:00. The Fed is expected to remove the doubts and end QE as planned. However, the “considerable time” guidance regarding low rates is expected to stay in the statement. Bullard surprised markets by suggesting that QE could continue. However, there are reasons to believe that QE will end: FOMC doves support the end of QE, all employment data (NFP, JOLTS, jobless claims) look great and inflation is OK. In addition, changing course on a stock market slide could erode the Fed’s credibility. The genuine worries about global growth is likely to result in leaving the “considerable time” phrase. This is likely to change when the global outlook improves, and when the decision is accompanied by a press conference.
• NZ rate decision: Wednesday, 20:00. The Reserve Bank of New Zealand kept the official cash rate at 3.5%. Governor Graeme Wheeler stated he won’t rush to raise rates as previously thought, since inflation remains contained. Wheeler also signaled a pause in the bank’s current tightening measures, indicating the bank needs to measure the impact of the four rate hikes this year. The policy statement projects slower inflation by the end of 2015. Rates are expected to remain unchanged at 3.5%.
• US GDP data: Thursday, 12:30. The third estimate of real gross domestic product release for the second quarter showed an annual rate expansion of 4.6%, following the previous estimate of 4.2%. The 4.6% growth in real GDP showed growing personal consumption, private inventory investment, exports, as well as local government spending. The gains were partially offset by a rise in imports, and a 0.9% decline in federal government expenditures. Personal consumption increased but the main growth force was fixed business investments expanding 9.7%. The BEA expected second quarter corporate profits increased $164.1 billion, compared to a $201.7 billion decrease in the first quarter. 3.1%. An annual growth rate of 3.1% is expected for Q3.
• US Unemployment Claims: Thursday, 12:30. The number of new claims for U.S. unemployment benefits rose by 17,000 last week to 283,000. Despite the rise, the number of claims remained below 300,000 for a sixth straight week, indicating the US job market continues to strengthen in spite of a global slowdown trend. The four-week moving average fell to its lowest level since May 2000. However, the slowdown trend in major countries is starting to impact the US manufacturing sector. The number of jobless claims is expected to decline to 277,000 this time.
• Janet Yellen speaks: Thursday, 13:00. Federal Reserve Chair Janet Yellen will speak in Washington DC. Yellen may address the rate hike issue amid continued U.S. economic growth and strengthening in the US labor market. Likewise the Fed Chair may discuss the global slowdown trend which may affect the US economy in the coming months.
• Japan rate decision: Friday. The Bank of Japan kept monetary policy unchanged at its October meeting. The Bank also unanimously decided to prolong its money market operations to raise the monetary base to an annual pace of between JPY 60 and 70 trillion and reach a 2.0% inflation rate. The central bank was more pessimistic regarding economic conditions, despite stating that the economy is continuing to recover moderately as a trend.  Regarding global developments, the BOJ sees a downside risk in the pace of recovery in the US and the unclear state of the Eurozone economy.
• Canadian GDP: Friday, 12:30. Canada’s economy did now grow in July, from the previous month due to a slowdown in the mining, and oil and gas industries offset by a rise in manufacturing and the public sector. Mining, oil and gas industries contracted by 1.5% in July. Manufacturing expanded by 1% and the public sector by 0.5%. Economists expected a minor growth of 0.2%. This sluggish growth suggests the BOC will be on no hurry to raise rates anytime soon.
• That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.