Forex Weekly Outlook – Trade whipsaw set to continue, Powell’s testimony and top data eyed

Contradicting trade headlines whipsawed markets and will continue doing so. Can US data remain upbeat? Inflation, retail sales, and, most importantly, Powell’s testimony are all eyed. Here the highlights for the upcoming week.

Who should markets believe in US-Sino trade relations? The hawkish and downbeat Peter Navarro or the ever-optimistic Larry Kudlow? President Donald Trump’s advisers caused whipsaws in markets, while he has yet to decide if to lower tariffs and strike a deal with China or extend the trade war. The US ISM Non-Manufacturing PMI has been upbeat, showing that the consumer may pull manufacturing out of its slump and not the other way around. Gloomy euro-zone figures and a pessimistic Bank of England depressed the euro and the pound, respectively. The Aussie was hit by the RBA’s unwillingness to raise rates, and the loonie suffered from a loss of jobs in Canada.

1. UK GDP: Monday, 9:30. The UK economy contracted in the second quarter as the hangover from Brexit-related stockpiling weighed on the economy. A return to growth is on the cards in the report for the third quarter. The data feed into the elections, with a better figure raising the chances of a Conservative majority while a disappointing number may help the opposition Labour.
2. UK jobs report Tuesday, 9:30. The second significant release from Britain is projected to show an upbeat job market — contradicting the warnings from the Bank of England. The unemployment rate is expected to remain at 3.8% in September, around the historic lows, while wage growth is forecast to hold onto the yearly growth rate of 3.9% — well above the inflation rate of 1.7%.
3. New Zealand rate decision: Wednesday, 1:00. The Reserve Bank of New Zealand has already cut interest rates by 0.75% this year after a long period of stagnation and may do it again — slashing another 25 basis points and setting the Official Cash Rate at 0.75%. The rise of the unemployment rate to 4.2% has worried policymakers in Wellington. The rate cut is not fully priced in by markets so that any outcome may cause jitters not only in NZD/USD but also in other jurisdictions.
4. UK CPI: Wednesday, 9:30. Falling energy prices and an increase in the value of the pound imply another deceleration in inflation — from 1.7% to 1.6% in the report for October. Such a drop would justify the BOE’s newly-adopted dovish stance. The bank targets a rate of 2%. Core Consumer Price Index is set to remain unchanged at 1.7%, while the Retail Price Index is predicted to drop from 2.4% to 2.2%.
5. US CPI: Wednesday, 13:30. While the Federal Reserve has cited lower inflation as one of the main reasons for cutting interest rates, prices have picked up. Core CPI has accelerated to 2.4% as of September and is forecast to remain at that level once again in October. Any deviation is set to rock the dollar and feeds into the next event.
6. Powell testifies Wednesday, and Thursday at 15:00. Jerome Powell, Chairman of the Federal Reserve, has signaled a pause after cutting rates for the third time in a row. However, the bar for raising rates in the future seems to be higher than cutting them. In his prepared remarks on Wednesday and also in lengthy responses to lawmakers on both days of testimony, Powell has the chance to provide updated insights. Apart from the recent inflation report, Powell’s comments on the latest upbeat jobs report may be of interest. He will also be grilled on trade policy but will likely dodge politically-sensitive comments.
7. Australian jobs report: Thursday, 00:30. The land down under has a low unemployment rate of 5.2%, but the RBA is unsatisfied with this outcome. The same level will likely be repeated in the report for October. The employment change figure is expected to show an increase of 16.2K positions, similar to 14.7K jobs gained in September — a satisfactory advance.
8. German GDP: Thursday, 7:00. Fears of a recession will likely materialize in the Gross Domestic Product figures for the third quarter. The euro zone’s largest economy is expected to have squeezed by 0.1% in the quarter ending in September after a drop of 0.2% in the second quarter. Two consecutive quarters of contraction is the definition of a recession, which politicians may dismiss as “technical.” It may further weigh on the euro and also paint a gloomier picture for the global economy.
9. US retail sales: Friday, 13:30. Consumption has been the stronger part of the economy, but September’s data disappointed with a drop of 0.3% in the headline and 0.1% in core sales. October’s publication will likely show better figures — an increase of 0.1% in the headline and 0.3% in core retail sales. The control group carries expectations for a leap of 0.7% after remaining flat beforehand.

*All times are GMT