Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Oct 19 – Oct 23)​

Preliminary PMI data from Europe, talks surrounding Brexit negotiations as well as Q3 GDP reading from China will impact the markets.

USD

Inflation in September came in as expected, headline at 1.4% y/y and core at 1.7% y/y. Retail sales on the other hand smashed expectations by coming in at 1.9% m/m vs 0.8% m/m as expected. Control group also had a very strong reading coming in at 1.4% m/m vs 0.2% m/m as expected. US consumer is keeping the economy going and this may put some risk-on mood in the markets. IMF now sees world GDP contracting -4.4% in 2020 vs -5.2% as was estimated in June. GDP for 2021 is seen at 5.2% vs 5.4% in June. China growth for 2020 is raised to 1.9% from 1% while outlook for 2021 is unchanged at 8.2%. Eurozone 2020 contraction is seen at -8.3% vs. -10.2% in June while 2021 growth is seen at 5.2% vs. 6.0% in June.

This week we will have housing data.

Important news for USD:

Tuesday:

• Housing Starts
• Building Permits

Thursday:

• Existing Home Sales

EUR

ZEW survey showed a small improvement in the current situation in Germany from -66.2 to -59.5, however there were big drops in expectations component. German dropped to 56.1 from 77.4 while EU expectations dropped to 52.3 from 73.9. ZEW notes rising virus cases as the main culprits for the drop in the expectations category. We can add Brexit uncertainties as well as incoming US elections and their negative impact to the investor optimism in the mix. Industrial production in August slipped to 0.7% m/m from 5% m/m in July indicating that economic recovery started to lose it’s steam in mid Q3. Production is now 6.7% lower than it was before the virus. The slowdown in production was lead by non-durable consumer goods production while durable consumer goods production picked up.

This week we will have preliminary October PMI data.

Important news for EUR:

Friday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Claimant count, jobless claims, in September came in at 28k vs 39.k the previous month. Claimant count rate remained stable at 7.6%. ILO unemployment rate rose to 4.5% due to the change in the methodology. Still there are concerns that the number is low due to the furlough scheme and inability to properly measure unemployment. Wages have improved as workers are going back to work but are still very weak and not able to provide any inflationary pressures.

Reuters reported that EU leaders will authorise continuation of Brexit negotiations for the 'coming weeks'. Prime minister Johnson hinted to preparations for no-deal Brexit which plunged GBP almost 100 pips against major counterparts. Negotiations will continue over the weekend and we see them dragging through November as well.

This week we will have inflation, consumption and preliminary October PMI data.

Important news for GBP:

Wednesday:

• CPI

Friday:

• Retail Sales
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

Employment change in September came in at -29.5k vs -40k as expected. The unemployment rate ticked up to 6.9%, keeping it below expected level of 7%, while participation rate was unchanged at 64.8%. Both full-time and part-time employment showed declines coming in at -20.1k and -9.4k respectively. The report was not good, but not as bad as expected. Additionally, the report is not showing the full picture as government job support is assisting the numbers. RBA governor Lowe indicated a possibility of cutting rate from 0.25% to 0.10% which weighed heavily on the AUD pushing it lower. Analysts now see RBA cutting rate at their next meeting on November 3 and markets are pricing around 74% chance of that happening. Lowe also added the possibility of expanding QE program to encompass purchases of 10yr bonds and urged for further fiscal support.

Trade balance in China for the month of September came in at CNY254.7bn vs CNY419.5bn as expected. Exports rose 8..7% y/y while imports jumped to 11.6% y/y vs 1% y/y as expected. This huge jump in imports did lower the surplus, however it is indicative of strong domestic demand which is much more important. Alternatively, the rise in imports could be due to the stockpiling ahead of the US sanctions. September CPI came in at 1.7% y/y vs 1.9% y/y as expected dropping from 2.4% y/y in August. Main culprit were food prices, particularly pork prices, which showed a significant drop. PPI broke a chain of three consecutive improving months by coming in at -2.1% y/y vs -2% y/y in August. Low PPI will hurt industrial profits in the future thus prompting monetary authorities to increase support for the economy.

This week we will have Q3 GDP data as well as consumption and production data for September.

Important news for AUD:

Monday:

• GDP (China)
• Industrial Production (China)
• Retail Sales (China)

NZD

Assistant Governor of RBNZ Hawkesby commented that although there is still a lot of uncertainty about the economy some economic data have surprised to the upside. Global risks are to the downside and economy will require continued policy support. He added that lower NZD could provide further stimulus is interest rates go negative which sent NZD down as markets are increasingly sensitive to all news related to the possibility of negative rates implementation.

This week we will have Q3 inflation data.

Important news for NZD:

Thursday:

• CPI

CAD

Manufacturing sales in August came in at -2% m/m vs -1.4% m/m as expected. This breaks the chain of three consecutive rising months. The largest declines were in the transportation equipment (-13.7%) and plastics and rubber industries (-9.6%). Sales of wood products and miscellaneous industry were up for the fourth consecutive month, rising 12.3% and 12% respectively.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI
• Retail Sales

JPY

Core machinery orders in August came in at 0.2% m/m vs -1% m/m as expected and -15.2% y/y vs -15.6% y/y as expected. A small beating on expectations may indicate increased business spending in months to come. Final industrial production came in at 1% m/m and -13.8% y/y, a bit weaker than preliminary reported. Tertiary industry index improved to 0.8% m/m but an improvement of 1.5% m/m was expected. Both reports indicate just a gradual improvement in their respective sectors.

This week we will have national inflation data as well as preliminary October PMI data.

Important news for JPY:

Friday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

CHF

SNB total sight deposits came in at CHF704.6bn vs CHF705.1 the previous week. A small drop indicating that SNB slowed down their intervention. They are most likely satisfied with the current EURCHF level and decided to stand on the sidelines for a time being. Swiss government has upgraded GDP projection for 2020 to -3.8% from -6.2% previously but it came at the cost of downgrading GDP for 2021 to 3.8% from 4.9% previously.
Inflation has also seen improvements to -0.7% in 2020 and -0.1% in 2021 from -0.9% and -0.3% respectively, but the fact that they expect deflation to continue through the next year is very worrisome. SNB Chairman Jordan stated that although they are not big fans of negative rates they are necessary. With disinflationary pressures presiding over the economy negative rates are here to stay.

 

[katetrades]

Forex Major Currencies Outlook (Oct 26 – Oct 30)​

ECB, BOJ and BOC meetings, along with preliminary Q3 GDP data from the US and EU will highlight the final week before the US elections.

USD

Housing starts and building permits continued to rise in September taking advantage of favourable conditions caused by low interest rates and came in at 1415k and 1553k respectively. Existing home sales skyrocketed to 6.54m, the highest in 14 years. Housing is leading the recovery, however if the housing market gets overheated it can lead to a new bubble.

This week we will have more housing data, durable goods orders and as well as first reading of Q3 GDP which is expected to show annualised rebound of around 32%. PCE inflation and personal spending data will round up the week.

Important news for USD:

Monday:

• New Home Sales

Tuesday:

• Durable Goods Orders

Thursday:

• GDP

Friday:

• PCE
• Personal Spending

EUR

Preliminary PMI data for October paint a mixed picture. Manufacturing PMI rose to 54.4 from 53.7 in September on the back of a very strong German reading of 58. Services continued to decline coming in at 46.2 vs 47 as expected and down from 48 the previous month. Composite reading fell below 50 level to 49.4 from 50.4 in September. The reading shows a two-way recovery with manufacturing going strong while services dropping due to virus related restrictions. Markit notes that EU “is at increased risk of falling into a double-dip downturn” adding that “the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus.”

This week we will have an ECB meeting. We see no changes to the policy at this meeting but possibility of more stimulus to come in December targeting PSPP (Public Sector Purchases Program). We will also get preliminary Q3 GDP, expected at 7.5%, as well as preliminary October inflation figures.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

Friday:

• GDP (EU, Germany, France)
• CPI

GBP

Inflation in September has improved after a dramatic drop in August and came in at 0.5% y/y. Core inflation came in at 1.3% y/y as expected. The biggest contributor was recreation and culture. After the “eat out to help out” scheme ended in August, prices in restaurant and bars also pushed inflation higher. Overall, the inflation push seems connected only to several goods and services thus not making the environment inflationary. Retail sales improved 1.5% m/m from thebAugust reading thus making retail sales volumes in Q3 increase by 17.4% which is a new record. They continue to rise and exceed the pre-virus levels.

Preliminary October PMI data showed expansion but it has significantly slowed down. Manufacturing came in at 53.3 vs 54.1 in September, services came in at 52.3 vs 56.1 in September while composite came in at 52.9 vs 56.5 the previous month. Markit noted that "The slowdown would have been even more pronounced had it not been for exports rising as overseas customers sought to secure orders before potential supply disruptions as Brexit draws closer” and "While the fourth quarter still looks likely to see the economy expand, the rate of growth looks to have slowed sharply and the risk of a renewed downturn has risen."

Moody has downgraded UK to Aa3 citing three reasons: Weakening economic strength, erosion of fiscal strength and weakening of UK institutions and governance. Due to the furlough scheme the debt grew over 100% of GDP in 2020. Finance minister Sunak revealed additional support for businesses. The maximum grant will increase to £3750 from £1875 previously with grants for self-employed doubling from 20% to 40%. While trade negotiations with EU are still going and will continue to do so until the end of the year UK and Japan have signed post Brexit free-trade agreement.

AUD

RBA Assistant Governor Kent stated that there is a need in the economy for more policy support and this need will be prevalent for some time given the economic outlook and high unemployment. RBA minutes from the October meeting showed that both unemployment and underemployment are expected to remain high for an extended period. Inflation is expected to remain subdued for some time. Members have discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative. AUD was weakened by Kent’s and minutes’ remarks and AUDUSD is pushing toward the 0.70 level.

Q3 GDP from China came in at 2.7% q/q vs 3.3% q/q as expected while coming in at 4.9% y/y vs 3.2% y/y the previous quarter. After a strong reading in Q2 the rebound has lost its steam and it was dampened by low imports. Imports are indicator of domestic demand which helps propel economic recovery. Industrial production in September continued to improve and came in at 6.9% y/y vs 5.8% y/y as expected. The improvement was achieved due to the rising exports. Retail sales came in at 3.3% y/y vs 1.6% y/y as expected. Domestic consumption is picking up making this a second consecutive month of rising positive reading. Chinese tourists have travelled only within the country thus all their money was spent within the economy which in turn helped create jobs for low-skilled workers and further stabilised consumption.

This week we will have Q3 inflation data from Australia as well as official PMI data from China.

Important news for AUD:

Wednesday:

• CPI

Saturday:

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

NZD

RBNZ Governor Orr stated that there is plenty more room in their QE program and that they would prefer to deal with inflation than battle deflation. He added that they will update on policy tools in November, RBNZ meeting is on November 11. GDT price index came in at 0.4%, faltering a bit, but still a third positive auction in a row. CPI in Q3 rose to 0.7% q/q from -0.5% q/q the previous quarter, although expectations were for a rise to 0.9% q/q. Incoming data from New Zealand are good but RBNZ keeps sending dovish messages thus keeping the currency in a limbo.

CAD

Retail sales for August came in at 0.4% m/m vs 1.1% m/m as expected. The biggest contributors were building materials and garden equipment which rose 4.5%. Clothing stores were flat on the month due to the rise in jewellery while they are down -12% since August of last year. Retail sales are waning as we are getting into Q4. Headline inflation in September improved to 0.5% y/y from 0.1% y/y in August thanks to rising prices in transportation, recreation, education and reading, and shelter.

This week we will have BOC meeting with no changes to rate or policy expected and monthly GDP figure for August.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

Friday:

• GDP

JPY

Trade balance in September came in at JPY675bn vs JPY975.6bn as expected. Exports came in at -4.9% y/y, worse than -2.6% y/y expected while imports came in at -17.2% y/y. Although the imports data is terrible it still represents an improvement from -21.5% y/y as expected and -20.8% y/y the previous month. Exports to China showed the biggest improvement coming in at 14% y/y while exports to EU slumped -10.6% y/y.

National inflation numbers in September show complete absence of inflation with headline number coming in flat as expected, down from 0.2% m/m in August. Ex fresh food, energy component also came in flat on month, while ex fresh food component came in at -0.3% m/m vs -0.4% m/m as expected. The numbers are very worrying and they will prompt BOJ to consider additional stimulus in the near future. Considering their track record so far, doing more of the same will hardly provide desired results.

This week we will have the BOJ meeting. No changes to policy or rate are expected but lower assessment of the economy is possible. Additionally, we will have consumption, employment and Tokyo area inflation data.

Important news for JPY:

Thursday:

• BOJ Interest Rate Decision
• Retail Sales

Friday:

• CPI
• Unemployment Rate

CHF

SNB total sight deposits for the week ending October 16 came in at CHF705.1bn vs CHF704.6bn the previous week. After a short break total sight deposits continue to rise indicating more space for SNB intervention in FX markets.

 

[katetrades]

Forex Major Currencies Outlook (Nov 2 – Nov 6)

US presidential election on Tuesday. This event alone would make most other weeks completely uneventful. On top of that we will have RBA, BOE and Fed meetings as well as NFP to round out the week.​

USD

Preliminary reading of Q3 GDP shows it at 33.1% vs 32% as expected. Needless to say that this is the best quarterly reading, however it is following the worst quarterly reading. Personal consumption came in at 40.7% while business investment came in at 20.3%. Inventories added 6.62 pp to the reading while imports improved almost 100% from the previous quarter. The reading still puts the annual rate of contraction from the pre-virus peak of more than 7 percent. The drop is almost as big as in 2008 trough of the Great Recession.

Consumer confidence slipped to 100.9 from 101.3 the previous month. It was a mixed report with current situation rising and expectations falling indicating that people are falling from government support and are not optimistic regarding the relief package. Fed’s preferred inflation reading PCE came in at 1.4% y/y with core pointing to 1.5% y/y. Both readings show small improvements compared to the August reading but still miles away from Fed’s ATI target. Senate leader McConell has adjourned it until after the election. This move throws away any chance of stimulus package to be passed before the election.

This week we will have ISM PMI data as well as Fed meeting, with no changes expected and NFP. Headline NFP number is expected to come above 500k while the unemployment rate should slip to 7.8%. Economic data will be secondary to the biggest event of the year: US presidential election.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Thursday:

• Fed Interest Rate Decision

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Ifo survey in October showed a first decline in business climate and expectations for Germany in six months. Rising number of virus cases in Germany does not bode well with investors. This just adds more concern about a Q4 GDP reading making a “double-dip” growing possibility. Current situation has been positively assessed and it continues its five-month rising trend. Sentiment data pointed to a decline in consumer confidence to -15.5 from -13.9 in September.

ECB has left key rates unchanged and refrained from any changes in policy stating that they will correct their course of action according to December forecasts. ECB president Lagarde stated that recovery is losing momentum faster than anticipated which causes consumers to be more cautious regarding their spending habits. She cited “clear deterioration” in the near-term outlook as well as fall in business investment caused by the virus. All instruments will be under review. There will be additional stimulus in December, the question remains what will it look like and in what amount will it be.

Q3 GDP data surprised to the upside coming in at 12.7% q/q vs 9.6% q/q as expected. This is a great rebound after a dismal Q2, however with covid infection numbers rising across the EU it puts a very bleak outlook on Q4. The rebound from Q3 will not be translated into Q4 as we could have seen by September data. Preliminary inflation data in October shows no change from September reading. Headline inflation is at -0.3% y/y while core is at 0.2% y/y.

GBP

Headlines that EU and UK have managed to make progress on some important issues lead to increased optimism in the market that a deal can be reached in early November. Fewer questions remain unsolved, but the big one, fisheries, is still a point of contention.

This week we will have BOE meeting where no changes to rate are expected but we should see increase in asset purchase program by £100bn.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Victoria state premier Andews stated that virus outbreak is under control and that it is time now to open up the economy. Melbourne, capital of Victoria state and the second most populous city in Australia, was under lockdown for 111 days. The reopening will help the economic growth thus easing pressure on RBA which meets this week. Q3 inflation came in at 1.6% q/q and 0.7% y/y, both improvements from Q2. Rising oil prices as well as re-introduction of childcare costs that were cut in Q2 as a way to help families cope during the virus induced crisis attributed the most to the rebound. Core inflation, RBA targets it for 2-3% y/y range, came in at measly 0.4% q/q and 1.2% y/y thus adding more credence to the rate cut talk next week.

This week we will have consumption data and RBA meeting from Australia. Markets are expecting a 15bp rate cut, bringing the rate down to 0.10%, 15bp cut to 3-year target yields, bringing them down also to 0.10% and a QE program to encompass bonds of 5-10 years. The size of QE is estimated to be between AUD150bn and AUD200bn. Caixin PMI data will be published from China.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision

Wednesday:

• Retail Sales
• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

Trade balance data in September showed a widening of trade deficit to -NZD1017m from -NZD353m in August. This is the fifth consecutive month of declines in trade balance due to the drop in exports and rise in imports.

This week we will have Q3 employment data as well as preliminary business confidence data for November.

Important news for NZD:

Tuesday:

• Employment Change
• Unemployment Rate

Thursday:

• ANZ Business Confidence

CAD

BOC has left the rates at 0.25% as widely expected. They will reduce the amount of QE from CAD5bn/week to CAD4bn/week but will encompass more longer-dated bonds. They also see inflation staying below 2% level until 2023. GDP forecast for 2020 has been reduced to -4.3% from -6.8% previously but GDP for 2021 was also reduced to 3.8% from 4.9% previously. GDP for the month of August came in at 1.2% m/m. Preliminary estimate for September GDP is 0.7% m/m which would put Q3 GDP at 10% q/q.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

BOJ has left the short-term interest rate at -0.10% as widely expected. Board members have noted extremely high uncertainty over economic, price outlook with risks for price outlook skewed to the downside. They reiterated their willingness to take additional easing steps without hesitation as needed to combat the damage to the economy caused by the virus. Both GDP and core CPI for fiscal year 2021/2020 have been downgraded to -5.5% and -0.6% respectively. Consumption in September disappointed with retail sales coming in at -0.1% m/m vs 1% m/m as expected and -8.7% y/y vs -7.6% as expected. The unemployment rate stayed at 3%

Both core and headline inflation numbers for Tokyo area in October dropped into negative territory. Headline CPI came in at -0.3% y/y, ex-fresh food at -0.5% y/y while ex-fresh food, energy came in at -0.2% y/y. Government introduced “Go to Travel” campaign which consists of government’s subsidies for domestic travel and is considered to be the main drag on consumer price growth. Additionally, sales tax hike that was introduced in October of last year has fallen out of the comparison which contributed to low reading. Industrial production in September improved to 4% m/m and -9% y/y with expectations for further growth in October and November.

This week we will have spending and earnings data.

Important news for JPY:

Friday:

• Household Spending
• Labor Cash Earnings

CHF

SNB total sight deposits for the week ending October 23 came in at CHF706.9bn vs CHF705.1bn the previous week. Steady and continued rise. Retail sales in September came in at 0.3% y/y, however August reading has been revised up to 4% y/y from 2.5% as preliminary reported, thus giving strength to the consumption report.

This week we will have inflation data.

Important news for CHF:

Tuesday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Nov 9 – Nov 13)

After a very eventful week we will have a rather quiet week ahead of us with RBNZ meeting leading the way.​

USD

ISM manufacturing PMI for October came in much stronger, 59.3, than it was expected at 56. This makes it the strongest reading in more than 2 years showing an impressive rebound in manufacturing sector. New orders component rose to an astonishing 67.9 from 60.2 in September while production went up to the 63 level. The employment component returned to expansion coming in at 53.2 vs 49.6 in September. ISM services PMI showed a different picture. It came in at 56.6 vs 57.5 as expected. Although the reading is well in the expansion territory, drops in new orders and particularly in employment are causing concerns.

October NFP was a very strong report that was largely overlooked by the market because of the election. Headline number came in at 638k vs 580k as expected. More impressively the unemployment rate fell a full percentage point to 6.9% from 7.9% in September. Even more impressively this was achieved with the participation rate rising to 61.7% from 61.4% in September. A drop in the unemployment rate will reduce the need for a big fiscal stimulus package.

The Senate race in Georgia has been postponed until January 5 which keeps chances of “blue wave” (Democratic party having majority in both The House and The Senate) alive. Markets are speculating that “blue wave” will bring a higher fiscal stimulus leading to rise in gold and stocks and a fall in USD. If Republicans retain the Senate, fiscal stimulus will be much lower and there are fears that they will undermine Biden’s presidency.

This week we will have inflation data.

Important news for USD:

Thursday:

• CPI

EUR

Final manufacturing PMI for October improved to 54.8 from 54.4 as preliminarily reported. Improvements were seen in all major countries with output and new orders growing rapidly. Final services PMI came in at 46.9 vs 46.2 as preliminary reported on the back of improvement in German reading. Composite was thus brought to the 50 level. With restrictions being implemented around Europe we can expect November service reading to show further decline. Concerns about “double dip” in Q4 GDP are mounting. European Commission came out and downgraded their forecast for 2021 GDP from 6.1% to 4.2%. Expectations are for Q4 GDP to come in at -0.1% q/q. Forecast is based on no-deal Brexit on December 31.

This week we will have a second estimate of the Q3 GDP.

Important news for EUR:

Friday:

• GDP

GBP

BOE has left the bank rate unchanged at 0.10% but they upped the QE program by £150bn to a total of £875bn. They have assessed the economic outlook as uncertain due to the downside skewed risks and are willing to increase their QE commitment in order to meet inflation target in medium-term. They also do not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target. Q4 GDP is now seen falling into contraction and rising in Q1 of 2021. There was no talk about negative interest rates.

With Covid-19 cases rapidly rising prime minister Johnson did not see an alternative but to announce a new lockdown. The new lockdown will be in place until December 2. Pubs and restaurants will be closed, takeaway and delivery will be available. Non-essential retail will also close while schools and universities will remain open. UK extended its wage furlough scheme for the workers until the end of March that will be affected by the lockdown. Workers will receive 80% of their regular pay. Preliminary expectations are that newly imposed lockdowns could decrease November GDP by 6-7%. Impact on Q4 GDP could be even bigger if lockdown is prolonged.

This week we will have employment data and preliminary Q3 GDP reading.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Thursday:

• GDP

AUD

Expectations for RBA easing have been widely spread and RBA delivered. They have cut the cash rate to 0.1% from 0.25% and will cap 3-year yields at 0.1%. They will enlarge their bond buying program by AUD100bn and use it to buy government bonds of 5 to 10-year maturity over the next six months. Additionally, they have clarified that they do not expect to raise the cash rate for at least three years. The measures are intended to spur economic recovery and provide job creation. The unemployment rate is expected to peak just below 8% before decreasing. Bank members see their actions leading to a lower exchange rate for AUD. The bank is prepared to do more if they deem it necessary but governor Lowe stated that introduction of negative rates is “extraordinarily unlikely”.

Official PMI data from China showed a small drop in manufacturing (51.4 from 51.5 in September) while services rose to 56.2 from 55.9 from September thus pushing composite to 55.3 from 55.1 the previous month. All three readings show expansion in China with services picking up in Q3 and following through in Q4. Inland travel promoted by the government had a huge impact on the services industry. Chinese tourists travelled across the China instead of going abroad which lead to increases in jobs as well as money staying within the country. Caixin manufacturing improved to 53.6 from 53 in September due to a strong rise in output indicating strong domestic demand. Caixin services rose to 56.8 from 54.8 in September which pushed composite to 55.7 from 54.5.

This week we will have inflation data from China.

Important news for AUD:

Tuesday:

• CPI (China)

NZD

Q3 employment change came in at -0.8% q/q while the unemployment rate climbed to 5.3% as was expected. Participation rate ticked up to 70.1% from 69.9% in Q2 and private wages rose 0.4% q/q vs 0.2% as expected and as was in Q2. Maintaining the unemployment rate this low will be the main challenge for the government and RBNZ. Latest GDT price auction came in at -2% making it the first auction with falling prices since early September. Preliminary business confidence for November improved slightly to -15.6 from -15.7 in October.

This week we will have RBNZ meeting. There are no expectations for a rate cut, however the tone of the statement will be scrutinized.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

Trade balance in September saw widening of trade deficit to -CAD3.25bn from -CAD3.21bn in August. Exports rose by 1.5% lead by lumber and aircraft while imports rose also by 1.5% thanks to rise in crude oil imports. Exports to countries other than the United States rose 10.9% with exports to the United Kingdom (gold and aircraft), Norway (aircraft and nickel) and Germany (copper and various other products) contributing the most to the growth. Imports from countries other than the United States rose by 2.1%. This makes both exports and imports to countries other than the US surpassing pre-COVID levels (February). Exports to the United States decreased to 1.6% while imports were up 1.2% making total exports CAD2.8bn short of pre-virus levels with imports around CAD1.2bn lower than in February.

October employment report showed a change in employment of 83.6k vs 75k as estimated. The unemployment rate has ticked down to 8.9% while the participation rate jumped to 65.2% from 64.8% in September. Another encouraging sign was that great majority of new jobs (69.1k) were full-time jobs. Labour situation is improving with participation rate almost reaching pre-pandemic levels.

JPY

Final manufacturing PMI for October improved to 48.7 from 48 as preliminary reported moving closer to the 50 level. This is the highest reading since January with new exports orders category growing for the first time in two years. Services reading improved to 47.7 continuing its rise toward expansion and it pushed composite reading to 48. The two readings are also highest since January indicating that economy is gradually moving in the right direction. Wages in Japan are also moving in the right direction but the pace is much slower than desired. September wages came in at -0.9% y/y vs -1.3% y/y in August. Household spending is not following that trend as it plunged -10.2% y/y. Although, we should be mindful that sales tax hike was introduced last October so in previous September there was a high amount of spending in order to circumvent the tax increase, that could explain a bit of the weak reading.

CHF

SNB total sight deposits for the week ending October 30 rose to CHF707.6bn from CHF706.9bn the previous week. CPI in October came in at -0.6% y/y, an improvement from -0.8% y/y in September, Core CPI came in at -0.1% y/y vs -0.3% y/y in September. SNB has already stated that they see deflation in 2021 so these results just reaffirm their view.

 

[katetrades]

Forex Major Currencies Outlook (Nov 16 – Nov 20)

Consumption data from US and China coupled with preliminary Q3 GDP reading from Japan will be the highlights of the week.​

USD

October inflation data showed a drop from September’s levels. Headline inflation came in at 1.2% y/y vs 1.4% y/y in September, while core inflation came in at 1.6% y/y vs 1.7% y/y in September. Readings will not immediately spur the Fed into action. It is concerning however, that after introduction of ATI (Average Targeted Inflation) and their commitment to let inflation run amok it went into opposite direction. Republican senate leader McConnell repeated that he is in favor of a limited stimulus before year-end. Upbeat labor data and news surrounding potential vaccine all speak in favor of lower stimulus package. The White House has withdrawn from the stimulus talks thus removing all hope of the package being delivered in 2020.

This week we will have consumption data.

Important news for USD:

Tuesday:

• Retail Sales

EUR

German ZEW survey of the current situations in November dropped to -64.3 from -59.5 in October indicating increasing worry about the impact of lockdown on the economy. Expectations component plunged to 39 from 56.1 in October raising concerns about the recession in Germany that may lead to “double dip” drop in Q4 GDP for the EU. Analysts see Q4 GDP dropping by 2% due to the lockdown restrictions.

ECB president Christine Lagarde stated that PEPP and TLTRO will likely remain main ECB tools because they can be dynamically adjusted to react to the pandemic. She added that developments in FX may negatively impact inflation, alluding to the recent EUR strength which lead to the drop in inflation below zero. Second reading of Q3 GDP showed a slight revision to the downside with 12.6% q/q and -4.4% y/y.

This week we will have final inflation data for the month of October.

Important news for EUR:

Wednesday:

• CPI

GBP

Claimant count change in October came in at -29.8k. With September’s reading having a huge revision from 28.1k to -40.2k this marks the second consecutive month of declining claims. September employment change continued to decline coming in at -164k which lead to the unemployment rate climbing to 4.8% from 4.5% in August. There was a jump in wages caused by more people coming back to work. Readings are still heavily skewed by the ongoing furlough scheme.

Preliminary Q3 GDP showed a rebound of 15.5% q/q, easily the biggest quarterly growth since the series inception back in 1955. Private consumption lead the way with 18.3% q/q followed by total business investment with 8.8% and government consumption with 7.8% q/q. Business investment came in much weaker than expected showing the uncertainty business are facing due to unresolved Brexit issues. September GDP slowed down to 1,1% m/m from 2.2% in August and in combination with renewed lockdown restrictions, the UK is heading for a negative Q4 GDP reading. Additionally, A3 GDP is down -9.6% compared to the same quarter in 2019.

Phase 3 clinical trials showed that Pfizer and BioNTech developed vaccine has a 90% success rate in protecting people from COVID-19. The announcement quickly pushed risk assets higher and biggest beneficiary of it in the FX market was GBP. Prime Minister Johnson’s chief advisor Dominic Cummings will resign by Christmas. He was the leading figure in organizing the Brexit campaign and referendum. This move was perceived as GBP positive since it may suggest a softer UK stance in trade negotiations with EU which in turn can lead to a successful deal.

This week we will have inflation and consumption data.

Important news for GBP:

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Trade balance data in October showed a surplus of CNY401.75bn vs CNY320.4bn as expected. Exports surged 7.6% y/y on the back of rising headsets exports while imports slowed their rise and came in at 0.9% y/y. Previous month’s imports came in at 11.6% y/y due to stockpiling caused by fear of potential sanctions. In dollar amounts, the surplus rose to $58.44bn while export rose at the fastest pace of the year coming in at 11.4% y/y. Imports, on the other hand, rose 4.7% y/y. Inflation for the same period slowed down to 0.5% y/y from 1.7% y/y which is the lowest reading in over a decade. Falling pork and oil prices were the main culprits. PPI remained unchanged at -2.1% y/y.

This week we will have employment data from Australia as well as industrial production and consumption data from China.

Important news for AUD:

Monday:

• Industrial Production (China)
• Retail Sales (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

RBNZ has left the official cash rate unchanged at 0.25% as expected and made no changes to their LASP program, it stands at NZD100bn. They will provide more stimulus by launching Funding for the Lending Program (FLP) in December. The program will allow for low-cost lending to banks and they hope it will be transferred to customers, borrowers. The size of FLP is rumored to be around NZD28bn. RBNZ stands ready to increase the easing in order to achieve their inflation and employment targets. Committee members were satisfied with incoming data stating that the risks to their baseline scenarios were less skewed to the downside than they had appeared earlier in the year. They stated that they are prepared to lower the OCR to provide additional stimulus if required. Markets are not pricing in negative rates, due to the new stimulus program, which lead to NZD surge.

CAD

Combination of vaccine induced risk on mode, which lead to rise in oil prices, coupled with lower QE commitment from BOC helped CAD gain strength in the first part of the week. As the week went on oil was dropping which helped propel USDCAD over the 1.31 level.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

September core machinery orders, indicator of capex 6-9 months down the road, declined on month coming in at -4.4% m/m but improved on yearly basis coming in at -11.5% y/y. Tertiary index, services, continued to improve and came in at 1.8% m/m vs 0.8% m/m. Government actions have helped the services sector and the readings start to show it. Rating agency Moody’s projects that Japan’s debt to GDP will rise to 230% due to the increased government spending to fight off coronavirus.

This week we will have preliminary Q3 GDP reading, national inflation data as well as preliminary November PMI data.

Important news for JPY:

Monday:

• GDP

Friday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

CHF

SNB total sight deposits for the week ending November 6 came in unchanged from the previous week at CHF707.6bn. SNB was happy with the EURCHF level so did not see reasons for a larger intervention. Additionally, vaccine-induced risk on mode in the markets did SNB a huge favour by weakening the Swissy. The unemployment rate in October ticked down to 3.3%.

 

[katetrades]

Forex Major Currencies Outlook (Nov 23 – Nov 27)

In the shortened week ahead of us preliminary PMI data from EU and UK as well as Fed’s preferred inflation measure PCE will be the highlights. Due to the Thanksgiving holiday markets in the US will be closed so liquidity will be lower. We advise you to exercise caution in trading.​

USD

Retail sales in October missed expectations all around coming in at 0.3% m/m vs 0.5% m/m. Control group came in at 0.1% m/m vs 0.5% m/m. September report was revised down thus adding the salt to the wound of US consumer. No prospect of fiscal stimulus combined with expiring unemployment benefits lead to tightening in consumption. Nonstore retailers, online (primarily Amazon) were the biggest contributors while clothing, sporting goods and book stores were the biggest drag. Retail sales account for around 40% of total consumption which in turn makes almost 70% of GDP. Industrial production on the other hand met expectations by coming in at 1.1% m/m.

Covid vaccine developed by Massachusetts based company Moderna showed a 94.5% efficacy in phase 3 study. None among the participants included in the study developed sever coronavirus symptoms. Vaccine can be stable for 30 days at refrigerator temperature thus giving it an advantage with transportation over Pfizer vaccine that needs to be stored at much lower temperatures.

This week we will have second estimate of Q3 GDP, durable goods orders and Fed’s preferred inflation measure PCE.

Important news for USD:

Wednesday:

• GDP
• Durable Goods Orders
• PCE
• Personal Spending

EUR

Final inflation numbers for October came unchanged from preliminary reading. That is -0.3% y/y for headline inflation and 0.2% y/y for core inflation. ECB president Lagarde stated that key challenge will now be how to bridge the gap that virus created until vaccination is well on the way. She added that Euro area activity has lost momentum in Q4 and that virus is hitting services particularly hard. Her expectations are for inflation to stay in the negative territory until early months of 2021. EURUSD had 2 pushes toward the 1.19 level during the week but both were unsuccessful and brought the pair closer to the 1.18 level.

This week we will have preliminary November PMI data.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

Inflation in October showed a positive development with headline coming in at 0.7% y/y vs 0.5% y/y in September and core coming in at 1.5% y/y vs 1.3% y/y the previous month. Clothing and food were the biggest contributors while recreation, culture and transport groups were the biggest drag. This is a very welcoming surprise for BOE indicating stabilisation in prices as we enter Q4. Retail sales posted a rise of 1.2% m/m vs -0.3% m/m as expected with 5.8% y/y vs 4.1% y/y as expected. Retail sales ex fuel came in at 1.3% m/m vs flat as expected and rose 7.8% y/y vs 5.9% y/y as expected. Non-store retail was the biggest contributor as it rose by 6.4% while sales from household goods grew by 3.2%. Early Christmas discounts caused people to spend funds and thus keep the consumption growing in terms of volume for the sixth straight month.

This week we will have preliminary November PMI data. Brexit negotiations were going strong throughout the week. Agreement has been characterized as being “very close” but we expect that talks will continue into the December.

Important news for GBP:

Monday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

RBA meeting minutes showed bank’s readiness to take more action if needed. Their policy is primarily focused on bond buying with further rate cuts being dismissed. Negative rates are seen as extraordinarily unlikely. Board members do not see rate hikes for at least 3 years and until inflation is sustainably within 2-3% range. Near-term outlook has improved a bit but it is still highly dependent on coronavirus developments.

October employment report blew away expectations influenced by the lifting of the lockdown restrictions in the state of Victoria. Employment change came in at 178.8k vs -27.5k while the participation rate jumped almost a full percentage point to 65.8% from 64.9% in September. The jump in participation rate is particularly encouraging signalling that people have faith in the economy and think it will not be difficult to find a job. On the other hand, the rise may be due to the difficulty for households to make ends meet. We will have to wait for more data in the coming months to make a conclusion on that. The unemployment rate ticked up to 7% but better than 7.1% as expected while underemployment rate plunged to 1% from 10.9% the previous month. Of 178.8k newly employed 97k are full-time employed.

Industrial production in China for the month of October was unchanged from September coming in at 6.9% y/y vs 6.7% y/y as expected. Retail sales improved to 4.3% y/y from 3.3% y/y in September but at a slower pace than expected (5% y/y). Domestic demand is continually improving this year as more and more China citizens spend their income in the country.

NZD

GDT price index came in at 1.8% for the first rise after four consecutive drops in auction. NZDUSD had a particularly strong week, surpassing highs from 2019 and coming to highs from 2018. There is little on the way for its rise toward the 0.70 level.

CAD

Inflation in October, similarly as in UK, surprised to the upside by coming in at 0.7% y/y vs 0.4% y/y as expected. Main contributor were food prices with vegetable prices rising 9.5% y/y. Median core and trimmed core measures were unchanged at 1.9% y/y and 1.8% y/y respectively while common core inflation ticked up to 1.6% y/y from 1.5% y/y in September. Retail sales for September showed an increase of 1.1% m/m thus continuing the streak of five consecutive increases. Retail sales ex auto came in at 1% m/m vs flat as expected. Sales have risen in 9 out of 11 sub sectors. Sales at food and beverage stores were the main contributor followed by vehicle sales. Preliminary data for October suggests that retail sales will come in flat at the start of Q4.

JPY

Preliminary Q3 GDP saw Japan post a first positive quarterly reading in four quarters. The reading came in at 5% q/q and 21.4% annualised. Private consumption came in at 4.7% q/q while business investment stayed in negative with -3.4% q/q but improved from -4.5% q/q in Q2. Net exports were positive contributor to GDP with exports rising 7% q/q while imports plunging -9.8% q/q. Final industrial production in September came in at 3.9% m/m for the fourth consecutive month of increase. The biggest contributor was the auto sector.

October national inflation plunged below zero coming in at -0.4% y/y, the weakest inflation reading four years. Now that sales tax hike from last October has dropped from calculation we can expect negative readings to dominate inflation. Ex fresh food category came in at -0.7% y/y, the weakest reading in nine years, while ex fresh food, energy came in at -0.2% y/y. Preliminary November PMI data showed a decline in all three categories. Manufacturing came in at 48.3 vs 48.7 in October, thus breaking the streak of five consecutive monthly rising figures. Services were 46.7 vs 47.7 which pulled composite down to 47 from 48 the previous month. Covid cases are rising in Japan which lead to slowdown in business activity.

This week we will have inflation data for Tokyo area.

Important news for JPY:

Friday:

• CPI

CHF

SNB total sight deposits for the week ending November 13 came in at CHF707.9bn vs CHF707.6bn the previous week. This is a negligible rise as vaccine-induced optimism brought risk on mode in the markets which consequently lead to the weaker Swissy.

 

[katetrades]

Forex Major Currencies Outlook (Nov 30 – Dec 4)

NFP will highlight the first week of the last month in 2020. It will be followed by preliminary November inflation from EU, Chinese PMI data and Q3 GDP from Australia, Canada and Switzerland.​

USD

Preliminary durable goods orders for October came in at 1.3% m/m vs 0.9% m/m as expected. Core capital goods have also beaten expectations coming in at 0.7% m/m vs 0.5% m/m as expected. These data will help upgrade Q4 GDP projections. The Second Estimate for Q3 GDP came in unchanged at 33.1%. Headline PCE came in at 1.2% y/y as expected but down from 1.4% y/y in September while core PCE came in at 1.4% y/y as expected vs 1.5% y/y in September. Inflation moving in the wrong direction even after Fed announced that they will let it stay above 2% for prolonged period of time (AIT). Personal spending came in at 0.5% vs 0.4% as expected but personal income plunged to -0.7% vs 0.4% as expected. We can yet again see the drop when the unemployment benefits dried out.

FOMC meeting minutes showed talks about future direction of QE program. It should be noted that November meeting was held before the vaccine announcement which should put breaks on Fed’s QE action. Former Chair of the Fed, Janet Yellen, is set to be the first female Treasury Secretary. She will likely push for more fiscal stimulus and she is a proponent of free trade which gave markets reason to cheer and go into risk on mode.

This week we will have ISM PMI data as well as NFP. Forecasts are for a headline number of around 550k while the unemployment rate should tick down to 6.8%.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• NFP
• Unemployment Rate

EUR

Preliminary November PMI data showed a pain in services sector inflicted by the lockdown. Eurozone services came in at 41.3 vs 42 as expected dragged down by French reading of 38. German services fared much better but sill fell to 46.2 from 49.5 in October. Manufacturing continued to show resilience coming in at 53.6 for the Eurozone. The reading was helped by still strong German reading of 57.9 while French reading slipped into contraction with 49.1. Composite was dragged down by services to the 45.1 level. Data here shows predicts return to negative GDP in Q4, however due to the manufacturing sector strength we do not expect it to be a double-digit dip.

This week we will have preliminary November inflation figures.

Important news for EUR:

Tuesday:

• CPI

GBP

UK preliminary November PMI numbers showed a surprising jump in the manufacturing sector, coming in at 55.2 vs 50.5 as expected and up from 53.7 in October. Services, on the other hand, plunged to 45.8 from 51.4 in October, but also beat expectations of 42.8. Composite was 47.4 vs 42.5 as expected. Markit notes that hospitality business have suffered the hardest hit while rise in manufacturing was propped by “inventory building and a surge in exports ahead of the UK's departure from the EU at the end of the year.”

AstraZeneca clinical trail showed the efficacy of its vaccine at 70%. However, they state that smaller dose of its vaccine is needed. Only 1.5 shots instead of 2 are 90% efficient. Additionally, the material can be stored in regular fridge temperature and the firm says it can produce three billion doses next year. Both smaller dosage and smaller storing temperature give it edge over Pfizer/BioNTech and Moderna vaccines. UK government has an agreement to purchase 100 million doses, which theoretically should be sufficient for vaccination of 66 million people.

Brexit deal is still not finalised, question about fisheries remain, but investors are calculating that a great majority of the matters is agreed upon. BOE stated that exit without a deal would inflict more long-term damage to the economy than the virus. Office for Budget Responsibility projects a contraction of -11.3% GDP in 2020 from -12.4% and smaller rebound in 2021 (5.5% vs 8.7% projected in July).

AUD

RBA deputy governor Debelle stated that they do not expect rate cut for at least 3 years as they have to be careful not to remove the stimulus too early since economy is still fragile. He added that low interest rates are underpinning asset prices and that he is not convinced that negative rates would work. Finally, he sees a lot of uncertainty surrounding the economy and it will take time to bring it to the pre-pandemic levels.

This week we will have Q3 GDP and RBA meeting from Australia. There are no expectations for further action by RBA after they altered the rate and QE program at the last meeting. China will publish official and Caixin PMI data.

Important news for AUD:

Monday:

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

Tuesday:

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

Wednesday:

• GDP

Thursday:

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

NZD

Q3 retail sales were published over the weekend and we got quite a beat. The reading came in at 28% q/q vs 19% q/q as expected. Economic data from New Zealand continues to improve at a faster rate than expected and diminished dovish rhetoric from RBNZ should add more wind to the free rise in NZDUSD and push it over the 0.70 level. New Zealand government suggested that housing prices should be included in RBNZ mandate. Since housing market benefited most from low rates, which lead to rises in housing prices, this move could lead to rate hikes to fight off the overheating price. Kiwi reacted positively to the news and shoot toward the 0.70 level crossing it briefly before returning below it. During the week it hovered around the 0.70 level. RBNZ Governor Orr stated that they are paying close attention to asset prices but that low interest rates are currently essential as they promote spending and investment.

CAD

Average weekly earnings in September came in at 6.9% y/y vs 7.91% y/y in August. Governor Macklem confirmed that rates will stay low for a very long time. Inflation is projected to stay under 2% until 2023. He added that negative rates would not be very helpful in today’s conditions and that BOC will stop QE program once the recovery is well under way. Canadian Dollar enjoyed the risk on mood in the markets with USDCAD pushing the 1.30 level and falling beneath it on several occasions. The level proved to be a strong support from further drops.

This week we will have September GDP and Q3 GDP data as well as employment data.

Important news for CAD:

Tuesday:

• GDP

Friday:

• Employment Change
• Unemployment Rate

JPY

Deflation is deepening in Japan. Headline inflation number for Tokyo area for November came in at -0.7% y/y vs -0.3% y/y in October. Ex fresh food also dropped to -0.7% y/y from -0.5% y/y the previous month while ex fresh food, energy measure kept steady at -0.2% y/y. Yen was battered during the week due to the risk on mood and managed to claw back some of the losses against most majors as the week progressed.

This week will have consumption data, preliminary October industrial production and employment data as well as data on CAPEX for Q3.

Important news for JPY:

Monday:

• Retail Sales
• Industrial Production

Tuesday:

• Unemployment Rate
• Capital Spending

CHF

SNB total sight deposits for the week ending November 20 came in at CHF707.3bn vs CHF707.9bn the previous week. Vaccine induced risk on mode in the markets from the past week helped SNB fight off the Swissy strength so there was no need for them to intervene in the open market.

This week we will have consumption, inflation and Q3 GDP data.

Important news for CHF:

Monday:

• Retail Sales

Tuesday:

• GDP

Wednesday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Dec 7 – Dec 11)

ECB meeting with expected “recalibration” of programs will have the most impact on the markets followed by news regarding the Brexit deal. Additionally, we will have a BOC meeting as well as inflation data from US and China.​

USD

ISM manufacturing PMI for November eased to 57.5 from 59.5 in October. New orders and production component also eased but are holding above the 60 level while new export orders increased. One worrying sign in an overall strong report is the employment category which fell to 48.4 from 53.2 the previous month, thus dropping into contraction territory. Services PMI came in at 55.9, down from 56.6 in October. In contrast to the manufacturing report, the employment component improved to 51.5 thus going deeper into contraction ahead of the NFP report.

NFP headline number for November came in at 245k vs 460k as expected. The unemployment rate dropped to 6.7% from 6.9% in October on the back of drop in the participation rate to 61.5% from 61.7% in October. The report was weaker than expected which may prompt lawmakers to make haste and agree upon a new stimulus. A new relief package totalling $908bn was unveiled by the bipartisan group of Senators and House Democrats have accepted it.

This week we will have inflation data.

Important news for USD:

Thursday:

• CPI

EUR

Final November manufacturing PMI came in at 53.8 vs 53.6 as preliminary reported. German manufacturing is holding strong at 57.8 and French reading improved to 49.6, knocking on the door of return to expansion. Services PMI came in at 41.7 thanks to improvement in the French reading which pushed the composite to 45.3 from 45.1 as preliminary reported. Markit noted that the fall in services was not as severe as in Spring and that it was helped by spill-over demand from the manufacturing sector. Extension of lockdown in Germany and Italy passed the Christmas and into the 2021 will cause further damage to the services sector.

Preliminary inflation in November came in unchanged at -0.3% y/y with core showing 0.2% y/y. Although removal of VAT in Germany and prolonged sales periods are to be blamed for the low inflation the problems of missing growth are much more systemic in nature. Additionally, a strong EUR contributes to low inflation and during the week EURUSD smashed through the 1.20 and then the 1.21 level. October retail sales came in at 1.5% m/m vs 0.7% m/m as expected. Although we are in December now it is worth noting that the reading shows retail sales being 3.1% higher than in February thus making consumption showing a V-shaped recovery.

This week we will have ECB meeting. Expectations are for no change in rates but an increase in the PEPP programme by €500bn euro and its extension until the end of 2021.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

GBP

Final manufacturing PMI came in at 56.6 vs 56.2 as preliminary reported. The growth was achieved thanks to so-called “Brexit-buying”, meaning customers stockpiling ahead of the Brexit deadline. Final services PMI came in at 47.6 vs 45.8 as preliminary reported, thus pushing composite all the way up to 49 from 47.4 as preliminary reported. Full survey shows that the decline in services caused by lockdown was not as severe as reported at the beginning of November.

Cable went over 1.34 pushed by USD weakness, however due to contradictory signals from politicians involved in Brexit negotiations, the pair could not stay above that level for long. Fisheries still remain the sticking point. Later in the week due to the prolonged USD weakness the pair shoot over the 1.35 level. Pfizer-BioNTech vaccine has been approved for use in UK and 800 000 doses should be applied this week. Vaccine will first be distributed to the most vulnerable patients as stated by health secretary Matt Hancock. Care home residents and workers are top priority followed by people older than 80 years and finally healthcare workers.

This week we will have October GDP data.

Important news for GBP:

Thursday:

• GDP

AUD

RBA left the cash rate unchanged at 0.10% as widely expected. Their monetary policy is aimed at the cash rate and targeting 0.10% yield on 3-year government bonds. The board is not expecting to raise cash rates for at least 3 years and they are prepared to do more if necessary. They have labelled high unemployment as national priority as further rise in unemployment is still expected. Q3 GDP bounced back with 3.3% vs -7% in Q2.

Official PMI numbers from China continued to improve. Manufacturing came in at 52.1 vs 51.5 as expected, the highest reading in over three years on the back of strengthening business sentiment, new orders and export sales. Non-manufacturing came in at 56.4 vs 56 as expected for the highest reading since 2012. Composite was pushed to 55.7 from 55.3 in October. Caixin manufacturing PMI came in at 54.9 vs 53.5 as expected. Markit noted that both output and new orders increased at the fastest rates in ten years. Caixin services rose to 57.8 due to increase in business activity and employment categories. Composite was thus pushed to impressive 57.8 level.

This week we will have trade balance and inflation data from China.

Important news for AUD:

Monday:

• Trade Balance (China)

Wednesday:

• CPI (China)

NZD

Final business confidence in November came in at -6.9 vs -15.6 as preliminary reported. This is the highest reading of the year and details show that construction is the most optimistic sector while agriculture is the least optimistic. RBNZ governor Orr reiterated importance for fiscal and monetary policy to work together adding that they are focused on being operationally ready to implement negative rates if necessary.

CAD

Employment change in November surprised positively to the upside by coming in at 62.1k vs 20k as expected. Even more satisfying was the fact that all of it was due to full-time employment coming in at almost 100k (99.4k) while part-time employment dropped -37.4k. The unemployment rate dropped to 8.5% from 9% in October. The minor dent in a very strong employment report was a slip in the participation rate to 65.1% thus breaking the streak of six consecutive rising months. Q3 GDP came in at 40.5% q/q.

This week we will have BOC meeting with no changes expected.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Retail sales in October improved at a weak pace coming in at 0.4% m/m vs -0.1% m/m in September, however on a yearly basis they came in at 6.4% y/y vs -8.7% y/y the previous month. This is the first positive reading since February of this year and it was achieved on the back of motor vehicles, machinery and equipment as well as medicine and toiletry stores. Preliminary reading of industrial production for the same month came in at 3.8% m/m vs 2.2% m/m as expected for a fifth straight monthly rise thanks to a rise in business-oriented machinery and motor vehicles.

Capex in Q3 improved a bit to -10.6% y/y from -11.3% y/y in Q2 but if we exclude software it actually showed a bigger decline of -11.6% y/y from -10.4% y/y in Q2. There will be no meaningful rebound in the economy with these Capex numbers. Final manufacturing PMI improved to 49 thus making it the highest reading in 15 months and the sixth straight rising month. Manufacturing continues to slowly crawl toward expansion. Services rose to 47.8 and composite to 48.1 thus making all reading move closer to the expansion territory compared to the previous month.

This week we will have final Q3 GDP reading as well as spending and earnings data.

Important news for JPY:

Tuesday:

• GDP
• Household Spending
• Labour Cash Earnings

CHF

SNB total sight deposits for the week ending November 27 came in at CHF706.5bn vs CHF707.3bn the previous week. This is a second straight week of falling sight deposits due to the risk on appetite in the markets which lead to lower Swissy. However, this is far from being a trend and with headline inflation in November coming in at -0.7% y/y and core inflation at -0.2% y/y we expect SNB to ramp up its efforts to fight Swissy’s strength. Retail sales in October came in at 3.1% y/y vs 0.4% y/y. It is a very big jump, however it was led by a very volatile food, beverages and tobacco category. Q3 GDP came in at 7.2% q/q vs 6% q/q as expected for a well desired bounce back after -7% q/q in Q2.

 

[katetrades]

Forex Major Currencies Outlook (Dec 14 – Dec 18)​

Big week ahead of us will have no less than four central bank meetings (Fed, BOE, BOJ and SNB) as well as preliminary PMI data from EU, consumption data from US and China along with Brexit and US stimulus news.

USD

November CPI came in unchanged at 1.2% y/y with core at 1.6% y/y. The main culprit stopping inflation from falling, as was expected, was the rise in energy index. Increases in indexes for natural gas and electricity more than offset a decline in the index for gasoline. FDA recommended approval of the Pfizer/BioNTech vaccine which should lead to increase in travel, lifting demand for oil and thus putting some upward pressure to the inflation.

Chances of possible fiscal stimulus in “lame duck session”, period between the elections and the official date when president-elect becomes the president, have been increasing which in turn lead the equities higher and USD lower. There are still issues between parties regarding the deal but latest NFP report is pushing them to reconsider loosening their stances and agreeing on the package. The last proposed package, Treasury Secretary Mnuchin is also on it, is for $916bn. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer rejected the offer for a $916 billion stimulus, thus leaving the question of stimulus lingering.

This week we will have consumption data as well as FOMC meeting. No changes to the rate are expected at the meeting. More dovish tone could be struck due to the increase in COVID-19 cases and further plea for fiscal support should come.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision
• Retail Sales

EUR

ECB left key interest rates unchanged as was widely expected. PEPP program has been enlarged by €500bn to a total of €1.85 trillion and extended until March of 2022, longer than expected. Asset Purchase Programme was left unchanged at €20bn per month. ECB comment on EUR exchange rate “We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.“EURUSD has climbed almost to the 1.22 level and strong EUR has detrimental impact on inflation, a core mission of ECB. It will be interesting to see for how much longer will they tolerate the appreciation of EUR. President Lagarde stated that the economy will shrink in Q4 by around -2.2% and that increase in PEPP was due to fallout in economic activity caused by the virus. She added that PEPP can be further recalibrated if needed. ECB now sees 2020 GDP at -7.3% from -8% in September and 3.9% in 2021 from 5% in September. Risks to growth remain to the downside, but have become less pronounced.

This week we will have preliminary December PMI data.

Important news for EUR:

Wednesday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

GDP in October came in at 0.4% m/m vs flat as expected. Q4 has started with a positive number, however increase in restrictions that occurred in November will quickly sap out that optimism and drag Q4 GDP down, most likely into the negative territory. November GDP is seen falling by 7% m/m. ONS noted that loss of momentum across all of the main sectors since July can clearly be seen.

Brexit negotiations started the week on a rough note with Prime Minister Johnson threatening to abandon talks which sent GBPUSD down over 150 pips. The three issues that remain are fisheries, level-playing field and governance. EU has lowered its demand regarding level-playing field or competition rules. EU chief negotiator Barnier has notified MEPs that negotiations could continue until Wednesday but no further than that. UK Government has dropped controversial clauses from the Internal Markets Bill, thus increasing chances for a deal. Prime Minister Johnson met on Wednesday with Ursula von der Leyen however their meeting did not yield any progress with latter stating that they are still far apart. Deadline has been moved until “the end of the weekend” with both sides increasingly preparing for no deal outcome.

This week we will have employment data, inflation data, preliminary December PMI data, consumption data and BOE meeting. No change in rate is expected however we could see ramping up of no-deal Brexit rhetoric as negotiations are going nowhere. Additionally, if BOE will make some changes to monetary policy we expect it to be in the QE department.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Thursday:

• BOE Interest Rate Decision

Friday:

• Retail Sales

AUD

China’s trade balance in November showed surplus increasing to CNY507.1bn from CNY401.75bn in October. Exports almost doubled to 14.9% y/y from 7.6% y/y in October while imports slumped into negative territory coming in at -0.8% y/y from 0.9% y/y the previous month. In USD surplus was $75.4bn with exports rising very impressive 21.1% y/y vs 12% y/y as expected but imports rising 4.5% y/y vs 7% y/y as expected. Booming exports bode well for the global demand, however weak imports indicate slowing of demand from China which will hurt other exporting countries. Imports from Australia showed the highest decline due to the brewing political tensions between the countries.

Inflation in November negatively surprised the markets by coming in at -0.5% y/y. This is the first time in eleven years that inflation in China was negative. A drop in pork prices lead the way but even without their influence CPI would still be around -0.1% y/y. Belief in global reflation, that everybody expects to come in 2021, is rather shaken by this number. Hope may be restored by the fact that core CPI came in unchanged at 0.5% y/y while deflation in PPI was reduced to -1.5% y/y vs -2.1% y/y in October.

This week we will have employment data from Australia as well as consumption and industrial production data from China.

Important news for AUD:

Tuesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales in November came in at 0.1% m/m and 1.4% y/y. This is the third consecutive month of increases and it bodes well for the Q4 GDP reading. Electronic card retail sales amount to almost 70% of total retail sales. NZDUSD started a weak on the back foot but improved as the week went along, crossing the 0.71 level for a bit, before returning below it and finishing the week on higher level than it started. RBNZ will, on a request from the finance minister, include house prices in its mandate. The move intends to keep asset prices from over inflating due to the loose monetary policy.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday:

• GDP

CAD

BOC has left the rate unchanged at 0.25% as widely expected. QE program remains at CAD4bn per week. They have reiterated their stances to keep the rates low until the 2% inflation target is “sustainably achieved” which according to their forecasts will not occur before 2023. Increase in numbers of virus cases will take a toll on 2021 Q1 GDP and will cause problems for the economy until vaccine is widely available. Prime Minister Trudeau stated that Canada should receive up to 249k vaccine doses before year end from Pfizer.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Labour cash earnings for October came in at -0.8% y/y vs -0.9% y/y in September. It is a continuation of wage rise but at a minuscule pace. Household spending came in at 1.9% y/y vs 2.8% y/y as expected. Miss on the estimates, however it is a first positive reading in 13 months. Final Q3 GDP reading showed improvement to 22.9% q/q annualised from 21.4% q/q annualised as preliminary reported. Private consumption improved 5.1% q/q while business spending fell by a smaller amount of -2.4% vs -3.1% as preliminary reported.

Prime Minister Suga unveiled a new fiscal package totalling JPY73.6 trillion that includes JPY40 trillion of new fiscal measures. There will be funds for a new furlough program, health care expenditures, cash handouts, and funds for single-parent families. The already present Go-To Travel, which represent incentives for domestic tourism and which negatively affects CPI, will be extended.

This week we will have preliminary December PMI data, national inflation data and BOJ meeting.

Important news for JPY:

Wednesday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Friday:

• BOJ Interest Rate Decision
• CPI

CHF

SNB total sight deposits for the week ending December 4 came in at CHF705.3bn vs CHF706.5bn the previous week. This is the third straight week of dropping deposits indicating that SNB feels comfortable with EURCHF hovering over the 1.08 level. They are not concerned with fighting the USD weakness as USDCHF seems anchored below the 0.90 level.

This week we will have SNB meeting.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

 

[katetrades]

Currency outlook for the 2021

New Year is expected to be much better than the previous one. Admittedly 2020 set the bar very low but economies will still face tough hurdles in Q1 of 2021 due to the ongoing lockdowns.

We base our expectations on a premise of successful reflation, output growth, spending stimulation and reversal of the deflation pressures. Economies have undertaken a combination of QE programs, fiscal stimulus and low interest rates in order to create growth based on sustainable inflationary environment. Additionally, vaccine rollout and positive effects from it will be very important to confirm our views.

President-elect Biden should peacefully take over the presidency in January. His milder temperament combined with many years of experience in politics will lead to improvement in relationships with EU. He appointed former Fed Chairman Janet Yellen as new Treasury Secretary. She is a big proponent of free trade and fiscal stimulus, all positive for the markets. Fed announced that they are not planning on raising rates until 2023, possibly 2024 and with Yellen at Treasury they can afford to stick to the current monetary policy and expect support from the fiscal side. Runoff for 2 Senate seats in Georgia on January 5 will influence the size of the stimulus.

We expect that USA will be at the forefront of the reflation recovery. It will lead to widening of spread between yields on 10y treasuries compared to 10y bunds (German bonds) as USA pulls global recovery. Due to the expected rise in inflation we will see yields on treasuries rise as 10y treasuries reach 1% and move toward 1.25%. Increase in inflation will lead to negative real interest rates forcing investors out of the treasuries, thus lowering demand for them and USD in general. All of this will accentuate USD decline as investors search for return elsewhere, possibly in the emerging markets.

Q1 will be rough due to the lockdown measures, however as the vaccine rollout picks up and life starts returning to normal condition we can see a recovery starting in Q2 and booming in H2 of 2021 due to the pent up demand.

Governments have fought the virus induced crisis with fiscal programs and easing of monetary policies thus increasing debt to GDP ratio over 100% in many large economies. Trade volumes are expected to rebound which will positively impact export oriented countries such as Germany and Netherlands. Due to the prolonging of lockdown restrictions in those countries into the January of 2021 Eurozone Q1 GDP will be impaired with rebound starting from Q2. EURUSD will breach the 1.25 level, with potential to shoot close to the 1.30 level. ECB will have no means of bringing it down. The rise will be achieved on the back of USD weakness, not EUR strength.

Virus has wrecked havoc in the UK economy, so the economy will benefit greatl from the Brexit deal. There will most likely be a soft deal which will be positive for future relationship with EU, with EURGBP dropping toward the 0.88 level. We could see GBPUSD hovering over the 1.40 level with pressures to the upside based on the general USD weakness. If the UK leaves without a deal and reverts to WTO rules it will leave the country isolated from both EU and US and give wind to the sails of the Scottish independence claim in 2021, after the Scottish Parliamentary elections. EURGBP could rise toward the 0.95 level.

Chinese authorities announced a move toward achieving a high quality growth in their fourteenth five year plan. Technology war will be the biggest threat in 2021 as many countries apart from US become reluctant to use Chinese technology which will have negative impact on CNY. On the other hand, China GDP growth should be at around 7% due to the weak GDP base in 2020 which will positively impact CNY. Improved trade relationships between US and China, although lifting of all the previously implemented tariffs will not likely happen soon as well as the fact that monetary policy is not likely to continue with easing will add positives for CNY. USDCNY should fall toward the 6.20 level as we get closer to the end of 2021.

Negative real yields in USD could push USDJPY toward the 100 level, with potential to break it and put the pair into double digits. Our expectations are for USDJPY to hover at around 102 throughout the year.

SNB has been labeled currency manipulator, but at their December meeting board members did not seem concerned with that and reiterated their willingness to continue fighting Swissy’s strength in order to support the economy. Combination of global reflation trade and CHF unwinding should push EURCHF over the 1.10 level with potential of reaching the 1.15 level by the year end.

Reflaitonary policies will help commodity prices rise and in turn lead to the appreciation of the so-called “commodity currencies”. Bounce back in oil prices toward the $60 level by the end of the year and low chance for further monetary easing should push USDCAD down to the 1.24 level.

With 40% of exports going to China, most of it being the iron ore, AUD will be sensitive to Australia – China trade tensions as well as potential drop in iron ore prices. If US-China relationship improves we can see the tensions ease between Australia and China which will positively affect AUD. Demand from China for iron ore seems to be waning, leading to lower iron ore prices and consequently lower profits from export for Australia, negative for AUD. We see no further monetary easing from RBA and global reflation trade should push AUDUSD toward the 0.80 by the year end.

We do not see RBNZ pushing for negative interest rates and if they desire to fight strong NZD they will most likely use QE with yield curve control as the second measure. With RBNZ introducing housing prices in their mandate we expect NZDUSD to push toward the 0.75 level by the year end.

TradersWay team wishes you Merry Christmas and a Happy New Year.​