The Forex Week Ahead

The Forex Week Ahead: October 3rd – October 7th

Mon:GBP – Manufacturing PMI, USD – ISM Manufacturing

Tue: NZD – Dairy Auctions, AUD – RBA Rates Meeting, GBP – Construction PMI

Wed:GBP – Services & Composite PMI, EUR – EuroZone Retail Sales, USD – Trade Balance, ISM Non-Manufacturing, Crude Oil Inventories

Thu: AUD – Trade Balance, EUR – EuroZone Retail PMI

Fri: GBP – Manufacturing Production, Trade Balance, USD – Non Farm Payrolls, Average Hourly Earnings, Unemployment Rate, CAD – Unemployment Rate, GBP – NIESR GDP Estimate

Overview

USD Consensus suggests Candidate Clinton got the better of the first of the three debates. Continuous downbeat US headline data added to the retreat in risk yesterday. New home sales fell 7.6% MOM in August, pulling back from the 9-year high level in July while Dallas Fed showed manufacturing activities remained mired in negative territory although the pace of contraction was notably smaller. USD fell against 90% of G10FX amid dismal US data that continued to impose a soft outlook on the Fed’s policy normalisation path. Focus this week will be on the US employment reports with USD bulls looking for a strong number to get them back in the game.

EUR  EuroZone Core CPI was lower than expected in September printing 0.8% vs 0.9% expected whilst the headline reading printed in line at 0.4%. Earlier in the week saw the release of the September German IFO index, which rose sharply to 109.5 from a revised 106.3, originally reported as 106.2. The consensus was for a more modest advance to 106.5 for the month and the sharp recovery from last month’s notably weak reading will help improve confidence after a run of generally disappointing German data. A lack of key data this week should see UER driven mainly by USD flows and developments regarding the Deutsche Bank situation.

GBP BoE Deputy Governor Minouche Shafik said that more easing will probably be needed after the “sizeable economic shock” of the Brexit vote. Bank of England Governor Mark Carney said that BoE has looked to provide support to the economy to help with adjustment, both in terms of improving ability of banks to lend and improving cost of borrowing. According to British Banker’s Association, the number of home loans fell to 37k in August (July: 37.7k), posting signs that Brexit fallout may reflect on economic data sooner than anticipated after the initial shock. Services and manufacturing PMI suggested that some part of the economy rebounded sharply last month after the initial jolt from Britain’s vote to leave EU in July. That provided some reprieve and eased concerns of a drastic deceleration in growth due to Brexit in the short term. Traders will be looking at a raft of PMI data sets this week to see if positive momentum post-Brexit has continued or stalled.

JPY Bank of Japan policymakers fretted over weak inflation expectations and uncertain prospects for achieving its price goal even before announcing its plan to conduct in September a comprehensive review of its policies, according to minutes of the central bank’s policy meeting released this week. Data showed that the Japanese retail industry remains in the doldrums, painting a picture of subdued household consumption in August. Retail sales dropped 2.1% from a year ago, marking its sixth straight contraction.

AUD The Australian Dollar has been benefiting from a wave of risk on trade in reaction to the US presidential debate. Still, with the outcome of the presidential race many weeks away and with the more pressing issue of extended monetary policy a major concern, there is the possibility the rally runs into resistance rather quickly. The RBA meet this week though traders are not expecting the bank to cut further at this stage.

CAD The Bank of Canada was more inclined to ease monetary policy than tighten it was revived after figures showed Canada’s annual inflation rate in August dipped to a 10-month low and retail sales unexpectedly fell in July. The Canadian Dollar was boosted midweek on Oil strength in response to the OPEC meeting. On the data front CPI for July came in stronger than expected at 1.3% vs 1.% expected. Unemployment rate is the key domestic data focus this week.