Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Aug 26 – Aug 30)

Durable goods, PCE inflation and second reading of Q2 GDP from US along with preliminary August inflation from EU and PMI numbers from China are main events in the week ahead of us.

USD

Existing home sales in July came in at 5.42m vs 5.39m as expected and up from the 5.29m the previous month. Sales were up 2.5% m/m and prices were up 4.3% y/y. Currently lower interest rates seem to assist housing market. New home sales came in at 635k vs 647k as expected with prior reading showing big revision up to 728k from 646k.

FOMC meeting minutes showed that most FED officials viewed rate cut as mid-cycle adjustment. A couple of officials were for 50bp rate cut while several of them were for no change. A few participants expressed the concern that a cut could be misinterpreted as a negative signal about the strength of US economy. Three reasons that FED saw for cutting rates according to minutes are 1) Deceleration in business fixed investment, manufacturing and overseas. 2) Risk management 3) Inflation.

China announced that it will retaliate and levy tariffs on additional $75bn of US goods. New tariffs will range from 5% to 10% and will start on September 1 and December 15. This news has completely dampened the risk mood in the markets. Response by president Trump is expected, he will not let this go by. And as expected Trump announced increase in tariffs on Chinese goods by 5%.

This week we will have data on durable goods, second reading of Q2 GDP, housing data, PCE inflation and data on personal income and spending.

Important news for USD:

Monday:

• Durable Goods

Tuesday:

• Consumer Confidence Index

Thursday:

• GDP
• Goods Trade Balance
• Pending Home Sales

Friday:

• PCE
• Personal Income
• Personal Spending

EUR

Final CPI for the month of July came in at 1% y/y vs 1.1% y/y according to the preliminary reading but core CPI came in at 0.9% y/y as preliminary reading showed so there was no reaction in the market. Construction output in June came in unchanged vs -0.3% m/m the previous month which was revised down to -0.5% m/m. One good month to stop the further bleeding but yearly number illustrates the fall coming in at 1% y/y vs 1.7% y/y the previous month revised down from 2% y/y. Although this data was already calculated in Q2 the trend is to the downside so we can expect further declines in Q3.

Preliminary PMI data for the month of August for the EU Area came in at 47 vs 46.2 as expected for manufacturing, 53.4 vs 53 for services and 51.8 vs 51.2 for the composite. The rise was achieved thanks to jump in French manufacturing (51 vs 49.5 as expected) while the German manufacturing also came in better than expected at 43.6 vs 43 and up from 43.2 the previous month. Germany is still in the deep whole as far as manufacturing goes, but markets were very happy to see a rebound in the reading. EURUSD managed to climb over 1.11 on these data. Consumer confidence for the month of August came in at -7.1 vs -6.6 the previous month. It is interesting that according to this reading consumer confidence has not been in the positive territory for at least 30 years. Still it is trending in the wrong direction.

German Finance Minister Scholz stated that Berlin could make available up to 50 billion EUR of extra spending in case of a slowdown thus opening the possibility that German will loosen up their frugal fiscal policy which would have positive impact on EUR. Italian Prime Minister Conte resigned thus preventing early elections. Conte attacked deputy prime minister Salvini in a speech saying that it wasn't in Italy’s interests to hold elections every year. Talks about forming new government are under way.

This week we will have data on sentiment, final consumer confidence reading, preliminary inflation reading for the month of August and July unemployment rate from EU, while there will be readings on business climate, final Q2 GDP and employment data from Germany.

Important news for EUR:

Monday:

• Ifo Business Climate
• Ifo Business Expectations

Tuesday:

• GDP (Germany)

Thursday:

• Unemployment Change (Germany)
• Unemployment Rate (Germany)
• Consumer Confidence Index
• Economic Sentiment Indicator

Friday:

• CPI
• Unemployment Rate

GBP

New prime minister Johnson met with chancellor Merkel and president Macron. Merkel said that "Maybe we can find that solution in the next 30 days, why not?" while the French are taking much tougher stance on the Brexit issue with Macron stating that Irish backstop is indispensable and acting as the protector of stability in Ireland. An unnamed French official said that the baseline scenario now seems to be a no-deal Brexit.

AUD

RBA meeting minutes stated that board would consider further easing measures if necessary but first they will assess developments in domestic and global economies. They see “extended period” of low interest rates as reasonable. Lower AUD will assist exports and tourism. There is more spare capacity in the labour market than previously thought which will limit wage growth. Risk to the economy are tilted to the downside in near term but are more balanced further out. Escalations in US-China trade are presenting downside risks for the global growth. Positive effects of tax cuts, infrastructure spending and lower AUD have been emphasized putting overall neutral tone.

This week we will have private capex and housing data from Australia as well as official manufacturing and non-manufacturing August data from China.

Important news for AUD:

Thursday:

• Private New Capital Expenditure

Friday:

• Building Approval

Saturday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)

NZD

NZD was trending down at the beginning of the week due to speculations about introduction of QE programme. GDT price auction saw decline of -0.2%. making it the second consecutive negative auction. Retail sales for Q2 came in at 0.2% q/q vs 0.3% q/q as expected and down from 0.7% q/q for the previous quarter. After soft card reading last week the drop in retail sales was expected. Weaker consumer confidence and higher petrol prices attributed to weaker than expected reading.

Speaking at Jackson Hole meeting governor Orr stated that they will do whatever is necessary to support NZ economy. He added that after 50bp rate cut they can afford to wait, watch and observe the happenings. Inflation expectation have become very important signal to watch and he stated that QE is not bank’s central scenario.

This week we will have trade balance data and data on business confidence.

Important news for NZD:

Monday:

• Trade Balance
• Exports
• Imports

Thursday:

• ANZ Business Confidence

CAD

Manufacturing sales came in -1.2% m/m vs -1.8% m/m as expected, down from 1.6% m/m the previous month. The petroleum/coal product industry (-3.8%) and food (-2.5%) attributed most to the decline. On the other hand, primary metals were the biggest positive contributor. Wholesale trade rebounded in June to 0.6% m/m from abysmal reading of -1.8% m/m in May. Sales have risen 1.3% in Q2 for a thirteenth consecutive quarter of rising sales with 4 out of 7 subsectors showing increase in sales. Inventories came in at 1.5% m/m for a tenth consecutive month of rising inventories which puts a worrying sign.

CPI for the month of July came in at 2% y/y vs 1.7% y/y as expected and 0.5% m/m vs 0.2% m/m as expected. Core measures came in at: median 2.1% y/y as expected, common 1.9% y/y vs 1.8% y/y as expected and trim 2.1% y/y vs 2% y/y as expected. Better than expected readings across all the measures remove expectations of possible near term rate cut by BOC. Retail sales for the month of June came in unchanged vs -0.3% m/m as expected and up from -0.1% m/m the previous month. Ex-autos category heavily beat the expectations coming in at 0.9% m/m vs 0% m/m as expected.

This week we will have data on Q2 GDP.

Important news for CAD:

Friday:

• GDP

JPY

Trade balance for the month of July came in at -JPY249.6 bn vs -JPY194.5 bn as expected. Both exports and imports came in negative but not as bad as expected and better than the previous month. Exports came in at -1.6% m/m vs -2.3% m/m as expected for the eighth consecutive month of falling exports while imports came in at -1.2% m/m vs -2.3% m/m as expected. Exports to China fell by 9.3% y/y thus increasing the concerns about the magnitude of global slowdown. CPI came in at 0.5% y/y down from 0.7% y/y the previous month. CPI ex fresh food and energy came in at 0.6% y/y vs 0.5% y/y as expected and previous month. Drop in headline number but rise in core number. Still far away from targeted 2%.

Preliminary PMI data for August showed that manufacturing PMI ticked up to 49.5 from 49.4 the previous month and services came in at 53.4 vs 51.2 the previous month. Although manufacturing ticked up it is still below 50 level, for the fourth consecutive month. The data is trending in the right direction but it will need to speed up in order to get back to expansion territory.

This week we will have Tokyo CPI for the month of August, employment and consumption data as well as data on industrial production.

Important news for JPY:

Friday:

• CPI
• Retail Sales
• Unemployment Rate
• Industrial Production

CHF

Trade balance for the month of July came in at CHF3.63 bn vs CHF4.1 bn the previous month. Exports were down -1.8% m/m while exports were down -0.5% m/m. Industrial production in Q2 came in at 4.8% y/y vs 4.3% y/y the previous quarter. Nice and steady rise in industrial production, although Swiss economy is primarily service oriented.

This week we will have data on number of employees in the Swiss economy.

Important news for CHF:

Thursday:

• Employment Level

 

[TradersWay]

Forex Major Currencies Outlook (Sep 2– Sep 6)

NFP, Swiss and Australian Q2 GDP along with BOC and RBA rate decisions will be main data points to look at in the coming week.

USD

In his speech at Jackson Hole FED chair Powell stated that the bank would “act as appropriate” and removed the phrase “mid-cycle adjustment” thus implying that potential rate cuts are coming. Markets have increased the probability for a September rate cut based on the statement and thus the USD suffered.

Preliminary durable goods for the month of July came in at 2.1% m/m vs 1.2% m/m as expected. The headline number is very strong, but digging deeper we find less reason to be joyful. Core orders came in at 0.4% m/m vs 0% m/m as expected but the beating was made based on the previous month revision from 1.5% m/m down to 0.9% m/m. Capital goods shipments fell -0.7% m/m vs 0.1% m/m as expected adding more to the slowdown and influencing lower Q3 GDP forecasts. US consumer confidence has jumped to 135.1 vs 129 as expected with the present situation jumping as well to 177.1 vs 170.9 the previous month for the highest reading since 2000. Expectations however have declined to 107 vs 112.2 the previous month indicating that consumers have some doubts about the future due to trade wars.

Second reading of Q2 GDP came in at 2% q/q as expected, down from 2.1% q/q as preliminary reading showed. Personal consumption has been revised up to 4.7% from 4.3%. Home investment and exports were the main drags on GDP. According to the reading, US economy is very dependent on US consumer as it contributed 3.1% to the growth. A small drop in personal consumption can push GDP below 2%. Core PCE came in as expected at 0.2% m/m and 1.6% y/y. Personal spending rose to 0.6% from 0.3% the previous month while personal income fell to 0.1% from 0.4% the previous month.

This week we will have ISM PMI data for the month of August, July trade balance data and on Friday the NFP. Projections are for the number of around 155k with the unemployment rate ticking down to 3.6% while average hourly earnings remain at 0.3%. New tariffs will be imposed starting from September 1.

Important news for USD:

Tuesday:

• --ISM Manufacturing PMI

Wednesday:

• --Trade Balance
• --Exports
• --Imports

Thursday:

• --ADP Nonfarm Employment Change
• --ISM Non-Manufacturing PMI

Friday:

• --Nonfarm Payrolls
• --Unemployment Rate
• --Average Hourly Earnings

EUR

German Ifo business climate dropped down to 94.3 vs 95.1 as expected making it the weakest reading since November of 2012. Situation in German economy continues to deteriorate according to numerous surveys and it points toward technical recession. Ifo economist stated that industrial sector is in a recession with services now following. He acknowledged that latest trade war escalation, rising of tariffs by both China and US, was not reflected in the latest survey, thus indicating that future survey data from Germany could paint even grimmer picture. Final Q2 GDP reading confirmed negative growth of -0.1% q/q.

Final consumer confidence came in at -7.1 as preliminary reading showed down from -6.6 the previous month. Economic confidence and business climate indicator rebounded coming in at 103.1 vs 102.7 the previous month and 0.11 vs -0.12 the previous month. Although the numbers are still at the 2016 low levels small relief for Euro area will be welcomed. The unemployment rate came in unchanged at 7.5% as expected. Preliminary August CPI came in at 1% y/y as expected, tick down from 1.1% y/y the previous month while the core CPI came in at 0.9% y/y vs 1% y/y as expected but unchanged from previous month. Inflation continues to stay in place which pushes ECB to act at their next meeting.

This week we will have final August PMI numbers, consumption and employment data as well as final reading of Q2 GDP which is expected to be lowered.

Important news for EUR:

Monday:

• --Markit Manufacturing PMI (Germany, France, EU)

Wednesday:

• --Markit Services PMI (Germany, France, EU)
• --Markit Composite PMI (Germany, France, EU)
• --Retail Sales

Friday:

• --Employment Change
• --GDP

GBP

PM Johnson sought legal advice on how to close the Parliament in order to prevent them from stopping his plans of UK leaving the EU on October 31. He is looking to extend the recess period from September 9 to October 14, when Queen will give her speech which is needed to set out legislative programme, meaning that Parliament will start work next week on September 3 but they will work for one or two weeks before going back to recess. In this way he diminishes chances of Parliament blocking hard Brexit. The Queen has prorogued the Parliament no earlier than September 9 and no later than September 12 to October 14. The main plan for the opposition now remains a vote of no-confidence.

This week we will have PMI data and Parliament is returning from recess on Tuesday. There will be heated debates in the Parliament that can seriously impact GBP, especially now that it will be open for about a week.

Important news for GBP:

Monday:

• --Markit Manufacturing PMI

Tuesday:

• --Markit Construction PMI

Wednesday:

• --Markit Services PMI

AUD

Private capital expenditure (capex) for the Q2 came in at -0.5% q/q vs 0.4% q/q as expected. A huge miss on expectations but better than the Q1 reading which showed -1.7% q/q. Building permits for the month of July plunged and came in at -9.7% m/m vs 0% m/m as expected. Although the monthly data is very volatile the yearly reading also shows the huge drop to -28.5% y/y vs -22.2% y/y as expected. The housing market is still facing problems and effects of lower rates still do not produce desired effects on the housing due to low wages and high household debt.

This week we will have consumption and trade data with RBA rate decision taking the central stage. Expectations are for RBA to leave the rate unchanged but to acknowledge the concerns in Australian and global economy which could lead to cut in October. We will also get Caixin PMI and trade data from China.

Important news for AUD:

Monday:

• --Caixin Manufacturing PMI (China)

Tuesday:

• --RBA Interest Rate Decision
• --RBA Rate Statement
• --Retail Sales

Wednesday:

• --GDP
• --Caixin Services PMI (China)

Thursday:

• --Trade Balance
• --Exports
• --Imports

Sunday:

• --Trade Balance (China)
• --Exports (China)
• --Imports (China)

NZD

Trade balance for the month of July came in at -NZD685m vs -NZD254m as expected. Exports came in lower at 5.03bn vs 5.05bn as expected while imports surged to 5.71bn vs 5.2bn as expected and up from 4.65bn the previous month. A small consolation is that domestic demand is keeping strong hence the rise in imports. ANZ business confidence for the month of August further deteriorated to -52.3 vs -44.3 the previous month for a 11-year low. Inflation expectations also dropped down to 1.7% from 1.81% the previous month. RBNZ has stated that they will follow inflation closely so this reading puts additional downward pressure on NZD.

This week we will have bi-monthly GDT auction.

Important news for NZD:

Tuesday:

• --GDT Price Index

CAD

Q2 GDP smashed the expectations and came in at 3.7% q/q vs 3% q/q as expected. Exports rose 13.4% in Q2 thus making the fastest rise since 2014 and making trade contribute to GDP with 4.1pp. Household savings rate climbed to 1.7% from 1.3% the previous quarter. Business non-residential investment and household consumption were the low points of the reading with former coming in at -16.2%, thus cutting GDP by 1.64pp, and latter coming at 0.5% for the weakest reading since 2012.

This week we will have trade balance and employment data. The employment report will be published at the same time as NFP so it may cause greater volatility in the markets. We recommend caution in trading. Highlight of the week will be BOC rate decision. We have not had communication from BOC since their last meeting but markets are pricing mere 14% chance of a rate cut.

Important news for CAD:

Wednesday:

• --Trade Balance
• --Exports
• --Imports
• --BOC Interest Rate Decision
• --BOC Rate Statement

Friday:

• --Employment Change
• --Unemployment Rate

JPY

There have been numerous data points coming from Japan with mixed results. The unemployment rate in July ticked down to 2.2% vs 2.3% previously and as expected. Tokyo CPI for the month of August came in at 0.6% y/y as expected but down from 0.9% y/y previously. CPI excluding food and energy came in at 0.7% y/y as expected but also down from 0.8% y/y previously. Retail sales in July were the weakest data point. They came in at -2% y/y vs -0.7% y/y as expected. Slow wage growth has impacted Japanese consumers so they refrained from spending. On the other hand, preliminary reading for the same month of industrial production shows a great beat on expectations coming in at 0.7% y/y vs -0.6% y/y as expected giving push to the Q3 GDP.

This week we will have final August PMI data, speech from governor Kuroda and data on spending and wages.

Important news for JPY:

Monday:

• --Manufacturing PMI

Wednesday:

• --Services PMI
• --BOJ Governor Kuroda Speech

Friday:

• --Household Spending
• --Labour Cash Earnings

CHF

CHF has benefited from the risk off sentiment caused by uncertainties around US – China trade war and Brexit. It has strengthened based on its safe haven appeal. SNB has sporadically intervened in open markets just to ease the appreciation of the CHF. Member of SNB governing board Machler stated that they still have a lot of room to intervene in the forex market and added that she is satisfied with the way that negative rates are working.

This week we will have consumption and inflation data as well as Q2 GDP reading. Additionally, we will have a speech from SNB Chairman Jordan which will be closely monitored since CHF has strengthened a lot in the past month and SNB is surely not fond of that.

Important news for CHF:

Monday:

• --Retail Sales

Tuesday:

• --CPI

Thursday:

• --GDP
• --SNB Chairman Jordan Speech

 

[katetrades]

Forex Major Currencies Outlook (Sep 9– Sep 13)

ECB rate decision will be the highlight of the week followed by consumption data from US and employment reports from UK and Australia.

USD

ISM manufacturing PMI for the month of August came in at 49.1 vs 51.2 as expected. This is the first time in 3 years that PMI has fallen below 50 level into contraction territory. New orders and employment categories plunged from 50.8 and 51.7 to 47.2 and 47.4 respectively. New export orders category also saw a huge drop from 48.1 to 43.3. The reading had increased the chance of a 50bp rate cut in September to 20%. July trade balance came in at -$54bn vs -$53.4bn as expected with prior month’s reading showing -$55.5bn. Exports were up 0.6% m/m while imports were down -0.1% m/m. US-China trade deficit was increased despite the tensions due to the trade war. ISM non-manufacturing PMI came in at 56.4 vs 54 as expected. New orders component smashed expectations coming in at 60.3 while employment came in weaker than previous month.

Nonfarm payrolls for the month of August came in at 130k vs 160k as expected. Although the headline is below estimate and below three-month average of 156k, other data point to rather good reading with participation rate ticking up to 63.2% from 63% previously and the unemployment rate stayed the same at 3.7%. Average hourly earnings came in at 0.4% m/m vs 0.3% m/m as expected and 3.2% y/y vs 3% y/y as expected. A rise in wage growth is always a good sign and if it manages to translate to inflation FED will be overwhelmed.

This week we will have inflation and consumption data.

Important news for USD:

Thursday:

• CPI

Friday:

• Retail Sales

EUR

Final manufacturing PMI for August for Eurozone came in at 47 and with services coming in at 53.5 this put composite at 51.9. Services are holding the EU economy with manufacturing well below 50 but question remains if and when will there be a spillover from manufacturing to services. July retail sales came in -0.6% m/m as expected. Final Q2 GDP came in at 0.2% q/q as preliminary and 1.2% y/y vs 1.1% y/y preliminary.

This week we will have data on industrial production, trade balance and wages. Main event will be ECB rate decision. Additional stimulus is widely expected but it is yet to be seen in which form will it be delivered (rate cuts, QE). Tiering system would help commercial banks deal with bigger negative rate cuts.

Important news for EUR:

Thursday:

• Industrial Production
• ECB Interest Rate Decision
• ECB Monetary Policy Press Conference

Friday:

• Trade Balance
• Wage Cost

GBP

Manufacturing PMI for the month of August came in at 47.4 vs 48 the previous month thus continuing with declines. Output component and business confidence fell to the lowest readings ever recorded. New export orders also continued to plunge. Political and economic uncertainties weigh heavily on manufacturing all around the World and UK is not exempt from that. Construction PMI came in at 45 vs 46.5 as expected and down from 45.3 the previous month. Services PMI came in at 50.6 vs 51 as expected. This is a hard hit since UK is service oriented economy. Markit added that based on current observations, the UK economy is expected to contract by 0.1% q/q in Q3 thus putting UK in recession.

Cable fell below 1.20 on Brexit fears before Parliament started their session. A conservative MP has switched sides and thus the government lost the majority in the Parliament. Parliament voted to seize control of the House agenda and block no deal until at least January 31, 2020 which leads us closer to the general election. 21 Conservative MPs voted against the government. PM Johnson wants to set it for October 15 while opposition parties want for Brexit delay bill to be passed before the election is called. According to the law Government can change the election date, thus there is a fear that PM Johnson can move the election after October 31 in order to push no deal Brexit. Early election vote proposition has been defeated but if the bill to block no deal Brexit gains Royal Assent, the Labour will support the next election vote thus making it pass and sending Britain to the polls.

This week we will have trade balance, industrial, manufacturing and construction data as well as employment data. Recess in Parliament should also begin.

Important news for GBP:

Monday:

• Trade Balance
• Manufacturing Production
• Industrial Production
• Construction Output

Tuesday:

• Claimant Count Change
• Unemployment Rate
• Average Weekly Earnings

AUD

Retail sales in July came in at -0.1% m/m vs 0.2% m/m as expected with prior month’s reading showing 0.4% m/m. A weak start of Q3 for Australian consumers. Q2 GDP came in at 0.5% q/q as expected. Public spending and net exports were positives, pushing the GDP up while construction, retail and wholesale trade were drags. With yearly GDP of 1.4% it is a slowest pace since GFC. Trade balance came in at AUD7.268 bn vs AUD7 bn as expected. With exports rising 1% m/m and imports 3% showing increase in domestic demand.

RBA has left the cash rate unchanged at 1% as was widely expected. In their statement they have stated that they will ease policy further if the need arises to support sustainable growth and that extended period of low rates is reasonable for lowering the unemployment and pushing inflation toward the target. Inflation is likely to remain subdued according to RBA and consumption remains the main uncertainty in the domestic economy, as the latest retail sale reading showed. They have praised strong employment growth and easy global credit conditions. Although the statement shows that RBA is not in a hurry to further cut interest rate, markets are still pricing in around 89% of a rate cut by the end of the year with around 62% chance of a cut at the October meeting.

Official PMI data from China for the month of August show manufacturing at 49.5 vs 49.7 the previous month. This is the fourth consecutive month that the reading is in contraction territory and after creeping slowly back to 50 the previous month it has again turned away and went deeper into contraction. Trade wars and slower domestic demand are persistent negatives. Services PMI came in at 53.8 vs 53.7 the previous month and composite PMI came in at 53. Caixin manufacturing PMI returned to expansion with 50.4 vs 49.8 as expected. The improvement was driven by the recovery in production with production sub index rising to a five-month high, which signals improving market demand. Employment sub index jumped almost to the 50 level while new orders sub index remained in expansion territory. On the other hand, new export orders sub index remained below 50 and fell to the lowest levels for the year indicating declining foreign demand due to escalations in US-China trade war. Caixin services PMI rose to 52.1 from 51.6, and the composite rose to 51.6 from 50.9 for the second consecutive monthly increase.

This week we will have employment data from Australia and inflation and PPI data from China

Important news for AUD:

Tuesday:

• CPI (China)
• PPI (China)

Friday:

• Employment Change
• Unemployment Rate

NZD

GDT price index came in at -0.4% for a third consecutive auction with negative numbers. Chinese buyers are the largest participants in the auction while the prices are in USD and with fall in Yuan auctions produce weaker results.

This week we will have data on manufacturing and electric card retail sales.

Important news for NZD:

Monday:

• Manufacturing Sales

Tuesday:

• Electronic Card Retail Sales

CAD

July trade balance came in at -CAD1.12 bn vs -CAD0.35 bn as expected. Back to the deficit and last month’s surplus has been revised down to -CAD0.06 bn. Imports rose 1.2% m/m while exports dropped -0.9% m/m with exports falling in 6 out of 11 categories. Surplus was achieved in trade with US while deficit was in trade with the rest of the World. Slow start of Q3 in regards to the trade.

BOC has left the rate unchanged at 1.75% as widely expected. They reiterated that current level of monetary stimulus remains appropriate. Uncertainty caused by trade wars is weighing in on Canadian and global economy and its Governing Council will pay more attention on its influence over growth and inflation in Canada. They acknowledged that wages rose but consumer spending has been unexpectedly soft and business investment fell sharply due to trade uncertainties. Canada’s economy is operating close to potential and inflation is on target.

Employment report for August showed a net change in employment of 81.1k vs 20k and back into positive territory from -24.2k the previous month. The unemployment rate stayed the same at 5.7% while participation rate increased to 65.8% from 65.6% the previous month. Full time employment amounted to 23.8k. Hourly wages dropped to 3.8% from 4.5% the previous month but still shows very healthy rise.

This week we will have housing data.

Important news for CAD:

Tuesday:

• Building Permits

JPY

Capex data for Q2 came in at 1.9% y/y vs 1.7% y/y as expected. Small beating on the expectations will have positive impact on Q2 GDP. On the other hand, company profits came in at -12%, very disturbing number for future capex and GDP data. Final services PMI in August came in at 53.3 vs 51.2 the previous month bringing some good news. Household spending came in line with expectations at 0.8% y/y while labour earnings missed and came in at -0.3% y/y vs 0.7% y/y as expected. Wage growth will not be able to sustain the spending especially with October’s retail sales tax hike.

This week we will have final Q2 GDP reading, machinery orders and final July industrial data.

Important news for JPY:

Monday:

• GDP

Thursday:

• Machinery Orders

Friday:

• Industrial Production

CHF

Retail sales in July came in at 1.4% y/y vs -0.7% y/y the previous month. CPI for the month of August came in unchanged vs -0.1% m/m as expected and 0.3% y/y as expected with core reading coming in at 0.4% y/y as expected. Inflation continues to be stubbornly low which may prompt additional stimulus from SNB at their next meeting. Q2 GDP came in at 0.3% q/q vs 0.2% q/q as expected with household consumption leading the way and trade being the biggest drag.

This week we will have employment data.

Important news for CHF:

Monday:

• Unemployment Rate

 

[katetrades]

Forex Major Currencies Outlook (Sep 16– Sep 20)

The week of central banks, no less than 4 central banks will decide on interest rates and future monetary policy actions with FED leading the way as most important and most watched risk event of the week.

USD

August CPI came in at 1.7% y/y vs 1.8% y/y as expected but core CPI came in at 2.4% y/y vs 2.3% y/y as expected. Average weekly earnings also added to the shine of the report coming in at 1.2% y/y vs 0.9% y/y as expected with real hourly earnings coming in at 1.5% y/y vs 1.4% y/y as expected. Advanced retail sales came in at 0.4% m/m vs 0.2% m/m as expected. Control group came in at 0.3% m/m as expected. US consumer continues to be the main driving force of the US economy giving the FED reason to be more bullish.

President Trump stated that planned increase in tariffs from 25% to 30% on $250bn worth of Chinese goods will be delayed for 2 weeks from October 1 to October 15. He stated that this was done as a sign of goodwill. In response China said that it may allow companies to resume purchases of US farm products ahead of the October talks indicating that relationship begins to improve and markets liked it with risk on mover, AUD up and JPY down.

This week we will have industrial production and housing data. FOMC rate decision is the highlight of the week. Markets are expecting 25bp cut with almost 100% certainty. Economic projections, dot plot, will give us more insight regarding expected future moves by FOMC. FED’s view on trade war will also be scrutinized.

Important news for USD:

Tuesday:

• Industrial Production

Wednesday:

• Housing Starts
• Building Permits
• FOMC Interest Rate Decision
• FOMC Statement
• FOMC Economic Projections
• FOMC Press Conferece

Thursday:

• Existing Home Sales

EUR

Ifo has cut the German GDP growth for 2019 to 0.5% from 0.6% and to 1.2% from 1.7% for the year 2020. They expect Q3 GDP to fall to -0.1% q/q with possible slight recovery in Q4. This would mark second consecutive quarter of negative GDP, thus indicating a technical recession. They also noted that weakness from the industrial sector is starting to spread to other sectors which is particularly worrisome. Industrial production for the Eurozone in July came in at -0.4% m/m vs -0.1% m/m as expected with all the major economies showing a decline in industrial activity. Trade balance came in at EUR19 bn vs EUR17.5 bn as expected. Exports were up 0.6% m/m while imports were flat.

ECB has decided to cut the deposit facility rate by additional 10bp thus putting it at -0.50%. Reintroduction of QE in the amount of EUR20 bn starting from November 1. There is no time frame regarding duration of purchases, they will stop them shortly before raising rates. Tiering system will be introduced. ECB president Draghi stated that risks are tilted to the downside and urged for a looser fiscal policy. Global uncertainties are hitting the eurozone manufacturing hard while services show resilience. Both GDP and inflation forecasts were lowered with former now seen at 1.1% for 2019 and 1.2% for 2020 and the latter at 1.2% for 2019 and 1% for 2020. The baseline scenario does not take into account the escalation of trade tensions. All measures ECB takes are intended to raise inflation close to but below 2%. The fact that QE does not have a perceived end date gives dovish note to the decision although the amount is far lower than feared, EUR60 bn.

This week we will get ZEW reading, final inflation data for August as well as preliminary consumer confidence data for September.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment Indicator (Germany and EU)

Wednesday:

• CPI

Friday:

• Consumer Confidence Index

GBP

GDP in July came in at 0.3% m/m vs 0.1% m/m as expected and thus surprised to the upside with services output being the biggest contributor. The headline number shows a good start for the Q3, at least there is a great possibility of avoiding the recession, but ONS states that weakening growth is still present. Factory data also beat the expectations with manufacturing coming in at 0.3% m/m vs -0.3% m/m as expected, industrial production at 0.1% m/m vs -0.3% m/m as expected and construction at 0.5% m/m vs 0.2% m/m as expected. Very strong month for the UK economy.

July employment report showed wages continuing their rise to 4% 3m/y vs 3.7% 3m/y as expected for the highest reading since June 2008. Real total wages increased by 2.1% y/y which is the fastest pace since Q3 of 2015. The unemployment rate dropped to 3.8% from 3.9% the previous month. The employment change came in at 31k vs 55k and claimant count rate rose to 3.3% to put some shade on the report, but wage rise is the highlight. BOE will be satisfied with the reading, however Brexit dominates the UK so all data plays second fiddle to it.

MPs have voted against a motion to hold elections prior to the October 31 and Parliament was prorogued at the end of the day according to the Queen’s decision. They will continue with their sessions on October 14. Reports state that UK and the EU could agree to maintain Northern Ireland under the European customs regime thus avoiding the backstop issue which gave GBP a boost.

This week we will get inflation and consumption data for August as well as BOE rate decision. Due to the Brexit uncertainties BOE has its hands tied but their input on the economy will be highly valuable. No change in interest rate is expected.

Important news for GBP:

Wednesday:

• CPI

Thursday:

• Retail Sales
• BOE Interest Rate Decision
• BOE MPC Meeting Minutes

AUD

Trade balance data from China in August missed expectations coming in at CNY299.3 bn vs CNY310.26 bn as expected. Exports were up 2.6% y/y vs 6.3% y/y as expected and down from 10.3% y/y the previous month. Exports to the US were down 16% y/y. Global slowdown and US tariffs combined to put a heavy toll on Chinese exporters. Imports came in at -2.6% y/y vs -3.1% y/y as expected. A drop in imports indicating slower domestic demand will be feared by all exporting countries who have China as their main market, namely Germany. CPI came in at 2.8% y/y while PPI plunged deeper into negative territory coming in at -0.8% y/y. Low PPI reading will impact business profits which will in turn lead to halts in employment and business investment. China has already cut their reserve ratio rate in order to stimulate economy and will evaluate if further stimulus is still needed but with such low PPI reading, we can expect more stimulus in the future.

This week we will get RBA meeting minutes and employment data from Australia as well as consumption, industrial production and investment data from China.

Important news for AUD:

Monday:

• Retail Sales (China)
• Industrial Production (China)
• Fixed Asset Investment (China)

Tuesday:

• RBA Meeting Minutes

Thursday:

• Employment Change
• Unemployment Rate

NZD

Manufacturing sales and activity were both down in Q2 coming in at -0.7% q/q vs 1% q/q the previous quarter and -2.7% q/q vs 2% q/q the previous quarter respectively. Drops in meat and dairy manufacturing were the main drags and concerns. Analysts are lowering their projections for Q2 GDP. Electronic card retail sales and spending overall came in better than expected at 1.1% m/m and 1.3% m/m respectively. Positive impact on private consumption.

This week we will have bi-monthly GDT auction as well as Q2 GDP data.

Important news for NZD:

Tuesday:

• GDT Price Index

Thursday:

• GDP

CAD

Housing starts in August came in at 226.6k vs 212.5k as expected and building permits rose to 3% m/m vs 2% m/m as expected and up from -3.1% m/m the previous month indicating improving conditions in the housing market.

This week we will have manufacturing sales, inflation and consumption data.

Important news for CAD:

Tuesday:

• Manufacturing Sales

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Final Q2 GDP came in at 1.3% y/y and 0.3% q/q as expected but down from preliminary readings of 1.8% y/y and 0.4% q/q. The number was revised down due to lower business investment. Private consumption is still the main driver of GDP and it came at 0.6% q/q. Core machinery orders, a good proxy for capex six to nine months in the future, came in for the month of July at -6.6% m/m vs -8% m/m as expected and 0.3% y/y vs -3.7% y/y as expected. Although the data was weaker than the previous month and it is very volatile in its nature it beat the expectations. The final industrial production data for July came in line with preliminary readings at 1.3% m/m and 0.7% y/y for a good start of Q3.

This week we will have trade balance and national inflation data along with BOJ rate decision. According to Reuters survey most economists expect BOJ to ease further with their next move due to JPY strength caused by global slowdown, but they are not in agreement whether the move will be at this meeting.

Important news for JPY:

Wednesday:

• Trade Balance
• Exports
• Imports

Thursday:

• BOJ Interest Rate Decision
• BOJ Monetary Policy Statement

Friday:

• CPI

CHF

Seasonally adjusted unemployment rate in August came in at 2.3% as expected. The unemployment rate continues to be at the lows but it still does not influence inflation pressures so talks about more easing from SNB at their meeting in two weeks are intensifying.

This week we will have trade balance data and SNB rate decision. CHF has strengthened a lot during the past month and with ECB easing further we can see SNB taking further easing measures.

Important news for CHF:

Thursday:

• Trade Balance
• Exports
• Imports
• SNB Interest Rate Decision
• SNB Monetary Policy Statement

Please note that there will be no reports for the following two weeks and we will return for the second week of October.

 

[TradersWay]

Forex Major Currencies Outlook (Oct 7– Oct 11)

This week is crucial for the Brexit negotiations since the EU ambassadors have set a deadline of October 11 for the two sides, US-China trade talks will resume on October 10 while Canadian employment report and US inflation will be most closely watched economic events.

USD

ISM manufacturing index for the September came in at 47.8 vs 50 as expected. This is a 10-year low reading, continuation of a downtrend and plunging deeper into contraction. Slowing global demand and trade war tensions have been labelled as main culprits for the disastrous reading. Employment subindex fell the most to 46.3 while new orders basically came unchanged with new export orders tumbling down to 41. ISM non-manufacturing index came in at 52.6 vs 55.0 as expected and down from 56.4 the previous month. The reading represents a new three-year low. Most visibly new orders category collapsed to 53.7 from 60.3 the previous month. Employment category came just above expansion level at 50.4, down from 53.1 the previous month for a five-year low. Poor ISM readings moved probability of an October rate cut to over 80% from 39% at the beginning of the week. Trade balance for August came in at -$54.9bn vs -$54.5bn as expected. Exports rose 0.2% m/m while imports rose 0.5% m/m. Deficit in trade with China was lowered by little more than $1bn which will make president happy ahead of all-important meeting on October 10. After abysmal ISM data rumours about possible interim deal intended to provide short-term economic relief to US economy are gaining more traction. However, interim deal could damage the chances of striking a “real” deal in the near future.

US treasury announced that it will impost new tariffs of 10% on EU aircraft and 25% on EU agricultural and industrial goods such as French wine and cheese, Spanish olive oil, Scotch whiskey and German knives, scissors and metalwork tools. These tariffs will take effect on October 18 and they have been imposed in retaliation to WTO Airbus aircraft subsidies case. There is a possibility for tariffs to be avoided if both sides can reach a deal, but so far there were no serious negotiations and both sides blame each other.

September NFP came in at 136k vs 145k as expected, up slightly from 130k the previous month but the number was revised up to 168k. The unemployment rate was the highlight of the report as it slipped down to 3.5% from 3.7% while the participation rate stayed the same at 63.2%. Additionally, the U6 underemployment level, which accounts for people who work part-time and seek a full-time job, has dropped to 6.9% from 7.2%. Wage data missed with average hourly earnings coming in flat vs 0.2% m/m as expected and 2.9% y/y vs 3.2% y/y as expected.

This week we will have minutes from the latest FOMC meeting and CPI inflation data.

Important news for USD:

Wednesday:

• --FOMC Minutes

Thursday:

• --CPI

EUR

The unemployment rate continues to shrink and it came in at 7.4% from 7.5% the previous month. Final manufacturing PMI for the September came in at 45.7 vs 45.6 preliminary with output and new orders subindexes falling further. Core CPI came in at 1% as expected showing that inflation still holds at the low levels. Final services PMI came in at 51.6 vs 53.5 the previous month which dragged down the composite to 50.1. Weakness from manufacturing sector is transferring to services sector. Retail sales in August came in at 0.3% m/m as expected, up from -0.5% m/m the previous month.

This week we will have manufacturing data from Germany.

Important news for EUR:

Monday:

• --Factory Orders (Germany)

Tuesday:

• --Industrial Production (Germany)

GBP

Q2 GDP came in at -0.2% q/q as expected with yearly number ticking up at 1.3% y/y vs 1.2% y/y as expected. Manufacturing PMI in September surprised to the upside by coming at 48.3 vs 47 as expected with “Stocks of purchases, input buying volumes rise as some UK manufacturers have restarted Brexit preparations”. Services PMI came in at 49.5 vs 50.3 as expected and brought down composite to 49.3, both readings back into contraction territory. Construction PMI continues to plunge coming in at 43.3 vs 45 the previous month. Data points to contraction of UK economy in Q3.

PM Johnson will have to ask for extension of Article 50 if a deal is not approved by October 19. His latest proposal that was dubbed “two borders, four years” because it would instate two borders, one on the side of Republic of Ireland and one on the side of Northern Ireland with time frame of four years received support from Brexit supporters and was not outright rejected by EU. However, EU remains unconvinced by the new plan which pushed the pound down after it shoot up on initial deal optimism. Finally, the EU has rejected the plan which dragged pound to new lows. PM Johnson seems to have a plan B which is based on time limit on the backstop.

This week we will have GDP, trade balance and production data.

Important news for GBP:

Thursday:

• --GDP
• --Trade Balance
• --Manufacturing Production
• --Industrial Production
• --Construction Output

AUD

RBA has once again cut the cash rate this year by 25 bp, this time down to 0.75%. They have stated that they will ease further if needed and that it is reasonable to expect extended periods of low rates., however they have added that “gentle turning point has been reached” thus leaving investors guessing. RBA governor Lowe stated that progress on employment and inflation goals is slower than liked and that rate cut should help in achieving those goals. Retail sales for August came in weaker than expected at 0.4% m/m vs 0.5% m/m as expected but much better than the previous reading of -0.1% m/m.

Official manufacturing PMI from China for September came in at 49.8 vs 49.5 the previous month. It is a small and welcomed bounce back but the reading still stays in the contraction territory, for the fifth consecutive month. Caixin manufacturing PMI showed a great jump to 51.4 vs 50.4 the previous month. New orders and output subindexes improved significantly while new export orders improved but stayed in the contraction territory indicating that demand for manufacturing products was driven by the domestic market.

This week we will have RBA report on financial stability and Caixin services PMI data from China.

Important news for AUD:

Tuesday:

• --Caixin Services PMI (China)

Friday:

• --RBA Financial Stability Review

NZD

ANZ business confidence continues to drop, now coming in at -53.5 vs -52 previously. There is also a drop in activity outlook to -1.8 which shows activity at its lowest levels since the crisis of 2008/09. Investment and profit expectations continue falling along with inflation expectations. Yet another data point weighing on kiwi increasing chances for additional rate cut by the end of the year. Talks about NZDUSD below 0.60 mark are also heating. GDT price index came in at 0.2% for some positive kiwi news.

This week we will have data on electronic card spending.

Important news for NZD:

Thursday:

• --Electric Card Retail Sales

CAD

GDP for July came in flat vs 0.1% m/m as expected and 1.3% y/y vs 1.4% y/y as expected. Wholesale trade was the biggest contributor to the GDP while oil and gas were the biggest drag with drop of -3.5% for a largest decline in more than 3 years. Trade balance deficit in August fell to -CAD0.96 bn vs -CAD1.2 bn as expected. Both exports and imports rose with former rising 1.8% m/m and latter 1% m/m indicating good conditions. Trade deficit with China was lowered by around CAD300 million.

This week we will have housing and employment data.

Important news for CAD:

Tuesday:

• --Building Permits
• --Housing Starts

Friday:

• --Employment Change
• --Unemployment Rate

JPY

Retail sales for August came in at 4.8% m/m vs 2.4% m/m and 2% y/y vs 0.7% y/y as expected thus smashing expectations. New sales tax, raising the rate to 10% from 8%, was introduced on October 1 so the increase most likely shows the purchases made to avoid additional taxes. Preliminary industrial production for August came in at -1.2% m/m vs -0.5% m/m as expected. Projections show that production will pick up in September. Jobless rate continues to impress and it fell to 2.2%.

Important news for JPY:

Tuesday:

• --Household Spending
• --Labour Cash Earnings

Thursday:

• --Core Machinery Orders

CHF

Retail sales in August reversed and came in at -1.4% y/y vs 1.4% y/y the previous month while CPI for September came in at -0.1% m/m vs 0.1% m/m as expected lowering inflation to meekly 0.1% y/y.

Important news for CHF:

Tuesday:

• --Unemployment Rate

 

[katetrades]

Forex Major Currencies Outlook (Oct 14 – Oct 18)

The strength of the US consumer, employment data from UK and Australia, slew of economic data from China headlined by Q3 GDP and European Council summit will be the highlights of the week.

USD

FED Chairman Powell reiterated the FED’s data-dependency stance and stated that they will closely monitor incoming data and adjust monetary policy accordingly. He also added that global economic slowdown and geopolitical risks are a factor that impacts policy decisions. In addition, FED will buy Treasury bills in order to calm the money market and although this will expand FED’s balance sheet, it should not be viewed as another round of QE.

FOMC meeting minutes showed increased concern by members regarding global economy and trade tensions. Labour market and overall economy are strong according to the readings. There was a division within with several policymakers favouring keeping the rates steady while couple of policymakers stated that a rate cut might be too much insurance.

September CPI came in at 1.7% y/y vs 1.8% y/y as expected with core CPI staying the same at 2.4% y/y. Earnings data came weaker than expected with average weekly earnings at 0.9% y/y vs 1.1% y/y as expected and average hourly earnings 1.2% y/y vs 1.5% y/y as expected. The small drop in headline number as well as drops in wages could add additional reason for the rate cut at the end of the month. Odds of an October rate cut rose to almost 82%

This week we will have consumption, housing and industrial data.

Important news for USD:

Wednesday:

• Retail Sales

Thursday:

• Housing Starts
• Building Permits
• Industrial Production

EUR

Factory orders from Germany for August came in at -0.6% m/m and -6.7% y/y indicating further deterioration in the manufacturing sector. Foreign orders were up and previous numbers have been revised up so that is a small positive from the report, but data will continue to deteriorate until there is some sort of an agreement in US-China trade war. German industrial production surprised to the upside by coming in at 0.3% m/m vs -0.1% m/m as expected. Positive news was welcomed by the markets and EUR strengthened on the news, however EURUSD stayed below 1.10 level. Later on, during the week 1.10 level was breached due to weaker USD.

ECB accounts from the September policy meeting showed that although re-introduction of QE had a “clear majority” some members were against it on the basis of it not being an efficient instrument given low yields. Some policy members argued for a 20 bps rate cut if no QE was introduced. Rate tiering had “majority” while 10 bps rate cut had “very large majority”. Divisions within ECB are shown also with some members questioning growth forecasts that were too optimistic according to them.

This week we will have industrial and inflation data, ZEW economic sentiment reading and summit of the European council where talks about the Brexit situation will be the main subject.

Important news for EUR:

Monday:

• Industrial Production

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)

Wednesday:

• CPI
• Thursday and Friday:
• European Council Summit

GBP

GDP figure for August came in at -0.1% m/m vs flat as expected. Reading from previous month was revised up to 0.4% m/m which pushed 3m/3m figure to 0.3% vs 0.1% as expected. According to the latest reading UK will most likely avoid technical recession, but Q3 outlook is not rosy. Manufacturing and industrial production data dropped from the previous month and came in weaker than expected at -0.7% m/m vs 0.2% m/m as expected and -0.6% m/m vs 0.1% m/m as expected respectively. Construction output was a bright spot coming in at 0.2% m/m vs -0.4% m/m as expected. Trade balance data showed a deficit of -£9.8bn vs -£10bn as expected with imports increasing by 0.1% m/m due to Brexit stockpiling while exports fell -0.5% m/m. Markets were not moved by the data as Brexit developments continue to drive the pound.

The UK government plans to challenge Parliament's effort to block a no-deal exit with the Supreme Court. PM Johnson will have to make a deal by October 19, otherwise he would have to ask EU for an extension of Brexit by January 31 according to the newly created parliament bill. Government stance is still that UK will leave EU on October 31. The risk of no deal has been postponed but it still lingers. Parliament is currently suspended until the Queen delivers her speech on Monday. Talks between PM Johnson and Irish PM Leo Varadkar were on the positive side with comments such as that they “see a pathway to a possible deal”. Markets accepted it and pushed GBPUSD some 250 pips in about 3 hours of trading. Overall the optimism in the markets is elevated as more and more financial institutions go bullish on GBP.

This week we will have employment, inflation and consumption data but all of that will be topped by the approaching deadline date for requesting an extension regarding the Brexit date.

Important news for GBP:

Tuesday:

• Average Weekly Earnings
• Unemployment Rate

Wednesday:

• CPI

Thursday:

• Retail Sales

AUD

Caixin services PMI for September came in at 51.3 vs 52 as expected thus making composite at 51.9 vs 51.6 the previous month due to strengthened growth in the manufacturing sector. New business sub index rose to the highest reading since the beginning of 2018 which reflects a stable demand in services sector. Employment sub index also rose on the back of rise in new orders.

This week we will have RBA minutes from the latest meeting as well as employment data from Australia and trade balance, inflation, consumption and industrial data capped with Q3 GDP reading from China.

Important news for AUD:

Monday:

• Trade Balance (China)
• Exports (China)
• Imports (China)

Tuesday:

• RBA Meeting Minutes
• CPI (China)
• PPI (China)

Thursday:

• Employment Change
• Unemployment Rate

Friday:

• GDP (China)
• Retail Sales (China)
• Industrial Production (China)

NZD

Electronic card retail sales, precursor for the retail sales reading as it attributes with up to 70% to retail sales, in September came in weaker than expected. Readings showed 0.4% m/m and 0.3% y/y vs 0.5% expected in both readings. Manufacturing PMI came in at 48.4, same as the previous month for the third consecutive month of contraction. New orders sub index returned to expansion with 50.1 but due to the weak readings in previous months it pulled production down to 46.2 which is the lowest reading since April of 2012.

This week we will have bi-monthly GDT auction as well as inflation data for Q3.

Important news for NZD:

Tuesday:

• GDT Price Index
• CPI

CAD

The September employment report smashed all expectations. Employment change came in at 53.7k vs 7.5k as expected, the unemployment rate dropped to 5.5% vs 5.7% as expected and hourly wages jumped to 4.3% vs 3.8% the previous month. All the important categories handily beat the expectations and as icing on the cake full time jobs rose by 70k. This very strong report should drop rate cut expectations for the end of month to 0 and keep CAD supported during the week. Housing starts in September came in line with expectations at 221.2k. Building permits surprised to the upside with a huge beat coming in at 6.1% vs 1% as expected.

This week we will have inflation data and data on manufacturing sales.

Important news for CAD:

Wednesday:

• CPI

Thursday:

• Manufacturing Sales

JPY

Wages keep being negative, although they improved from the previous month. They came in as expected in August, labour cash earnings at -0.2% y/y and real cash earnings at -0.6% y/y. With absence of a wage rise, inflation will stay low and with a new October sales tax hike it will have a detrimental effect on retail sales readings. Household spending for the same month came in at 1% y/y vs -1% y/y as expected, for the ninth month of y/y gains, reflecting potentially increased spending due to the sales tax hike. Spending on food, furniture, household utensils, and clothing and footwear were higher according to the report. Core machinery orders, reading that is a good indicator of capex for 6 to 9 months in the future, in August came in at -2.4% m/m vs -1% m/m as expected and -14.5% y/y vs -8.4% y/y as expected for the biggest drop in almost 10 years.

This week we will have final industrial production reading for August and national inflation rate for September.

Important news for JPY:

Tuesday:

• Industrial Production

Friday:

• CPI

CHF

The unemployment rate in September stayed at 2.1% as previously. One of the lowest unemployment rates in the world is still not contributing to the rise in inflation, so talks about further easing measures from SNB are becoming louder.

This week we will have trade balance data.

Important news for CHF:

Thursday:

• Trade Balance
• Exports
• Imports

 

[katetrades]

Forex Major Currencies Outlook (Oct 21– Oct 25)

ECB interest rate decision and preliminary PMIs along with durable goods from US will be the highlights of the low volume week in terms of the economic data.

USD

Advanced retail sales in September came in at -0.3% m/m vs 0.3% m/m as expected. Previous month’s data was revised up to 0.6% m/m and it is the only bright spot in the report. Control group came in flat vs 0.3% m/m as expected. The report shows the first drop in retail sales in seven months. Since the US consumer is the main driver of the US economy this will be a blow. Projections for Q3 GDP by Atlanta Fed have been downgraded to 1.7% and it will add more pressure on the Fed to act at their October meeting. Housing starts came in at 1256k vs 1320k as expected, they are down on the month -9.4% m/m. Building permits came in at 1.387m vs 1.35m as expected, down from the previous month but better than expected.

This week we will have housing and durable goods data.

Important news for USD:

Tuesday:

• Existing Home Sales

Thursday:

• New Home Sales
• Durable Goods

EUR

Industrial production in August came in at 0.4% m/m vs 0.3% m/m as expected on the back of stronger than expected reading from Germany. However, the yearly reading continued to deteriorate coming in at -2.8% y/y vs -2.5% y/y as expected and down from -2.1% y/y the previous month. German ZEW survey of current situation in October came in at -25.3 vs -23.6 as expected. The expectations component came in better than expected at -22.8 vs -26.4 although still at the lowest level since 2010. The data continue to paint a grim picture of German economy that is headed toward the recession. Final CPI for September came in at 0.8% y/y vs 0.9% y/y as preliminary reported with core CPI stayed at 1% y/y as preliminary reading showed.

This week we will have preliminary consumer confidence and PMI readings for October. We will also get the final ECB monetary policy press conference with Mario Draghi as governor. He will be succeeded in November by Christine Lagarde. No policy changes are expected.

Important news for EUR:

Wednesday:

• Consumer Confidence Index

Thursday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)
• ECB Interest Rate Decision
• ECB Monetary Policy Press Conference

Friday:

• Ifo Business Climate (Germany)

GBP

August employment report came on the weaker side with employment change showing a decline of 56k while the expectations were for the rise of 26k. This has nudged the unemployment rate to tick higher at 3.9% vs 3.8% previously. In addition, the average weekly earnings have dropped to 3.8% 3m/y from 4% 3m/y the previous month but they are still holding very strong. CPI for September came in at 0.1% m/m vs 0.2% m/m as expected and 1.7% y/y vs 1.8% y/y as expected. Motor fuel and second-hand car prices fell while furniture and household appliances held headline inflation number. Core CPI came in at 1.7% y/y as expected and up from 1.5% y/y the previous month, a welcoming sign. Retail sales came in flat vs -0.2% m/m as expected and 3.1% y/y vs 2.6% the previous month. A better than expected result was achieved on the back of rising sales in food stores but sales in department stores continued their decline according to ONS. It pushed retail sales in Q3 up 0.6%.

UK and EU have struck a Brexit deal. The deal avoids the border on Emerald island and puts it in the Irish sea, thus making a customs border between Northern Ireland and UK. The Parliament voted on Saturday in favour of Letwin amendment thus forcing Johnson to seek extension with EU before October 31. The letter to EU will be sent on Monday and Withdrawal Bill will be presented for voting on Tuesday.

AUD

The week of big releases from China started with September’s trade balance data which showed a rise in surplus to $36.65bn vs $34.75bn as expected. However, the reading also showed that both exports and imports fell more than expected, with the former falling -3.2% y/y vs -2.6% y/y as expected and latter falling -8.5% y/y vs -6% y/y as expected. A big drop in imports indicates slowing domestic demand which will have a devastating impact on exporting countries around the Globe while adding to the existing slowdown. Exports to US are down 10.7% y/y while imports from the US are down enormous 26.4% y/y.

Chinese CPI for September came in at 3% y/y vs 2.9% y/y as expected. This is the fastest rise in 6 years and it is led by food inflation which rose 11.2% y/y. Swine flu has cut swine population in about half thus creating record high for pork prices which rose amazing 69.3% y/y. PPI fell -1.2% m/m vs -0.8% m/m as expected for the sharpest decline in more than 3 years which will reflect badly on corporate profits.

Chinese Q3 GDP came in at 6% y/y vs 6.1% y/y as expected and down from 6.2% y/y the previous quarter. The reading shows the slowest GDP rise in almost 30 years, but taking into account the size of the economy this rate is still impressive. Industrial production in September came in at 5.8% y/y vs 4.9% y/y and such a huge beat will cover up any disappointment due to fall in GDP. Retail sales came in at 7.8% y/y as expected and up from 7.5% y/y the previous month.

RBA meeting minutes showed readiness of the board to add additional easing if needed to support growth and jobs. It is reasonable to expect prolonged periods of lower rates. There are no signs yet that household consumption is responding to rate cuts and tax rebates. Leading indicators point to slowdown in the job’s growth in the upcoming quarter. US-China trade war has been deemed as significant downside risk to the global outlook. RBA continued with its dovish stance in hopes of pushing AUD lower to help Australian economy and markets expect one more rate cut by the end of the year.

Employment report for the month of September showed a small miss in employment change 14.7k vs 15k as expected but the unemployment rate has ticked down to 5.2% from 5.3%. Participation rate also slipped to 66.1% from 66.2% which tampers with the drop in the unemployment rate. Additional bright spot in the report is rise in the full-time employment of 26.2k. RBA will be happy with this report and it will diminish the chances of a rate cut in the near future.

NZD

CPI for the Q3 came in at 0.7% q/q vs 0.6% q/q as expected and 1.5% y/y vs 1.4% y/y as expected. Better than expected reading propelled NZD higher however, CPI was 1.7% y/y the previous quarter and deputy governor Bascand pushed it lower hinting that there was a reasonable chance of another rate cut to stimulate growth and inflation. Markets are pricing a 25bp cut at the next month’s RBNZ meeting. GDT price index came in at 0.5% thus making it a third straight auction of rising prices.

This week we will have trade balance data.

Important news for NZD:

Tuesday:

• Trade Balance
• Exports
• Imports

CAD

September CPI came in at 1.9% y/y same as previous month but expectations were for a rise of 2.1% y/y. The main drag on CPI were gasoline prices which fell -10.4% y/y. Median and Trim core numbers came within expectations with former at 2.2% y/y and latter at 2.1% y/y while Common CPI nudged higher to 1.9% y/y vs 1.8% y/y as expected. With no changes in core inflation and it being close to the BOC target it only lowered further already low chances of additional easing. Manufacturing sales for August came in at 0.8% m/m vs 0.7% m/m as expected and up from -1.3% m/m the previous month thanks to the rise of motor vehicle sales.

This week we will have data on consumption and wholesale with federal elections being held on Monday.

Important news for CAD:

Monday:

• Federal Election

Tuesday:

• Retail Sales

Wednesday:

• Wholesale Trade

JPY

Final industrial production reading for August came in line with preliminary readings of -1.2% m/m and -4.7% y/y painting the weakness in factory activity for Q3 which will have a detrimental effect on Japanese economy. National CPI in September continued to decline coming in as expected at 0.2% y/y but down from 0.3% y/y the previous month. This is a new 30 month low. CPI excluding fresh food came in at 0.3% y/y as expected but down from 0.5% y/y the previous month. These are very troubling data, pushing inflation almost into negative territory, deflation. BOJ hints that it will act and provide more easing but they have not yet taken that step. Possibly they will provide further easing at their meeting at the end of the month.

This week we will have trade balance data with government emphasizing the fear of falling exports and preliminary October PMI figures.

Important news for JPY:

Monday:

• Trade Balance
• Exports
• Imports

Thursday:

• Markit Manufacturing PMI
• Markit Services PMI

CHF

Trade balance in September rebounded to CHF4.02 bn vs CHF1.72 bn the previous month. Exports have risen 2.5% m/m from -3.9% m/m the previous month while the imports dropped -1.3% m/m and they were at 1% m/m the previous month.

 

[katetrades]

Forex Major Currencies Outlook (Oct 28 – Nov 1)

BOJ and BOC meetings, preliminary Q3 GDP readings from US and EU, NFP and Q3 CPI from Australia make the line-up for this jam-packed week headlined by Fed’s interest rate decision.

USD

Durable goods in September came in at -1.1% m/m vs -0.7% m/m as expected and down from 0.5% m/m the previous month. Core component came in at -0.5% m/m vs -0.1% m/m with previous month’s reading being revised down to -0.6% m/m. An additional weak report from the US manufacturing sector and US economy as a whole. Fed will be pressed even more to react at their next week’s meeting after the incoming slew of weak data. They have already increased their injections into the repo market.

This week we will have housing data, preliminary Q3 GDP data, ISM manufacturing PMI and Fed’s preferred PCE inflation data. Fed’s interest rate decision will be the highlight of the week. Opinions are still polarized but most analyst expect a rate cut, especially after weaker incoming data. In the case of a cut many analysts think that it will be the last one for the year. NFP will be an additional highlight of the week and it is expected to come out around 172k with the unemployment rate staying at 3.5% and average hourly earnings climbing to 3.4%.

Important news for USD:

Tuesday:

• Pending Home Sales

Wednesday:

• GDP
• Fed Interest Rate Decision
• FOMC Press Conference

Thursday:

• PCE
• Personal Spending

Friday:

• NFP
• Unemployment Rate
• Average Hourly Earnings
• ISM Manufacturing PMI

EUR

Preliminary manufacturing PMI in October came in at 45.7 same as the previous month vs 46 as expected. French PMI data were published first and EUR rallied on the back of better than expected results showing expansion (50.5 for manufacturing and 52.9 for services). Afterwards German PMI data were published and it came worse than expected (41.7 for manufacturing and 51.2 for services), showing spill overs from the recession in manufacturing sector hitting German services sector which pushed EUR back down. EU services PMI came in at 51.8 vs 51.9 as expected and it helped keep composite PMI in the expansion territory, but just barely with 50.1 pushing composite to 50.2. Start of the Q4 continues the weak path of Q3.

ECB has left the key interest rate unchanged at -0.50% as widely expected. Rates will be at present or even lower levels until inflation outlook converges to a target level of 2%. Bond purchases will start from November 1 and will continue for as long as necessary. They will be stopped shortly before raising rates. ECB Governor Draghi stated in his last press conference on this post that risks to the economic outlook remain on the downside. He added that the latest data show further weakening of the economy as well as that negative rates have positive impact on the economy. Overall the markets interpreted this as possibility of further rate cuts and pushed the EUR down. ECB results of professional forecasters show downgrades in inflation and GDP. Inflation is now seen at 1.2% in 2019 vs 1.3% previously while GDP for the same year has been downgraded to 1.1% vs 1.2% previously.

This week we will have data on business and final consumer confidence, preliminary Q3 GDP reading, inflation and employment data.

Important news for EUR:

Wednesday:

• Economic Sentiment Index
• Business Climate Indicator
• Consumer Confidence Index

Thursday:

• GDP
• CPI
• Unemployment Rate

GBP

Withdrawal Act Bill was passed in principle in Parliament but MPs voted down the motion that would expedite the process needed to implement the new agreement. Now the ball is in the EU’s court as extension date is expected. The most likely date mentioned is January 31, 2020 which will open up the possibility of General Election in December. However, France is taking the firm stance that the extension period should be shorter. PM Johnson is pushing for a General Election because, according to the recent polls, Tories enjoy support from 37% of voters. Probability of a no-deal Brexit is diminishing but Labour leader Corbyn insists that he will not support election until possibility of no-deal is completely removed. According to Fixed Term Parliament Act a 2/3 majority of the House of Commons is required to support an election.

This week we will have continuation of Brexit saga, we will see if the extension is granted and for how long. October 31 is the date PM Johnson stated as the day UK will leave EU with or without the deal.

AUD

In the absence of important economic news coming from Australia, AUD has had strong beginning of the week on the back of risk appetite only to fall back down at the tail end of the week with AUDUSD finishing the week where it started with a 70 pip range.

This week we will have Q3 inflation data from Australia as well as official PMIs and Caixin manufacturing PMI from China.

Important news for AUD:

Wednesday:

• CPI

Thursday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)

Friday:

• Caixin Manufacturing PMI (China)

NZD

Trade balance data in September came in at -NZD1242m vs -NZD1400m as expected. The lowering of trade deficit was achieved with higher exports which is always a good sign. Exports came in at NZD4.47 bn vs NZD4.30 bn as expected while imports came in line with NZD5.7bn.

This week we will have data on building consents and ANZ business confidence, a very important indicator. RBNZ is monitoring this indicator and until now it has been relentlessly falling. Continuation of a downtrend, in combination with other weaker incoming data, may prompt RBNZ to react and cut at their next meeting.

Important news for NZD:

Wednesday:

• Building Consents

Thursday:

• ANZ Business Confidence

CAD

Liberal party of PM Trudeau has won 157 seats while 170 seats is necessary for majority, therefore Trudeau will have to form a minority government. The markets were prepared for this outcome and it will not have a major impact on CAD.

Retail sales in August came in at -0.1% m/m vs 0.4% m/m as expected with prior month’s reading being revised up to 0.6% m/m. New car dealers were the best category while the biggest drag were clothing and food and beverage stores. Wholesale trade sales came in at -1.2% m/m vs 0.3% m/m as expected and down from downward revised 1.4% the previous month. Sales declined in 5 out of 7 sectors. Biggest contributors to the negative reading were declines in private and household goods as well as declines in machinery, equipment and supplies. Inventories showed the first decline in 12 months.

This week we will have monthly GDP for August and BOC interest rate decision. Although retail sales came in weaker than expected, data from Canada has been good and there will be no change in interest rate, however change in tone is possible so the monetary policy report will be closely followed.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision
• BOC Monetary Policy Report
• BOC Monetary Policy Report Press Conference

Thursday:

• GDP

JPY

Trade balance data in September came in weaker than expected at -JPY123 bn vs JPY54 bn. Exports surprised to the downside coming in at -5.2% y/y vs -3.6% y/y as expected. On the other hand, imports came in at -1.5% y/y as expected but still negative on the year. Exports in US and Asia showed the biggest drops, coming in at -7.9% and -7.8% respectively. Preliminary manufacturing PMI for the month of October came in at 48.5 vs 48.9 the previous month. Deterioration of conditions in the manufacturing sector continues with the worst reading in over 3 years. New orders and output categories continued to decline with the fastest fall in new orders since 2012. Services PMI came in above 50 at 50.3 down from 52.8 the previous month and it put the composite reading into contraction territory at 49.8. Credit rate agency Moody’s affirmed Japan’s A1 credit rate stating that stable outlook is maintained.

This week we will have inflation from the Tokyo area, consumption, employment and industrial production data. BOJ will meet this week to discuss monetary policy and produce an outlook report. A weak PMI reading may push BOJ to further ease monetary policy and revise their economic forecast down.

Important news for JPY:

Tuesday:

• Tokyo CPI

Wednesday:

• Retail Sales

Thursday:

• Industrial Production
• BOJ Interest Rate Decision
• BOJ Monetary Policy Report
• BOJ Outlook Report

Friday:

• Unemployment Rate
• Markit Manufacturing PMI

CHF

Uneventful week saw the Swissie weaken across the markets. Weaker CHF will be beneficial for Swiss economy.

This week we will have speech from Chairman Jordan, inflation and consumption data.

Important news for CHF:

Thursday:

• SNB Chairman Jordan Speech

Friday:

• CPI
• Retail Sales

 

[TradersWay]

Forex Major Currencies Outlook (Nov 4 – Nov 8)

USD

The US Congressional Budget Office lowered its estimates of the US fiscal deficit for the 2019 fiscal year. They now see the deficit at $897 billion compared to the $981 billion deficit in the April estimate. That's 4.2% of GDP instead of 4.6%. The cost of government shutdown has been projected at $11bn.

FED has left rates unchanged at 2.25-2.50% as expected. Vote on keeping the rates on hold was unanimous. They stated they will be “patient” on future moves and that they are prepared to adjust any details for completing balance sheet normalization in light of economic and financial developments. Economic activity rising at “solid” rate (previously it was “strong” rate, downgrade from previous statement). Dovish statement sent USD quickly 50 pips down against the majors. FED moved from hawkish to neutral stance effectively halting any talks of raising rates.

FED Chairman Powell stated in press conference that growth has slowed in foreign economies and noted the effects of the shutdown. He explained that FED has seen crosscurrents and conflicting signals so they decided for the “patient, wait and see approach”. He is satisfied with progress in balance sheet discussions but no exact number was stated since according to him FED is not at that point yet. FED thinks that the outlook is favourable in general. Continuation of the dovish statement sent stocks to the new highs.

ADP employment change came in at 213k vs 175k as expected with 145k in services and 68k in the goods-producing sector. Job growth was seen in almost every industry with manufacturing adding the most jobs in more than four years. NFP headline number came in at 304k vs 165k as expected for a 100th consecutive month of job gains. Average hourly earnings came in at 3.2% y/y as expected and this is where the good news end since they came 0.1% m/m vs 0.3% m/m as expected. Previous NFP number was revised to the downside from 312k to 220k for a full 90k jobs.The unemployment rate rose to 4% due to the increase in participation rate to 63.2% vs 63% as expected. Underemployment rate rose to 8.1% vs 7.6% the previous month. Overall it is a mixed report that will send USD lower in the first few hours after its announcement.

This week we will have PMI numbers and due to shutdown delayed factory orders data as well as trade balance data.

Important news for USD:

Monday:

• Factory Orders

Tuesday:

• Trade Balance
• Exports
• Imports
• Markit Services PMI
• Markit Composite PMI
• ISM Non-Manufacturing PMI

EUR

Consumer confidence for the month of January came in at -7.9 as expected while Economic, Industrial and Service confidence data have all decreased showing the declining confidence in Eurozone economy as a whole. German economy ministry has cut German 2019 growth forecast to 1% from 1.8% citing external risks, Brexit, trade conflicts and external tax environment, as main reasons for lower number. German retail sales for the month of December were abysmal coming in at -4.3% m/m vs 0.6% m/m as expected.

Eurozone preliminary Q4 GDP came in at 0.2% q/q and 1.2% y/y as expected with the unemployment rate coming at 7.9% also as expected. Troubling sign is that preliminary Q4 GDP from Italy came in at -0.2% q/q vs -0.1% q/q thus showing negative GDP for the second consecutive quarter indicating that Italy slips into recession. Italy’s DiMaio has said that this contraction shows failure of previous governments. PM Conte said that recession is only temporary due to US-China trade war and that economy will recover in 2019.

Final manufacturing PMI for the Eurozone came in at 50.5 as expected. Italy’s PMI came in at 47.8 vs 48.8 preliminary showing deeper plunge of Italian economy. Preliminary CPI for the month of January came in at 1.4% as expected with prior reading of 1.6% y/y. Core CPI came in at 1.1% vs 1% as expected. Rise in the core reading is encouraging, showing that inflationary pressures are still present.

This week we will have final PMI data as well as consumption data from the EU along with industrial and trade balance data from Germany.

Important news for EUR:

Tuesday:

• Markit Services PMI (Germany, France, EU)
• Markit Composite PMI (German, France, EU)
• Retail Sales

Wednesday:

• Factory Orders (Germany)

Thursday:

• Industrial Production (Germany)

Friday:

• Trade Balance (Germany)
• Exports (Germany)
• Imports (Germany)

GBP

Voting in Parliament ended with a mandate for PM May to return to Brussels to renegotiate the so-called “backstop” that aims to prevent a hard border between Northern Ireland and the independent Irish Republic. The EU was strict that it will not change the deal currently on the table. Manufacturing PMI came in at 52.8 vs 53.5 as expected. Purchase of stock volumes has reached record high of 56.3 signalling stockpiling ahead of Brexit number and without it the PMI number would be even weaker.

This week we will have BOE interest rate decision followed by minutes from the MPC meeting and speech by governor Carney. It is expected that rate will stay unchanged so greater importance will be given to minutes and speech, that is where markets will look for more guidance. Additionally, every news regarding Brexit will be closely monitored.

Important news for GBP:

Monday:

• Markit/CIPS Construction PMI

Tuesday:

• Markit/CIPS Services PMI

Thursday:

• BOE Interest Rate Decision
• BOE MPC Meeting Minutes
• BOE Governor Carney Speech

AUD

China’s industrial profits for the month of December came in at -1.9% y/y vs -1.8% y/y the previous month. Another data pointing to the slowdown in Chinese economy that will impact broader markets. Non-manufacturing PMI for the month of January came in at 54.7 vs 53.8 as expected. Composite PMI came in at 53.2 vs 52.6 as expected. Manufacturing PMI came in at 49.5 vs 49.3 as expected for the second consecutive month in contraction. Caixin Manufacturing PMI came in at 48.3 vs 49.6 as expected. Falling deeper into contraction territory with dropping output subindex signalling softer demand. New orders fell for the second consecutive month at a faster pace.

Headline inflation numbers came in at 0.5% q/q vs 0.4% q/q as expected and 1.8% y/y vs 1.7% y/y as expected with prior reading showing 1.9% y/y. Trimmed mean, which is a core measure came in at 0.4% q/q and 1.8% y/y in line with the expectations. AUD was sent higher immediately on better than expected headline number and rise in iron ore prices.

This week centre stage will be taken by RBA and their interest rate decision followed by rate statement. Rate is expected to stay the same so all eyes will be on the accompanying statement. Additionally, we will have data on housing, trade balance and consumption. We will also get monetary policy statement.

Important news for AUD:

Monday:

• Building Approvals

Tuesday:

• RBA Interest Rate Decision
• RBA Rate Statement
• Trade Balance
• Exports
• Imports
• Retail Sales

Wednesday:

• RBA Governor Lowe Speech

Friday:

• RBA Monetary Policy Statement

NZD

Trade balance data for the month of December came in at NZD264m vs NZD150m as expected with previous month showing deficit of NZD861m. Exports rose NZD5.4bn for a beat vs NZD5bn as expected. Imports came in lower than expected at NZD5.22bn. Exports have been growing for 5 consecutive months and this is the strongest reading since December 2017. However, although markets have embraced these numbers and pushed NZD higher annual trade deficit for 2018 is deficit of NZD5.9bn. S&P leaves NZ rating unchanged at AA but raises outlook to positive.

This week we will have GDT auction as well as employment data.

Important news for NZD:

Wednesday:

• GDT Price Index
• Employment Change
• Unemployment Rate
• Participation Rate

CAD

November GDP figures came in at -0.1% m/m as expected and 1.7% y/y vs 1.6% y/y as expected. Raw materials price index came in at 3.8% m/m. Construction activity was down for the sixth consecutive month and came in at -0.3%. Along with the weaker retail sales it represents the biggest concern for Canadian economy. Manufacturing PMI came in at 53.0 vs 53.6 as expected. Wrong direction for the manufacturing but at least it is in the positives unlike with some European countries.

This week we will have data on trade balance and employment as well as Ivey PMI.

Important news for CAD:

Tuesday:

• Trade Balance
• Exports
• Imports

Wednesday:

• Ivey PMI

Friday:

• Employment Change
• Unemployment Rate
• Participation Rate

JPY

Meeting minutes for the December BOJ meeting saw members stating that it is appropriate to continue easing persistently and that CPI will likely gradually increase toward the target of 2%. Overall assessment was that "The Japanese economy is recovering at a moderate pace." Japan’s Cabinet Office has cut its evaluation of exports for the month of January citing the trade war between US and China as a main culprit.

Retail sales for the month of December came in at 0.9% m/m vs 0.4% m/m as expected and 1.3% y/y vs 1% y/y as expected. Much needed beats on retail sales data. If the effects spill over to the inflation it can push it up in the right direction, towards the magical 2% level. Preliminary Industrial production reading for the month of January came in at -0.1% m/m vs -0.5% m/m as expected. Outlook is for it to rise to 2.6% m/m in February. Unemployment rate came in at 2.4% vs 2.5% as expected with Job-to-applicant ratio coming in at 1.63 as expected.

 

[katetrades]

Forex Major Currencies Outlook (Nov 11– Nov 15)

RBNZ interest rate decision, preliminary Q3 GDP readings from UK and Japan, second Q3 GDP reading from Europe, consumption data from US and Australian employment data keep the week stacked with news events.

USD

ISM non-manufacturing index for October came in at 54.7 vs 53.5 as expected. A decent rebound in the reading from the 52.6 the previous month. New orders and employment indices showed a significant rebound and with plunging inventories brought strength to the report. Trade balance in September came in at -$52.5bn as expected, an improvement from -$55bn the previous month. Exports were down -0.9% while imports were up -1.7%. Trade deficit with China narrowed while US now has trade surplus with OPEC, thus making US less reliant on OPEC oil.

This week we will have inflation, consumption and industrial production data.

Important news for USD:

Wednesday:

• CPI

Friday:

• Retail Sales
• Industrial Production

EUR

Final manufacturing PMI came in at 45.9 vs 45.7 preliminary. The small improvement was made by all major economies (Germany and France). Although every improvement is a welcoming sign it is still far away from the 50 expansion level. PMI is deep in the contraction territory, especially in Germany where it is at 42.1. Final services PMI came in at 52.2 vs 51.8 preliminary pushing the composite up to 50.6 vs 50.2 preliminary. Retail sales in October dropped to 0.1% m/m from 0.3% m/m previously but still beat the expectations of being flat pushing them to 3.1% y/y vs 2.4% y/y as expected.

This week we will have data on industrial production, second reading of Q3 GDP, final inflation data for October as well as trade balance data.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment Situation (EU and Germany)

Wednesday:

• Industrial Production

Thursday:

• GDP

Friday:

• CPI
• Trade Balance

GBP

BOE has left the bank rate unchanged at 0.75% as widely expected but vote number showed that 2 members voted for a rate cut. Their reasoning for the rate cut proposal was that labour market conditions are turning and that global risks are prominent to the downside. Inflation expectations have been slashed to 1.51% in one year, 2.03% in two years and 2.25% in three years. Unemployment is projected to tick up to 3.8% in two years. Brexit uncertainties are weighing particularly heavily on business investment. This is the last BOE meeting headed by Carney as Governor. His replacement is still not announced. BOE is following the suit of other major central banks and takes dovish stance in the wake of ongoing global slowdown.

Election campaign is under way. Current polls show Conservatives at 36% and Labour at 25% which means that an absolute majority by PM Johnson is out of reach.

This week we will have preliminary Q3 GDP reading, employment, inflation and consumption data.

Important news for GBP:

Monday:

• GDP
• Trade Balance
• Industrial Production
• Manufacturing Production
• Construction Output
• Business Investment

Tuesday:

• Employment Change
• Unemployment Rate
• Average Weekly Earnings

Wednesday:

• CPI

Thursday:

• Retail Sales

AUD

Retail sales in September came in at 0.2% vs 0.4% as expected. The food category was the biggest contributor with 0.1% while apparel and department stores were the biggest drags coming in respectively at -0.5% and -0.2%. Trade balance in September came in at AUD7180m vs AUD5050m as expected on the back of rising imports to 3% m/m from -3% the previous month. Imports also rose 3% m/m thus making the trade surplus rise with both rising imports and rising exports which is the best possible result.

RBA held the cash rate at 0.75% as widely expected. They expect underlying inflation to be close to 2% in 2020 and little above this in 2021. The central scenario is for economy to grow at 2.25% this year and then for growth to rise up to around 3% in 2021. Global risks are tilted to the downside. Unemployment is expected to drop below 5% in 2021. Statement ends with: "The easing of monetary policy since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range" which suggests a pause in rate cuts. RBA said that they are prepared to ease further but for now it seems that they are satisfied with the effects of rate cuts.

Chinese trade balance data in October came in at $42.81bn vs $40.1bn as expected. The growth of trade surplus was achieved by smaller than expected drop in both exports and imports coming in at -0.9% y/y and -6.4% y/y respectively. Surplus with US from the start of the year is at $247.7bn. China continues to not be as affected by trade war with US as the surplus shows, however the drop in imports is concerning for every export-oriented nation, Germany primarily.

This week we will have employment data from Australia and consumption, employment and industrial production data from China.

Important news for AUD:

Thursday:

• Employment Change
• Unemployment Rate
• Retail Sales (China)
• Industrial Production (China)
• Unemployment Rate (China)

NZD

The unemployment rate in Q3 was higher than expected coming in at 4.2% vs 4.1% and up a lot from 3.9% in the previous quarter, although in line with Q1 numbers. Participation rate also went higher than expected to 70.4% from 70.2% in the previous quarter. Employment change came in as expected at 0.9% y/y but weaker than in the previous quarter when it was 1.4% y/y. Average hourly earnings disappointed coming in at 0.6% vs 1% as expected and 1.1% the previous quarter. The probability for a rate cut climbed to 60% after the report.

This week we will have interest rate decision by RBNZ. Although the chances of a rate cut have increased after the jobs report, the decision is still not clear cut. We expect them to keep the rates at current levels for this year and act in February of 2020 when they will have more data to work with.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision
• RBNZ Monetary Policy Statement
• RBNZ Press Conference

CAD

Trade balance in September came in at -CAD0.98 bn vs -CAD0.65 bn as expected. August reading was revised down to -CAD1.24 bn. Exports fell -1.3% with gold, oil and Canola leading the way while imports fell -1.7%. In addition, the surplus in trade with US has narrowed while the deficit in trade with China increased. BOC has announced that they expect a decline in exports in H2.

Canadian net change in employment in October came in at -1.8k vs 15k as expected. Both the unemployment rate and the participation rate were unchanged and came in at 5.5% and 65.7% respectively. The fall in full time employment was -16.1k which makes this report on the soft side, adding some worries to BOC, however during past months Canadian job market was booming so we will see if this is a trend or one-of report.


JPY

Final services PMI for October came in at 49.7 vs 50.3 preliminary for the first drop below the 50 level in three years. This has also pushed composite reading down to 49.1 vs the 49.8 preliminary. The devastating typhoon pushed the index down, but questions arise such as whether the reading shows a spillover effect from the manufacturing sector as well as effect of October’s hike of sales tax. Labour cash earnings in September came in at 0.8% y/y vs 0.1% y/y as expected, up from -0.1% y/y the previous month which in combination with sales tax hike lead to household spending jumping to 9.5% y/y from 1% y/y the previous month.

This week we will have BOJ summary or opinions, machinery orders data, final industrial production data and preliminary Q3 GDP data. GDP is expected to slow down due to a fall in net exports, but private consumption and capital investment are expected to keep it positive.

Important news for JPY:

Monday:

• BOJ Summary of Opinions
• Core Machinery Orders

Thursday:

• GDP

Friday:

• Industrial Production

CHF

The unemployment rate in October ticked up to 2.2% from 2.1% previously. CHF has lost the ground this week due to increased in risk appetite, produced by trade optimism, which saw it weaken against all pairs.

 

[katetrades]

Forex Major Currencies Outlook (Nov 18– Nov 22)

FOMC minutes, preliminary PMI data from Europe and Japan as well as Canadian inflation and consumption data will mark the weak ahead of us.

USD

CPI for the month of October came in at 1.8% y/y vs 1.7% y/y. The energy contributed for more than a half of the increase while healthcare and food also contributed. On the other hand, motor vehicle prices and apparel were the biggest drag. Core CPI came in at 2.3% y/y vs 2.4% y/y as expected. Both real average weekly and hourly earnings came weaker than previous month at 0.9% y/y and 1.2% y/y respectively.

Retail sales in October came in at 0.3% m/m vs 0.2% m/m as expected for a rebound from -0.3% m/m the previous month. Core retail sales came in as expected at 0.3% m/m. Home furnishings were the biggest drag followed by sales at food service and drinking places while online shopping and auto dealers contributed the most to the reading. US consumer starts the Q4 on an elevated note and with high consumer confidence it promises a healthy holiday shopping season (Black Friday and Christmas).

This week we will have housing data and minutes from the last FOMC meeting.

Important news for USD:

Tuesday:

• Building Permits
• Housing Starts

Wednesday:

• FOMC Minutes

Thursday:

• Existing Home Sales

EUR

ZEW survey of the current situation in German economy came a bit better than the previous month at -24.7 vs -25.3, however big improvements were made in expectations category with German expectations coming in at -2.1 vs -13 as expected and up from -22.8 the previous month. EU expectations came in at -1 vs 23.5 the previous month. Although the readings are still in the negative and significant rebound in global economy is farfetched expectations paint a picture of optimism. Industrial production for September nudged up to -1.7% y/y vs -2.3% y/y and added more optimism regarding slow recovery. Final core CPI in October came in unchanged at 1.1% y/y.

Preliminary German Q3 GDP came in at 0.1% q/q vs -0.1% q/q as expected. The surprisingly positive reading helped Germany avoid a technical recession in 2019. Second reading of EU Q3 GDP came in unchanged at 0.2% q/q but yearly figure was a bit stronger at 1.2% y/y vs 1.1% y/y preliminary.

This week we will have preliminary November readings for consumer confidence and PMIs.

Important news for EUR:

Thursday:

• Consumer Confidence Index

Friday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Preliminary Q3 GDP came in at 0.3% q/q vs 0.4% q/q as expected, up from -0.2% q/q in Q2. UK has managed to avoid a technical recession in 2019. Total business investment came in flat vs -0.5% q/q as expected while private consumption came in line with the expectations at 0.4% q/q. Manufacturing and industrial production came in weaker than expected with former coming in at -0.4% m/m vs -0.2% m/m and latter at -0.3% m/m vs -0.1% m/m. All of the data points to the economy that is just dragging along, still watching for clarifying signs regarding Brexit. GDP growth of 1% y/y is the lowest in almost a decade.

Employment change in September came in at -58k vs -102k as expected, better than expected but the number of employees continues to drop and it is a biggest drop in 4 years. Average weekly earnings came in at 3.6% vs 3.8% 3m/y as expected, slowing down but still staying high. The claimant count, which is the number of people claiming unemployment benefits, rose to 33k, almost doubling from the previous month and reaching the highest level in two years. CPI for October came in at 1.5% y/y vs 1.6% y/y as expected and down from 1.7% y/y the previous month which is a new three-year low. Energy prices were the main drag on the reading. Core CPI held at 1.7% as expected. Retail sales came in at -0.1% m/m vs 0.2% m/m as expected. Jobs, inflation and consumption all show increasingly bad situation in UK’s economy which could push BOE more toward rate cuts in the future.

Nigel Farage has stated in his campaign that his Brexit party will not contest the 317 seats Tory party won in 2017 and will fight Labour candidates in election. This will increase chances of Tory party to have the majority in the Parliament and GBP has risen on the comments. The Brexit party has also announced that it will step down from fighting for 43 non-Tory seats which additionally increases chances of Tory majority and GBPUSD really liked this news. Latest polls show a double-digit lead for the Tory party with some polls going even up to 14-point lead (42-28).

AUD

Chinese CPI in October came in at 3.8% y/y which is a 7-year high. The rise in food prices, mainly pork due to the swine flu epidemic, pushed inflation higher. PPI data continued their decline and came in at -1.6% y/y vs -1.2% y/y. The drop in PPI will make industrial profits suffer which in turn will have negative impact on the economy as a whole. Industrial production came in at 4.7% y/y vs 5.4% y/y as expected and 5.8% y/y the previous month. This is a substantial miss and shows the negative effects of the trade war on the external sector. Vehicles and smartphones recorded the biggest drops. Retail sales were also weaker than expected coming in at 7.2% vs 7.8%.

Australian employment change came in -19k vs 15k as expected for a huge miss. This led to the unemployment rate rising to 5.3% vs 5.2% previously. RBA wants to push the unemployment rate down to 4.5% so this reading shows that not only are they far away from the desired level, but they are moving in the opposite direction. Full time employment change saw a loss of 10.3k. Participation rate dropped to 66% from 66.1% while chances for RBA cut in December rose.

This week we will have minutes from the last RBA meeting.

Important news for AUD:

Tuesday:

• RBA Meeting Minutes

NZD

As predicted in our last week’s article, RBNZ has left the cash rate on hold at 1%. This was seen as a surprise move by the markets, especially after inflation expectations data fell to 1.8% from 1.86% previously and NZD strengthened. RBNZ stated that they will continue monitoring economic developments and will act if required. Interest rates will remain at lower levels for a prolonged period of time and additional stimulus will be added if necessary. The weak NZD has helped offset the weaker global economic environment. Employment remains at around maximum sustainable level and inflation is within the target range, although it is below 2%. Governor Orr stated that the decision to leave the rate unchanged was unanimous and he expects thd economy to pick up the following year adding that current policy is very stimulatory.

This week we will have bi-monthly GDT auction.

Important news for NZD:

Tuesday:

• GDT Price Index

CAD

BOC governor Poloz stated that wage inflation is above 4% in most measures, pointing out the strong wage growth. This month has been tough on CAD so far with the currency dropping against USD in almost every session. Risk off flows have been hurting CAD pushing it down, although by the end of the week it seems that USDCAD stabilised on the back of optimism surrounding the USMCA deal.

This week we will have manufacturing sales, inflation and consumption data.

Important news for CAD:

Tuesday:

• Manufacturing Sales

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Core machinery orders, which are a good indicator for capex down the road (6 to 9 months), came in September at -2.9% m/m vs 0.9% m/m as expected and 5.1% y/y vs 8.1% y/y as expected. Preliminary Q3 GDP came in at 0.1% q/q vs 0.2% q/q as expected and down from 0.3% q/q the previous quarter. Private consumption came in at 0.4% q/q vs 0.6% q/q the previous quarter. Business spending came in at 0.9% q/q as expected and up from 0.2% q/q the previous quarter for a positive note in the weak reading. Net exports were a drag on the reading with 0.2pp due to exports falling 0.7% q/q. Final industrial production in September has seen improvement since preliminary readings and came in at 1.7% m/m and 1.3% y/y.

This week we will have trade balance and national inflation data as well as preliminary PMIs.

Important news for JPY:

Wednesday:

• Trade Balance
• Exports
• Imports

Friday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

CHF

SNB chairman Jordan stated that CHF is highly valued and reiterated readiness to intervene in the markets if necessary. The danger of deteriorating international situation remains large. SNB Maechler added that SNB wants to limit the burden of negative rates for banks.

This week we will have trade balance data.

Important news for CHF:

Tuesday:

• Trade Balance
• Exports
• Imports

 

[TradersWay]

Forex Major Currencies Outlook (Nov 25– Nov 29)

Please note that liquidity will be thin on Thursday and Friday due to the US Thanksgiving holiday, Q3 GDP data from US, Canada and Switzerland along with inflation data from US and EU and consumption data from New Zealand will mark this week.

USD

FOMC minutes showed that most members were satisfied with where the rates are at the moment. “A couple” said that Fed should reinforce statement with clear communication stating that another rate cut is not likely unless signs of “significant slowdown” appear. Prior rate cuts were warranted due to global weaknesses and trade uncertainty. Risks to the economic outlook still remain tilted to the downside according to members.

This week we will have housing and consumer confidence data, second reading of Q3 GDP, durable goods and Fed’s preferred PCE inflation data.

Important news for USD:

Tuesday:

• New Home Sales
• CB Consumer Confidence Index

Wednesday:

• GDP
• Durable Goods
• PCE
• Personal Spending
• Pending Home Sales

EUR

Chief Economist at ECB Phillip Lane, who will play a more significant role now that Christine Laragde, non-economist, is the new ECB president, stated that a recession is not looming and he expects a recovery in the next year or two. ECB Vice President Luis de Guindos said that a recession in the Eurozone was “very improbable” and ECB officials stated that growth in the Eurozone is expected to remain subdued for a prolonged period of time. Lagarde stated that monetary policy will remain supportive of the economy and that is a key element is euro area fiscal policy. Preliminary consumer confidence in November shows -7.2 vs -7.6 the previous month. It is a slow climb up.

Preliminary PMI for Eurozone shows manufacturing at 46.6 vs 45.9 the previous month, services at 51.5 vs 52.2 the previous month and composite at 50.3 vs 50.9 the previous month. Rebounds in manufacturing PMI and drops in services PMI have been made by both Germany and France. Improvement of German manufacturing PMI possibly signals that bottom in the reading has been reached, however drop of services PMI to 38-month low is causing a concern of dropping domestic demand. Composite reading for EU still shows a sluggish growth.

This week we will have data on business climate from EU and Germany, preliminary inflation data for November as well as the unemployment rate.

Important news for EUR:

Monday:

• Ifo Business Climate (Germany)

Thursday:

• Business Climate Indicator
• Consumer Confidence Index

Friday:

• CPI
• Unemployment Rate

GBP

The latest polls see the Conservative party at 42% while Labour is second with 31%. The televised debate between Johnson and Corbyn has been characterized as a draw with reports suggesting that Johnson fared better in the first half and Corbyn did better in the second half. Nationalisation of industries has become official party policy for the Labours which increased investors’ preference for the Tory party. Preliminary manufacturing PMI for November shows further drops in the reading coming in at 48.3 vs 49.6 the previous month. Services also plummeted below 50 coming in at 48.6 vs 50 the previous month thus pushing the composite to 48.5 vs 50 the previous month. General election is providing additional uncertainty to the existing one caused by Brexit and business output and orders are dropping significantly. This all adds calls for rate cut next year.


AUD

RBA minutes show board’s readiness to easy further if the need arises. They have recognized the negative effect that lower rates have on savers and confidence. Extended period of lower rates is needed for desired goals to be achieved. They decided to be wait and asses the effect of already delivered “substantial” stimulus. AUD is at the lower end of recent range. The minutes had an overall dovish feel especially considering that the board agreed that a “case could be made” for a rate cut in November.

This week we will have a speech by RBA governor Lowe as well as official PMI data from China.

Important news for AUD:

Tuesday:

• RBA Governor Lowe Speech

Saturday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

GDT auction showed increase in price of 1.7% thus making this the fifth consecutive auction of rising prices. NZD rose on the week against USD on the back of positive US-China trade talks, but as the week went along and the talks begin to sour due to US Senate’s Hong Kong support bill NZD started losing ground.

This week we will have consumption and trade data, speech by RBNZ governor Orr as well as ANZ business confidence which is a very closely watched metric by RBNZ.

Important news for NZD:

Monday:

• Retail Sales

Tuesday:

• Trade Balance
• Exports
• Imports
• RBNZ Governor Orr Speech

Thursday:

• ANZ Business Confidence

CAD

Manufacturing sales in September came in at -0.2% m/m vs -0.5% m/m as expected. A better than expected reading but a big drop from 0.8% m/m the previous month. Sales were down in almost half of sectors (10 of 21). Soft sales in the petroleum and coal product (-1.9%) and the motor vehicle parts (-4.3%) were the main drag while sales in machinery (5.5%) and motor vehicles (2.9%) contributed positively.

CPI in October came in at 1.9% y/y as expected, unchanged from previous month. Excluding gasoline, it came in at 2.3% y/y. While inflation in goods stayed the same at 0.2% m/m inflation in services improved to 0.4% m/m from -0.9% m/m the previous month. Core measures all came in line with expectations, median at 2.2%% y/y, common at 1.9% y/y and trimmed at 2.1% y/y. Readings in line with expectations pushed CAD higher putting more credibility that BOC will hold rates at their December meeting. Governor Poloz came out with less dovish comments than expected which gave CAD a boost. He stated that the economy is in a good place and that global easing is starting to provide a glimmer of response.

September retail sales came in at -0.1% m/m vs -0.3% m/m as expected. Previous month’s reading was revised to 0.1% m/m. Food and beverage stores and building materials were the main contributors while new car sales, furniture sales and gasoline station sales contributed negatively.

This week we will have wholesale trade data as well as Q3 GDP.

Important news for CAD:

Monday:

• Wholesale Trade

Friday:

• GDP

JPY

Trade balance data for October show surplus of JPY17.3 bn vs JPY229.3 bn as expected. Exports have fallen -9.2% y/y thus making this the biggest drop in exports in the last 3 years. Imports came in at abysmal -14.8% y/y, the biggest drop in 3 years as well. Exports to US, China and Asia are all down in double digits. The weak global demand has affected exports while sales tax hike and damage caused by typhoon have impacted imports.

Preliminary PMI data for November shows small improvements with manufacturing coming at 48.6 vs 48.4 the previous month and services coming at 50.4 vs 50.3 the previous month. Looking at the report IHS Markit stated that “there is a strong possibility of Japan's economy contracting in the fourth quarter.” National CPI in October came in at 0.2% y/y vs 0.3% y/y as expected. CPI ex food and energy came in at 0.7% y/y vs 0.6% y/y as expected. The sales hike tax did not have the desired impact on inflation in the first month of its inception.

This week we will have consumption data for October, first after the sales tax hike so the big drop from previous month is expected, Tokyo area inflation, unemployment rate and preliminary industrial production data for October.

Important news for JPY:

Thursday:

• Retail Sales

Friday:

• CPI
• Unemployment Rate
• Industrial Production

CHF

Trade balance data in October show shrinking of trade surplus to CHF3.5 bn vs CHF4.02 bn the previous month. The shrinking occurred due to both fall in exports and imports, however exports fell more significantly -1.3% m/m vs 2.7% m/m the previous month. SNB Maechler came out and stated that Swiss short-term growth outlook has worsened adding that easy monetary policy is still needed and reiterated their readiness to intervene in FOREX markets if the need arises.

This week we will have Q3 GDP data.

Important news for CHF:

Thursday:

• GDP

 

[katetrades]

Forex Major Currencies Outlook (Dec 2– Dec 6)

After Thanksgiving holiday markets are back in full swing and we will have rate decisions from RBA and BOC as well as Q3 GDP data from Australia and then on Friday NFP and Canadian employment report.

USD

Preliminary durable goods in October positively surprised and came in at 0.6% m/m vs -0.9% m/m as expected. Capital goods orders non defense ex air came in at 1.2% m/m vs -0.2% m/m as expected. On the back of strong durable goods report second reading of Q3 GDP came in at 2.1% vs 1.9% in the preliminary reading. Personal consumption added 1.97 pp vs 1.93 pp from the previous reading confirming the strong impact of US consumer on GDP. Gross private investment dragged the reading with -0.01 pp, much better than -0.27 pp in the preliminary reading. A rise in inventories contributed with 0.17 pp vs -0.05 pp in the first report. Personal spending came in at 0.3% as expected but personal income came in flat. This indicates that personal debt is increasing which will stimulate Fed to keep rates low for longer time.

After the markets closed on Wednesday president Trump signed a bill supporting Hong Kong protesters. China has warned the president that it will retaliate in the case of signing the bill. AUDJPY dropped on the news and risk off appetite is back in the markets. It is yet to be seen how this act will influence already shaky “phase one” trade deal.

This week we will have ISM PMI data, trade balance data and NFP on Friday as highlight of the week. The headline number expected is around 170k and there are expectations for a tick up in the unemployment rate due to rise in participation rate. Earnings are expected to stay the same at 0.2%.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Thursday:

• Trade Balance
• Exports
• Imports

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

German Ifo business climate index in November ticked up to 95 vs 94.7 the previous month. Expectations index also climbed to 92.1 vs 91.6. Small improvements give credibility to German stability in Q4, but are far from serious rebound. According to Ifo German manufacturing is still stuck in recession. Strong domestic demand will produce positive GDP reading from Germany as they expect Q4 GDP to come in at 0.2% q/q.

Preliminary November CPI came in at 1% y/y vs 0.9% as expected and up from 0.7% y/y the previous month. Core CPI came in at 1.3% y/y vs 1.2% y/y as expected and up from 1.1% y/y the previous month which along with the reading from May is a 6-year high. Inflationary pressures are picking up which is a good sign for the economy as general, however consistency is still needed. Final consumer confidence in November came in at -7.2 as preliminary reading showed, up from -7.6 the previous month. Economic confidence came in at 101.3 vs 100.8 the previous month indicating the slowly improving situation in Euro area. The unemployment rate holds the ground at 7.5%. Ursula von der Leyen has been officially confirmed as the next European Council president. She received 461 votes out of 707 and will succeed Juncker from December 1.

This week we will have final November PMI data, consumption data and last reading of Q3 GDP.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)

Wednesday:

• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

Thursday:

• Retail Sales
• GDP

GBP

Prime minister Johnson continued the election campaign by promising Brexit vote before Christmas if he wins the election on December 12. Tory party still enjoys a comfortable double digit lead in the polls, although during the week there were reports of Labour party tightening the gap. GBP did not take that well since investors like clear majority by business friendly Tories so GBPUSD weakened. On Wednesday the YouGov MRP model, which successfully predicted that Theresa May will not maintain majority in 2017 elections, showed that Tories will win 359 seats while Labour will held 211 seats. Since total number of seats in the Parliament is 650 this poll shows a clear majority, 68 seats, for the Tories which would be the greatest victory for the party since 1987.

This week we will have November PMI data.

Important news for GBP:

Monday:

• Markit Manufacturing PMI

Wednesday:

• Markit Services PMI

AUD

RBA governor Lowe stated that 0.25% is the effective lower bound for rates adding that they are long way from introducing QE. They expect employment growth to be slow but still positive and reasonable. There are a lot of positives in the economy according to them and the most important thing is to get inflation to move in the right direction. It will take more time for wages to push inflation up. Private capex for Q3 came in at -0.2% q/q vs flat as expected. It was up from -0.5% q/q the previous quarter but investment is still very weak.

Industrial profits from China in October fell -9.9% y/y from -5.3% y/y the previous month. This is the third consecutive month of falling profits and the biggest fall since 2011. Such a poor record can negatively influence the capex as firms cut back on investments. Falls in profits are attributed to the falling producer prices for manufacturing goods as well as slower production and sales growth. Sectors that are very sensitive to the trade war and US tariffs were hit the hardest and this reading may warrant further easing by PBOC as stimulatory measure.

This week we will have Q3 GDP and trade balance data from Australia with RBA rate decision as the highlight of the week. We expect RBA to stay on hold and reassess situation before choosing to act in 2020. We will have Caixin PMI and trade balance data from China.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision
• RBA Rate Statement

Wednesday:

• GDP
• Caixin Services PMI (China)

Thursday:

• Trade Balance
• Exports
• Imports

Sunday:

• Trade Balance (China)
• Exports (China)
• Imports (China)

NZD

Retail sales for Q3 smashed the expectations and came in at 1.6% q/q vs 0.5% q/q as expected. A huge beat indicating that consumers are fully embracing rate cuts which may explain RBNZ’s decision to hold rates at current level at their November meeting. October’s trade balance data show the lowering of trade deficit to -NZD1013m vs -NZD1242m the previous month. Both exports and imports were higher than the previous month indicating stronger external and domestic demand.

ANZ business confidence made a healthy improvement to -26.4 vs -42.5 the previous month. Activity outlook, which is used as a proxy for GDP, improved significantly to 12.9 vs -3.5 the previous month. Aggressive lowering of rates this year, 0.75%, is paying dividends for New Zealand economy which will keep RBNZ happy and on hold.

This week we will have bi-monthly GDT auction.

Important news for NZD:

Tuesday:

• GDT Price Index

CAD

Wholesale trade in September came in at 1% m/m vs flat as expected and up from -1.2% m/m the previous month. Q3 GDP came in at 1.3% y/y as expected down from the very strong Q2 GDP which was revised down to 3.5% y/y. Residential investment rose 13.3% for the fastest rate in 7 years while business investment was up 2.6%. Household consumption rose 1.6%, a very welcoming sign considering the growing debt to income ratio. Inventories and net exports were the main drag cutting 1.62 pp and 0.49 pp from GDP respectively.

This week we will have trade balance and employment data as well as BOC rate decision. We expect BOC to stay on hold as Canadian economy has shown resilience but may continue with the dovish messages in the wake of weaker business sentiment and overall deteriorating conditions.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision
• BOC Rate Statement

Thursday:

• Trade Balance
• Exports
• Imports

Friday:

• Employment Change
• Unemployment Rate

JPY

Retail sales in October fell -14.4% m/m vs -10.4% m/m as expected and -8.2% y/y vs -3.8% y/y as expected. This is the first month that sales tax hike was introduced and it caused a huge drop, much worse than expected. There is a fact that consumers did a stockpiling before the sales tax hike, hence the great September retail sales numbers, however the reading here is very weak.

CPI for Tokyo area in November came in at 0.8% y/y vs 0.4% y/y the previous month. CPI excluding fresh food came in at 0.6% y/y up from 0.5% y/y the previous month. Small improvements in the reading thanks to the sales hike tax, moves in the right direction, but there is still a ton of room to go to desired 2% and BOJ governor Kuroda confirmed that they will not lower that level. The unemployment rate in October stayed unchanged at 2.4%. Preliminary industrial production in October plunged to -4.2% m/m vs -2% as expected and -7.4% y/y vs -5.2% y/y as expected. Slower global demand as well as negative effects on domestic demand caused by sales tax hike and typhoon caused the worst reading in almost 2 years.

This week we will have final November PMI data as well as spending and wage data.

Important news for JPY:

Monday:

• Markit Manufacturing PMI

Wednesday:

• Markit Services PMI
• Markit Composite PMI

Friday:

• Household Spending
• Labour Cash Earnings

CHF

Q3 GDP came in at 0.4% q/q vs 0.2% q/q as expected and pushed yearly figure to 1.1% y/y vs 0.8% y/y as expected. A surprising beat was helped by the rise in exports and government spending.

This week we will have consumption and inflation data.

Important news for CHF:

Monday:

• Retail Sales

Tuesday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Dec 9– Dec 13)

Fed’s, ECB’s and SNB’s interest rate decisions along with the General Election in UK will be the main movers of the week with the first results of the election being published on Friday morning volatility on all GBP pairs will be increased.

USD

ISM manufacturing index for November came in at 48.1 vs 49.2 as expected and down from 48.3 the previous month. Not only did the expected rebound in manufacturing missed but the decline continued as well. New order and employment sub indices dropped the most while the production index was up. ISM non-manufacturing index also came weaker than expected with 53.9 vs 54.5. Employment sub index showed an improvement but huge drop in production index pushed the overall index down. The US economy is slowing down in Q4 according to these numbers. Trade balance in October came in at -$47.2bn vs $-48.5bn as expected. Lower deficit was achieved in the worst possible way by both falling export (-0.2%) and falling imports (-1.7%). Trade deficit with China fell to -$27.8bn which is a 7-month low.

NFP in November came in at 266k vs 180k as expected. The unemployment rate dropped to 3.5% from 3.6% the previous month, however participation rate also dropped to 62.3% from 62.3% the previous month. Average hourly earnings climbed to 3.1% y/y vs 3% y/y the previous month and underemployment ticked to 6.9% from 7%. This is a very strong report that will cement Fed’s decision to keep the rates on hold.

This week we will have inflation and consumption data with interest rate decision as the highlight of the week. The rate is expected to stay the same, so all of the attention will be on new economic projections and the accompanying press conference.

Important news for USD:

Wednesday:

• CPI
• Fed Interest Rate Decision
• FOMC Press Conference
• FOMC Economic Projections

Friday:

• Retail Sales

EUR

Final Eurozone manufacturing PMI for November came in at 46.9 vs 46.6 preliminary on the back of improved German 44.1 and French 51.7 readings. The reading is slowly moving in the right direction and it looks like manufacturing PMI has bottomed out in September. Final services PMI came in at 51.9 vs 51.5 preliminary on the back of improved German and Spanish readings which propped composite up to 50.6 vs 50.3. Overall economic conditions in the EU are improving slowly as composite stays in the expansion territory.

Retail sales in October came in at -0.6% m/m vs -0.5% m/m as expected and down from 0.1% m/m the previous month. Bigger than expected slump to indicate weak start of Q4. Consumers are holding back, however the holiday season will bring retail sales back up. Final reading of Q3 GDP came in line with previous readings at 0.2% q/q and 1.2% y/y.

This week we will have ZEW survey, industrial production data and the first ECB monetary policy press conference led by new governor Lagarde. No changes to monetary policy are expected. In her first testimony she was not as dovish as expected which pushed EUR higher.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment Index (EU and Germany)

Thursday:

• Industrial Production
• ECB Interest Rate Decision
• ECB Monetary Policy Press Conference

GBP

Final manufacturing PMI for November came in at 48.9 continuing with contraction. Services also continued to be in contraction territory, however the reading improved to 49.3 vs 48.6 preliminary. Markit notes that after November’s PMI reading Q4 is projected at -0.1% q/q.

Latest election polls still show a double-digit lead for the Tory party. PM Johnson said that the UK will leave the EU by the end of January if the Tory party wins the majority.

This week we will have GDP as well as manufacturing and industrial data. Thursday is the day when elections will be held.

Important news for GBP:

Tuesday:

• GDP
• Manufacturing Production
• Industrial Production
• Construction Output

Thursday:

• General Election

AUD

RBA has left the key rate at 0.75% as widely expected. Rates will remain low for a prolonged period of time and RBA is ready to further ease monetary policy if need arises. The decision to stay on hold with rates was necessary due to long lags in transmission of monetary policy. Lower rates are supporting employment and income growth. Outlook for the global economy has improved but risks connected to it are still tilted to the downside. The Australian economy appears to have reached a gentle turning point according to them. RBA’s next meeting is in February 2020 so although they hinted that they will hold rates steady there will be plenty of data to digest until the next meeting.

Q3 GDP came in at 0.4% q/q vs 0.5% q/q as expected but Q2 GDP has been revised up to 0.6% q/q which gives the more upbeat tone to the weak reading. Yearly GDP came in at 1.7% y/y as expected and up from 1.4% y/y the previous quarter. Consumption and exports were the main contributors to the GDP growth. Slow economic growth is the main reason for RBA to keep the rates low and if weakness in GDP persists, they may be pushed to lower them in H1 of 2020.

Trade balance for October came in at AUD4502m vs AUD6500m as expected. The big drop from the previous number of AUD7180m was due to the falling exports while imports remained flat. This is a very concerning sign since exports to China constitute 40% of total exports. Retail sales came in flat vs 0.3% m/m as expected adding another weak data point. Higher food sales managed to keep the reading flat while sales of household goods showed -0.8% y/y.

Official PMI numbers from China show improvement all over the board. Manufacturing PMI came in at 50.2 returning to the expansion territory for the first time since April. The new export orders also made a 7-month high. Services PMI came in at 54.5 vs 53.1 as expected which pushed the composite to 53.7 vs 52 the previous month. Government’s stimulus is producing results as the readings show. Caixin manufacturing PMI came in at 51.8 vs 51.7 the previous month for a fourth consecutive reading above 50. Caixin services PMI smashed the expectations coming in at 53.5 vs 51.2 as expected pushing composite PMI to 53.2 vs 52 the previous month.

This week we will have a speech by governor Lowe and inflation data from China.

Important news for AUD:

Monday:

• RBA Governor Lowe Speech

Tuesday:

• CPI (China)

NZD

First dairy auction of the month came in at -0.5% making it the first drop after four consecutive auctions of rising prices. NZD has started the week strong on the back of trade optimism and better than expected China data and rode on that strength till the end of the week. RBNZ governor Orr stated that they are in “hold phase” of monetary policy thus adding more to NZD strength.

This week we will have data on electronic card consumption.

Important news for NZD:

Tuesday:

• Electronic Card Retail Sales

CAD

BOC has left the rate unchanged at 1.75% as widely expected. They see signs of the global economy stabilizing and feel that it is appropriate to keep rates at the current level. Inflation is around 2% and they expect it to stay close to 2% in the next 2 years. Future decisions will be guided by the BOC’s monitoring of consumer spending and housing markets and the damage from trade wars. Overall tone of the statement was neutral. Trade balance in October came in at -CAD1.08bn vs -CAD1.45bn as expected. Exports were up 0.8% while imports were up 0.5% indicating both strong external and domestic demand. Exports to China plunged 19.3% for a biggest drop since 2012 thus further increasing the deficit in trade. Consumer goods were the largest contributor to exports.

Net change in employment in November came in at -71.2k vs 10k as expected. Both full-time and part-time employment change showed a significant decline which propelled the unemployment rate to 5.9% vs 5.5% the previous month. Abysmal numbers came after the BOC decision to keep rates on hold. This will surely make them reconsider next their decision at their next meeting.

This week we will have a speech by governor Poloz.

Important news for CAD:

Thursday:

• BOC Governor Poloz Speech

JPY

Final manufacturing PMI came in at 48.9 vs 48.6 preliminary while services PMI came in at 50.3 vs 50.4 preliminary but back in expansion territory from 49.7 in October for composite of 49.8. Q3 capex data came in at 7.1% y/y vs 1.9% y/y in the Q2. Next week’s Q3 GDP projection has been revised up on the back of strong capex data. Household spending in October came in at -5.1% y/y vs -3.2% y/y as expected due to sales tax hike. Average wages came in at 0.5% y/y, same as previous month.

Economic stimulus package in the amount of 26 trillion of which central government is 7.6 trillion. Japanese government further opening its purse to stimulate the economy and it is expected that it will push GDP up by 1.4%.

This week we will have final Q3 GDP and industrial production data as well as machinery orders data.

Important news for JPY:

Monday:

• GDP

Thursday:

• Core Machinery Orders

Friday:

• Industrial Production

CHF

October’s retail sales came in at 0.7% y/y vs 1.6% y/y (revised up from 0.9 originally). The huge revision to previous month’s reading gives more positive note to October reading. November CPI came in at -0.1% m/m and -0.1% y/y as expected while core measure ticked up to 0.4% y/y from 0.2% y/y the previous month. The small rise in core reading will be welcomed by SNB, but considering the distance from the targeted inflation it is almost negligible.

This week we will have employment data and SNB rate decision.

Important news for CHF:

Monday:

• Unemployment Rate

Thursday:

• SNB Interest Rate Decision

 

[katetrades]

Forex Major Currencies Outlook (Dec 16– Dec 20)

In the last full trading week of the year we will have BOE and BOJ meetings, Fed’s preferred inflation measure PCE, employment data from UK and Australia, Q3 GDP from New Zealand as well as preliminary PMI numbers from EU.

USD

Fed left the rate unchanged in range of 1.50-1.75% as widely expected. Chairman Powell stated in his opening statement that moderate growth is expected to continue and added that wages have been rising, particularly for the low-paying jobs. Monetary policy is not on a pre-set course and it will be adjusted according to material changes in the outlook. During the uneventful press conference while pressed by reporters to say what will take for Fed to hike rates Powell reiterated his stance that a persistent rise in inflation rates is necessary for a rate hike indicating that the bar for raising rates is higher than the bar for cutting rates. Powell stated that this is his personal view but it still dropped the USD down.

November CPI came in at 2.1% y/y vs 2% y/y as expected and up from 1.8% y/y the previous month. Core CPI was unchanged at 2.3% y/y. Retail sales came in at 0.2% m/m vs 0.5% m/m as expected with core reading showing 0.1% m/m vs 0.3% m/m as expected. Online retailers and electronics were the biggest contributors while health and personal care was biggest drag on the reading. President Trump signed a deal thus the tariffs projected for December 15 will not be implemented which caused a rally in risk assets.

This week we will have housing, industrial production and inflation data as well as final reading of Q3 GDP.

Important news for USD:

Tuesday:

• Building Permits
• Housing Starts
• Industrial Production

Thursday:

• Existing Home Sales

Friday:

• GDP
• PCE
• Personal Spending

EUR

ZEW survey of expectation or German economy rebounded to 10.7 from -2.1 previous month. German exports, private consumption and a tight labour market propelled the reading into positive matching the levels from February of 2018. Eurozone expectations also rebounded to 11.2 from -1 the previous month.

ECB left key rates unchanged as expected. Rates will remain at present or lower levels until inflation outlook converges close to but bellow 2% level. The bond buying program will continue until shortly before rates are raised. New ECB president Lagarde stated that incoming data point to continued muted inflation pressures and that highly accommodative policy is still needed. Some initial signs of stabilisation start to appear in global growth. During the Q&A part she stated that inflation direction in 2022 is good but still not at the desired target of close to 2%. Ultimately, she added that she is neither a dove nor a hawk and that her ambition is to be an owl.

This week we will have preliminary December PMIs and consumer confidence as well as final inflation data for November.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

Wednesday:

• Ifo Business Climate (Germany)
• CPI

Friday:

• Consumer Confidence Index

GBP

GDP in October came in flat vs 0.1% m/m as expected, with 3-month rolling average also staying flat, indicating stagnation or contraction in Q4. Manufacturing and industrial production improved on monthly and yearly basis while construction output continued to deteriorate at increased pace. Trade balance deficit widened in October due to imports rising 8.3% m/m while exports improved by 1.8% m/m. Brexit stockpiling is still in play.

Election results showed a clear majority for Tory party which won 364 seats of 650 available making this the largest Conservative victory since 1987 when they were led by Margaret Thatcher. The clear victory of business friendly Tories ignited investor confidence and GBP surged across the markets more than 300 pips. PM Johnson stated that UK will leave EU on January 31. Labour party leader Corbyn announced his resignation.

This week we will have preliminary December PMIs, employment, consumption and inflation data as well as final reading of Q3 GDP. The main event will be BOE’s rate decision. No change is expected but the incoming data has been bad so we will see if more members opted for a rate cut, last time there were 2 votes. Conservative victory in election should move members to a more neutral stance, however the issue of Brexit is still weighing on the economy.

Important news for GBP:

Monday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Tuesday:

• Claimant Count Change
• Average Hourly Earnings
• Unemployment Rate

Wednesday:

• CPI

Thursday:

• Retail Sales
• BOE Interest Rate Decision
• BOE MPC Meeting Minutes
  

Friday:

• GDP
• Business Investment

AUD

Chinese trade balance for October came in at $38.73bn vs $42.81bn the previous month. Exports continued their decline coming in at -1.1% y/y, the fourth consecutive month of falling exports, with exports to plunging by 23%. Imports showed their first positive reading since April coming in at 0.3% y/y. The rise in imports will bring joy to all of the exporting nations around the globe and may improve global economic situation. CPI in November rose to 4.5% y/y from 4.3% y/y the previous month. Food prices were the biggest contributor with 19.1% y/y due to the devastation caused by the swine flu (pork prices rose 110% y/y!). Core CPI is holding at 1.4% y/y. PPI came in better than expected with -1.4% y/y but still in the negative territory creating concerns about industrial profits and capex.

This week we will have minutes from the latest RBA meeting as well as employment data from Australia and consumption and industrial production data from China.

Important news for AUD:

Monday:

• Retail Sales (China)
• Industrial Production (China)

Tuesday:

• RBA Meeting Minutes

Thursday:

• Employment Change
• Unemployment Rate

NZD

Card spending in November came in at 2.6% m/m vs 0.5% m/m as expected and 5.1% y/y. A strong rebound in the consumption with card spending making up to 70% of core retail sales. Yet another sign of positive effect that low rates have on the economy. The New Zealand government announced that government spending will rise to NZD12bn with the majority of it on infrastructure.

This week we will have data on business confidence, bi-monthly GDT auction as well as Q3 GDP and trade balance data.

Important news for NZD:

Tuesday:

• ANZ Business Confidence
• GDT Price Index

Wednesday:

• GDP
• Trade Balance
• Exports
• Imports

CAD

Housing starts in November slowed down to 201.3k vs 215k as expected with previous reading showing 202k. Building permits for October also missed the expectations coming in at -1.5% m/m vs 2.8% m/m as expected. Residential permits was -3.2% and it was the lowest reading since March.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Final Q3 GDP reading came in at 0.4% q/q vs 0.1% q/q preliminary. Private consumption came in at 0.5% q/q while business spending contributed with 1.8% q/q. The rise in capex, published last week, is a very encouraging sign of things to come, however the sales tax hike will undoubtedly have a negative effect on personal consumption in Q4. Core machinery orders in October fell heavily coming in at -6% m/m vs -2.9% m/m the previous month so future capex is not encouraging and it indicates the contraction in Q4 GDP which is projected between 2.7% and 3% y/y.

This week we will have preliminary December PMIs, trade balance and national inflation data as well as BOJ interest rate decision.

Important news for JPY:

Monday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Wednesday:

• Trade Balance
• Exports
• Imports

Thursday:

• BOJ Interest Rate Decision
• BOJ Monetary Policy Statement

Friday:

• CPI

CHF

SNB has left the policy rate unchanged at -0.75% as widely expected. The accompanying statement showed that they consider the franc to be highly valued with fragile FX market. They reiterated their willingness to intervene in FX market if need arises and assessed that risks to the global economy are tilted to the downside. SNB chief Jordan stated that the franc would appreciate rapidly without negative rates and that inflation would turn negative if monetary policy would is tightened. Seasonally adjusted unemployment rate in November stayed at the same level of 2.3%.

This week we will have trade balance data.

Important news for CHF:

Thursday:

• Trade Balance
• Exports
• Imports
  

 

[katetrades]

Forex Major Currencies Outlook (Dec 23– Dec 27)

Holiday lull dominates the markets, liquidity will be thin so volatility may be increased, therefore we would advise you to use tight stop losses and trade small lot sizes.

USD

Stronger than expected industrial production and housing data propelled Atlanta Fed’s GDP tracker for Q4 GDP to 2.3% from 2% the previous week. November PCE came in at 1.5% y/y as expected and up from 1.4% y/y the previous month while core PCE came in at 2.1% y/y also as expected. Personal income came in at 0.5% m/m vs 0.3% m/m as expected and up from flat the previous month while personal spending came in at 0.4% m/m as expected. The rise in income is very encouraging and due to the fact that it is close to the holidays it will positively impact December retail sales. Boeing announced that it will halt the production of their 737 MAX model which in turn will shave around 0.5% of Q1 GDP in 2020.

This week we will have housing and durable goods data.

Important news for USD:

Monday:

• --New Home Sales

Tuesday:

• --Durable Goods

EUR

Preliminary December manufacturing PMI in Eurozone came in at 45.9 vs 46.9 the previous month thus reversing back deeper into the contraction territory. German manufacturing resumed the drop shattering the illusion that the worst is over. Services PMI came in at 52.4 vs 51.9 the previous month which helped keep the composite PMI steady at 50.6. Ifo business climate came in at 96.3 vs 95 the previous month indicating recovery in sentiment. This needs to be backed by positive data in order for economy to recover. Ifo economist state that German industrial sector is still in recession and that it will take time for it to recover. Consumer confidence turned sour at the end of the trading week coming in at -8.1 vs -7 as expected and -7.2 the previous month.

GBP

December PMI numbers show manufacturing slump to 47.7 from 48.9 the previous month. Services also declined coming in at 49 vs 49.3 the previous month thus dragging the composite reading deeper into contraction at 48.5 vs 49.3 the previous month. Both core and headline CPI came in unchanged in November at 1.7% y/y and 1.5% y/y respectively. Retail sales came in at -0.6% m/m vs 0.2% m/m as expected. Although it is a poor reading it should be noted that due to the calendar date Black Friday sales were not included. They will be included in December report.

Employment change in October came in at 24k vs -14k as expected with prior month being -58k. The unemployment rate stayed at 3.8%. On the other hand, average weekly earnings came in at 3.2% vs 3.4% 3m/y as expected and down from 3.7% 3m/y the previous month. The employment rate rose to new record high of 76.2%. Overall mixed reading indicating waning wage pressures but tight conditions in the labour market. Q3 GDP came in at 0.4% q/q vs 0.3% q/q due to stronger services.

BOE has left the bank rate unchanged at 0.75% with a vote of 7-2 as was widely expected. They stated that it is too early to tell how much policy uncertainties have declined since the election. “If global growth fails to stabilise or Brexit uncertainties remain entrenched, monetary policy may need to reinforce expected UK recovery”. Basically, they are saying that they will continue monitoring the developments and then decide on the proper course of action.

According to the UK press PM Johnson will guarantee Brexit by the end of 2020 regardless whether the trade deal is agreed upon or not. This increases the chance of a No deal Brexit since UK wants to sign a deal similar to the one Canada has with EU. It took Canada and EU 7 years to work out the details of the deal and additional one to ratify it so it is very optimistic to think that UK would be able to do it by the end of 2020. Head of the FCA Andrew Bailey will be the new BOE governor starting from March 16 2020. His stance regarding Brexit is similar to government’s and he will continue in Carney’s footsteps regarding monetary policy.

AUD

RBA minutes from December showed that board members agreed to reassess economic outlook at February meeting. They have the ability and are ready to ease further if need arises and incoming data disappoints. Extended period of low interest rates is necessary to meet employment and inflation targets. It was reiterated that economy appeared to have reached a gentle turning point. The overall tone was dovish with the main theme being “wait and see” for the incoming data before making a decision.

Employment change in November came in at 39.9k vs 15k as expected and a big rebound from -24.8k the previous month. The unemployment rate ticked down to 5.2% with participation rate staying the same at 66%. A small dent in an overall very strong jobs report is that majority of jobs, 35.7k, were part-time.

November retail sales from China came in at 8% y/y vs 7.6% y/y as expected and up from 7.2% y/y the previous month. Online shopping festive, the Double-11 (Singles’ day) propelled the reading higher than expected. Industrial production posted even more impressive numbers coming in at 6.2% y/y for vs 5% y/y as expected and up from 4.2% y/y the previous month. Electronic equipment and steel production were the largest contributors. The readings show positive effects of fiscal stimulus mainly directed into infrastructure projects.

NZD

ANZ business confidence continued its rise toward the positive territory and came in at -13.2 vs -26.4 the previous month. The activity outlook missed the expectations by bit coming in at 17.2 but it showed a great improvement from 12.9 the previous month. Global dairy trade came in at -5.1% for the largest decline of the year and second consecutive auction of falling prices.

Q3 GDP figures came in at 0.7% q/q vs 0.5% q/q as expected thus levying the year on year figure to 2.3% from 2.1% the previous quarter. A very solid beat gives more confidence to the RBNZ that they are steering the economy in the right direction and that further rate cuts are not necessary at the moment. Trade balance in November showed a decrease in deficit to -NZD753m vs -NZD1039m the previous month. Exports rose while the imports fell on a month indicating healthy foreign demand but weakening domestic demand.

CAD

Headline CPI jumped from 1.9% y/y to 2.2% y/y on the back of rising energy prices. Common and trim CPI came in as expected at 1.9% y/y to 2.2% y/y respectively while median CPI came in at 2.4% y/y vs 2.2% y/y as expected making it the highest reading in the decade. With inflation hovering little above 2%, a dream for many developed economies, BOC can relax and stand pat.

Retail sales in October posted a worst month in almost a year coming in at -1.2% m/m vs 0.5% m/m as expected. Sales were lower in 8 out of 11 subsectors. Motor vehicles, building materials and electronic and appliances were the biggest drag with electronic and appliances stores falling an amazing 17.2% y/y. Sales at gasoline stations and clothing and accessory stores were the only positives in the weak reading. CAD has lost around 40 pips across the markets on the report.

This week we will have monthly GDP data.

Important news for CAD:

Monday:

• --GDP

JPY

Preliminary manufacturing PMI in December came in at 48.8 vs 48.9 the previous month marking its eighth consecutive month in contraction. Services PMI came in at 50.6 vs 50.3 the previous month thus making composite PMI stay at 49.8. Trade balance data for November came in at -JPY82.1bn vs -JPY355.bn as expected. Exports were down 7.9% y/y vs 8.9% y/y as expected for a year of consecutive falling exports while imports plunged to -15.7% y/y vs -12.8% y/y as expected. Exports to US showed the biggest decline from the previous year coming in at -12.9% y/y. National CPI came in at 0.5% y/y as expected up from 0.2% y/y the previous month while CPI ex food and energy came in at 0.8% y/y vs 0.7% y/y as expected.

BOJ left the short-term interest rate at -0.1% as widely expected. They reiterated their stance that rates will stay at present or lower levels for prolonged periods of time, as long as needed. They see economy moderately expanding as a trend and it will likely continue to do so. Assessment of industrial production has been cut due to natural disasters that hit Japan.

This week we will have inflation data for the Tokyo area, consumption and employment data as well as preliminary November industrial production data.

Important news for JPY:

Friday:

• --CPI
• --Retail Sales
• --Industrial Production
• --Unemployment Rate
• --BOJ Summary of Opinions

CHF

SNB Chief Jordan reiterated his stance that there is no need for further rate cuts at the moment but if the need arises SNB is prepared to act. He also added that tightening of monetary policy would lead to strong appreciation of CHF which would in turn hurt the economy. Trade balance data in November came in at CHF3.92bn vs CHF3.54bn the previous month. Exports are still falling but they were better than previous month while imports improved showing the improvement in domestic demand.

 

[katetrades]

Forex Major Currencies Outlook (Jan 6– Jan 10)

First full trading week of the year will be dominated by NFP and Canadian jobs report that will be published at the same time and will cause increased volatility in the markets, additionally we will have preliminary December inflation data for the EU.

USD

US has launched the air strikes in Iraq which killed Iranian general leading the Quds force Qassem Soleimani. The decision to eliminate Soleimani was made by president Trump. Oil and gold jumped higher on the news and are still going higher. Iran's Ayatollah Ali Khamenei threatened retaliation which can push both oil and gold even higher. This has already turned safe haven flows into USD which is strengthening across the markets.

This week we will have trade balance and Non-Manufacturing PMI data from ISM with NFP on Friday. Expectations are 165k for the headline number, the unemployment rate is expected to tick up to 3.6% while average hourly earnings will stay the same at 0.2% m/m and 3.1% y/y.

Important news for USD:

Tuesday:

• --Trade Balance
• --Exports
• --Imports
• --ISM Non-Manufacturing PMI

Friday:

• --Nonfarm Payrolls
• --Unemployment Rate
• --Average Hourly Earnings

EUR

Final manufacturing PMI for Eurozone in December came in at 46.3 vs 45.9 preliminary but still down from 46.9 the previous month. The revision up to the preliminary reading was propped by German and French PMIs which were also revised up,

This week we will have final services and composite PMI data for December, consumption data, preliminary December inflation data which is expected to tick higher based on increases in energy prices, consumer and business confidence measures as well as the unemployment rate.

Important news for EUR:

Monday:

• --Markit Services PMI (EU, Germany, France)
• --Markit Composite PMI (EU, Germany, France)

Tuesday:

• --Retail Sales
• --CPI

Wednesday:

• --Consumer Confidence Index
• --Business Climate Indicator

Thursday:

• --Unemployment Rate

GBP

UK finance minister Javid stated that the minimum wage will be raised by 6.2% in April of 2020 and it currently sits at £8.21. The five-year plan is to raise the minimum wage to £10.50 which is the increase of about 28%. PM Johnson will meet with the President of the European Commission Ursula von der Leyen on Wednesday at Downing Street to discuss further steps regarding transition period after UK leaves the EU on January 31. Transition period will end at the year’s end and Johnson is adamant on not extending it.

This week we will have final services and composite PMI data for December.

Important news for GBP:

Monday:

• --Markit Services PMI
• --Markit Composite PMI

AUD

Official Chinese manufacturing PMI for December came in at 50.2 vs 50.1 as expected but unchanged from the previous month. New export orders index returned to expansion for the first time in 18 months. The output index rose as well while the employment index stayed the same in contraction territory. On the other hand, non-manufacturing PMI came in short at 53.5 vs 54.2 as expected and down from 54.4 the previous month. Composite reading was dragged down by weaker than expected services reading to 53.4 vs 53.7 the previous month. Caixin manufacturing PMI came in at 51.5 vs 51.8 the previous month. The report shows that growth in domestic demand is showing more rapid slowdown. Employment subindex ticked down while there was an improvement in business confidence making this a mixed report.

This week we will have Caixin services PMI and inflation data from China as well as trade balance and consumption data from Australia.

Important news for AUD:

Monday:

• --Caixin Services PMI (China)

Thursday:

• --CPI (China)
• --Trade Balance
• --Exports
• --Imports

Friday:

• --Retail Sales

NZD

Kiwi has been falling since New Year due to risk off sentiment in the markets caused by tensions in the Middle East.

This week we will have first GDT auction of the year.

Important news for NZD:

Tuesday:

• --GDT Price Index

CAD

CAD has been strengthening since the start of the year due to the rising oil prices caused by tensions in the Middle East.

This week we will have trade balance data and speech from governor Poloz followed by the employment report on Friday.

Important news for CAD:

Tuesday:

• --Trade Balance
• --Exports
• --Imports

Thursday:

• --BOC Governor Poloz Speech

Friday:

• --Employment Change
• --Unemployment Rate

JPY

Japanese markets were closed after the New Year. JPY has been strengthening on the back of its safe haven appeal as well as seasonal patterns since January is the second strongest month for the yen.

This week we will have final PMI data for December as well as data on earnings and spending.

Important news for JPY:

Monday:

1. --Markit Manufacturing PMI

Tuesday:

• --Markit Services PMI
• --Markit Composite PMI

Wednesday:

• --Labour Cash Earnings

Friday:

• --Household Spending

CHF

This week we will have inflation, consumption and employment data.

Important news for CHF:

Tuesday:

• --CPI

Thursday:

• --Retail Sales

Friday:

• --Unemployment Rate

 

[katetrades]

Forex Major Currencies Outlook (Jan 13– Jan 17)

Q4 GDP from China that can drop below 6% for the first time in almost 30 years, inflation data from US, EU and UK and consumption data from US and UK will be highlights of the week along with signing of “phase one” deal between US and China on January 15.

USD

Trade balance in November came in at -$43.1bn vs -$43.7bn as expected. It is both a beating on the estimates and lowering of trade deficit compared to last month. It is the smallest trade deficit in the last three years. Exports were up 0.7% while imports were down -1%. The biggest contributor to lowering of trade deficit has been shale oil. Trade deficit with China has been lowered to -$26.37bn vs -$31.3bn the previous month. The reading will have positive impact on Q4 GDP.

ISM non-manufacturing PMI for December came in at 55 vs 54.5 as expected and up from 53.9 the previous month. Better than expected reading little tainted by drop in new orders and employment sub-indicies, however both of them are well above 50 level. The reading reflects robust consumption and domestic demand.

December NFP came in at 145k vs 166k as expected. Both the unemployment rate and participation rate stayed the same at 3.5% and 63.2% respectively. Average hourly earnings on the other hand missed badly coming in at 0.1% m/m vs 0.3% m/m the previous month and 2.9% y/y vs 3.1% y/y the previous month which is the worst reading in 18 months. Although there are clear tight labour market conditions, wages are not following the suit and without rising wages, it is difficult for inflation to rise which may in turn spur Fed to action sooner rather than later.

Iran has fired missiles at two American bases in Iraq. The initial reaction in the markets was risk-off with oil and gold shooting up. Tehran has claimed that 80 lives were lost while the Pentagon has yet to report about any casualties. The attack was Iran's response to last Friday's killing of a top Iranian general Qassem Suleimani. The situation de-escalated during the week which brought calm in the markets putting oil back under $60 and gold around $1550.

This week we will have inflation, consumption, housing and industrial production data.

Important news for USD:

Tuesday:

• CPI

Thursday:

• Retail Sales

Friday:

• Housing Starts
• Building Permits
• Industrial Production

EUR

Finale Eurozone services PMI for December came in at 52.8 vs 52.4 preliminary. Better than expected results came from Germany, Spain and Italy while France stayed the same. Composite was pushed to 50.9 vs 50.6 preliminarily. Notably German composite returned to expansion for the first time since August. Domestic demand is keeping the Eurozone afloat. Final consumer confidence came in at -8.1 down from -7.2 the previous month. Economic confidence and services confidence ticked up while business climate and industrial ticked down indicating still sluggish sentiment.

Retail sales for November came in at 1% m/m vs 0.7% m/m as expected. German retail sales for the same period more than doubled expectations coming in at 2.2% m/m vs 1% m/m as expected. The readings were helped by Black Friday, so the holiday effect should be taken into consideration, although beatings on expectations are very hefty and are an additional sign of strong domestic demand in the Eurozone. Preliminary CPI reading for December came in at 1.3% y/y as expected, up from 1% y/y the previous month. Core CPI stayed the same at 1.3% y/y as expected. Stronger energy prices lifted the inflation.

This week we will have trade balance and industrial production data as well as final inflation data for the November.

Important news for EUR:

Wednesday:

• Trade Balance
• Industrial Production

Friday:

• CPI

GBP

Final services PMI for December came in at 50 vs 49 preliminary. A decent revision higher putting the reading back to 50 level. Composite PMI was pushed to 49.3 vs 48.5 preliminary. BOE governor Carney stated that projected rebound in pound for this year is not assured adding that UK’s economic growth has slowed below its potential. Since there is a limited space for rate cuts BOE will be prepared to act and cut down rates if there is a significant deterioration in the incoming data. GBP has dropped on these statements with GBPUSD falling to 1.30150 before stabilizing.

European Commission president von der Leyen stated that there is not enough time for a comprehensive deal between EU and UK by the end of 2020, therefore both sides will have to prioritize what they want agreed if there will be no extension of the transition period. The Withdrawal Bill has passed House of Commons and now waits for approval in the House of Lords.

This week we will have GDP, trade balance, inflation and consumption data.

Important news for GBP:

Monday:

• GDP
• Trade Balance
• Industrial Production
• Manufacturing Production
• Construction Output

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Trade balance for November came in at AUD5800mn vs AUD4075mn the previous month. Exports were up 2%, iron ore exports surged, while the imports fell -3% m/m. The big drop in imports indicates issues with domestic demand for foreign products which, if it continues for some time, will raise serious concerns. Retail sales beat the expectations coming in at 0.9% m/m vs 0.4% m/m as expected. Black Friday sales were responsible for the result as electronic goods and online sales showed a very strong growth.

Caixin services PMI for December came in at 52.5 vs 53.5 the previous month. With manufacturing reading falling as well composite was dragged down to 52.6 vs 53.2 the previous month. CPI stayed the same at 4.5% y/y while PPI showed an improvement to -0.5% y/y vs -1.4% y/y the previous month. The price of pork fell on the month which prevented inflation from going higher. Improvement in PPI is welcomed as it will raise industrial profits, however it is still in the negative territory which is troublesome for the economy.

This week we will have trade balance, GDP, industrial production and consumption data.

Important news for AUD:

Tuesday:

• Trade Balance (China)

Friday:

• GDP (China)
• Industrial Production (China)
• Retail Sales (China)

NZD

GDT price index came in at 2.8%, a nice rebound after -5.1% result of the previous auction.

This week we will have consumption data.

Important news for NZD:

Wednesday:

• Electronic Card Retail Sales

CAD

Trade balance for November came in at -$1.09bn vs -$1.2bn as expected. Exports were down -1.4% m/m all due to the drop in energy exports while imports were down -2.4% m/m. Surplus in trade with US was decreased to $4.2bn vs $5.2bn the previous month while deficit in trade with the rest of the world shrunk to $5.3bn from $6.7bn the previous month. Statistics Canada noted that the declines in exports and imports occurred at the same time as labour disruption on the railways.

December employment report showed a net change in employment of 35.2k, a big rebound from -71.2k the previous month. A Very encouraging sign is the change in full-time employment which came in at 38.4k vs -38.4k the previous month. The unemployment rate was shaved down to 5.6% from 5.9% the previous month with participation rate ticking down to 65.5% from 65.6% the previous month. A small concerning sign in overall strong report is the drop in the hourly wage rate for permanent employees to 3.8% y/y from 4.4% y/y the previous month.

JPY

Final manufacturing PMI for December came in at 48.4 vs 48.9 the previous month. Continuation of the negative trend putting the reading deeper into contraction indicates deeper issues with the manufacturing sector. Services PMI came in at 49.4, back to contraction territory after posting 50.3 the previous month, which is the weakest reading in more than 3 years. Composite PMI was brought down to 48.6. Combination of bad weather (typhoon), sales tax hike and increased global tensions will contribute to negative Q4 GDP.

Labour earnings in November fell for the first time in three months coming in at -0.2% m/m vs 0% m/m the previous month. Real cash earnings fell by -0.9% m/m vs -0.4% m/m the previous month. With cash earnings dropping there is a little hope for core inflation to pick up as headline will rise on the back of rising oil prices. Household consumption came in at -2% y/y vs -5.1 y/y the previous month indicating that consumption is slowly improving after the sales tax hike.

This week we will have data on machinery orders.

Important news for JPY:

Thursday:

• Core Machinery Orders

CHF

CPI in December came in flat vs -0.1% m/m and improved to 0.2% y/y vs -0.1% y/y the previous month. Core CPI came steady at 0.4% y/y. Seasonally adjusted unemployment rate stayed the same at 2.3%. Retail sales for November came in flat vs 0.4% y/y the previous month. Particularly worrying fact is that reading encompassed holiday season shopping and it still came in flat.

 

[katetrades]

Forex Major Currencies Outlook (Jan 20 – Jan 24)

ECB, BOC and BOJ meetings accompanied by employment data from UK and Australia as well as preliminary PMI data from EU, UK and Japan will be the highlights of the week during which we will have the annual world economic forum in Davos.

USD

CPI in December came in at 2.3% y/y up from 2.1% y/y the previous month. Core CPI remained 2.3% y/y as expected. Real average weekly earnings were flat vs 0.8% y/y the previous month with real average hourly earnings coming in at 0.6% y/y vs 1.1% y/y the previous month. The rise in headline inflation is attributed to rising energy prices. Fed chairman Powell stated that rate hikes will be considered only if inflation overshoots the target for a prolonged period of time. The drop in wages is cause for concern as it would stifle consumption. December retail sales came in at 0.3% m/m as expected with previous month’s reading being revised up to 0.3% m/m which pushed the USD higher. Control group, “core”, which is included in GDP, came in at 0.5% m/m vs 0.4% m/m but previous month’s reading was revised down to -0.1% m/m.

The "Phase 1" trade deal has been signed. The agreement will be effective 30 days after signing. Details of the deal show that China is to import no less than $12.5bn above 2017 baseline for agricultural goods in 2020 and $19.5bn in 2021, $12.8bn more in services this year, $25.1bn in second year, $18.5bn more in energy this year, $33.9bn in the second year and$12.5bn more in manufactured goods this year and $44.8bn in the second year. Overall China has agreed to increase imports from the US in the amount of $200bn. US will cut by half the tariff rate it imposed on September 1 on a $120bn of Chinese goods, to 7.5% while tariffs of 25% on $250 billion worth of Chinese goods put in place earlier will remain unchanged and could be rolled back as part of a Phase 2 trade negotiation. Treasury secretary Mnuchin stated that certain tech and cybersecurity issues will be in Phase 2 of the trade deal and that there could be multiple steps in Phase Two such as 2A, 2B, 2C, etc. which potentially can drag the matter for years. Although the deal will narrow the deficit with China there is a decent probability that it will widen the deficit with the rest of the world.

This week we will have housing data.

Important news for USD:

Wednesday:

• Existing Home Sales

EUR

Industrial production data for November came in at 0.2% m/m vs 0.3% m/m as expected but up from the previous month which was revised down to -0.9% m/m thus almost negating the mild improvement in the industrial activity. The narrative of soft conditions continues. Trade balance surplus shrunk in November to EUR19.2bn from EUR24bn the previous month on the back of both falling exports (-2.8%) and falling imports (-0.5%).

This week we will have economic sentiment data and preliminary January PMIs with consumer confidence. The highlight of the week will be ECB interest rate decision accompanied by press conference. New strategic review focusing on measuring and implement price stability target will be published.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment (EU and Germany)

Thursday:

• ECB Interest Rate Decision
• ECB Monetary Policy Press Conference
• Consumer Confidence Index

Friday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

November GDP data continue to show deteriorating conditions in the UK economy coming in at -0.3% m/m vs 0.1% m/m the previous month. The reading adds more to the belief that Q4 GDP will be negative. Industrial and manufacturing production continued their decline while construction output showed an improvement. Trade balance deficit was lowered to -£5.3bn vs -£10.9bn the previous month on the back of rising exports (2.2%) and plunging imports (-11.6%). Imports have plummeted due to previous stockpiling, mostly done in October, caused by the fear of no-deal Brexit.

CPI for December came in at 1.3% y/y vs 1.5% y/y as expected with core reading also dropping to 1.4% y/y vs 1.7% y/y the previous month thus adding another nail in the GBP data coffin. Headline inflation number is lowest in three year. BOE member Vlieghe stated that if upcoming data does not improve, he will vote for a rate cut.

The final nail in the coffin for the UK data came in the form of retail sales for December which slumped to -0.6% m/m vs 0.6% m/m as expected. December reading includes Black Friday and Cyber Monday sales and previous reading was revised down so that makes the reading even more frightening. Retail sales have not shown growth in five months. Q4 retail sales were down -1% and that will have negative impact on Q4 GDP. OIS are showing that a rate cut by May is fully priced in and bond markets are pricing about 73% chance of a rate cut at the January meeting.

This week we will have employment data and preliminary January PMI, first post-election data. Given that recent data have disappointed and increased chances for a rate cut every release from UK will have more profound impact on the markets.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate
• Average Weekly Earnings

Friday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

Chinese trade balance in December beat the expectations and came in at 329.27bn vs 274.21bn. Exports were up 9% y/y vs 1.3% y/y the previous month while imports were up whooping 17.7% y/y vs 2.5% y/y the previous month. These are data in Yuan. Data in USD show trade surplus widen to $46.79bn vs $37.93bn the previous month. Exports were up 7.6% y/y vs -1.3% y/y the previous month while imports were up huge 16.3% y/y vs 0.5% y/y the previous month. Beats on expectations all around and huge increases in imports indicate that domestic demand for foreign goods is picking up which is a great sign for all export-oriented countries. Trade between US and China was reduced by 10.7% y/y in 2019.

China Q4 GDP came in at 1.5% q/q as expected which put yearly GDP figure at 6% thus reaching the lower bound of the growth set by Chinese government. Retail sales in December came in at 8% y/y vs 7.8% y/y as expected for a nice beat but the highlight were industrial production numbers which came in at 6.9% y/y vs 5.9% y/y. Such a solid beat will keep AUD well supported.

This week we will have employment data. Australia has been dealing with horrendous fires and we will see how much of effect they had on the employment rate.

Important news for AUD:

Thursday:

• Employment Change
• Unemployment Rate

NZD

Card spending in December came in at -0.8% m/m vs 0.1% m/m as expected for a big miss and down from 2.6% m/m the previous month. Since card spending amounts to about 70% of core retail sales, we can expect a weak December retail sales reading.

This week we will have Q4 inflation data and bi-monthly GDT auction.

Important news for NZD:

Tuesday:

• GDT Price Index

Thursday:

• CPI

CAD

In the absence of important economic releases USDCAD has been confined to a 50 pip range.

This week we will have inflation and consumption data with BOC interest rate decision as the most important event. No change in rate is expected, however possible changes in the tone of BOC are possible.

Important news for CAD:

Tuesday:

• Manufacturing Sales

Wednesday:

• CPI
• BOC Interest Rate Decision
• BOC Rate Statement

Friday:

• Retail Sales

JPY

BOJ regional economic report showed that Japan's economy continues to either expand or recover in all its nine regions as domestic demand, such as capital investment and private consumption, continue rising. Slowdown in overseas economies and natural disasters were affecting exports, production and business sentiment, but the impact was limited. Three of the nine regions cut their assessment from the previous quarter, with the remaining six regions keeping their view unchanged. Preliminary machinery tool orders in December showed a bit of improvement while core machinery orders showed a huge beat coming in at 18% m/m vs 2.9% m/m as expected and up from -6% m/m the previous month and now showing 5.3% y/y vs -6.1% y/y the previous month.

This week we will have final industrial production data, trade balance and national inflation data, preliminary January PMIs and BOJ interest rate decision. No change in interest rate is expected but BOJ will offer new forecasts.

Important news for JPY:

Monday:

• Industrial Production

Tuesday:

• BOJ Interest Rate Decision
• BOJ Monetary Policy Statement

Thursday:

• Trade Balance

Friday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

CHF

US has included CHF on its FX manipulation watchlist and SNB responded by saying that they do not manipulate currency for gaining export advantages, their interventions are a part of monetary policy to prevent effects of CHF getting too strong.

 

[katetrades]

Forex Major Currencies Outlook (Jan 27 – Jan 31)

The Fed and BOE interest rate decisions, Q4 GDP data from US and EU, preliminary January inflation from EU and AU and US inflation will be the key events this events this coming week.

USD

President Trump has reiterated his threat to impose tariffs on European cars. Treasury secretary Mnuchin stated that government has started working on Tax Cut 2.0 that will focus on middle class. The fear of coronavirus is gripping the markets. In Chinese city of Wuhan the virus has already killed 25 people and infected more than 600 people. The virus is said to spread with human contact. The Chinese Lunar New Year is approaching and it is the largest human migration in the world, mass travel is expected which only increases concerns. One instance of coronavirus has been discovered in Seattle, two more have been confirmed later on while there are fears that it can also be found at the Davos meeting. Risk appetite in the markets has been subdued. Beijing announced that they will be cancelling all major events, including the New Year celebrations because of the new outbreak. Currently 10 Chinese cities have been closed due to the virus.

This week we will have housing, durable goods and consumer confidence data as well as Fed’s preferred inflation measure with personal spending and income. Q4 GDP will be published as well. No changes are expected in the rate, however chairman Powell’s words will be closely watched and analysed as always.

Important news for USD:

Monday

• New Home Sales

Tuesday:

• Durable Goods Orders
• CB Consumer Confidence Index

Wednesday:

• Fed Interest Rate Decision
• FOMC Press Conference

Thursday:

• GDP

Friday:

• PCE

EUR

First data published in the new year 2020 paints an improving picture for both Germany and Eurozone. ZEW survey of the current situation in Germany came in at -9.5 vs -19.9 the previous month. Expectations for Germany came in at 26.7 vs 10.7 the previous month while expectations for Eurozone came in at 25.6 vs 11.2 the previous month. The jump is mainly due to the US-China trade deal, giving rise to hope that the negative effects from trade on the German economy will be less pronounced. The jump is mainly due to the US-China trade deal, giving rise to hope that the negative effects from trade on the German economy will be less pronounced, according to ZEW.

ECB has left the key rates unchanged as was expected. President Lagarde stated that incoming data are in line with baseline scenario. Manufacturing remains a drag on the economy while employment growth supports it. There are some signs of an increase in inflation and they are in line with expectations. After initial rise EURUSD returned all of its gains and continued to slide downwards indicating that bears are in control.

Preliminary January manufacturing PMI came in at 47.8 vs 46.3 the previous month. Services PMI came in at 52.2 vs 52.8 the previous month while composite came unchanged at 50.9. German readings beat the expectations while in France only manufacturing improved, services and composite declined but are still above 50 level.

This week we will have economic health indicators, preliminary Q4 GDP and January CPI readings.

Important news for EUR:

Monday:

• Ifo Business Climate (Germany)

Thursday:

• Economic Sentiment Indicator
• Business Climate Indicator
• Consumer Confidence Index

Friday:

• GDP
• CPI

GBP

November employment data showed an increase in employment change to 208k vs 110k as expected. The unemployment rate and average weekly earnings both stayed the same at 3.8% and 3.2% 3m/y respectively. The stable wages growth increases the probability of inflation picking up down the road. After last week’s weak data this is a much needed positive for pound and it rallied on the news across the markets. The trouble is that the employment data is a very outdated, since it is for November, so the rally may be short-lived. Preliminary January PMI data showed improvement in all readings. Manufacturing came in at 49.8 vs 48.8 as expected, services jumped to 52.9 vs 51.1 as expected and propelled composite back to expansion territory at 52.4 vs 49.3 the previous month.

The UK will officially leave EU on January 31, it will however still remain a member until the end of 2020 when the transition period expires. OIS was pricing less than a 50% chance of a rate cut on the back of improvement in business optimism and the probability came tumbling down after the upbeat PMI figures. This will be governor Carney’s last meeting before he steps down.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision
• BOE Monetary Policy Report

AUD

Employment report for December showed employment change of 28.9k vs 10k as expected. The unemployment rate has ticked down to 5.1% from 5.2% the previous month which in turn will not push RBA to cut rates at the February meeting. The probability of a cut has dropped to 23%. The participation rate stayed at 66%. Part-time employment came in at 29.2k while full-time employment came in at -0.3k.

This week we will have Q4 inflation from Australia and official PMI data from China.

Important news for AUD:

Wednesday:

• CPI

Friday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

GDT price index came in at 1.7%. This comes after the rise of 2.8% at the previous auction, thus making both auctions in 2020 positive. Q4 CPI came in at 0.5% q/q vs 0.4% q/q as expected and 1.9% y/y vs 1.8% y/y as expected. The upbeat results pushed NZD higher and will keep RBNZ on hold.

This week we will have trade balance data.

Important news for NZD:

Wednesday:

• Trade Balance

CAD

CPI in December came in unchanged at 2.2% y/y vs 2.3% y/y as expected. Core measures were mixed with median coming in 2.2% y/y vs 2.4% y/y the previous month, trimmed came in at 2.1% y/y vs 2.2% y/y the previous month while common came in at 2% y/y vs 1.9% y/y the previous month. Both headline and core readings are above 2% and although the report was bit weaker than expected it will help keep CAD supported. The same cannot be said for wholesale trade which in November came in at -1.2% m/m vs -0.4% m/m as expected and weakened the CAD into the BOC rate decision. Finally, November retail sales came in at 0.9% m/m vs 0.6% m/m as expected for a great rebound from -1.1% m/m the previous month. Ex-autos category came in at 0.2% m/m vs 0.5% m/m as expected but overall consumption report was a solid one.

BOC left the key rate unchanged at 1.75% as widely expected, however the tone of the statement was more dovish than expected. The previous statement had a description of key rate as appropriate and that was removed in the current statement. Governor Poloz said that it was not time to cut rates at this meeting, but the change in tone around the key rates opens the door for possible rate cuts in the future. Incoming data will be closely watched for clues “to see if recent growth slowdown is more persistent than forecast”. The Canadian economy is no longer operating close to capacity which will put downward pressure on inflation and indicators of consumer confidence and spending have been unexpectedly soft, it is said in the statement.

This week we will have monthly GDP data.

Important news for CAD:

Friday:

• GDP

JPY

BOJ left the interest rate at -0.1% and kept the monetary policy unchanged as widely expected. In their forecasts they have raised the outlook for growth based on fiscal stimulus and positive effect of the summer Olympic Games that will be held in Tokyo and lowered the outlook for inflation as well as for business investment. Since inflation is still well below the 2% target loose monetary policy will be prevalent for longer period of time. According to the quarterly outlook report the economy continue to expand moderately and will be impacted by the global slowdown. Risks have been assessed as skewed toward the downside for the economy and prices.

Trade Balance data in December came in at -JPY152.5bn vs -JPY85.2bn the previous month. Exports have improved a bit to -6.3% y/y vs -7.9% y/y the previous month while imports showed a bigger improvement, but still negative, coming in at -4.9% y/y vs -15.7% y/y the previous month. Exports to the US and EU were the main drag coming in at -14.9% y/y and -8.1% y/y respectively with exports to China rising for the first time in 10 months, although only 0.8% y/y.

CPI in December came in at 0.8% y/y vs 0.7% y/y as expected and 0.5% y/y the previous month. Core measures came in line with expectations but also up from the previous month coming at 0.7% y/y (ex-fresh food) and 0.9% y/y (ex-fresh food and energy). Sales tax hike was the main reason inflation went up. Preliminary manufacturing PMI for January came in at 49.3 vs 48.4 the previous month. Services staged a recovery back to boom level coming in at 52.1 vs 49.4 the previous month which pushed composite PMI to 51.1 from 48.6 the previous month.

This week we will have inflation data for Tokyo area, unemployment and consumption data as well as preliminary December industrial production data.

Important news for JPY:

Friday:

• Tokyo CPI
• Unemployment Rate
• Retail Sales
• Industrial Production

CHF

SNB Maechler reiterated the bank’s readiness to intervene in the FX market if the need arises adding that SNB conducts policy that is most appropriate for economic conditions in Switzerland and their policy is not fazed by the US decision to put them on currency watch list. Governor Jordan added that negative rates are a necessity and although they have negative effects SNB is working to minimize them.

This week we will have trade balance and consumption data.

Important news for CHF:

Tuesday:

• Trade Balance

Friday:

• Retail Sales