Weekly Outlook: Oct 31 – Nov 4; Four Policy Meetings & U.S. Non-Farm Payrolls Report

A super busy economic calendar ahead with policy meetings from RBA, BoJ, Fed, BoE and the U.S. NFP report scheduled! No changes are expected from the central banks’ meetings, however, however each one will be watched closely for different reasons.

The week ahead starts with the German retail sales for September that are expected to come out early on Monday morning. A while later attention turns to U.K., where mortgage approvals and net lending to individuals for September will be released. Both indicators are important for the U.K. economy as are the target of the current low interest rate monetary policy. Especially after Brexit, the economy needs to show strong growth, thus more mortgages to increase the retail sales in turn…

Later on, Eurozone’s GDP and CPI will be in focus. The market expects the flash economic growth in the Euro area to remain on the same annual pace with the previous quarter at 1.6%. The first estimate of inflation for the month of October is also forecasted to remain unchanged, following the highest inflation level in nearly two years in September at 0.4%. Shifting to U.S., the personal consumption expenditure price index for September, as well as personal income and spending for the same month, are coming out.

Overnight, the Bank of Japan will announce its interest rate decision and release their monetary policy statement. No changes are expected at the current negative rate policy, at -0.1%, however, the thoughts of BoJ Governor Kuroda for the economy will be interesting, whether he thinks of further easing in the future or not. Thus, the traders will keep a tab on his press conference and on the BoJ outlook report that will be published a while later.

The Reserve Bank of Australia will also have its policy meeting during the European night. No changes are expected at the current 1.5% interest rate. No press conference is scheduled at this policy meeting but we would expect the rate statement to have some more details for central bank’s decision.

On Tuesday, the U.K. and U.S. Markit manufacturing PMIs for October, as well as the ISM manufacturing for U.S. only, will be closely watched. The U.K. final manufacturing growth for October is expected to tick lower at 54.5 versus 55.4 in September. In U.S., October’s manufacturing is expected to rise slightly at 53.3 from 53.2 before, according to the Markit survey. The ISM manufacturing index is also expected to tick slightly higher at 51.7 in October from 51.5.

Later in the day, New Zealand’s unemployment report for the three months to October is coming out. The unemployment rate is predicted to remain at the same level as before at 5.1%, while the employment change is expected to rise 0.6% versus 2.4% the previous quarter. A couple of hours after the midnight, the RBNZ inflation expectations are coming out.

On Wednesday, October’s final Markit Manufacturing PMIs in Eurozone and Germany are expected to come out, however, no changes are expected from previous readings of 53.3 and 55.1 respectively. Figures above 50.0 indicate expansion. The German unemployment rate for October is also expected to come out. In U.K., the construction PMI is expected to rise at a lower pace than the previous month at 51.8 in October from 52.3.

A while later, attention turns to U.S., where Fed policy meeting ends and the ADP employment change is coming out, two days ahead of the NFP report. The ADP survey is expected to show that the pace of hiring in the private sector picked up at 165K in October versus 154K in September. Fed is widely expected to keep the current monetary policy unchanged, however, many investors still have their reservations that Fed may do some hawkish statement and give the timing of the next possible rate hike last year, when Fed Chair Janet Yellen stated that would raise rates in the “next meeting” given the right conditions. However, following that last dovish signals from Fed members, we wouldn’t expect things to develop similar to last years’ changes. It would be very bold from Fed to make such statements a week before the presidential elections.

On Thursday, the spotlight events of the day are Bank of England’s policy meeting and the Quarterly Inflation report, scheduled to be published together. Last Tuesday, BoE Governor Mark Carney testified before the House of Lords Economic Committee and stated that the market is “mistaken” to be so “doom and gloom” around Brexit. He also stated that the pound fell more than 20% against the U.S. dollar since its pre-referendum levels and the inflationary impact of that rapid fall could encourage him to vote against any further rate cuts or other monetary stimulus measures.

Thus, following Carney’s last comments, the speed up of U.K.’s economic expansion in the third quarter, at 2.3% yoy (the best reading in more than a year), and the strong pick-up in inflation (near 2-year record high at 1% in September), I wouldn’t expect any changes in the current monetary policy, however I would expect the BoE Governor to underline the upbeat progress of the economy. Though, the market consensus is for the voting pattern of the MPC to change. The last meeting, the committee members voted unanimously to keep rates unchanged. In this meeting, economists forecasted that one of the members will vote for a rate cut.

In Euro area, the Economic Bulletin report and the unemployment rate for the whole union is coming out. The unemployment rate is expected to fall slightly to 10.0% in September from 10.1% before. The U.S. Markit services PMI for October is expected to remain stable at 54.8 while the non-manufacturing sector is expected to slow down at 56.0 from 57.1 according to the Institute for Supply Management. During the night, the Bank of Canada Governor Stephen Poloz will have a speech and the RBA monetary policy statement is scheduled to be released.

On Friday morning, the Markit services PMI for October for Germany and Eurozone as a whole are coming out, but no changes are expected from the flash estimates of 54.1 and 53.5 respectively. Later on, all the eyes will be on the NFP report. The payrolls are estimated to rise by 175k in October from 156k in September, while the unemployment rate is forecasted to fall slightly to 4.9% from 5.0% before. The average hourly earnings for October are expected to pick up 0.3% from 0.2% before. All the forecasts for the indicators of employment report look beneficial for the U.S. dollar. At the same time, in Canada, the employment report is also coming out.


EUR/USD - Technical Outlook
The EUR/USD pair surpassed the suggested target at 1.0950 during Friday’s session following the strong rebound on the 1.0900 psychological level (see technical analysis here: EUR/USD Failed Again to Test 1.0950). The pair surged more than 0.9% over the last week and we expect the dollar to trade strongly in the coming week.

From a technical point of view, on the 4-hour chart, the world’s most traded currency is trading above the 50-SMA and bounced off the 100-SMA which is slightly below the 1.1000 significant resistance level. Currently, the price is moving near the 1.0960 price level and is ready to retest the 1.0950 support level. The pair is still looking bullish in the short-term until the 1.1000 barrier, as its moving averages are sloping upwards while the technical indicators hold in the positive territory. A break above the latter level, it will open the door for the 1.1040 resistance level. On the other hand, a penetration of the 1.0950 will slip the price to the 1.0900 level. The MACD oscillator is rising above its trigger and zero lines, endorsing the bullish attitude whilst the RSI indicator is moving above the 50 level.


GBP/USD - Technical Outlook
The GBP/USD pair raced to a high of 1.2215 price level, which coincides with the 50-SMA on the 4-hour chart, following the pullback from the 1.2113 level which is near the suggested target from Friday’s analysis - GBP/USD Still Moving in Trading Range - and missed by few pips. The pair came close to break the 1.2100 handle, however, is still moving quietly for the last two weeks.

The price is developing within a tight range between the 1.2100 psychological support level and the 1.2330 resistance level, while the 50-SMA tested the price several times. On a daily timeframe, the three SMAs are sloping downwards endorsing the bearish scenario while the technical indicators are still following a negative area. Therefore, as long as the price is trading between the aforementioned levels, we remain neutral as we expect the pair to continue trading in this range for the coming days or at least until the BoE interest rate decision on Thursday. For the short-term traders, we expect the price to retest the lower band of the trading range at 1.2100, since the technical indicators are following a neutral to the bearish territory, on the 4-hour chart. The MACD oscillator lies near zero whilst the RSI indicator is slightly below the 50 level. Otherwise, if the price penetrates the upper boundary it will open the way for a retest of the 1.2500 psychological level.