Forex Major Currencies Outlook (Oct 21 – Oct 25)

USD

Advanced retail sales in September came in at -0.3% m/m vs 0.3% m/m as expected. Previous month’s data was revised up to 0.6% m/m and it is the only bright spot in the report. Control group came in flat vs 0.3% m/m as expected. The report shows the first drop in retail sales in seven months. Since the US consumer is the main driver of the US economy this will be a blow. Projections for Q3 GDP by Atlanta Fed have been downgraded to 1.7% and it will add more pressure on the Fed to act at their October meeting. Housing starts came in at 1256k vs 1320k as expected, they are down on the month -9.4% m/m. Building permits came in at 1.387m vs 1.35m as expected, down from the previous month but better than expected.

This week we will have housing and durable goods data.

Important news for USD:

Tuesday:

• Existing Home Sales

Thursday:

• New Home Sales
• Durable Goods

EUR

Industrial production in August came in at 0.4% m/m vs 0.3% m/m as expected on the back of stronger than expected reading from Germany. However, the yearly reading continued to deteriorate coming in at -2.8% y/y vs -2.5% y/y as expected and down from -2.1% y/y the previous month. German ZEW survey of current situation in October came in at -25.3 vs -23.6 as expected. The expectations component came in better than expected at -22.8 vs -26.4 although still at the lowest level since 2010. The data continue to paint a grim picture of German economy that is headed toward the recession. Final CPI for September came in at 0.8% y/y vs 0.9% y/y as preliminary reported with core CPI stayed at 1% y/y as preliminary reading showed.

This week we will have preliminary consumer confidence and PMI readings for October. We will also get the final ECB monetary policy press conference with Mario Draghi as governor. He will be succeeded in November by Christine Lagarde. No policy changes are expected.

Important news for EUR:

Wednesday:

• Consumer Confidence Index

Thursday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)
• ECB Interest Rate Decision
• ECB Monetary Policy Press Conference

Friday:

• Ifo Business Climate (Germany)

GBP

August employment report came on the weaker side with employment change showing a decline of 56k while the expectations were for the rise of 26k. This has nudged the unemployment rate to tick higher at 3.9% vs 3.8% previously. In addition, the average weekly earnings have dropped to 3.8% 3m/y from 4% 3m/y the previous month but they are still holding very strong. CPI for September came in at 0.1% m/m vs 0.2% m/m as expected and 1.7% y/y vs 1.8% y/y as expected. Motor fuel and second-hand car prices fell while furniture and household appliances held headline inflation number. Core CPI came in at 1.7% y/y as expected and up from 1.5% y/y the previous month, a welcoming sign. Retail sales came in flat vs -0.2% m/m as expected and 3.1% y/y vs 2.6% the previous month. A better than expected result was achieved on the back of rising sales in food stores but sales in department stores continued their decline according to ONS. It pushed retail sales in Q3 up 0.6%.

UK and EU have struck a Brexit deal. The deal avoids the border on Emerald island and puts it in the Irish sea, thus making a customs border between Northern Ireland and UK.  The Parliament voted on Saturday in favour of Letwin amendment thus forcing Johnson to seek extension with EU before October 31. The letter to EU will be sent on Monday and Withdrawal Bill will be presented for voting on Tuesday. 

AUD

The week of big releases from China started with September’s trade balance data which showed a rise in surplus to $36.65bn vs $34.75bn as expected. However, the reading also showed that both exports and imports fell more than expected, with the former falling -3.2% y/y vs -2.6% y/y as expected and latter falling -8.5% y/y vs -6% y/y as expected. A big drop in imports indicates slowing domestic demand which will have a devastating impact on exporting countries around the Globe while adding to the existing slowdown. Exports to US are down 10.7% y/y while imports from the US are down enormous 26.4% y/y.

Chinese CPI for September came in at 3% y/y vs 2.9% y/y as expected. This is the fastest rise in 6 years and it is led by food inflation which rose 11.2% y/y. Swine flu has cut swine population in about half thus creating record high for pork prices which rose amazing 69.3% y/y. PPI fell -1.2% m/m vs -0.8% m/m as expected for the sharpest decline in more than 3 years which will reflect badly on corporate profits.

Chinese Q3 GDP came in at 6% y/y vs 6.1% y/y as expected and down from 6.2% y/y the previous quarter. The reading shows the slowest GDP rise in almost 30 years, but taking into account the size of the economy this rate is still impressive. Industrial production in September came in at 5.8% y/y vs 4.9% y/y and such a huge beat will cover up any disappointment due to fall in GDP. Retail sales came in at 7.8% y/y as expected and up from 7.5% y/y the previous month.

RBA meeting minutes showed readiness of the board to add additional easing if needed to support growth and jobs. It is reasonable to expect prolonged periods of lower rates. There are no signs yet that household consumption is responding to rate cuts and tax rebates. Leading indicators point to slowdown in the job’s growth in the upcoming quarter. US-China trade war has been deemed as significant downside risk to the global outlook. RBA continued with its dovish stance in hopes of pushing AUD lower to help Australian economy and markets expect one more rate cut by the end of the year.

Employment report for the month of September showed a small miss in employment change 14.7k vs 15k as expected but the unemployment rate has ticked down to 5.2% from 5.3%. Participation rate also slipped to 66.1% from 66.2% which tampers with the drop in the unemployment rate. Additional bright spot in the report is rise in the full-time employment of 26.2k. RBA will be happy with this report and it will diminish the chances of a rate cut in the near future.

NZD

CPI for the Q3 came in at 0.7% q/q vs 0.6% q/q as expected and 1.5% y/y vs 1.4% y/y as expected. Better than expected reading propelled NZD higher however, CPI was 1.7% y/y the previous quarter and deputy governor Bascand pushed it lower hinting that there was a reasonable chance of another rate cut to stimulate growth and inflation. Markets are pricing a 25bp cut at the next month’s RBNZ meeting. GDT price index came in at 0.5% thus making it a third straight auction of rising prices.

This week we will have trade balance data.

Important news for NZD:

Tuesday:

• Trade Balance
• Exports
• Imports

CAD

September CPI came in at 1.9% y/y same as previous month but expectations were for a rise of 2.1% y/y. The main drag on CPI were gasoline prices which fell -10.4% y/y. Median and Trim core numbers came within expectations with former at 2.2% y/y and latter at 2.1% y/y while Common CPI nudged higher to 1.9% y/y vs 1.8% y/y as expected. With no changes in core inflation and it being close to the BOC target it only lowered further already low chances of additional easing. Manufacturing sales for August came in at 0.8% m/m vs 0.7% m/m as expected and up from -1.3% m/m the previous month thanks to the rise of motor vehicle sales.

This week we will have data on consumption and wholesale with federal elections being held on Monday.

Important news for CAD:

Monday:

• Federal Election

Tuesday:

• Retail Sales

Wednesday:

• Wholesale Trade

JPY

Final industrial production reading for August came in line with preliminary readings of -1.2% m/m and -4.7% y/y painting the weakness in factory activity for Q3 which will have a detrimental effect on Japanese economy. National CPI in September continued to decline coming in as expected at 0.2% y/y but down from 0.3% y/y the previous month. This is a new 30 month low. CPI excluding fresh food came in at 0.3% y/y as expected but down from 0.5% y/y the previous month. These are very troubling data, pushing inflation almost into negative territory, deflation. BOJ hints that it will act and provide more easing but they have not yet taken that step. Possibly they will provide further easing at their meeting at the end of the month.
This week we will have trade balance data with government emphasizing the fear of falling exports and preliminary October PMI figures.

Important news for JPY:

Monday:

• Trade Balance
• Exports
• Imports

Thursday:

• Markit Manufacturing PMI
• Markit Services PMI

CHF

Trade balance in September rebounded to CHF4.02 bn vs CHF1.72 bn the previous month. Exports have risen 2.5% m/m from -3.9% m/m the previous month while the imports dropped -1.3% m/m and they were at 1% m/m the previous month.

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