Forex Major Currencies Outlook (Sep 2– Sep 6)

USD

In his speech at Jackson Hole FED chair Powell stated that the bank would “act as appropriate” and removed the phrase “mid-cycle adjustment” thus implying that potential rate cuts are coming. Markets have increased the probability for a September rate cut based on the statement and thus the USD suffered.

Preliminary durable goods for the month of July came in at 2.1% m/m vs 1.2% m/m as expected. The headline number is very strong, but digging deeper we find less reason to be joyful. Core orders came in at 0.4% m/m vs 0% m/m as expected but the beating was made based on the previous month revision from 1.5% m/m down to 0.9% m/m. Capital goods shipments fell -0.7% m/m vs 0.1% m/m as expected adding more to the slowdown and influencing lower Q3 GDP forecasts. US consumer confidence has jumped to 135.1 vs 129 as expected with the present situation jumping as well to 177.1 vs 170.9 the previous month for the highest reading since 2000. Expectations howeverhave declined to 107 vs 112.2 the previous month indicating that consumers have some doubts about the future due to trade wars.

Second reading of Q2 GDP came in at 2% q/q as expected, down from 2.1% q/q as preliminary reading showed. Personal consumption has been revised up to 4.7% from 4.3%. Home investment and exports were the main drags on GDP. According to the reading, US economy is very dependent on US consumer as it contributed 3.1% to the growth. A small drop in personal consumption can push GDP below 2%. Core PCE came in as expected at 0.2% m/m and 1.6% y/y. Personal spending rose to 0.6% from 0.3% the previous month while personal income fell to 0.1% from 0.4% the previous month.

This week we will have ISM PMI data for the month of August, July trade balance data and on Friday the NFP. Projections are for the number of around 155k with the unemployment rate ticking down to 3.6% while average hourly earnings remain at 0.3%. New tariffs will be imposed starting from September 1.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Wednesday:

• Trade Balance
• Exports
• Imports
• Thursday:
• ADP Nonfarm Employment Change
• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

German Ifo business climate dropped down to 94.3 vs 95.1 as expected making it the weakest reading since November of 2012. Situation in German economy continues to deteriorate according to numerous surveys and it points toward technical recession. Ifo economist stated that industrial sector is in a recession with services now following. He acknowledged that latest trade war escalation, rising of tariffs by both China and US, was not reflected in the latest survey, thus indicating that future survey data from Germany could paint even grimmer picture. Final Q2 GDP reading confirmed negative growth of -0.1% q/q.

Final consumer confidence came in at -7.1 as preliminary reading showed down from -6.6 the previous month. Economic confidence and business climate indicator rebounded coming in at 103.1 vs 102.7 the previous month and 0.11 vs -0.12 the previous month. Although the numbers are still at the 2016 low levels small relief for Euro area will be welcomed. The unemployment rate came in unchanged at 7.5% as expected. Preliminary August CPI came in at 1% y/y as expected, tick down from 1.1% y/y the previous month while the core CPI came in at 0.9% y/y vs 1% y/y as expected but unchanged from previous month. Inflation continues to stay in place which pushes ECB to act at their next meeting.

This week we will have final August PMI numbers, consumption and employment data as well as final reading of Q2 GDP which is expected to be lowered.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (Germany, France, EU)

Wednesday:

• Markit Services PMI (Germany, France, EU)
• Markit Composite PMI (Germany, France, EU)
• Retail Sales

Friday:

• Employment Change
• GDP

GBP

PM Johnson sought legal advice on how to close the Parliament in order to prevent them from stopping his plans of UK leaving the EU on October 31. He is looking to extend the recess period from September 9 to October 14, when Queen will give her speech which is needed to set out legislative programme, meaning that Parliament will start work next week on September 3 but they will work for one or two weeks before going back to recess. In this way he diminishes chances of Parliament blocking hard Brexit. The Queen has prorogued the Parliament no earlier than September 9 and no later than September 12 to October 14. The main plan for the opposition now remains a vote of no-confidence.

This week we will have PMI data and Parliament is returning from recess on Tuesday. There will be heated debates in the Parliament that can seriously impact GBP, especially now that it will be open for about a week.

Important news for GBP:

Monday:

• Markit Manufacturing PMI

Tuesday:

• Markit Construction PMI

Wednesday:

• Markit Services PMI

AUD

Private capital expenditure (capex) for the Q2 came in at -0.5% q/q vs 0.4% q/q as expected. A huge miss on expectations but better than the Q1 reading which showed -1.7% q/q. Building permits for the month of July plunged and came in at -9.7% m/m vs 0% m/m as expected. Although the monthly data is very volatile the yearly reading also shows the huge drop to -28.5% y/y vs -22.2% y/y as expected. The housing market is still facing problems and effects of lower rates still do not produce desired effects on the housing due to low wages and high household debt.

This week we will have consumption and trade data with RBA rate decision taking the central stage. Expectations are for RBA to leave the rate unchanged but to acknowledge the concerns in Australian and global economy which could lead to cut in October. We will also get Caixin PMI and trade data from China.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision
• RBA Rate Statement
• Retail Sales

Wednesday:

• GDP
• Caixin Services PMI (China)

Thursday:

• Trade Balance
• Exports
• Imports

Sunday:

• Trade Balance (China)
• Exports (China)
• Imports (China)

NZD

Trade balance for the month of July came in at -NZD685m vs -NZD254m as expected. Exports came in lower at 5.03bn vs 5.05bn as expected while imports surged to 5.71bn vs 5.2bn as expected and up from 4.65bn the previous month. A small consolation is that domestic demand is keeping strong hence the rise in imports. ANZ business confidence for the month of August further deteriorated to -52.3 vs -44.3 the previous month for a 11-year low. Inflation expectations also dropped down to 1.7% from 1.81% the previous month. RBNZ has stated that they will follow inflation closely so this reading puts additional downward pressure on NZD.

This week we will have bi-monthly GDT auction.

Important news for NZD:

Tuesday:

• GDT Price Index

CAD

Q2 GDP smashed the expectations and came in at 3.7% q/q vs 3% q/q as expected. Exports rose 13.4% in Q2 thus making the fastest rise since 2014 and making trade contribute to GDP with 4.1pp. Household savings rate climbed to 1.7% from 1.3% the previous quarter. Business non-residential investment and household consumption were the low points of the reading with former coming in at -16.2%, thus cutting GDP by 1.64pp, and latter coming at 0.5% for the weakest reading since 2012.

This week we will have trade balance and employment data. The employment report will be published at the same time as NFP so it may cause greater volatility in the markets. We recommend caution in trading. Highlight of the week will be BOC rate decision. We have not had communication from BOC since their last meeting but markets are pricing mere 14% chance of a rate cut.

Important news for CAD: 

Wednesday:

• Trade Balance
• Exports
• Imports
• BOC Interest Rate Decision
• BOC Rate Statement

Friday:

• Employment Change
• Unemployment Rate

JPY

There have been numerous data points coming from Japan with mixed results. The unemployment rate in July ticked down to 2.2% vs 2.3% previously and as expected. Tokyo CPI for the month of August came in at 0.6% y/y as expected but down from 0.9% y/y previously. CPI excluding food and energy came in at 0.7% y/y as expected but also down from 0.8% y/y previously. Retail sales in July were the weakest data point. They came in at -2% y/y vs -0.7% y/y as expected. Slow wage growth has impacted Japanese consumers so they refrained from spending. On the other hand, preliminary reading for the same month of industrial production shows a great beat on expectations coming in at 0.7% y/y vs -0.6% y/y as expected giving push to the Q3 GDP.

This week we will have final August PMI data, speech from governor Kuroda and data on spending and wages.

Important news for JPY:

Monday:

• Manufacturing PMI

Wednesday:

• Services PMI
• BOJ Governor Kuroda Speech

Friday:

• Household Spending
• Labour Cash Earnings

CHF

CHF has benefited from the risk off sentiment caused by uncertainties around US – China trade war and Brexit. It has strengthened based on its safe haven appeal. SNB has sporadically intervened in open markets just to ease the appreciation of the CHF. Member of SNB governing board Machler stated that they still have a lot of room to intervene in the forex market and added that she is satisfied with the way that negative rates are working.

This week we will have consumption and inflation data as well as Q2 GDP reading. Additionally, we will have a speech from SNB Chairman Jordan which will be closely monitored since CHF has strengthened a lot in the past month and SNB is surely not fond of that.

Important news for CHF:

Monday:

• Retail Sales

Tuesday:

• CPI

Thursday:

• GDP
• SNB Chairman Jordan Speech

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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 MT4.VAR. and MT4.ECN. accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}