Forex Major Currencies Outlook (Oct 12 – Oct 16)

USD 

ISM Services PMI in September came in at 57.8 vs 56.2 as was expected and up from 56.9 the previous month. Diving deeper into the numbers we see that new orders jumped to 61.5 from 56.8 the previous month while employment index returned to expansion with 51.8 from 47.9 the previous month. Business activity also improved coming in at very strong 63 level. Trade balance in August set a new record deficit. It came in at -$67.1bn vs -$66.2bn as expected. Exports rose 2.2% while imports rose 3.2% indicating good domestic demand. The deficit with China decreased to -$26.4bn while total goods deficit increased by $3bn and came in at -$83.86bn. 

Fed Chairman Powell stated in his speech that economy has performed well but it is weakening. He stated that Fed has lowered borrowing costs and ensured that credit is ample thus stabilising financial markets. Government was commended for its massive fiscal stimulus, however more of it is needed to ensure that recovery continues. Powell added that doing little on this front will be worse than doing too much. President Trump suddenly announced the end of stimulus talks with Democrats stating that he will unveil massive stimulus after the election victory. After seeing US markets close lower due to his announcement, he tweeted his support for small businesses and sending stimulus checks to all Americans ($1200). 

This week we will have inflation and consumption data. 

Important news for USD: 

Tuesday:

• CPI

Friday:

• Retail Sales 

EUR 

Final services PMI reading for September came in at 48, down from 50.5 in August. Composite came in at 50.4, down from 51.9 in August. The rise in virus cases impeded the economic recovery raising questions about the Q4 data. If PMIs continue to falter in combination with already falling inflation will prompt additional stimulus. Retail sales in August came in at 4.4% m/m vs 2.5% m/m due to strong online purchases and clothing sales. Consumption has rebounded after a drop in July adding more support to the rebound in Q3. 

This week we will have ZEW survey as well as EU Summit on Thursday and Friday. 

Important news for EUR: 

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)

Thursday and Friday:

• EU Leaders Summit

GBP

Final services PMI reading for September came in at 56.1 vs 55.1 as preliminary reported. Composite came in at 56.5 vs 55.7 as preliminary reported. Markit noted the resilience of UK’s service sector stating however that risks in the coming months are skewed to the downside. Worries concerning Brexit are on the rise which could negatively impact the economic recovery in Q4.

GDP in August came in at 2.1% m/m vs 4.6% m/m as expected. GDP in August is down 9.3% from the same month a year ago. Although all 3 months in Q3 had positive readings they kept sliding from month to month indicating that Q3 rebound may not be as strong as hoped for. Given the risk surrounding Brexit as well as the expiring furlough programme the worries about Q4 are mounting.

This week we will have employment data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

AUD

At their October meeting RBA left both cash rate and the targeted yield on 3 year bonds at 0.25% as was widely expected. They have reiterated that they will not increase cash rate until progress has been made towards full employment and they are confident that inflation will be sustainably within 2-3% band. Decline in growth was not as bad as expected and the unemployment rate is likely to peak at a lower rate than it was expected earlier. They see tackling the unemployment rate as an important national priority and “will maintain highly accommodative policy settings as long as is required”. Government unveiled the budget for the fiscal year ending in 2021 and it shows a deficit of 11% of GDP as well as net debt rising to 36.1% of GDP.

This week we will have employment data from Australia as well as trade balance and inflation data from China.

Important news for AUD:

Tuesday:

• Trade Balance (China)

Thursday:

• Employment Change
• Unemployment Rate
• CPI (China)

NZD

RBNZ officials stated that they are actively working on negative interest rates and funding-for-lending programme. The news was brought by Reuters citing an unnamed RBNZ official and it pushed NZD down. There are still speculations about the validity of the news, however kiwi is suffering from negative rates talk.

This week we will have Q3 inflation data.

Important news for NZD:

Thursday:

• CPI

CAD

Employment report for September showed employment change coming in at 378.2k vs 150k as expected. The unemployment rate fell to 9% from 10.2% in August while participation rate climbed to 64.8% from 64.6% in August. Final point of this very strong employment report is that great majority of employment (334k) was full-time employment. BOC Governor Macklem stated that “we are not actively discussing negative interest rates at this point but it’s in our toolkit and never say never”. Later on during his statement he subtly downplayed the probability of negative rates which lead to CAD gaining strength.

JPY

Final services PMI reading for September came in at 46.9 vs 45 the previous month and pushed composite to 46.6 vs 45.2 the previous month. This is the eighth straight month of services reading below 50 with January showing measly 50.1. Markit stated that with restrictions on travel imposed in the country tourism is preventing any meaningful recovery in the services sector. Household consumption in August improved a bit to -6.9% y/y from -7.6% y/y in July. Labour cash earnings continued to decline coming in at -1.3% y/y, for a fifth straight month of declines. Japan’s economy is in a vicious downward cycle, no wages, no consumption, no inflation.

CHF

Total sight deposits for the week ending October 2 came in at CHF705.1bn vs CHF704.5bn the previous week indicating that SNB is still performing interventions in the market to curb Swissy’s strength. The seasonally adjusted unemployment rate in September moved in the right direction by slipping to 3.3% from 3.4% the previous month.

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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.}