Forex Weekly Outlook October 20-24

The US dollar was on the back foot against most currencies as volatility spiked and big moves provided opportunity and risk. US housing and inflation data, A rate decision in Canada and UK GDP are the lead events on our FX calendar. Here is an outlook on the major events for this week.

Weak US retail sales sent stock markets down and triggered a sell off of the dollar. The best jobless claims in 14 years and some other OK figures could not lift the greenback, especially after FOMC member Bullard suggested to continue QE on lower inflation expectations. Weakness in other regions didn't really help the greenback. In the euro-zone, German business confidence went negative, the German government cut forecasts and yields spike in peripheral bond markets as if it were 2012. In the UK, inflation is at a 5 year low and not all unemployment figures shine. The crash in oil prices contributed to 5 year high for USD/CAD but this didn't last too long. The kiwi enjoyed a rise in milk prices. The yen enjoyed the risk off environment. All in all, currencies made big moves.

1. US inflation data: Wednesday, 12:30. U.S. consumer prices declined for the first time in nearly 1-1/2 years in August, dropping 0.2%, following a 0.1% rise in July. Meanwhile, Core prices remained unchanged in August indicating muted inflation pressures. Economists expected CPI to remain unchanged while core CPI to rise 0.2%. If this trend continues the Fed may postpone the intended rate hike. CPI is expected to remain unchanged, while core CPI is predicted to gain 0.2%.
2. Canadian rate decision: Wednesday, 14:00. The Bank of Canada maintained the interest rate at 1% at the last BOC meeting held in September. BOC Governor Stephen Poloz said exports are gaining traction posting the biggest merchandise trade surplus in almost six years, which is a positive sign for the coming months, however business investment remains rather muted. Poloz declined to comment on whether he would raise rates before the U.S. Federal Reserve. Rat s are expected to remain at 1.0%.
3. Glenn Stevens speaks: Wednesday, 9:00. RBA Governor Glenn Stevens is scheduled to speak in Sydney Limits. He may talk about the need to cool down bank lending to the housing market. Investment finance reached double-digit rates, nearly half the flow of new approvals. Stevens talks about the need to intervene by using macro-prudential tools such as limiting the proportion of a property's value that could be borrowed and extra stress tests on banks. Mr Stevens said the right type of risk-taking is good provided it's clear who bears it. The economy needs an efficient allocation of savings, liquidity services provided to the community, payment services to be provided and and risk to be priced properly for those who wish to bear it.
4. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits plunged to a 14-year low last week, reaching 264,000 from 287,000 posted in the week before. The four-week moving average of claims, continued to improve falling 4,250 to 283,500, also the lowest level since 2000.The US economy continues to move ahead with growth rate expectations of 3% in the third quarter. A rise of 269,000 is forecasted this week.
5. UK GDP data: Friday 8:30. UK growth data in the second quarter showed the economy has emerged from six years of muted growth and returned to its pre-crisis peak. Gross domestic product (GDP) expanded by 0.8% in the second quarter following the same rise in the first quarter. On an annual basis, growth was 3.1% higher than measured in the same period last year. The upward trend in the UK economy raises expectations for a rate hike but Governor Mark Carney recently suggested it would be tied to improved data on wage growth to prevent damaging consumer spending and domestic growth. UK economy is expected to expand by 0.7% in the third quarter.
6. US New Home Sales: Friday, 14:00. US new-home sales surged in August to the highest level in more than six years, reaching an annualized pace of 504,000 from 412,000 in July. The one-month surge was the biggest since January 1992 indicating the housing recovery is gaining traction. Economists expected a much smaller figure of 432.000. Purchases increased in three of four U.S. regions, led by a 50% expansion in the West.  US new-home sales  is expected to reach an annual growth rate of 473,000.

* All times are GMY