Key Events This Week: October 27th – 31st:
- Monday: EUR German IFO, USD Pending Home Sales, Dallas fed manufacturing activity, JPY Retail Trade
- Tuesday: EUR German Retail Sales, USD Durable Goods Orders, Consumer Confidence
- Wednesday: GBP Mortgage Approvals, FOMC Rate Decision
- Thursday: CHF UBS Consumption Indicator, EUR German Unemployment Rate, USD GDP, EUR German CPI, JPY National CPI
- Friday: EUR EuroZone CPI, CAD GDP
On the back of better data last week, USD bullishness is seeing a revival. Lower US bond yields are the result of capital imports and not due to the US increasing its savings. Overcapacity, over-borrowing and disinflationary momentum drives most currencies lower and this should keep the USD supported.
We remain bearish on EURUSD, since inflation expectations continue to fall, economic data from Germany are coming in weaker and the ECB remains accommodative, having already purchased covered bonds. There are suggestions that the ECB could also buy corporate bonds, increasing the probability that the ECB can expand its balance sheet to 2012 levels
It seems that JPY weakness is no longer in the interest of the Japanese authorities, who worry that falling real disposable income growth may undermine Japan’s recovery. The government is concerned with falls in real disposable incomes and the BoJ is looking less likely to ease this month.
GBPUSD could break below 1.60 over the coming week’s trading as the market continues to push back the timing of the first rate hike. The latest set of BoE minutes showed that members were no closer to hiking rates, and actually believe there might be slightly more spare capacity than originally thought. That said, the minutes may be slightly dated, as they came out before the latest strong employment report. Nonetheless, the tone is likely to remain relatively unchanged, and this is bearish for GBP.
Improvement in Chinese data has offered some support to AUD, but we remain bearish on the currency for a few reasons. First, increased volatility has reduced the carry appeal of the currency. Second, iron ore prices have stabilized somewhat, but remain weak overall. Third, Australian CPI fell as expected this week, showing the country is not immune from global disinflationary pressures. This could give the RBA a slight dovish tilt going forward.
For full details on these data releases and all others please see our Economic Calendar. And for what to expect from our Trader Lifestyle section this week, head to Week Ahead: Trader Lifestyle.
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