Forex Major Currencies Outlook (Nov 14 – Nov 18)

USD

Inflation in October surprised to the downside with the headline number coming in at 7.7% y/y vs 8% y/y and down from 8.2% y/y in September. This marks the fourth consecutive month of falling inflation reading and it will definitely raise stories about inflation peaking in July. Shelter was the biggest contributor while used cars, airline fares and apparel were down. Core CPI reading came in at 6.3% y/y, down from 6.6% y/y the previous month. USD got hammered across the board with some pairs, GBPUSD, rising almost 150 pips within 5 minutes. Dollar’s weakness continued till the end of the week with all major pairs being significantly up.

The yield on a 10y Treasury started the week at around 4.16%, rose during the week above 4.24% and then slumped down below 4% after the soft inflation report finishing the week at around 3.8%. The yield on 2y Treasury reached 4.74% during the week. Spread between 2y and 10y Treasuries started the week at -52bp and widened to -56bp. FedWatchTool sees the probability of a 50bp rate hike in December at 80.6% with a probability of a 75bp rate hike at 19.4%.

This week we will have consumption data.

Important news for USD:

Wednesday:

• Retail Sales

EUR

ECB Villeroy stated that it may take 2-3 years for inflation to drop to target of 2%. He added that they are getting close to neutral rate but they should keep raising interest rates until there are signs that inflation has peaked. One possible case is for inflation to peak in Q1 of 2023. ECB vice-president de Guindos stated that inflation will float around present levels in the next few months and then decline in the H1 2023. He sees ECB for sure starting QT in 2023.

This week we will have a second estimate of Q3 GDP.

Important news for EUR:

Tuesday:

• GDP

GBP

Preliminary Q3 GDP came in at -0.2% q/q vs -0.5% q/q as expected. ONS notes that reading was affected by the bank holiday for the State Funeral of Her Majesty Queen Elizabeth II, Construction output rose 0.6% q/q, services were flat while production fell 1.5% q/q. Real household consumption fell 0.5% q/q, same as business investment while real government spending rose 1.3% q/q. Export volumes were up 8% q/q while import volumes were down -3.2% q/q.

Reports have surfaced in UK media revealing that government plans fiscal tightening to the tune of around £60bn. Tightening will be made through tax cuts (around £35bn) and spending cuts (around £25bn). BOE chief economist Pill stated that the bank will have to continue tightening monetary policy and added that they will not be on a pre-set path. He also added that, at some point, they will have to incorporate broader economic outlook in their decision making process.

This week we will have employment and inflation data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

AUD

Trade balance data from China for the month of September saw widening of surplus to $85.15bn from $84.74bn in August. However, expectations were for trade surplus to increase to $95.75bn. Exports fell -0.3% y/y, a first drop since May of 2020, while imports fell -0.7% y/y. Exports to Europe fell 6% m/m and 9% y/y with exports to the US falling 7.4%m/m and 13% y/y. The biggest drop was seen in electronic product exports. High inflation in those two areas led to weaker demand. CPI for October printed 2.1% y/y vs 2.4% y/y as expected and down from 2.8% y/y in September. PPI went into negative with -1.3% y/y marking the whole year, twelve consecutive months, of falling input prices.

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

Important news for AUD:

Tuesday:

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

Thursday:

• Employment Change
• Unemployment Rate

NZD

RBNZ Governor Orr has been reappointed for a new 5-year term. Inflation expectations published by RBNZ showed further increases with 1 year showing 5.08% vs 4.86 in Q3 and 2 year printing 3.62% vs 3.07% as shown in Q3. The 2 year reading is highest since 1991 and markets are now leaning toward a 75bp rate hike at the next meeting.

CAD

BOC Governor Macklem stated that rebalancing of labor market is needed in order to bring back inflation down to 2%. Job loses are likely to increase in the coming months and he added that unemployment rate will go up, not significantly, but it will go up. He added that slight negative growth is possible during next few quarters but emphasized that it does not represent severe recession in any way. Regarding inflation, he stated that bank is particularly focused on core readings as reduction in headline reading is primarily due to drop in oil prices. Regarding future rate hikes he remained vague and stated that it could be another larger than normal rate hike or they can revert back to normal size rate hikes.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

Household spending in the month of September continued to improve but at a slower pace as it came in at 2.3% y/y vs 2.7% y/y as expected and down from 5.1% y/y the previous month. Wages data showed nominal wages progressing further and rising 2.1% y/y, however when accounted for inflation, real wages, they fell 1.3% y/y.

This week we will have preliminary Q3 GDP reading.

Important news for JPY:

Tuesday:

• GDP

CHF

SNB total sight deposits for the week ending November 4 came in at CHF572.1bn vs CHF581.6bn the previous week. This makes it a seventh consecutive week of falling deposits. Seasonally adjusted unemployment rate for September remained at 2.1%. SNB’s Maechler stated that further rate hikes are not out of the question as inflation remains too high. SNB Chairman Jordan came out with firmer comments stating that current monetary policy is not restrictive enough to bring down prices. Swissy immediately gained strength as chances of a rate hike at December meeting increased substantially.

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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.}