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.
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:
- Pending Home Sales
- Fed Interest Rate Decision
- FOMC Press Conference
- Personal Spending
- Unemployment Rate
- Average Hourly Earnings
- ISM Manufacturing PMI
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:
- Economic Sentiment Index
- Business Climate Indicator
- Consumer Confidence Index
- Unemployment Rate
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.
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:
- Manufacturing PMI (China)
- Non-Manufacturing PMI (China)
- Caixin Manufacturing PMI (China)
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:
- Building Consents
- ANZ Business Confidence
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:
- BOC Interest Rate Decision
- BOC Monetary Policy Report
- BOC Monetary Policy Report Press Conference
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:
- Tokyo CPI
- Retail Sales
- Industrial Production
- BOJ Interest Rate Decision
- BOJ Monetary Policy Report
- BOJ Outlook Report
- Unemployment Rate
- Markit Manufacturing PMI
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:
- SNB Chairman Jordan Speech
- Retail Sales