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.
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:
- New Home Sales
- CB Consumer Confidence Index
- Durable Goods
- Personal Spending
- Pending Home Sales
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:
- Ifo Business Climate (Germany)
- Business Climate Indicator
- Consumer Confidence Index
- Unemployment Rate
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.
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:
- RBA Governor Lowe Speech
- Manufacturing PMI (China)
- Non-Manufacturing PMI (China)
- Composite PMI (China)
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:
- Retail Sales
- Trade Balance
- RBNZ Governor Orr Speech
- ANZ Business Confidence
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:
- Wholesale Trade
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:
- Retail Sales
- Unemployment Rate
- Industrial Production
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: