Forex Major Currencies Outlook (Oct 29th – Nov 2nd)

This is a much weaker reading than anticipated and comes as combination of slowly rising wages, higher rates and affordability.

FED’s Mester stated that fundamentals of the US economy are strong and that there are no signs of a pending US recession. Inflation expectations have been very stable and recent US inflation readings have been categorized as pretty good. She sees the labor market as strong which in turn could bring prices up. Forecast for the FED funds rate is 3% in the long run. In her view GDP will top 3% this year and unemployment will be below 3.5% by the end of 2019. She is considered a hawk member and her comments are in line with that.

FED’s Beige Book for the month of October 2018 states that economic activity expanded with growth modest to moderate. Consumer prices rose at a modest to moderate pace while consumer spending rose at a modest pace. Wage growth was viewed mostly as modest to moderate. Manufacturers raised prices due to raw materials tariffs.

First reading of the US GDP 3Q QoQ annualized came in at 3.5% vs 3.3% estimate. Personal Consumption which contributes up to 70% of GDP came in at 4.0% vs 3.3% as expected. That is the best reading since 2014. Consumption contributed +2.69%, Investment contributed +2.03% and Government spending contributed +0.56%. On the other hand Net Exports were -1.78% which is the largest drag on GDP in the last 33 years. Trade war and strengthening USD has led to increase in import and decrease in export for the United States.

This week will be data heavy for USD. We will have data concerning PCE, FED’s preferred inflation metric, data regarding personal income and spending, manufacturing PMI and on Friday NFP and employment data along with Trade Balance data. NFP is expected to come in at 164k vs 134k previously. Headline data will provoke a knee-jerk reaction but strong emphasis should be paid on Participation Rate and Average Hourly Earnings.

Important events for USD:

Monday:

• Core PCE Price Index m/m
• Core PCE Price Index y/y
• PCE Price Index m/m
• PCE Price Index y/y
• Personal Spending m/m
• Personal Income m/m

Wednesday:

• ADP Nonfarm Employment Change
• Employment Wages q/q

Thursday:

• Markit Manufacturing PMI
• ISM Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Participation Rate
• Average Hourly Earnings m/m
• Average Hourly Earnings y/y
• Trade Balance

EUR

Moody’s cut Italy’s credit rating on Friday 19th down to Baa3, that is a one level downgrade and still one level above junk level, but gave it a stable outlook meaning that the chance for another downgrade is low in the near future. S&P will give it’s assessment of Italy’s credit rating on Friday 26th. Current rating is BBB with a stable outlook.

EU has declined the Italian budget proposal with a 2.4% budget deficit as expected. EU Dombrovskis stated that there will be 3 weeks of intensive dialogue with Italy concerning the new budget; the ball is in Italy's court. The1 Italian Government keeps reiterating that there is no “Plan B” for the budget.

PMI readings last week were very disappointing. Germany's release came in at 52.3 vs 53.4 as expected. The manufacturing print fell down to a 28-month low while services came in at 53.6 vs 55.5 as expected and failed to offset the negativity by also falling down as the first batch of Q4 data comes in. France's prints came in mixed but the industrial print also slumped to a 25-month low coming in at 51.2 vs 52.4 as expected.

ECB’s Draghi stated in his speech that incoming data have been weaker than anticipated, that

significant stimulus is still needed in order to raise inflation close to but below 2% over the medium-term and that net asset purchases will continue until the end of the year.

ECB published results of its survey of professional forecasters 2018 growth seen at 2.0%, down from 2.2%; 2019 growth at 1.8%, down from 1.9%; 2020 growth at 1.6%, unchanged.

Inflation is seen averaging 1.7% in 2018, 2019, 2020 which is unchanged. Core inflation seen at 1.1% for 2018, down from 1.2%; Core inflation seen at 1.4% for 2019, down from 1.5% and Core inflation seen at 1.7% for 2020 which is unchanged. These downgrades are in line with recent data from EU and reflect current market sentiment towards the EU economy. Those projections however are not enough to move ECB from its path.

This week we will have data regarding GDP, sentiment, confidence and Business Climate and inflation in the Eurozone as well as Manufacturing PMI for EU as a whole.

Important events for EUR:

Tuesday:

• GDP q/q
• GDP y/y
• Business Climate Indicator
• Industrial Confidence Indicator
• Services Sentiment Indicator
• Economic Sentiment Indicator
• Consumer Confidence Index
• Wednesday: Core CPI y/y
• CPI y/y
• Unemployment Rate

Friday:

• Markit Manufacturing PMI

GBP

UK PM Theresa May has survived a meeting of the 1922 Committee and she remains a Prime Minister for now. There was no confidence vote but reports continue to point to over 40 votes of no confidence waiting in the wings - 48 are required to trigger a leadership contest. The domestic political situation is still not safe for PM May and a leadership challenge/vote of no confidence could occur at any time. If a no confidence vote is called, all serving Conservative MPs will be able to cast a vote for/against PM May. For Theresa May to be ousted, a simple majority of 159MPs would be needed. It is important to note that after a no vote is triggered it cannot be triggered again for another year, so PM May’s opponents are carefully looking to strike at the right moment and not miss the chance.

Time is slowly ticking away for the Brexit deal. But the UK and EU still have another chance for a deal, at an EU summit on the 13th and 14th of December. This could be a fall-back option to reach an agreement.

This week’s headline will be the BoE Interest Rate Decision followed by Meeting Minutes from MPC and lastly a speech given by BoE Governor Carney.

Important events for GBP:

Monday:

• Annual Budget

Thursday:

• Markit/CIPS Manufacturing PMI
• BoE Inflation Report
• BoE MPC Meeting Minutes
• BoE Interest Rate Decision
• BoE MPC Vote Cut
• BoE MPC Vote Hike
• BoE MPC Vote Unchanged
• BoE Governor Carney Speech

AUD

After last weekend’s election in Wentworth prime minister Scott Morrison lost majority in the parliament and now has a minority government. Hung parliaments can work however they present a great deal of uncertainty, and if it is one thing markets don’t like that is uncertainty. The drops in value of AUD have been welcomed by the Deputy Governor Guy Debelle. Further falls in AUD will be welcomed by the RBA and they are not going to respond to drops by any push to increase interest rates. The falling house prices and the high levels of household debt means that the Australian consumer is under pressure.

Fitch has confirmed Australia’s credit rating at AAA and gave it a stable outlook. They expect that GDP will be +3.3% for the year 2018 and then +2.8% and +2.7% for years 2019 and 2020 respectively.

This week we will have a plethora of data from Australia. We will receive data on the housing market, inflation data (including weighted median CPI and trimmed mean CPI), trade balance, consumption and data regarding prices of domestically produced goods.

Important events for AUD:

Tuesday:

• Building Approvals m/m
• Private House Approvals m/m
• RBA Assistant Governor Bullock Speech

Wednesday:

• CPI y/y
• RBA Weighted Median CPI q/q
• RBA Weighted Median CPI y/y
• RBA Trimmed Mean CPI q/q
• RBA Trimmed Mean CPI y/y
• RBA Private Sector Credit m/m
• CNY Manufacturing PMI
• CNY Non-Manufacturing PMI

Thursday:

• Exports m/m
• Imports m/m
• Trade Balance

Friday:

• Retail Sales m/m
• Retail Sales q/q
• PPI q/q
• PPI y/y

NZD

Trade balance for New Zealand in the month of September came in at -$1560m vs -$1365m as expected. Exports have risen to $4.33B vs $4.20B as expected but imports have also risen to $5.89B vs $5.60B as expected. Growing trade deficit is not a good sign, but rising exports give some relief.

This week we have a rather light calendar coming from New Zealand. There will be data on the housing market as well as Business Confidence and Activity Outlook.

Important events for NZD:

Tuesday:

• Building Consents m/m

Wednesday:

• ANZ Business Confidence
• ANZ Activity Outlook

CAD

Bank of Canada has rates interest rate by 25bp to 1.75% as expected. From the rate statement it could be assumed that they see the need for rates to turn to a neutral stance. They expect GDP to be 2.1% for years 2018 and 2019 before slowing to 1.9% for the year 2020. They have also stated that economy is near capacity and that future pace of rates depends on how well economy adjusts. Inflation has slipped to 2.2% in September but it is due to Summer spikes, it is expected that inflation remains at 2% during 2019 and all through 2020. Higher rates are needed in order for the inflation target to be achieved. BOC has acknowledged the impact that US-China trade war has on global growth and commodity prices however they stated that the global economic outlook remains solid and that global financial conditions remain accommodative.

BOC has removed the reference to “gradually” pace rate hikes, which is seen by the market as a sign the pace of rate hikes will pick up. The percentage of a back-to-back hike in December is up to 23% compared to 17% only a day ago. The odds of a hike in January are up to 70% from 67% previously.

This week there will be a lot of data coming in from Canada which can confirm hawkish stance from BOC. We will start the week with speech from Governer Poloz, then data comes out regarding GDP m/m followed by Industrial Product Price Index and Raw Material Price Index. There will be data regarding manufacturing PMI and at the end of the week we have data regarding employment and trade balance.

Important events for CAD:

Tueday:

• BOC Govenror Poloz Speach

Wednesday:

• GDP m/m
• IPPI m/m
• IPPI y/y
• RMPI m/m
• RMPI y/y
• EIA Crude Oil Stocks Change

Thursday:

• Markit Manufacturing PMI

Friday:

• Employment Change
• Unemployment Rate
• Participation Rate
• Imports
• Exports
• Trade Balance

JPY

In his speech on Friday October 19th BOJ governor Kuroda stated that exports are on the rising trend, inflation will gradually increase toward the target of 2%, necessity of maintaining the easing programme as well as that rise in consumer prices as a trend remains on a weak note. Tokyo CPI data came in at +1.5% y/y as expected and Tokyo Core CPI came in at +1.0% as expected.

BOJ has stated their financial systems is maintaining stability as a whole. Banks have sufficient capital and capacity for absorbing loses. BOJ statements suggest that they can continue with their current easing policies.

Preliminary Nikkei Manufacturing PMI data came in at 53.1 vs 52.5 prior. This is the highest value since April. Also, this represents the 26th consecutive months where the reading is above 50. Manufacturing sector continues to give a nice boost to Japanese economy.

This week we will get information about consumption in Japan via Retail Sales as well as data about labor market via Unemployment Rate and Jobs to Applicants Ratio.

Important events for JPY:

Monday:

• Retail Sales m/m
• Retail Sales y/y

Tuesday:

• Unemployment Rate
• Jobs to Applicants Ratio

Wednesday:

• Industrial Production m/m
• Industrial Production y/y
• BoJ Monetary Policy Statement
• BoJ Outlook Report
• BoJ Interest Rate Decision
• BoJ Press Conference
• Consumer Confidence Index
• Thursday: Nikkei Manufacturing PMI
• 10-Year JGB Auction

CHF

Switzerland’s September M3 money supply came in at +2.3% vs +2.5% y/y prior. This data is considered low tier and does not have a huge impact on CHF, however it represents a general gauge of broad money in Switzerland’s economy.

This week we will have data on inflation and consumption from Switzerland along with a survey of Consumer Climate and composite economic outlook for the next six months in the form of the KOF Economic Barometer. SNB Chairman Jordan will also give a speech on the impact of protectionism on monetary policy.

Important events for CHF:

Tuesday:

• KOF Economic Barometer

Wednesday:

• SNB Chairman Jordan Speech

Thursday:

• Consumer Climate
• CPI m/m
• CPI y/y
• Friday: Retail Sales y/y

_{You can follow all economic events on the Economic Calendar page on our Website. MT4 server time is set to GMT + 2 and if you need assistance converting MT4 server time to your local time you can use some of the online time converters such as WorldTimeBuddy.}

_{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.
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