Weekly Forex Market Preview

A lot of US fundamentals are to be released this week besides the FOMC event.

Eurozone Bank stress tests results

The Euro currency managed to attempt a rally on upbeat German PMI figures but pared its gains. While the key event for the week ahead will be eurozone inflation data, over the weekend the stress test results for eurozone banks were announced which came mostly in line with expectations. The focus will now shift to the December’s TLTRO tranche as it was rumored that the banks were reluctant to take on additional liabilities ahead of the stress tests.

UK GDP soft but meets expectations

The first estimate for third quarter GDP was soft, growing 0.7% compared to 0.9% growth in the second quarter. The market reaction was however muted. The Bank of England’s asset purchase and bank rate votes remained unchanged with two dissenters and largely remained a non-event. Cable closed the week relatively unchanged, making it a second week of indecisiveness. This week’s events influencing US dollar should see some direction in cable.

Bank of Canada turns to “neutral” from “dovish”

The BoC unveiled its money monetary policy minutes which did not steer too far away from normal. The BoC left interest rates unchanged at 1%, but changed the phrase “…remains neutral with respect to the next change to the policy rate; its timing and direction will depend on how new information influences the outlook and assessment of risks…” to “…the balance of risks falls within the zone for which the current stance of monetary policy is appropriate..”. Considering that the BoC dropped forward guidance last month, this change of phrase is being seen as the BoC shifting from a dovish tone to a more ‘neutral’ view, raising speculation of an interest rate hike in 2015.

Key Events:  20 – 24 October

• Canada whole sale sales m/m meets estimates of 0.2%
• China GDP ticks softly higher at 7.3% v/s 7.2% estimates. Industrial production up 8%
• Australia quarterly CPI 0.5%, trimmed mean CPI q/q rises less than estimates at 0.4%
• RBA and BoE minutes show nothing new. Remains a non-event
• US headline CPI m/m 0.1%, core CPI 0.1%
• Canada retail sales declines -0.3%
• BoC monetary policy unchanged, turns neutral from dovish
• New Zealand quarterly CPI rises less than expected at 0.3%
• China, flash manufacturing PMI rises 50.4
• French flash manufacturing PMI declines to 47.3, services PMI soft at 48.1
• Spain’s unemployment rate improves to 23.7% v/s 24.5% last month
• German flash manufacturing PMI rises 51.8, services PMI declines softly to 54.8
• Eurozone flash manufacturing PMI rises to 50.7, services PMI up 52.4
• UK Retail sales m/m declines more than expected by -0.3%
• UK preliminary Q3 GDP in line with estimates growing 0.7%

Fundamentals for the Week 27 – 31 October

FX Majors Weekly Pivots

Currencies/Events to Watch this Week

• The FOMC’s press conference and rate statement will be the key highlight of this week as the Fed looks to end its QE. It is expected that the Fed’s tone will be dovish highlighting the risks in the short term. Later in the week, the US advance GDP data and the Fed’s choice of inflation indicator Core PCE data will be released
• Bank of Japan monetary policy is expected to remain unchanged but other data such as inflation and retail sales likely to bring volatility to Yen crosses
• Germany’s CPI and Eurozone flash CPI will set the tone for the Euro crosses. A tick upwards in inflation from the Eurozone could see the Euro gain strength