A big day is scheduled out of the US on Thursday as a spate of key fundamental releases hits the market. With GDP, home sales and unemployment data all schedule at, or shortly after, the US open, expect volatility to be the order of the day across the major US crosses. Consensus forecasts a slight decline in continuing jobless claims, and a GDP QoQ contraction of 0.5%. With this in mind, look for any discrepancy to weigh on the greenback as the day matures.
The Kiwi declined on Wednesday as a number of fundamental releases out of its Australian neighbours suggests there could be some fallout to come from the slowing economy in China. Thursday will see the release of the latest building consents and private sector credit data, both of which have the potential to affect the value of the NZD versus its US counterpart. Look for a miss to compound Wednesday’s Australian disappointment and exert downside pressure on the NZDUSD.
The Yen is down slightly as we head into the start of the US session, but don’t take this as a sign that a downside bias is a dead cert winning view. The day starts with some of the most highly anticipated US data in a long time, and closes with the data that could reveal whether or not Shinzo Abe’s three arrows policy has had its desired effect – Japanese inflation. For this reason, look for volatility at the beginning of the day, but expect a relatively quiet afternoon as the markets consolidate into the inflation release.
Global markets are mixed on Thursday morning, as Wednesday’s risk on sentiment (the willingness of market participants to take risks rather than hold money in safe haven assets such as gold) looks to have stalled somewhat ahead of the US GDP data. A better than expected GDP release would bring a return to yesterday’s sentiment, and could fuel some solid gains in the major US and European markets heading into Friday and the weekend.
Crude oil is up a few percent ahead of the US open, as traders eagerly await the upcoming US growth data. A better than expected release (anything that shows a contraction of less than 0.5% or an expansion) will likely fuel further gains in crude oil as the day matures, since the commodity is tied so heavily to economic performance. The same concept applies to the jobless claims release – set for just after the GDP figures – with a better than expected employment situation suggesting an increase in disposable income, production and in turn, output. This scenario would also translate to crude gains as the day matures.
Today’s action in the gold market is all about the upcoming US GDP and home sales data. When the US economy is considered to be strong investors will often shift capital from zero yield assets such as gold to the USD in order to capitalise exposure to higher yielding assets. This means that today’s data could determine the medium term direction in the yellow metal. Look for better than expected releases to weigh on the gold market, and conversely, misses to offer support.
Once the dust settles from the major US data, all eyes will be on Japan on Thursday evening for its latest round of spending, inflation, industrial production and employment releases. For this reason, the Nikkei 225 could be a volatile index as the markets shift from US to Asia. Look for considerable strength if inflation proves to better than expected.