Forex Major Currencies Outlook (Aug 31 – Sep 4)

USD 

Consumer confidence in August declined for the second straight month. It came in at 84.8, down from 91.7 the previous month. The $600/week scheme ended on July 31 and it led to the decline in consumer confidence. The numbers have fallen below values during the pandemic and represent almost a six-year low. Preliminary durable goods for the month of June smashed expectations coming in at 11.2% m/m vs 4.7% m/m as expected. Digging in deeper into the number we find out that the reading was skewed due to the rise in defensive aircraft parts of 77.1% which does not reflect economic expansion and muddies the headline reading. On the positive side, core capital goods came in at 2.4% m/m vs 1.8% m/m as expected with a revision higher to the previous month’s reading. 

Second reading of Q2 GDP saw it revised up to -31.7% q/q from -32.5% q/q as preliminary reported. Initial jobless claims topped the 1 million mark for the second week in a row (it came at 1006k). Another blow to the economy is that the number of continuing claims came in higher than expected at 14535k but still lower than 14758k from the previous week. 

Fed Chairman Powel stated that "following periods when inflation has been running persistently below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time." Employment issues will be prioritized over inflation. PCE inflation in July rose to 1% y/y with core rising as well to 1.3% y/y. Both personal spending and personal income beat expectations coming in at 1.9% and 0.4% respectively which is a good sign for Q3. However, caveat is that these numbers are July numbers, $600 per week checks were still available back then, so we may see a serious drop in August numbers. 

This week we will have ISM PMI data and NFP numbers on Friday. Given that the Fed is prioritizing employment NFP reading will gain in importance. Estimates are for around 1.5 million on the headline number with the unemployment rate of around 10%. 

Important news for USD: 

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate 

EUR 

German Ifo business climate index jumped to 92.6 in August from 90.4 the previous month. Expectations and current situation assessment categories also showed an improvement coming in at 97.5 and 87.9 respectively. Optimism regarding the economy, not just expectations, but current situation as well, pushed EUR higher. Ifo economists now expect German GDP to grow by 7% in Q3 after Q2 GDP was revised higher to -9.7% q/q from -10.1% q/q as preliminary reported. Economic sentiment for the Euro area continued to rise, beating expectations which suggests double-digit Q3 GDP. Improvements were seen in both industrial and services sentiment. 

This week we will have preliminary August inflation data and consumption data for July. 

Important news for EUR: 

Tuesday:

• CPI

Thursday:

• Retail Sales 

GBP 

The pound has enjoyed a very strong week despite the uncertainties around Brexit deal and Covid-19 back home. It has benefited from the weak dollar pushing GBPUSD to the 1.33 level and strengthening against the yen, crossing the 141 level. 

AUD 

Q2 Capex data came in at -5.9% q/q vs -8.2% q/q as expected. It is a beating but not something to be proud of especially when Q1 reading was -2.1% q/q. Westpac is predicting that AUDUSD will go as high as 0.75 by the end of 2020 citing increase in iron ore prices due to growing demand from China, current account surplus and stimulus coming from Australia. 

This week we will have RBA interest rate decision, Q2 GDP and July consumption data from Australia as well as official and Caixin PMI numbers from China. 

Important news for AUD: 

Monday:

• Manufacturing PMI (China)
• Services PMI (China)
• Composite PMI (China)

Tuesday:

• RBA Interest Rate Decision
• Caixin Manufacturing PMI (China)

Wednesday:

• GDP
• Caixin Services PMI (China)
• Caixin Composite PMI (China)

Friday:

• Retail Sales

NZD

Retail sales in Q2 plunged -14.6 q/q and -14.2% y/y as a result of countrywide lockdown. Prime Minister Ardern announced that lockdown in Auckland will be extended to August 30 and finance minister added that lockdown takes away NZD500m from GDP per week. Trade balance data for July saw surplus dwindling to NZD282m from NZD475m the previous month on the back of fall in exports and rise in imports.

CAD

Q2 GDP data showed the record drop of -38.7% q/q vs -39.4% q/q as expected. GDP in June was up 6.5% m/m but the huge drop in April’s reading lead to the sharp quarterly decline.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

After a surprising jump in inflation the previous month CPI data for August continued their downward path. Headline number came in at 0.3% y/y vs 0.6% y/y as expected and as reported the previous month. Ex-fresh food category, which is a core reading, came in at -0.3% y/y vs 0.4% y/y the previous month and ex-fresh food, energy category, the so-called core-core, came in at -0.1% y/y vs 0.6% y/y the previous month.

Prime minister Abe will resign from his post due to health reasons. Economic policy called “Abenomics”, which consists of monetary and fiscal stimulus as well as economic reforms, will continue to be implemented regardless of the successor. Currently, finance minister Aso is the leading candidate.

This week we will have consumption, employment and capital spending data.

Important news for JPY:

Monday:

• Retail Sales

Tuesday:

• Unemployment Rate
• Capital Spending

CHF

Total sight deposits for the week ending August 21 reached the magic round number of CHF700bn, up from CHF689.9bn the previous week. With EURCHF being at the 1.075 level seems that SNB targeted USDCHF pair, buying dollars, in order to prop it up from the 0.90 level. Q2 GDP fell -8.2% q/q thus providing another reading showing the devastating impact of the virus on the economy.

This week we will have consumption and inflation data.

Important news for CHF:

Monday:

• Retail Sales

Wednesday:

• 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.}