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In a packed calendar, full of financial releases, the FOMC meeting and the US employment report for October stand out and could be dominating USD market reactions for next week. However, its not only Fed releasing its much-awaited interest rate decision, north of the US border, BoC will be releasing its own, keeping Looney traders on their toes. Across the Atlantic the pound is expected to remain Brexit driven, albeit late in the week, UK’s manufacturing PMI could also catch some interest. On the other side of the Chanel, the release of the preliminary HICP rates for October could provide some fluctuation for the single currency. Moving to the other side of the world, Aussie traders, are expected to closely be watching the release of Australia’s CPI rates for Q3, as well as China’s manufacturing PMIs for October. Also do not forget that Daylight saving time changes once again on Sunday.
USD – FOMC and Employment report eyed
The inner US political scene still makes a lot of noise and pressure continues to build up for US President Trump, yet the market still seems to remain rather quite in a wait and see position about the issue. Also, on the US Sino front, despite the headlines about the issue getting fewer and fewer, we were a bit worried this morning as China’s response to Mike Pence’s speech could have been characterised as a bit harsh. Also, another worrying headline, came through Reuters, which stated that China is to ask the US to remove tariffs in exchange for agricultural purchases. Should such scenario be realised, we could see the USD hardening its stance.
On a monetary level, traders will be on the edge of their seats for the release of the FOMC’s interest rate decision. The bank is widely expected to cut rates as Feds Funds Futures (FFF) imply a probability of 90% for such a scenario at the current stage. The recent weak manufacturing data over the past few weeks, intensified the market’s expectations about a rate cut in the upcoming meeting. On the flip side, Fed officials sent out mixed messages for the US economy before the statement moratorium began. Some mentioned that the US economy is in a good place and mentioned that their forecasts did not include further easing, while others stated that an open mind is required and further easing would be necessary. Please bear in mind that in the last dot plot the bank had signalled no further cuts for the year. Should the bank cut rates as implied by the FFF, we could see the USD weakening and in such a scenario additional focus is to be placed on the accompanying statement. We could see the bank maintaining a wait and see position here, if it adopts a more neutral tone, weighing the pros and cons of any future action and reiterating that the bank remains data dependant. Another possible scenario would be for a hawkish cut, albeit a repetition of the last two meetings, could provide little value for the USD, as the bank until now had mentioned the “insurance nature” of each cut at every one.
On the financial releases front, there are to be a number of releases planned from the US, yet we tend to single out four. The first would be the consumer confidence for October, the second the US GDP growth rate for Q3, the third would be the ISM manufacturing PMI for October and the star for last, would be the US employment report for October with its NFP figure, on Friday. It should be noted that the US employment report had shown a rather tight US labour market for September, with the unemployment rate dropping to a record low 3.5%. Should the US employment market start showing cracks in its tight picture, we could see arguments strengthening about the trade frictions, slowly catching up with the US economy and in such a case we could see the USD weakening. However, the same applies for the GDP growth rate of Q3. Should the rate slowdown substantially, we could see market worries for a slowdown in the US economy strengthening and the USD weakening.
CAD – BoC to remain on hold
However its not only the Fed delivering an interest rate decision next week. North of the border, also the bank of Canada will be releasing their own, some hours earlier than the FOMC. The bank is widely expected to remain on hold and currently CAD OIS imply a probability of around 99% for such a scenario. With a stellar employment report for September, released two weeks ago and CPI rates remaining stable at +1.9 yoy, near the bank’s median target of +2.0% yoy, we could see the financial data supporting a more hawkish tone in the bank’s accompanying statement. On the other hand, the ongoing US-Sino trade tensions and projected weakening global demand for oil could be advising caution for the Canadian Bank. It should be noted that according to a number of analysts, central bank interest rate diffrentials provided substantial support for the Looney against the USD, for the past week and could continue to play a key role, depending on the outlook of each central bank.
It should be noted that in the political front the Canadian elections last Monday, reaffirmed Justin Trudeau’s grip on power even as a minority government, meaning that alliances must be formed to get a functioning majority. Never the less, the political scene seems to be quite stable at the current stage, so we tend to keep an eye out for it, at the time being yet may not worry so much.
As for financial releases, we tend to focus on the release on Thursday, of the GDP growth rate for August which could provide some support for the Looney should it accelerate. Also the release of the Markit manufacturing PMI for October could catch the eye of the Looney trader, on Friday.
GBP – Brexit extention and possible elections?
With the UK Prime Minister Boris Johnson for the time being putting his Brexit deal with the EU on ice, the big question for Brexit is the extension of the Brexit date, while for the inner UK political stage the possibility for an early election. Media seem to note that the EU in principle agrees to an extension of the Brexit date, leaving the actual length of the extension as a question mark. The answer seems that will be delayed until Monday or Tuesday as a meeting of the member states ambassadors is to finalise an agreement. For the time being the most widespread scenario is for the EU to grant a 3-month postponement until the 31st of January, with a flexible clause included that would allow the UK to leave the EU earlier, should the EU-UK deal be ratified by the UK Parliament. It should be noted that EU member states, may also want to see how the UK Parliament will vote for a possible Christmas election, Boris Johnson asked for. Please ebar in mind that for the election scenario to pass, the Labour party would have to agree at one form or the other, as a special majority is required.
However, Labor’s leader Jeremy Corbyn, stated that the Party would vote in favour of a general election, if the EU on Friday would grant an extension of the Brexit date, to 31st of January, taking a no deal Brexit “off the table”, at least temporarily. We expect the pound to remain Brexit driven and headlines next week could be providing another roller coaster ride for the sterling.
On the financial releases front, traders will have to wait until Friday, when UK’s manufacturing PMI will be out for October. The indicators’ reading in the last release, which was for September, had dropped below the reading of 50.0, marking a contraction of economic activity for the sector and should the new reading be even lower, it could underscore the toll of the prolonged Brexit date, with adverse effects for the pound.
EUR – GDP and CPI in focus
Politics for the common currency gain on interest, as a couple of days ago the US Commerce Secretary, Wilbur Ross stated that new talks with the EU could be an alternative to imposing new tariffs on automotive imports next month. The Trump administration seems to hesitate to pull the trigger on tariffs once again, yet as the US seems to have reached at least partial deals with Mexico, Canada, South Korea and Japan, EU seems to be under threat. Should the scenario of US tariffs on European cars or car parts be lifted, or any movement in that direction, we could see the EUR strengthening, as an uncertainty would be lifted off the common currency.
After the last ECB interest rate decision yesterday, ECB is expected to go through a changing period, as Mario Draghi steps down from the helm of the bank and Christine Lagarde takes over on the 1st of November. Also, Isabel Schnabel is to replace Sabine Lautenschlager and we could see a hawk being switched for a dove here, albeit any forecast about Ms. Schnabel’s intentions maybe premature at the current stage. The ECB reaffirmed that it is to restart its QE program on the 1st of November, at a rate of 20 billion EUR per month and that the interest rates are to remain at the same or lower levels, until the inflation rate reaches or nears the bank’s target of +2.00% yoy. ECB President Mario Draghi painted a rather gloomy picture of the area’s economic future, as he stated that inflationary pressures are muted and the downside risks are prominent, asking for further fiscal stimulus from member states.
Bearing the above comments in mind, we tend to focus on the releases regarding inflation and growth next week affecting the common currency, albeit there are a number of financial releases due out. Specifically, the release of the preliminary HICP rates of October for France, Germany and the Eurozone, as well as the GDP rate for Q3 are to catch trader’s attention as they could provide volatility for the EUR.
AUD – Inflation and Chinese data to move the Aussie
With the Aussie suffering losses against the USD in the past two days, AUD traders, seem to be turning their attention to the release of the Australian CPI rate for Q3 next week. The CPI rate is expected to tick up, as these lines are wirtten and if so could provide further grounds for the RBA to remain on hold at its next meeting kicking any possible rate cut further down the road. However its not only Australian releases, which could be moving the Aussie. Also China’s manufacturing PMI’s for October are due out. The NBS manufacturing PMI is due out on Thursday’s Asian session, while the Caixin manufacturing PMI for October is expected on Friday. Should the readings improve, we could see the outlook for the Aussie changing even more as a possible pick up of economic activity in China could provide for further Australian exports of raw materails. Should the indicators on the other hand drop, we could see the Aussie slipping further. On a more fundamental level, we expect also the Aussie to be affected by the US-Sino negotiations and should there be further easing of tensions, we could see the Aussie getting some strength here.
JA 
