The Forex Week Ahead

The Forex Week Ahead September 18th – 22nd

The Forex Week Ahead North America All eyes will be on FOMC meeting next week where the Fed is widely expected to announce tapering details. On top of that, quartelry summary projection will also be scrutinised for timing and pace of subsequent Fed rate hikes, especially after last week’s CPI prints surprised on the upside. The consensus view is for the Fed to stay the course for the remaining of the year pending further cues from next week’s FOMC meeting. Data risk will include housing starts for August on Tuesday, existing home sales for the same month on Wednesday, the Philly Fed’s diffusion index of regional business conditions on Thursday along with weekly jobless claims that same day which are expected to continue to jump higher on hurricane effects. The Fed’s Q2 financial accounts of the US economy that include household net worth will be released on Friday.

Europe September updates of Eurozone purchasing managers’ indices arrive at week’s end. From a peak in April/May, the composite Eurozone PMI has declined by about one point up to August and signalled a potential plateau in growth momentum during Q3 and into Q4. Much of that has been due to a deceleration in the services sector but manufacturing momentum may be at risk in the face of euro strength. The September version of the ZEW measure of Eurozone investor confidence also arrives on Tuesday and it too has been softening over recent reports. As Germany’s industrial and export engines of growth have stumbled into Q3 and Eurozone inflation (CPI revisions due Monday) remains contained, it’s unlikely that ECB President Draghi will be satisfied enough to simply taper bond purchases next month and leave it at that without a trick or two up his sleeve. Revisions to Eurozone inflation readings in August also land on Monday.

UK headline risk will be principally focused upon a speech by Bank of England Governor Mark Carney on Monday and mild data risk two days later when retail sales may struggle to post further material growth in the wake of the prior month’s solid 0.5% MoM rise in sales ex-fuels. Carney speaks at the IMF meetings in Washington and follows this up with an open discussion with IMF head Christine Lagarde. At 2.9% YoY, UK CPI inflation is running very close to the 3% threshold that requires Carney to send a letter of explanation to the Chancellor of the Exchequer. In the face of Brexit uncertainties, more hawkish voices on the MPC are getting agitated and a hike in the Bank rate may be likely into early 2018 in a best-case scenario for the evolution of sustained inflation risk and tamped down Brexit risks. A reduction of the balance sheet lies well beyond that point when rate normalisation may be well underway.

Asia Central bank decisions led by the Bank of Japan will shape much of the market focus in Asia over the coming week. The BoJ’s balance sheet is forecast to continue expanding over the forecast horizon, markets are not expecting a material policy shift. Markets expect RBA minutes to reiterate concerns over subdued wage growth and inflation on top of risks of Aussie strength on the Australian economy.

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