Forex Major Currencies Outlook (Oct 18 – Oct 22)

USD 

September CPI numbers came in line with expectations with headline number at 5.4% y/y and core number at 4% y/y. Rising energy and food prices were the biggest contributor to the headline number. Highlight of the report were real weekly wages which rose 0.8% vs 0.2% in August indicating that inflation is coming from the demand side as well. Fed wants to see rising wages. One concerning thing about the wage rise is that it can also be attributed to low-wage workers being out of the market due to the virus-related issues, think about the food services. So far, markets are acting as the numbers strengthen the case for a November taper. 

Retail sales for September came in at 0.7% m/m vs -0.2% m/m as expected. The US consumer is going strong. Control group, used for GDP calculation, came in at 0.8% m/m, same as the ex-autos category while ex-autos, gas came in at 0.7% m/m. Positive inputs for Q3 GDP and strength should continue into Q4 and should keep Fed undeterred from November taper. 

EUR 

ZEW survey showed a break in the trend of German current situation. It has snapped a streak of seven consecutive months of improvements. The reading came in at 21.6, a big drop from 31.9 in September. Rising energy prices are negatively impacting investors spirits. Expectations survey continued to decline and came in at 22.3, down from 26.5 in September. German investors do not see supply chain disruptions improving in the short-term and survey displays their pessimism. German economic institute has lowered German 2021 GDP to 2.4% from 3.7% as previously expected. They have raised their projection for 2022 GDP to 4.8% from 3.9%. 

This week we will get preliminary PMI readings for October. Small drops are expected but readings will stay at elevated levels as we begin getting data from Q4. 

Important news for EUR: 

Friday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France) 

GBP 

The employment report showed claimant counts in September continuing to drop coming in at -51.1k. The ILO unemployment rate for August also continued to decline and came in at 4.5% with wages surprising and coming in at 7.2% 3m/m vs 7% 3m/m as expected. The furlough scheme ended in September so these numbers are still influenced by it and we can expect to get a clearer picture of the UK labour market with the next report. 

BOE Governor Bailey stated its concern about the rising inflation while MPC member Saunders stated that because of the raging inflation interest rates could be raised before the year-end. Markets are now pricing around 36% chance for a rate hike in November. For the December meeting markets imply a rate hike of 15bp and see further rate hikes incoming in 2022. 

This week we will have inflation and consumption data as well as preliminary PMI readings for October. Inflation data from the UK will be closely scrutinized as a hint for the incoming 2022 rate hikes. 

Important news for GBP: 

Wednesday:

• CPI

Friday:

• Retail Sales
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI 

AUD 

The employment report for September showed another month of declines impacted by the lockdown. Employment change came in at -138k. The unemployment rate ticked higher for the first time since October of 2020 and came at 4.6%. However, the biggest concern from the report is that participation dropped to 64.5%. It was at 65.2% in August and 66% in July. Dwindling participation helped the unemployment rate to stay below 5%. All of the jobs lost were part-time (-164.7k) while full-time jobs improved 26.7k. As lockdowns ease we will see better employment figures, but improving the participation will take much longer. 

Trade balance data from China showed another surge in trade balance surplus. Trade surplus in September was at $66.73bn, up almost $10bn from August reading ($58.3bn). Exports continued to increase and came in at 28.1% y/y while imports plunged from 33.6% y/y in August to 17.6% y/y in September. Imports are still at elevated levels, however they show signs that domestic demand for foreign products is dwindling, which can have devastating effect on other exporting nations. September inflation data saw CPI at 0.7% y/y while PPI rose on the back of energy prices 10.7% y/y for the biggest rise in almost three decades. The transfer of costs from producers to consumers is still missing. 

This week get Q3 GDP reading from China, expected at around 5.2% q/q, along with production and consumption data. 

Important news for AUD: 

Monday:

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

NZD 

Preliminary ANZ business confidence for the month of October cam in at -8.6, down from -7.2 in September. Inflation expectations were the main reason why the reading came weaker than a month ago as other details show a more encouraging picture. The report notes that most forward-looking activity indicators held up or improved with a decent jump in investment intentions. Capacity utilization, has a positive correlation with GDP, came in higher at 20% vs 17% in September. 

CAD 

Manufacturing sales in August came in at 0.5% m/m vs -1.2% m/m in July. An increase was led by sales of petroleum and coal, chemicals and primary metals On the other hand, significant declines were seen in wood products motor vehicles and motor vehicle parts. CAD was dominating the week with USDCAD dropping more than 150 pips while CADJPY jumped almost 300 pips and is now at levels not seen since December of 2015. 

This week we will have inflation and consumption data 

Important news for CAD: 

Wednesday:

• CPI

Friday:

• Retail Sales 

JPY 

Core machinery orders, a proxy for CAPEX in six-months time, in August were weaker than expected, coming in at -2.4% m/m vs 1.4% m/m as expected. The weakness came from manufacturers' orders (-13.4% m/m after rising 6.7% m/m the previous month). Supply-chain issues, plaguing the entire world, most likely led to weak steel, vehicles, and production equipment orders. Predominating JPY weakness continues as USDJPY crossed the 1.14 level for the first time since November of 2018. 

CHF 

SNB total sight deposits for the week ending October 8 came in at CHF714.1bn vs CHF714.2bn the previous week. It is a miniscule drop indicating that SNB wss selling EUR and USD and was quite comfortable with EURCHF averaging 1.0734 during the week.

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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.}