Forex Major Currencies Outlook (Oct 4 – Oct 8)

USD 

Consumer confidence as measured by The Conference Board dropped to 109.3 in September from 115.2 in August. This is the lowest reading since February and shows a deterioration in both future expectations and present situations. Labor market assessment by consumers showed that jobs are more “hard to get” than in August. PCE headline number for August ticked up to 4.3% y/y from 4.2% y/y in July while core PCE stayed at 3.6% y/y for the third straight month. Personal spending has gone up while personal income declined when compared to the previous month. 

US President Biden has signed a stopgap funding bill thus preventing a government shutdown. The bill secures government funding until December 3. The question of the debt ceiling still lingers as October 18 is the deadline. There are miniscule chances that it will not be raised since it would lead to the US defaulting on its debt, but markets are jittery. 

This week we will have ISM Non-Manufacturing PMI and NFP. Headline NFP number is expected to come at 500k, more than double that of August. If the number is reached it will all but seal the November taper. The unemployment rate should tick down to 5.1% with wages also ticking down to 0.4% m/m. 

Important news for USD: 

Tuesday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate 

EUR 

Preliminary CPI data for September for the Eurozone show headline number at 3.4% y/y vs 3.3% y/y as expected while core CPI came in at 1.9% y/y as expected. Both numbers came in higher than in August when they were at 3% y/y and 1.6% y/y respectively. Headline inflation is at a 13-year high spurred higher by raging energy prices (17.4% y/y). The trend of high inflation will persist in the coming months with the ongoing supply bottlenecks and no signs of slowdown in energy prices. 

Germany has a new Chancellor after 15 years. Olaf Scholz from the SDP party will succeed Angela Merkel. Although SDP has received the most votes it will not be enough to form a new Government. The most probable coalition, named “Traffic light”, should include SDP (Red), FDP (Yellow) and Greens (Green). It will be a central-left government and the presence of business-friendly FDP should be enough for markets to remain calm. The second possible coalition is dubbed “Jamaica”, as it includes CDU/CSU (Black), FDP (Yellow) and Greens (Green) and is considered to be even more market friendly. Until the new Government is formed, Angela Merkel will remain the Chancellor and some analyst see her reign extending until Christmas with a small possibility of her staying at her present position upon entering 2022. 

GBP 

The pound has suffered a terrible week. GBPUSD pummelled down more than 300 pips, dropping below the 1.35 level, due to rising concerns regarding petrol shortages. Fuel is aplenty, but due to the Brexit related issues with lorry drivers, there is a shortage of drivers available to deliver petrol. The British army is prepared to step in and deliver it to the petrol stations. Meanwhile, lines are forming at the petrol stations with citizens filling their tanks as much as possible. Transport disruptions stemming from the inability to normally tank gases could have a negative impact on the economy. The furlough scheme ended on September 30, so there is a high dose of uncertainty regarding the future employment figures. 

AUD 

Chinese industrial profits in August rose 10.1% y/y vs 16.4% y/y in July. Rising input costs as well as company’s inability to pass the costs to consumers are putting downward pressures on profits. Evergrande saga continues with Fitch downgrading it to C from CC citing that the company most likely missed interest payment and entered a 30-day grace period. If the company does not settle interest payments within the grace period it will result in a default. Official PMI data for September showed manufacturing drop to 49.6 from 50.1 in August. This is the first time since February 2020 that the reading is in contraction territory - then caused by the pandemic outbreak. Services PMI, on the other hand, returned to expansion with 53.2 reading, thus pushing composite to 51.7. Caixin manufacturing PMI came in at 50 due to growth in new orders. New export orders decreased indicating slowing of global demand while employment index continued with contraction, this time at a faster pace. 

This week we will have RBA meeting. No changes in rate are expected and monetary policy should remain on course for a reduction in bond purchases. 

Important news for AUD: 

Tuesday:

• RBA Interest Rate Decision 

NZD 

It was a tough week for Kiwi as USD strength combined with quarter-end portfolio rebalancing pushed the pair down more than 150 pips. A sudden jump in daily covid cases also contributed to Kiwi weakness. 

This week we will have RBNZ meeting. We should see and markets are expecting a 25bp rate hike, thus making RBNZ the first major central bank to raise rates. There is a possibility of a dovish hike with New Zealand recently having their biggest daily increase in covid cases. 

Important news for NZD: 

Wednesday:

• RBNZ Interest Rate Decision 

CAD 

Rising energy prices have helped CAD fight off USD strength and the pair was down around 80 pips during the week. WTICrude has made a “double top” matching the highest price of the year that was reached at the beginning of July. Still, the charts point to a possible breakout toward new highs for oil in the coming weeks. 

This week we will have employment data. 

Important news for CAD: 

Friday:

• Employment Change
• Unemployment Rate 

JPY 

Ongoing Prime Minister Suga stated that all prefectures will end the state of emergency on September 30. LDP leadership went into a runoff and ended with Fumio Kushida as the new leader and de facto the next Prime Minister. Kishida was Japan's longest serving minister of foreign affairs and is seen as Abe’s successor, so he should not deviate from the Abenomics. He announced a new fiscal stimulus worth around 10 trillion yen to be applied by the end of the year. 

CHF 

SNB total sight deposits for the week ending September 24 came in at CHF714.5bn vs CHF714.7bn the previous week. The bank is monitoring movements in the markets without interfering.

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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.}