Forex Major Currencies Outlook (Nov 16 – Nov 20)

USD 

October inflation data showed a drop from September’s levels. Headline inflation came in at 1.2% y/y vs 1.4% y/y in September, while core inflation came in at 1.6% y/y vs 1.7% y/y in September. Readings will not immediately spur the Fed into action. It is concerning however, that after introduction of ATI (Average Targeted Inflation) and their commitment to let inflation run amok it went into opposite direction. Republican senate leader McConnell repeated that he is in favor of a limited stimulus before year-end. Upbeat labor data and news surrounding potential vaccine all speak in favor of lower stimulus package. The White House has withdrawn from the stimulus talks thus removing all hope of the package being delivered in 2020. 

This week we will have consumption data. 

Important news for USD: 

Tuesday:

• Retail Sales 

EUR 

German ZEW survey of the current situations in November dropped to -64.3 from -59.5 in October indicating increasing worry about the impact of lockdown on the economy. Expectations component plunged to 39 from 56.1 in October raising concerns about the recession in Germany that may lead to “double dip” drop in Q4 GDP for the EU. Analysts see Q4 GDP dropping by 2% due to the lockdown restrictions. 

ECB president Christine Lagarde stated that PEPP and TLTRO will likely remain main ECB tools because they can be dynamically adjusted to react to the pandemic. She added that developments in FX may negatively impact inflation, alluding to the recent EUR strength which lead to the drop in inflation below zero. Second reading of Q3 GDP showed a slight revision to the downside with 12.6% q/q and -4.4% y/y. 

This week we will have final inflation data for the month of October. 

Important news for EUR: 

Wednesday:

• CPI 

GBP 

Claimant count change in October came in at -29.8k. With September’s reading having a huge revision from 28.1k to -40.2k this marks the second consecutive month of declining claims. September employment change continued to decline coming in at -164k which lead to the unemployment rate climbing to 4.8% from 4.5% in August. There was a jump in wages caused by more people coming back to work. Readings are still heavily skewed by the ongoing furlough scheme. 

Preliminary Q3 GDP showed a rebound of 15.5% q/q, easily the biggest quarterly growth since the series inception back in 1955. Private consumption lead the way with 18.3% q/q followed by total business investment with 8.8% and government consumption with 7.8% q/q. Business investment came in much weaker than expected showing the uncertainty business are facing due to unresolved Brexit issues. September GDP slowed down to 1,1% m/m from 2.2% in August and in combination with renewed lockdown restrictions, the UK is heading for a negative Q4 GDP reading. Additionally, A3 GDP is down -9.6% compared to the same quarter in 2019. 

Phase 3 clinical trials showed that Pfizer and BioNTech developed vaccine has a 90% success rate in protecting people from COVID-19. The announcement quickly pushed risk assets higher and biggest beneficiary of it in the FX market was GBP. Prime Minister Johnson’s chief advisor Dominic Cummings will resign by Christmas. He was the leading figure in organizing the Brexit campaign and referendum. This move was perceived as GBP positive since it may suggest a softer UK stance in trade negotiations with EU which in turn can lead to a successful deal. 

This week we will have inflation and consumption data. 

Important news for GBP: 

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Trade balance data in October showed a surplus of CNY401.75bn vs CNY320.4bn as expected. Exports surged 7.6% y/y on the back of rising headsets exports while imports slowed their rise and came in at 0.9% y/y. Previous month’s imports came in at 11.6% y/y due to stockpiling caused by fear of potential sanctions. In dollar amounts, the surplus rose to $58.44bn while export rose at the fastest pace of the year coming in at 11.4% y/y. Imports, on the other hand, rose 4.7% y/y. Inflation for the same period slowed down to 0.5% y/y from 1.7% y/y which is the lowest reading in over a decade. Falling pork and oil prices were the main culprits. PPI remained unchanged at -2.1% y/y.

This week we will have employment data from Australia as well as industrial production and consumption data from China.

Important news for AUD:

Monday:

• Industrial Production (China)
• Retail Sales (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

RBNZ has left the official cash rate unchanged at 0.25% as expected and made no changes to their LASP program, it stands at NZD100bn. They will provide more stimulus by launching Funding for the Lending Program (FLP) in December. The program will allow for low-cost lending to banks and they hope it will be transferred to customers, borrowers. The size of FLP is rumored to be around NZD28bn. RBNZ stands ready to increase the easing in order to achieve their inflation and employment targets. Committee members were satisfied with incoming data stating that the risks to their baseline scenarios were less skewed to the downside than they had appeared earlier in the year. They stated that they are prepared to lower the OCR to provide additional stimulus if required. Markets are not pricing in negative rates, due to the new stimulus program, which lead to NZD surge.

CAD

Combination of vaccine induced risk on mode, which lead to rise in oil prices, coupled with lower QE commitment from BOC helped CAD gain strength in the first part of the week. As the week went on oil was dropping which helped propel USDCAD over the 1.31 level.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

September core machinery orders, indicator of capex 6-9 months down the road, declined on month coming in at -4.4% m/m but improved on yearly basis coming in at -11.5% y/y. Tertiary index, services, continued to improve and came in at 1.8% m/m vs 0.8% m/m. Government actions have helped the services sector and the readings start to show it. Rating agency Moody’s projects that Japan’s debt to GDP will rise to 230% due to the increased government spending to fight off coronavirus.

This week we will have preliminary Q3 GDP reading, national inflation data as well as preliminary November PMI data.

Important news for JPY:

Monday:

• GDP

Friday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

CHF

SNB total sight deposits for the week ending November 6 came in unchanged from the previous week at CHF707.6bn. SNB was happy with the EURCHF level so did not see reasons for a larger intervention. Additionally, vaccine-induced risk on mode in the markets did SNB a huge favour by weakening the Swissy. The unemployment rate in October ticked down to 3.3%.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}