Forex Major Currencies Outlook (Nov 2 – Nov 6)

USD 

Preliminary reading of Q3 GDP shows it at 33.1% vs 32% as expected. Needless to say that this is the best quarterly reading, however it is following the worst quarterly reading. Personal consumption came in at 40.7% while business investment came in at 20.3%. Inventories added 6.62 pp to the reading while imports improved almost 100% from the previous quarter. The reading still puts the annual rate of contraction from the pre-virus peak of more than 7 percent. The drop is almost as big as in 2008 trough of the Great Recession. 

Consumer confidence slipped to 100.9 from 101.3 the previous month. It was a mixed report with current situation rising and expectations falling indicating that people are falling from government support and are not optimistic regarding the relief package. Fed’s preferred inflation reading PCE came in at 1.4% y/y with core pointing to 1.5% y/y. Both readings show small improvements compared to the August reading but still miles away from Fed’s ATI target. Senate leader McConell has adjourned it until after the election. This move throws away any chance of stimulus package to be passed before the election. 

This week we will have ISM PMI data as well as Fed meeting, with no changes expected and NFP. Headline NFP number is expected to come above 500k while the unemployment rate should slip to 7.8%. Economic data will be secondary to the biggest event of the year: US presidential election. 

Important news for USD: 

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Thursday:

• Fed Interest Rate Decision

Friday:

• Nonfarm Payrolls
• Unemployment Rate 

EUR 

Ifo survey in October showed a first decline in business climate and expectations for Germany in six months. Rising number of virus cases in Germany does not bode well with investors. This just adds more concern about a Q4 GDP reading making a “double-dip” growing possibility. Current situation has been positively assessed and it continues its five-month rising trend. Sentiment data pointed to a decline in consumer confidence to -15.5 from -13.9 in September. 

ECB has left key rates unchanged and refrained from any changes in policy stating that they will correct their course of action according to December forecasts. ECB president Lagarde stated that recovery is losing momentum faster than anticipated which causes consumers to be more cautious regarding their spending habits. She cited “clear deterioration” in the near-term outlook as well as fall in business investment caused by the virus. All instruments will be under review. There will be additional stimulus in December, the question remains what will it look like and in what amount will it be. 

Q3 GDP data surprised to the upside coming in at 12.7% q/q vs 9.6% q/q as expected. This is a great rebound after a dismal Q2, however with covid infection numbers rising across the EU it puts a very bleak outlook on Q4. The rebound from Q3 will not be translated into Q4 as we could have seen by September data. Preliminary inflation data in October shows no change from September reading. Headline inflation is at -0.3% y/y while core is at 0.2% y/y. 

GBP 

Headlines that EU and UK have managed to make progress on some important issues lead to increased optimism in the market that a deal can be reached in early November. Fewer questions remain unsolved, but the big one, fisheries, is still a point of contention. 

This week we will have BOE meeting where no changes to rate are expected but we should see increase in asset purchase program by £100bn. 

Important news for GBP: 

Thursday:

• BOE Interest Rate Decision 

AUD 

Victoria state premier Andews stated that virus outbreak is under control and that it is time now to open up the economy. Melbourne, capital of Victoria state and the second most populous city in Australia, was under lockdown for 111 days. The reopening will help the economic growth thus easing pressure on RBA which meets this week. Q3 inflation came in at 1.6% q/q and 0.7% y/y, both improvements from Q2. Rising oil prices as well as re-introduction of childcare costs that were cut in Q2 as a way to help families cope during the virus induced crisis attributed the most to the rebound. Core inflation, RBA targets it for 2-3% y/y range, came in at measly 0.4% q/q and 1.2% y/y thus adding more credence to the rate cut talk next week. 

This week we will have consumption data and RBA meeting from Australia. Markets are expecting a 15bp rate cut, bringing the rate down to 0.10%, 15bp cut to 3-year target yields, bringing them down also to 0.10% and a QE program to encompass bonds of 5-10 years. The size of QE is estimated to be between AUD150bn and AUD200bn. Caixin PMI data will be published from China. 

Important news for AUD: 

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision

Wednesday:

• Retail Sales
• Caixin Services PMI (China)
• Caixin Composite PMI (China) 

NZD 

Trade balance data in September showed a widening of trade deficit to -NZD1017m from -NZD353m in August. This is the fifth consecutive month of declines in trade balance due to the drop in exports and rise in imports. 

This week we will have Q3 employment data as well as preliminary business confidence data for November. 

Important news for NZD: 

Tuesday:

• Employment Change
• Unemployment Rate

Thursday:

• ANZ Business Confidence 

CAD 

BOC has left the rates at 0.25% as widely expected. They will reduce the amount of QE from CAD5bn/week to CAD4bn/week but will encompass more longer-dated bonds. They also see inflation staying below 2% level until 2023. GDP forecast for 2020 has been reduced to -4.3% from -6.8% previously but GDP for 2021 was also reduced to 3.8% from 4.9% previously. GDP for the month of August came in at 1.2% m/m. Preliminary estimate for September GDP is 0.7% m/m which would put Q3 GDP at 10% q/q. 

This week we will have employment data. 

Important news for CAD: 

Friday:

• Employment Change
• Unemployment Rate 

JPY 

BOJ has left the short-term interest rate at -0.10% as widely expected. Board members have noted extremely high uncertainty over economic, price outlook with risks for price outlook skewed to the downside. They reiterated their willingness to take additional easing steps without hesitation as needed to combat the damage to the economy caused by the virus. Both GDP and core CPI for fiscal year 2021/2020 have been downgraded to -5.5% and -0.6% respectively. Consumption in September disappointed with retail sales coming in at -0.1% m/m vs 1% m/m as expected and -8.7% y/y vs -7.6% as expected. The unemployment rate stayed at 3% 

Both core and headline inflation numbers for Tokyo area in October dropped into negative territory. Headline CPI came in at -0.3% y/y, ex-fresh food at -0.5% y/y while ex-fresh food, energy came in at -0.2% y/y. Government introduced “Go to Travel” campaign which consists of government’s subsidies for domestic travel and is considered to be the main drag on consumer price growth. Additionally, sales tax hike that was introduced in October of last year has fallen out of the comparison which contributed to low reading. Industrial production in September improved to 4% m/m and -9% y/y with expectations for further growth in October and November. 

This week we will have spending and earnings data. 

Important news for JPY: 

Friday:

• Household Spending
• Labor Cash Earnings 

CHF 

SNB total sight deposits for the week ending October 23 came in at CHF706.9bn vs CHF705.1bn the previous week. Steady and continued rise. Retail sales in September came in at 0.3% y/y, however August reading has been revised up to 4% y/y from 2.5% as preliminary reported, thus giving strength to the consumption report. 

This week we will have inflation data. 

Important news for CHF: 

Tuesday:

• CPI

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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.}