NFP to shape the QE Outlook

The FED remains prepared to do more as needed to make sure the US recovery continues. The consensus view of the FOMC meet this week represents a highly accommodative policy stance. With Treasury’s, equities and gold ending the week higher and the dollar stumbling, are we setting the scene for QE3? If Ben’s apparent “conditions” become realized, an extension of Operation Twist or outright QE3 will surely have to be implemented. A disappointing weekly claim print this week has inspired some of the QE3 enthusiastic rhetoric. An uninspiring NFP release next week will be the key to shaping the quantitative outlook. Imagine what the asset class landscape is going to look like if there is no QE3 announcement at the June FOMC meet!

Below are some other highlights of the week:


  • Risk and commodity sensitive currencies started on the back foot on Monday morning on Euro-zone renewed concerns and weaker global data. Even surprising wholesale Canadian data was unable to save the initial selling of the interest sensitive currency. Sales rose +1.6% in February, more than reversing the previous months decline. Sales got a boost from motors and their parts, +2.7%. The report certainly warrants some optimism about the months GDP report.
  • CAD: The loonie came under pressure after a disappointing retail sales print of -0.2%. The February release was the first decline in 11-months. The market had expected a growth print of +0.1%. The important sales volume measure happened to drop by an even sharper -0.6%, suggesting a drag on the months GDP, to be released this coming Monday. Last week the BoC was forecasting a +2.5% annualized growth for Q1. Things may not be as hot as Carney believes!
  • USD: US home prices continue to fall year-to-date, pushing the S&P’s/Case-Schiller home price index down to new post crisis lows. The February 20-city index was down -0.8% from the previous month. House prices are back to late 2002 levels.
  • USD: The US consumer turned slightly more pessimistic this month (69.5 vs. 69.2) as rising gas and weaker job growth continued to pressurize confidence levels.
  • USD: The US housing market continues its long struggle with sales of new homes slipping in March while the February print was revised higher. Sales in March decreased -7.1% to +328k. The February print was revised higher by +7.3% to +353k, initial sales were reported at +313k. Year-over-year, March sales were better off by +7.5%. Despite historical mortgage rates and falling prices, an uncertain job market continues to keep buyers on the sidelines.
  • USD: March Durable goods orders significantly missed expectations with the headline down -4.2%, ex-transport down -1.1% and non-defense capital goods ex-air down -8%. Even the revisions were negative with the February growth revised to +1.9% from +2.4%. March was the fastest headline decline in two-years. Analysts note that that there are worrying signs for the manufacturing sector which has contributed significant payroll gains for the last quarter.
  • FOMC: The FOMC reaffirmed its conditional commitment to near-zero overnight rates through at least late 2014. Like a good Cbanker should do in his situation, Ben played down the more hawkish elements of the statement and interest rate expectations.
  • FOMC: They held to the very same policy announcement it issued in March, continuing the existing term extension and rollover into mortgage backed and agency debt, with nothing specific about whether it will extend the “twist” operation when completed, other than the usual pledge to keep reviewing its security holdings.
  • FOMC: Their statement points to another “strong policy consensus.” Upgraded assessments of growth and unemployment for 2012 did not extend to the “full forecast horizon.” Ben hinted that the threat to financial stability from Europe’s crisis and the risk of a domestic fiscal policy mistake “may have prompted slight downward revisions to growth forecasts beyond this year.” That said, projections see the pace of recovery gradually improving to an above-trend pace.
  • USD: The market is unlikely to rebuild a Fed policy tightening bias without US data finding some stronger traction. Without this, the dollar cannot depend on a yield-drive play medium term. Investors will have to rely on an ECB and BoJ easing bias policy to support the ‘buck.’ “The marginal shift forward in member expectations for policy tightening was offset by Bernanke’s message that the Fed will do more if needed to support recovery.”
  • USD: Weekly jobless claims fell -1k to +388k last week. A plus to the market was that there were no seasonality bumps to contend with. However, claims have remained above the +385k print for three consecutive weeks, something that has not occurred in six-months. This would suggest a level consistent with slow hiring. Last week’s 4-week moving average increased by +6.25k to +381,750. Analysts are projecting a payroll print of +175k next week.
  • USD: The NAR showed improvement for the US housing market. The number of home buyers who signed contracts to purchase previously owned homes grew last month to the highest level in 2-years. The seasonally adjusted index for pending sales increased +4.1% on a monthly basis to 101.4.
  • BoC: Carney said the Canada will continue to attract foreign Capital and urged that care on how funds are used. Demand for domestic bonds has caused lower mortgage interest rates resulting in increasing concerns at the level of household debt.
  • USD: Q1 GDP came in below expectations, up +2.2% vs. +2.5%, while final sales were up a “mediocre” +1.6%. The mighty buck initial reaction was to trade under par relative to its larger trading partners.
  • USD: Labor department stats showed that employment cost index rose +0.4% in Q1, down from +0.5% advance during Q4.
  • USD: US consumers apparently feel better about the economy, with Friday’s UoM sentiment index rising to 76.4 end of April, from 75.7 at the beginning of this month. One year inflation expectation slipped to +3.2% from +3.4%, which is surely to keep Ben happy.


ASIA Week in FX




  • Busy week with rate and rhetoric deliveries from AUD and EUR
  • Service/Manufacturing PMI’s are released in CNY, GBP and USD
  • NZD presents business confidence data
  • GDP and Ivey PMI is announced in CAD
  • CHF has Retail Sales
  • Mid-week has NZD employment while USD Payroll ends the week


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell