Forex Major Currencies Outlook (Oct 25 – Oct 29)

USD 

Housing starts and building permits declined in September as a combination of high house prices and lack of supplies and workers proved too much. Housing starts came in at 1.555m vs 1.620m as expected while building permits came in at 1.589m vs 1.68m as expected. In August, the numbers were hefty 1.58m for starts and 1.721m for permits. Existing home sales painted a brighter picture and came in at 6.28m vs 6.09m as expected and up from 5.88m in August. 

This week we will have GDP and PCE data. Recent stream of data, industrial production is one, led to scaling back of expectations for Q3 GDP. Both headline and core PCE are expected to tick higher to 4.4% and 3.7% respectively. 

Important news for USD: 

Thursday:

• GDP

Friday:

• PCE 

EUR 

Preliminary PMI data for Eurozone in October saw declines across the board. Manufacturing slipped to 58.5 vs 58.6 in September. Manufacturing output index fell to a 17-month low for France and a 16-month low for Germany, showing the growing difficulties that firms face due to supply constraints. Indications are that they will continue at least until the end of the year, thus making inflation pressures here to stay. Services reading also slipped to 54.7 from 56.4 in September, due to big drop in German reading, while the French reading improved a bit. Composite was seen at 54.3, down from 56.2 the previous month. Although the numbers are still elevated, they are distorted by the high prices paid index. Details reveal that Q4 started on a weaker note and pronounced weakness will continue in the coming months. 

Bundesbank president Jens Weidmann will resign from his post at the end of the year due to personal reasons. Weidmann was president of German Central Bank since 2011. He is a staunch hawk and he will try to persuade ECB to reduce their asset purchase program at the December meeting, his last at the current position. 

This will be a huge week for EUR in the terms of economic data as we will have ECB meeting coupled with preliminary October CPI and Q3 GDP readings. No changes in rate or policy are expected at this meeting as we expect bank members to continue with their “transitory inflation” narrative and push EUR lower. 

Important news for EUR: 

Thursday;

• ECB Interest Rate Decision

Friday:

• CPI
• GDP 

GBP 

Inflation has eased a bit in September with headline number coming in at 3.1% y/y, down from 3.2% y/y in August. Core inflation came in at 2.9% y/y, also down from 3.1% y/y the previous month. Additionally, expectations were for a bigger rise in price levels. This was a point for “team transitory”, however inflation is still at an elevated level and will not deter BOE from their course. ONS notes that biggest contributor to price rises was transportation while biggest drag were restaurants and hotels. “Eat Out to Help Out” scheme, was introduced in August of 2020, rolled out of the calculation, thus leading to lower price levels at September’s reading. Preliminary October PMIs show a rebound in economic activity as manufacturing broke the streak of four consecutive falling months and came in at 57.7 vs 57.1 in September. Services posted a bigger gain coming in at 58 vs 55.4 the previous month and helped propel composite to 56.8 from 54.9 in September. Manufacturing output fell to 8-month low indicating supply issues, however underlying data show that the economy has entered Q4 on a stronger foot. 

BOE Governor Bailey stated: "Monetary policy cannot solve supply-side problems - but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations." Although he is sticking to the “transitory” inflation, his statement is a strong indication of BOE’s readiness to hike rates in the near future. Markets are now seeing November meeting as a 60/40 call in favour of rate hikes. Additionally, they see total of 3 rate hikes by the end of 2022, one 15bp and two 25bp, for a total of 0.75% rate by the year-end. 

AUD 

China Q3 GDP was a miss, coming in at 0.2% q/q vs 0.5% q/q as expected and 4.9% y/y vs 5.2% y/y. Data from Q2 was much higher as well at 1.2% q/q and 7.9% y/y. A deadly combination of virus resurgence, followed by reimposed lockdowns, supply chain bottlenecks and tighter monetary policy had a detrimental effect on GDP. Industrial production in September came in at 3.1% y/y vs 5.3% y/y in August. This represents the seventh consecutive month of declines with steel production being the main culprit for the decline. On the other hand, retail sales surprised to the upside and came in at 4.4% y/y, thus breaking the trend of six consecutive declining months. Looking into details of the report we see that jewelry and gold spending were the biggest contributor. This is not a typical spending item for the majority of the population, therefore questions about the strength of domestic demand during covid outbreaks remain prevalent. 

This week we will have Q3 inflation data from Australia where a slight moderation is expected as well as official PMI data for October from China. 

Important news for AUD: 

Wednesday:

• CPI

Sunday:

• Manufacturing PMI (China)
• Non-manufacturing PMI (China)
• Composite PMI (China)

NZD 

Q3 CPI data showed headline inflation coming in at 2.2% q/q vs 1.4% q/q as expected and 4.9% y/y vs 4.1% y/y. Q2 inflation was at 1.3% q/q and 3.3% y/y. StatsNZ comments that quarterly price rises were widespread with 10 of the 11 main groups in the CPI basket increasing. Main drivers for price increases were housing-related costs. Core CPI, RBNZ targets this number to be in range from 1% y/y 3%, came in at 2.7% y/y. With prices rising this fast and across all groups we can see RBNZ continuing their rate hike cycle which should keep NZD supported. Some analysts speculate that we could even see a full 50bp rate hike at the November meeting. 

CAD 

Inflation data in September showed the continuation of an uptrend. Headline number came in at 4.4% y/y, up from 4.1% y/y in August and higher than 4.3% y/y as expected. Median and trim core inflation measures also continued to rise, coming in at 2.8% y/y and 3.4% y/y respectively, while common core inflation measure came in unchanged at 1.8% y/y. Heating inflation numbers should push BOC to take a more hawkish stance at their incoming meeting. 

This week we will have BOC meeting. There will be no changes to the rate, but QE will be lowered from CAD2bn/week to CAD1bn/week with expectations for it to be completely removed in December. Markets are pricing first rate hike to come in April of 2022 and total of three rate hikes in the 2022. BOC stated that their path is to raise interest rates in H2 of 2022 as they expect output gap to close by mid-2022. 

Important news for CAD: 

Wednesday:

• BOC Interest Rate Decision 

JPY 

Higher energy prices have managed to push headline inflation in September to 0.2% y/y from -0.4% y/y in August, thus making it first time that inflation is positive since August of 2020 when it was at 0.2%. Ex fresh food category also returned into positive territory with 0.1% y/y, while ex fresh food, energy came in at -0.5% y/y. The readings are still miles away from BOJ’s target of 2%, but when we take into consideration inflation in other countries, Japan’s reading shows how deep disinflationary impulses are entrenched in the economy. 

Preliminary October PMI data showed improvements across the readings. Manufacturing climbed to 53 from 51.5 while services breached the 50 level for the first time since January of 2020 by coming in at 50.7. State of emergencies were lifted around the country which pushed sentiment indicating optimism in the services sector. Composite reading also came in at 50.7. It was a tough week for the yen. Japan is a large energy importer and with energy prices rising constantly, it took its toll on the currency. USDJPY has risen to the new four-year highs. General elections will be held on Sunday October 31. 

This week we will have a BOJ policy meeting. There will be no changes to rate or policy but cuts to growth and inflation forecasts are expected. 

Important news for JPY: 

Thursday:

• BOJ Interest Rate Decision 

CHF 

SNB total sight deposits for the week ending in October 15 came in at CHF714.3bn vs CHF714.1bn the previous week. There is a small increase in the reading as EURCHF dropped below the 1.07 level during the previous week, but it quickly recovered and stayed above that level.

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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.}