From US GDP, UK GDP, Japan and Eurozone inflation report, there are endless source of volatility this week. There are at least 3 events that might be overlooked in favor of other, more significant outlook.

This is a busy week where many economic reports are released despite of the many holiday presents. Starting from US GDP, UK GDP, Japan and Eurozone inflation report, there are endless source of volatility. However, there are at least three events that might be overlooked in favor of other, more significant outlook.

 

China Will Cut Rates Again

China interest rates cut at the end of last week passed by largely unnoticed by forex traders despite of AUD shocked response. When China cut its rates for the first in two years last week, AUD went up instead of down. This is because Australia has indirect relations with China economy, and is not a Yuan user. When China cuts rates or injects stimulus, it will support industries that often import commodities from Australia.

China
In this sense, concerns among economists and government officials that China economy is slowing down opens the chance for more volatility on AUD pairs. An exclusive report by Reuters yesterday mentioned an interview with an inside source that said China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses.

Consequently, traders will need to note that there are risk from bullish AUD in regard to China looser policies, as well as from bearish AUD if the policies fail.

Eurozone Triple Dip Recession Potentials

Standard & Poor's (S&P) last week mentioned that Europe is on the brink of triple-dip recession since 2008, although economic data are better than expectation.

Previously, Eurozone has suffered double dip recession in 2008 and 2012-2013. The S&P economist further said that economic rebound which begun in the second quarter of 2013 had already peaked, and that growth would now stabilize around the flatline.

Pertumbuhan
The statement sounds familiar. It is in line with what the ECB President, Mario Draghi, stated in Frankfurt last week. He explicitly said that there will be no significant improvement in the coming months. The pessimism inflicted further losses on Euro and bonds yields. Till this morning, EURUSD is still being traded at lower level.

Draghi pessimism also signalled that ECB will probably take inconventional measures, such as the QE that was being touted by analysts as the ultimate cure for the Euro area falling inflation. The problem is, such policy likely will face opposition, most notably from Germany. As mentioned by Benoit Coeure in an interview with Bloomberg yesterday, We're not committing to any particular time line, We'll have a discussion in December, we'll look at the numbers, we'll look at how the economy is doing, and what we've been able to achieve on the ABS market, which has just started a couple of days ago, and on the covered bond markets. We'll have that discussion, and if it's not in December it will be later.

In this sense, Euro traders need to be careful in responding to diverse signs, be it from Eurozone fundamental economic data or from ECB members. One thing is clear though, it is that Euro on the long term is still bearish.

 

OPEC Might Cut Production

Oil prices has dropped around 28% in the last few months. Consequently, many oil producers in the OPEC deem it necessary to cut production in order to drop world oil supply and hoist oil price up.

OPEC

Nevertheless, the cause of the recent oil price freefall is still unknown. Some blamed the US with its shale oils that has disrupted competitions among oil producers. Some alleged that Saudi Arabia fueled price war to protect its market share. There are also those who speculate whether oil price dropped due to the cheap oil poured by ISIS in the black market.

Uncertainty over the reason behind the phenomenon made us question whether slimmer supply from OPEC countries will actually boost oil price. Moreover, oil production from non-OPEC countries is quite sizeable. On the other hand, a number of OPEC countries need to cut supplies in order to boost prices and support their burgeoning deficit.

This event deserved to be noted if only for oil prices relation with certain currencies. Oil prices before fracking usually negatively influencing US economy; if oil prices up, then US economy down, and if oil prices down then US economy up. But that is before fracking, and we are not sure what it will mean for the US now. For Canada (again, before fracking), Oil prices commony move to opposing direction of the Canadian Dollar. But if oil prices are going up, the fuel prices will follow behind and boost inflation in the economies that has been suffering slowdown, such as the Eurozone, Japan, and UK.