The Forex Week Ahead

The Forex Week Ahead: October 24th – 28th

• Mon: JPY – Trade Balance, EUR – EuroZone PMIs, USD – Manufacturing PMIs

• Tue: EUR – German IFO Surveys, USD – Consumer Confidence

• Wed: AUD – 3Q CPI, USD – Trade Balance, Services & Composite PMIs, NZD – Trade Balance

• Thu: GBP – GDP, USD – Durable Goods, CNY – Industrial Profits

• Fri: JPY – CPI, EUR – German CPI, USD – GDP 3Q, PCE 3Q, UoM Confidence

Overview

USD The US Dollar traded higher last week supported by a strengthening of Democratic candidate Hilary Clinton’s lead in the US Presidential election polls. Despite a slight miss on September CPI the Greenback continued to trade higher further supported by a sharp weakening of the Euro in response to ECB easing signals. Focus this week will be on PMI data sets alongside GDP and PCE on Friday

EUR ECB maintained its policy stance as widely expected. Main refinancing rate, deposit rate and lending rate were held at 0.00%, -0.40% and 0.25% respectively. Asset purchase target also stayed pat at €80 billion per month. President Mario Draghi signaled that bond tapering may occur before the QE program stops, indicating that an extension to the maturity of the stimulus program is on the table. On the data front, current account surplus rose to €29.7 billion in August (July: revised to €27.7 billion). Focus this week will be on PMI data sets for the EuroZone.

GBP UK unemployment rate was 4.90% in the three months through August, hovering around its decade low rate since May. Companies added 106k employees to payrolls in the same time period which was much lower than the 174k increase in July. Despite the low unemployment rate, rapid price growth dampened real wage gains, potentially undermining household spending with Brexit fallout. On a positive note, the number of jobless claims fell to 0.7k in September from 7.1k in August. UK retail sales grew at a slower pace of 4.10% YOY in September after a climb of 6.60% YOY in August. The headline print was dragged by slower sales in food stores and petrol stations and compounded by steeper drop in textile, clothing & footwear sales. Focus this week will be on GDP released on Thursday.

JPY Construction output in the euro zone dropped 0.90% MOM in August, reversing the revised 1.50% MOM growth in July. Separately, Japan’s all industry activity index grew 0.20% MOM in August, unchanged from the pace in July. The modest reading showed that growth remained sluggish in 3Q. Japan’s Nationwide department sales dropped 5.00% YOY in September and extended the streak of negative growth since March this year. Adding to signs of weak domestic demand, machine tool orders tumbled 6.30% YOY in September (August: -8.40% YOY).

AUD Australia’s unemployment rate ticked down 0.1 ppt to 5.60% in September after a revision to August reading. The headline print improved despite the 9.8k drop in number of jobs filled amid lower labor force participation rate (September: 64.50% vs August: 64.70%). On a separate report, business confidence index climbed to 5 in 3Q (2Q: 3), rising to the highest level in the past three quarters. 3Q CPI will be the key data focus this week.

CAD The Bank of Canada held rate son hold at their October meeting however, growth forecasts were revised lower as the bank noted downside risks. CAD was sold sharply in response to the meeting which noted that BOC members had “actively discussed” easing at the meeting but opted to wait. This development has further boosted markets’ BOC easing expectations. An absence of key domestic data prints this week will turn focus to Oil and USD flows.