The Weekly Wrap – Economic Datta and COVID-19 Hit Riskier Assets

The Stats

It was a quiet week on the economic calendar, in the week ending 25th September.

A total of 32 stats were monitored, following 69 stats from the week prior.

Of the 32 stats, 13 came in ahead forecasts, while 17 economic indicators came up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 15 of the stats also reflected an upward trend from previous figures. The remaining 17 stats reflected a deterioration from previous.

For the Greenback, the recovery continued following last week’s pullback. In the week ending 25th September, the Dollar Spot Index rallied by 1.85% to 94.624. In the week prior, the Dollar had fallen by 0.44% to 92.926.

Out of the U.S

It was a relatively quiet week on the economic data front.

Key stats included September’s prelim private sector PMIs, the weekly jobless claims, and August durable goods and core durable orders.

The stats were skewed to the negative in the week.

Service sector growth slowed marginally, with the PMI slipping from 55.0 to 54.6, which weighed on the composite. The manufacturing sector saw a pickup in growth, however, with the PMI rising from 53.1 to 53.5.

Labor market numbers also disappointed. In the week ending 18th September, initial jobless claims came in at 870k. This was up from 866k from the week prior.

At the end of the week, durable goods orders and core durable goods orders wrapped up the week.

In August, durable goods orders rose by 0.4%, with core durable goods orders also rising by 0.4%. The numbers fell well short of forecasts and increases in July.

FED Chair Powell was also a key driver in the week.

Giving testimony on Capitol Hill, Powell talked of the need for more support from all levels of the U.S government. The FED Chair called for more government support to speed up the economic recovery. Powell noted that the outlook remained dependent upon the containment of the coronavirus. Aligned with other central banks, Powell also pointed out that, while the economy is showing a marked improvement, uncertainty remained.

In the equity markets, the NASDAQ rose by 1.11%, while the Dow and S&P500 fell by 1.75% and by 0.63% respectively.

Out of the UK

It was a quieter week on the economic calendar.

Key stats included September’s prelim private sector PMIs and CBI Industrial Trend Orders.

The stats were also skewed to the negative.

For September, the CBI Industrial Trend Orders fell from -44 to -48. Economists had forecast a rise to -40.

Of greater significance, however, was slower service sector growth at the end of the 3rd quarter.

The services PMI fell from 58.8 to 55.1. Manufacturing sector activity also slowed, with the PMI falling from 55.2 to 54.3.

Following the talk of negative rates, the stats were not bad enough to force a move by the BoE.

A reintroduction of containment measures could adversely affect the path of the economic recovery, however.

On the Brexit front, failing hopes of a trade agreement between the EU and Britain also weighed.

In the week, the Pound slid by 1.32% to $1.2746, reversing a 0.95% gain from the previous week.

The FTSE100 ended the week down by 2.74%, following a 0.42% decline from the previous week.

Out of the Eurozone

It was another busy week on the economic data front.

Key stats included consumer and business confidence figures and prelim private sector PMIs for September.

It was a mixed bag on the data front.

Eurozone and German consumer confidence saw marginal improvements but not enough to impress. From Germany, business confidence also improved, while coming up short of forecasts.

Key in the week, however, was the prelim PMIs.

While manufacturing sector activity picked up in September, service sector activity slumped, raising concerns over the economic recovery.

France, Germany, and the Eurozone saw a contraction in the services sector. Partially offset by a pickup in the manufacturing sector activity, private sector activity stalled at the end of the quarter.

The Eurozone’s services PMI fell from 50.5 to 47.6, with the composite PMI declining from 51.9 to 50.1. On the positive, was a rise in the manufacturing PMI from 51.7 to 53.7.

While the stats provided direction, a spike in new COVID-19 cases in Europe weighed heavily on the EUR. Concerns over the possible need to reintroduce lockdown measures drove demand for the safety of the Greenback.

For the week, the EUR slid by 1.77% to $1.1631. In the week prior, the EUR had fallen by 0.05% to $1.1840.

For the European major indexes, it was a particularly bearish week. The CAC40 and DAX30 slid by 4.99% and by 4.93% respectively, with the EuroStoxx600 falling by 3.60%.

For the Loonie

It was a particularly quiet week on the economic calendar.

Economic data was limited to August house price figures that had a muted impact on the Loonie.

Concerns over the global economic recovery amidst the spike in new COVID-19 cases weighed on crude oil prices and the Loonie.

The Loonie fell by 1.38% to end the week at C$1.3386. In the week prior, the Loonie had fallen by 0.19%.

Elsewhere

It was a particularly bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 25th September, the Aussie Dollar slid by 3.54% to $0.7031. The Kiwi Dollar wasn’t far behind, ending the week down by 3.15% to $0.6546

For the Aussie Dollar

It was another quiet week for the Aussie Dollar on the economic calendar.

There were no material stats from Australia to provide the Aussie Dollar with direction.

The lack of stats left market sentiment towards COVID-19 and the global economic recovery to sink the Aussie.

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included August trade figures that failed to support the Kiwi Dollar late in the week.

In August, New Zealand’s trade balance slid from a NZ$447m surplus to a NZ$353m deficit. Year-on-year, however, the trade surplus widened from NZ$50m to NZ$1,340m.

A sharp fall in imports and a rise in Kiwi fruit and aircraft drove the trade surplus to its largest since 2014.

On the monetary policy front, the RBNZ was also in action mid-week. Following the talk of negative rates in the month prior, the RBNZ continued to promise further support if needed. In the RBNZ Statement, the RBNZ stated that additional support could come in the form of Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

September’s private sector PMIs were in focus mid-week.

While the numbers were on the positive side, the private sector continued to contract at a marked pace in September. The Manufacturing PMI rose from 47.2 to 47.3, with the Services PMI rising from 45.0 to 45.6.

According to the prelim survey, new orders fell at a weaker pace, while new export orders fell at a stronger pace.

The pace of job shedding eased across the private sector, while the backlogs of work rose at a stronger pace.

Optimism improved across the private sector in spite of the stronger decline in new export orders.

September’s PMIs reaffirmed the BoJ’s statement last week that the Japanese economy was in a serious condition.

The Japanese Yen fell by 0.97% to ¥105.58 against the U.S Dollar. In the week prior, the Yen had risen by 1.50%.

Out of China

It was a particularly quiet week on the economic data front.

There were no material stats to provide the Yuan direction in the week.

On the monetary policy front, the PBoC was in action, however. In line with forward guidance from the summer and market expectations, the PBoC left loan prime rates unchanged.

On the geopolitical front, tensions between the U.S and China continued to hit the global financial markets.

Early in the week, Trump continued to blame China for the COVID-19 pandemic at the UN National Assembly. The war of words continued in the week.

In the week ending 25th September, the Chinese Yuan fell by 0.81% to CNY6.8238. In the week prior, the Yuan had risen by 0.95%.

The CSI300 and Hang Seng fell by 3.53% and by 4.99% respectively.

The Week Ahead – Private Sector PMIs, Powell, Geopolitics, and COVID-19 in Focus

On the Macro

It’s a particularly quiet week ahead on the economic calendar, with just 32 stats in focus in the week ending 25th September. In the week prior, 69 stats had been in focus.

For the Dollar:

It’s a relatively quiet week ahead on the economic data front.

Key stats include prelim private sector PMI numbers for September on Wednesday.

Expect the services PMI to have the greatest impact ahead of the all-important weekly jobless claims on Thursday.

Wrapping up the week, durable and core durable goods orders for August will also influence.

For the markets, it is all about momentum. Any weak numbers will test the demand for riskier assets.

On the monetary policy front, FED Chair Powell is also back in action, giving testimony on Capitol Hill. Following last week’s FOMC press conference, however, will there be any more surprises?

The Dollar Spot Index ended the week down by 0.44% to 92.926.

For the EUR:

It’s a busy week ahead on the economic data front.

In a quiet start to the week, Eurozone flash consumer confidence figures are due out on Tuesday. The EUR will likely respond to the numbers ahead of a busy Wednesday.

Consumer confidence and spending remain key to any economic recovery across the Eurozone. Any weak numbers would test support for the EUR.

The focus will then shift to the busy Wednesday.

September’s prelim private sector PMIs for France, Germany, and the Eurozone are due out. Alongside the figures, Spanish GDP and German consumer confidence figures are also in focus on Wednesday.

The focus will then shift to September’s Ifo Business Climate and sub-index figures due out on Thursday.

While we can expect the private sector PMIs to be the key drivers, both business and consumer confidence will need to improve.

Concerns over economic speed bumps will raise EUR sensitivity to the stats in the week.

On the monetary policy front, ECB President Lagarde is due to speak on Monday. Expect any references to inflation or exchange rates and the economic outlook to influence.

The EUR/USD ended the week down by 0.05% to $1.1840.

For the Pound:

It’s a quieter week ahead on the economic calendar. September’s prelim private sector PMIs, due out on Wednesday, will be the key driver.

Following last week’s BoE forward guidance and chatter on Brexit, the Pound will be sensitive to the numbers.

CBI Industrial Trend Orders are also due out but will likely have a muted impact, barring dire numbers.

On the monetary policy front, BoE Governor Bailey is scheduled to speak on Thursday. Any further chatter on negative rates and a gloomy economic outlook would weigh on the Pound.

The GBP/USD ended the week down by 0.95% to $1.2917.

For the Loonie:

It’s a quiet week ahead on the economic calendar.

House price figures for August are due out that will likely have a muted impact on the Loonie.

Expect the private sector PMIs from the Eurozone and the U.S and market risk sentiment to be key drivers.

Geopolitics and COVID-19 will influence market risk sentiment in the week.

The Loonie ended the week down by 0.19% to C$1.3204 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a particularly quiet week ahead on the economic calendar.

There are no material stats due out of Australia to provide the Aussie with direction.

That leaves the Aussie in the hands of geopolitics and the global economic outlook influenced by the PMIs.

The Aussie Dollar ended the week up by 0.07% to $0.7289.

For the Kiwi Dollar:

It’s a relatively quiet week ahead on the economic calendar but an important one for the Kiwi Dollar.

Key stats include August trade figures due out on Thursday. We’ve seen plenty of sensitivity to China numbers of late, so expect the devil to be in the details.

Earlier in the week, however, is the RBNZ monetary policy decision on Wednesday. There had been the talk of negative rates. Will there be action or just some more chatter? Economic indicators have yet to impress despite all of the support.

The Kiwi Dollar ended the week up by 1.40% to $0.6759.

For the Japanese Yen:

It is a quiet week ahead on the economic calendar.

Prelim private sector PMI numbers for September will be in focus mid-week. Other than that, there are no stats to consider, leaving the Yen in the hands of geopolitics and COVID-19 news.

On the monetary policy front, BoJ monetary policy meeting minutes will likely have a muted impact. The minutes are dated following last week’s monetary policy decision.

The Japanese Yen ended the week up by 1.50% to ¥104.57 against the U.S Dollar.

Out of China

It’s a particularly quiet week ahead on the economic data front.

There are no material stats due out of China, leaving geopolitics in focus in the week.

On the monetary policy front, the PBoC is in action on Monday. We don’t expect any further cuts in Loan Prime Rates, however. PBoC forward guidance and recent economic data support a hold.

The Chinese Yuan ended the week up 0.95% to CNY6.7692 against the U.S Dollar.

Geo-Politics

UK Politics

The Pound found much-needed support last week. Brexit will remain a key driver in the week ahead, however. We have the House of Lords vote on the Internal Market Bill that could throw Brexit negotiations into chaos. Last week, the British PM attempted to soften the impact of the internal market bill. An amendment to the bill was made to prevent ministers from using the bill to override the Brexit Withdrawal Agreement without a parliamentary vote.

It will get interesting as, while this may have placated some of Johnson’s critics, it may not satisfy the EU…

All in all, it spells for a choppy week ahead for the Pound.

U.S – China

Last week, Trump hit TikTok and WeChat. From the weekend, news hit the wires of Beijing taking retaliatory steps in response.

China issued a warning stating that if the U.S insists on going its own way, China would take the necessary steps to protect the rights and interests of Chinese firms.

We can expect more in the week ahead, particularly with Trump trailing Biden in the polls…

U.S Politics

Presidential Election fever should start to pick up and begin to have a greater influence on the global financial markets.

Trump has yet to claw back the deficit that Biden has enjoyed since COVID-19 reached U.S shores.

Expect Trump’s distraction tactics to draw plenty of attention.

The Weekly Wrap – Central Banks, COVID-19, and Geopolitics Tested the Markets

The Stats

It was a busier week on the economic calendar, in the week ending 18th September.

A total of 69 stats were monitored, following 41 stats from the week prior.

Of the 69 stats, 39 came in ahead forecasts, with 19 economic indicators came up short of forecasts. 11 stats were in line with forecasts in the week.

Looking at the numbers, 31 of the stats also reflected an upward trend from previous figures. Of the remaining 38, 32 stats reflected a deterioration from previous.

For the Greenback, it was back into the red, after 2 consecutive weeks in the green. In the week ending 18th September, the Dollar Spot Index fell by 0.44% to 92.926. In the week prior the Index had risen by 0.66% to 93.333.

Central bank chatter ultimately left the Dollar on the back foot as the FED delivered a more dovish than expected set of projections.

Out of the U.S

It was a busier week on the economic data front.

Early in the week, key stats included August industrial production, retail sales, and NY Empire State Manufacturing numbers for September.

It was a mixed bag for the Dollar, on the data front.

While the September manufacturing sector activity picked up in New York State, retail sales and industrial production disappointed.

In August, core retail sales rose by just 0.7%, following a 1.3% increase in July. Economists had forecast a 0.9% rise.

Industrial production rose by just 0.4%, following a 3% increase in July. The stats supported the view that the economic recovery had lost some of its vigor.

On Wednesday, however, it was the FOMC monetary policy decision and economic and interest rate projections that delivered the blow.

The FOMC projected that interest rates would be close to zero through to 2023, delivering a pessimistic outlook on the economic recovery.

A much-hoped-for V-shaped economic recovery would certainly not justify close to zero rates for such a length of time…

In the 2nd half of the week, the weekly jobless claims and Philly FED manufacturing numbers also failed to impress.

While claims eased back from 893k in the previous week to sit at 860k in the week ending 11th September, economists had been more hopeful.

Manufacturing sector activity also slowed marginally in Philly, which was an added negative on the day.

At the end of the week, prelim September consumer sentiment figures provided some comfort. The Michigan Consumer Sentiment Index rose from 74.1 to 78.9. While up in the month, however, sentiment remained well below pre-pandemic levels and a current year high 101.0.

In the equity markets, the NASDAQ and S&P500 fell by 0.56% and by 0.64% respectively. The Dow ended the week down by just 0.03%.

Out of the UK

It was another busy week on the economic calendar.

Employment and inflation figures drew attention in the 1st half of the week. It was a mixed set of numbers, however.

Claimant counts rose by 73.7k in August. While coming in below a forecasted 100k rise, it was up from a 69.9k rise in July.

The unemployment rate ticked up from 3.9% to 4.1% in July, with the claimant counts suggesting a further uptick ahead. For UK labor market conditions, an end to the and likely surge in unemployment remains a key risk to the Pound… With the government having to introduce containment measures, however, there are hopes of an extension to the scheme.

Inflation came in ahead of forecasts though also painted a grim picture. The annual rate of inflation softened from 1.0% to 0.2%, with consumer prices falling by 0.4% in August. In July consumer prices had risen by 0.4%.

On Thursday, the focus then shifted to the BoE and the MPC’s September monetary policy decision. A dovish monetary policy report and the chatter of negative rates sank the Pound on the day.

Wrapping things up on Friday were retail sales figures, which continued to rise in August. The monthly increase was well below July numbers, however, placing further question markets over the pace of the economic recovery.

In August, retail sales increased by 0.8%, month-on-month, following a 3.7% jump in July. Economists had forecast a 0.7% increase.

Away from the economic calendar, the Pound had found much-needed support after last week’s tumble. Resistance against Boris Johnson’s Internal Market Bill provided support in spite of the bill making it through the House of Commons.

In the week, the Pound rose by 0.95% to $1.2917. In the week prior, the Pound had tumbled by 3.64% to $1.2796

The FTSE100 ended the week down by 0.42%, following a 4.02% rally from the previous week.

Out of the Eurozone

It was also a busy week on the economic data front.

Key stats included industrial production and trade figures for the Eurozone and economic sentiment figures for Germany and the Eurozone.

The stats were skewed to the positive for the EUR.

Industrial production saw another solid rise in July, with the Eurozone’s trade surplus widening.

More importantly, however, was a pickup in economic sentiment in September.

Other stats included finalized inflation figures and wage growth for the Eurozone. The stats had a muted impact on the EUR, however.

For the week, the EUR fell by 0.05% to $1.1840. In the week prior, the EUR had risen by 0.07% to $1.1846.

For the European major indexes, it was a mixed week. The CAC40 and DAX30 fell by 1.11% and by 0.66% respectively, while the EuroStoxx600 rose by 0.22%.

For the Loonie

It was a relatively quiet week on the economic calendar.

Key stats included August inflation and July retail sales figures.

It was a mixed bag on the day front. While there was a pickup in core inflationary pressures in August, core consumer prices stalled in August. Consumer prices fell unexpectedly in the month, adding pressure on the Loonie.

At the end of the week, retail sales also failed to impress. In July, core retail sales fell by 0.4%, with retail sales rising by just 0.6%. In June, core retail sales had surged by 15.5% and retail sales by 22.7%.

The Loonie fell by 0.19% to end the week at C$1.3204. In the week prior, the Loonie had fallen by 0.90%.

Elsewhere

It was a bullish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 18th September, the Aussie Dollar rose by 0.07% to $0.7289, with the Kiwi Dollar rallying by 1.40% to $0.6759.

For the Aussie Dollar

It was another quiet week for the Aussie Dollar on the economic calendar.

Key stats including August employment figures that delivered the Aussie much-needed support.

Full-employment rose by 36.2k, with employment jumping by another 111.0k in August. Improving employment conditions is key for the RBA’s hope of a consumption-driven economic recovery.

On the monetary policy front, the RBA minutes early in the week failed to deliver the talk of further support, supporting a closeout at $0.73 levels on the day.

The risk-off sentiment at the end of the week left the Aussie Dollar flat, however.

For the Kiwi Dollar

It was also a quieter week on the economic calendar.

Key stats included 3rd quarter consumer sentiment figures and 2nd quarter GDP numbers.

It was a mixed set of numbers, in spite of GDP numbers coming in ahead of forecasts.

Consumer sentiment took a hit in the 3rd quarter, with the Westpac consumer sentiment index falling from 97.2 to 95.1.

In the 2nd quarter, the New Zealand economy contracted by a record 12.2%. Economists forecasted a contraction of 12.8%. In the 1st quarter, the economy had contracted by 1.4%.

In spite of the negative numbers, the Kiwi managed to claw back some of its recent losses in response to the FED’s projections.

For the Japanese Yen

It was another busy week on the economic calendar.

Key stats included August trade and inflation figures, which were skewed to the negative.

While Japan’s trade surplus unexpectedly widened from ¥10.9bn to ¥248.3bn, it was a larger slide in imports that cause the widening. Exports slid by 14.8%, with imports tumbling by 20.8%, delivering a grim view on trade terms.

At the end of the week inflation figures were also of little comfort. The annual rate of core inflation was down 0.4% after having stalled in July.

On the monetary policy front, the BoJ left policy unchanged in spite of some quite dire indicators out of Japan of late.

The Bank did state, however, that the Japanese economy was in a serious condition.

The Japanese Yen rose by 1.50% to ¥104.57 against the U.S Dollar. In the week prior, the Yen had risen by 0.08%.

Out of China

It was another relatively busy week on the economic data front.

Key stats included August’s industrial production, retail sales and unemployment figures.

The stats were skewed to the positive, supporting riskier assets before the FED’s fueled pull back.

Retail sales rose by 0.5%, partially reversing a 1.1% slide from July. Industrial production jumped by 5.6%, year-on-year, picking up from a 4.8% rise in July.

Supporting Beijing’s call for a home fueled economic recovery, the unemployment rate slipped from 5.7% to 5.6%.

In the week ending 18th September, the Chinese Yuan rose by 0.95% to CN6.7692. In the week prior, the Yuan had risen by 0.12%.

The CSI300 rose by 2.37%, while the Hang Seng fell by 0.20% to log a 3rd consecutive week in the red.

Dollar’s Bounce: Nearly Over?

Sterling’s weakness is a phenomenon of its own making. US-China tensions continue to run high as Washington has ratcheted up pressure on China and is insisting on the September 15 deadline for TikTok to change ownership or be banned. Beijing would rather see it shuttered than sold.

The high-flying US NASDAQ has pulled back from the record highs set at the start of the month by 10%, but bottom-picker have been met with overhead supply and profit-taking. Oil prices moved sharply lower for the second consecutive week. November Brent fell around 12%, and October WTI tumbled 14% over the past two weeks to levels not seen in three or four months.

Then there is the dynamic within the foreign exchange market itself. On September 1, the euro pushed above $1.20, sterling was approaching $1.35, and the Australian dollar poked above $0.7400. The greenback push below CAD1.30 for the first time since January. Comments by the ECB’s Lane about the role of the exchange rate as an input into its economic models and forecasts spurred a dollar short-squeeze rally.

We had anticipated that after the ECB meeting was out of the way, the market’s attention would turn to the FOMC meeting (September 15-16), where the outcome is likely to reinforce the dovish implications of adopting an average inflation target, around which there is extensive “strategic ambiguity.” Below we fine-tune this scenario.

Dollar Index

With a couple of minor even if notable exceptions, the Dollar Index has been confined to a 92.00-94.00 trading range since late July. It has been trending broadly sideways. It traded at its highest level in nearly a month in the middle of last week near 93.65, just above the upper Bollinger Band for the first time in several months.

The MACDs are trending higher, and the Slow Stochastic is just below overbought territory. The 92.70 level seen around last week’s ECB meeting corresponds to a (50%) retracement of the rally from September 1. A move above the 94.00 area would target 94.75-95.50.

Euro

The euro snapped a six-day slide in the middle of last week, a day before the ECB meeting. It will begin the new week with a three-day advance in tow. Lagarde’s effort to downplay the euro’s strength saw the market bid it a few ticks through the (61.8%) retracement objective of the slide that began after it poked above $1.20 on September 1. Both the MACD and Slow Stochastics have nearly completely unwound the stretched condition and appear poised to turn higher in the coming days. We continue to believe the break from this range takes place to the upside, but the range affair can persist a bit longer.

Japanese Yen

The dollar has been in an exceptionally narrow trading range against the Japanese yen. The nearly 60 pip range was among the smallest weekly ranges of the year. It did not stray more than 30 pips in either direction of JPY106.10. For the third consecutive week, the dollar recorded lower highs and higher lows. The momentum indicators do not appear helpful. More broadly, the dollar is hovering around the middle of a JPY105 to JPY107 trading range.

Britsh Pound

Sterling was pounded last week. It was marked down by almost 3.7%, the most in six months. Part of it was dollar strength. After all, the greenback strengthened against most of the major currencies. However, the real driver was reneging on the Withdrawal Agreement that is seen as making a disorderly exit from the standstill agreement more likely.

The Bank of England meets next week, and some groundwork for additional easing as early as November seems reasonable to expect. Sterling was pushing toward $1.35 on September 1 and made a low ahead of the weekend just below $1.2765. The 200-day moving average is near $1.2735, and the (61.8%) retracement of the rally since the end of June is about $1.2710. The (38.2%) retracement of the rally since the March low is a little below $1.2700. The next important retracement (50%) is closer to $1.2455. Initial resistance now is likely around $1.2950.

Canadian Dollar

The US dollar rose in four of last week’s five sessions to snap an eight-week slide against the Canadian dollar. It was only the second weekly advance here in Q3. The bounce faded in the middle of the week near CAD1.3260, a few ticks ahead of the (38.2%) retracement of the decline since the end of June. The next retracement objective (50%) is around CAD1.3320. The five-day moving average has crossed above the 20-day for the first time since July, and the momentum indicators are trending higher. A loss of CAD1.3100 would confirm the correction is over.

Australian Dollar

The pullback from the high above $0.7400 on (September 1) stopped at the (38.2%) retracement of the leg up from the end of June found near $0.7190. Initial support is now pegged around $0.7240. The MACD is still headed lower, but the Slow Stochastic appears to be bottoming. A move above last week’s high near $0.7330 would likely confirm the correction is over, and another run higher has begun.

Mexican Peso

The greenback’s slide was extended for the fifth consecutive week against the Mexican peso. In an outside down day on Wednesday, the dollar was pushed below the 200-day moving average (~MXN21.59) for the first time since before the pandemic. It has not been able to resurface above it. The next big target is MXN21.00. The momentum indicators are not helpful here, but it has been fraying the lower Bollinger Band (~MXN21.30). A modest bounce just to the 20-day moving average (~MXN21.82), the middle of the Bollinger Band, would be a large move of a couple percentage points.

Chinese Yuan

The greenback’s downtrend against the redback has now extended for the seventh consecutive week. It has risen in only one week so far in Q3. Since the end of June, the dollar has fallen by about 3.5% against the yuan. Given that it is so highly managed, one must conclude that officials see the modest strength as desirable.

Some benefits cheaper imports from the US may attract international capital, as market-liberalization measures, some of which are part of the US-China trade agreement, are implemented. It is difficult to know how far officials will allow things to go, but a near-term trading range between roughly CNY6.81 to CNY6.86 may be emerging.

Gold

The lower end of the recent trading range around $1900 was successfully tested last Tuesday, and the precious metal recovered to almost $1967 before consolidating ahead of the weekend. The MACD and Slow Stochastic appear poised to turn higher. While a gain above $1970 will appear constructive, gold has not been above $2000 for a month now.

Oil

October WTI fell for the second week for the first time since April. However, in recent sessions, a shelf has been carved in the $36.00-$36.60 area, and the Slow Stochastic appears set to turn higher. That area also corresponds to a (38.2%) retracement of the rally since those April lows. The next retracement target (50%) is around $33.50. It managed to finish the week above the lower Bollinger Band (~$37.05). The $39-$40 area may offer a formidable cap.

US Rates

Both the core PPI and CPI readings were above consensus forecasts, but it did not prevent the 10-year yield from falling five basis points last week to about 66 bp. In early August, the yield spent a few days south of 60 bp, but since the middle of June, it has mostly held above it. At the same time, it has not been above 80 bp either, which is well below the current rate of CPI (1.3% and 1.7%, for the headline and core, respectively).

The Treasury re-opens previously sold 20-year bonds and 10-year TIPS in next week’s auction. The 2-10-year yield curve eased to about 54 bp by the end of the week, which captures primarily the softer 10-year yield. The curve is at its 20-day average. The market anticipates a dovish Fed, noting downside risks and the lack of fiscal stimulus.

S&P 500

An outside down day on Thursday saw follow-through selling ahead of the weekend that took the S&P 500 to a new low since the record high on September 2. The benchmark bounced back after approaching 3300. It closed slightly higher ahead of the weekend, but not higher than it opened. The momentum indicators are still pointing lower.

The 3277 area houses the (38.2%) retracement of the gains since the mid-June low. Pushing through, there could signal another 2% decline. A move back above 3420 would stabilize the technical tone. A rally to new record highs was beyond the imagination in the dark days of March, and many have doubted it ever since–the gap between Wall Street and Main Street makes it unsustainable.

The question is whether this pullback marks the end of the rally, or is it a correction? While we still see it as most likely a correction, it does not mean that a bottom is in place.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

The Week Ahead – The BoE, BoJ, the FOMC, Economic Data, and Geopolitics in Focus

On the Macro

It’s a particularly busy week ahead on the economic calendar, with 65 stats in focus in the week ending 18th September. In the week prior, 41 stats had been in focus.

For the Dollar:

It’s a busy week ahead on the economic data front.

In the 1st half of the week, September NY Empire State Manufacturing and August industrial production figures are in focus.

The markets will be looking for a continued upward trend to support hopes of further economic recovery.

Mid-week, the market focus will shift attention to August retail sales figures due out on Wednesday. Expect plenty of influence, with consumer spending key to the U.S economic revival.

On Thursday, Philly FED Manufacturing and weekly jobless claims will influence ahead of consumer sentiment figures on Friday.

While we can expect plenty of influence from the stats, the FOMC monetary policy decision on Wednesday will be the main event.

The key area of focus will be the FOMC economic projections and interest rate projections.

We saw the Dollar take a beating following the FED’s announcement of its new monetary policy framework… The projections will need to reflect a low for longer outlook to pin back the Greenback.

The Dollar Spot Index ended the week up by 0.66% to 93.333.

For the EUR:

It’s also a busy week ahead on the economic data front.

In the 1st half of the week, Eurozone industrial production, wage growth, and economic sentiment figures are due out. Germany’s ZEW economic sentiment figures are also due out.

Expect the ZEW economic sentiment figures to be the key driver on Tuesday.

On Wednesday, trade data for the Eurozone are due out. Barring particularly dire numbers, the trade data should have a muted impact on the EUR.

Through the week, finalized August inflation figures for member states and the Eurozone are also due out.

Following sensitivity to the prelim numbers, expect the EUR to be sensitive to any revisions in the week.

The EUR/USD ended the week up by 0.07% to $1.1846.

For the Pound:

It’s a particularly busy week ahead on the economic calendar. In the 1st half of the week, earnings and employment figures are due out. From Tuesday’s stats, expect the unemployment rate and claimant count figures to have the greatest impact.

On Wednesday, August inflation figures are also due out. The Pound will likely be sensitive to any deflationary pressure build ahead of the BoE decision on Thursday.

On Thursday, the BoE is in action. While the markets are expecting policy to remain unchanged, there had been some recent dovish chatter. Expect any dissent to influence the Pound.

The market focus will then shift to August’s retail sales figures due out on Friday.

Following the BoE’s gloomy outlook on the economy, weak numbers would weigh heavily, assuming the BoE stands pat on policy.

The GBP/USD ended the week down by 3.64% to $1.2796.

For the Loonie:

It’s a relatively busy week ahead on the economic calendar.

Key stats include August inflation figures on Wednesday and July retail sales figures on Friday.

Both sets of numbers will influence.

On the crude oil front, OPEC and the IEA’s monthly reports will also need consideration in the week. Downward pressures have risen as a result of concerns over demand. Any negative chatter from either OPEC or the IEA and expect some pressure on the Loonie.

The Loonie ended the week down by 0.90% to C$1.3179 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively quiet week ahead on the economic calendar.

Key stats include 2nd quarter house price figures on Tuesday and August’s employment figures on Thursday.

Expect the employment numbers to have the greatest impact. We have yet to hear of the RBA talk of negative rates. Dire numbers, following the 2nd quarter GDP numbers, could raise the prospects of further easing.

From the RBA, the monetary policy meeting minutes are due out on Tuesday, with the RBA Bulletin on Thursday.

Any talk of further monetary policy support and gloomy sentiment towards the economy would weigh on the Aussie.

The Aussie Dollar ended the week up by 0.03% to $0.7284.

For the Kiwi Dollar:

It’s another quiet week ahead on the economic calendar.

Key stats include 2nd quarter current account figures on Wednesday and 2nd quarter GDP numbers on Thursday.

The markets will be looking at the GDP numbers to get a sense of whether the RBNZ needs to make a near-term move. These are 2nd quarter numbers, however, so we can expect the markets to be forgiving to an extent.

Following the FED’s shift in monetary policy, central banks will need to douse any bullish demand…

The Kiwi Dollar ended the week down by 0.82% to $0.6666.

For the Japanese Yen:

It is a busy week ahead on the economic calendar.

Key stats include August trade data due out on Wednesday and inflation figures on Friday.

The main event, however, is the BoJ’s interest rate decision on Thursday. What’s next for Japan, as the economy struggles to find its feet?

We have heard frequently from the BoJ, stating its willingness to support. Until now, however, there appears little that the BoJ can do to spur growth.

On the political front, the Liberal Democratic Party leadership vote will take place on Monday. The winner of the election will serve out Abe’s remaining term.

The Japanese Yen ended the week up by 0.08% to ¥106.16 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front.

Key stats include August fixed asset investment, industrial production, and retail sales figures due out on Tuesday.

With little else for the markets to consider in the week, expect industrial production and retail sales to be the key drivers.

Beijing is looking from within for an economic rebound, giving retail sales greater influence than usual.

The Chinese Yuan ended the week up 0.12% to CNY6.8344 against the U.S Dollar.

Geo-Politics

UK Politics

The Pound took a beating last week. Expect Brexit to remain a key driver in the week ahead. From last week, news of a free trade agreement with Japan will be Pound positive. Progress with the U.S on a Brexit deal will be needed, however, for the Pound to avoid any further downside.

U.S – China

It’s all in the U.S President’s hands in the week ahead, as Trump continues to rile Beijing.

Beijing agreed to ramp up imports and stick to the phase 1 agreement, which has limited the impact of Trump’s targeting on Chinese companies. A continued focus and attack on Chinese companies may eventually draw a retaliatory response, however.

U.S Politics

And finally, the U.S Stimulus Package that has failed to make it through. Chatter from the weekend suggests that there is little chance of the package being voted in before the Presidential Election.

With unemployment still at exceptionally high levels, expect the markets to be even more sensitive to the retail sales figures.

The Weekly Wrap – The Pound took a Brexit Tumble, with Central Banks Also in Focus

The Stats

It was a quieter week on the economic calendar, in the week ending 11th September.

A total of 41 stats were monitored, following 78 stats from the week prior.

Of the 41 stats, 23 came in ahead forecasts, with 13 economic indicators coming up short of forecasts. 5 stats were in line with forecasts in the week.

Looking at the numbers, 15 of the stats also reflected an upward trend from previous figures. Of the remaining 26, 22 stats reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive week in the green. In the week ending 11th September, the Dollar Spot Index rose by 0.66% to 93.333. In the week prior the Index had risen by 0.65% to 92.974.

Out of the U.S

It was a quieter week on the economic data front.

Key stats in the week included August inflation figures and the weekly jobless claims figures.

In a shortened week, the stats were skewed to the positive relative to forecasts.

Both wholesale and consumer inflationary pressures eased less than had been anticipated in August. July JOLT’s job openings also painted a more optimistic view on labor market conditions.

Weekly jobless claims figures disappointed, however, with initial jobless claims sitting at 884k in the week ending 4th September. Economists had forecast jobless claims of 846m. The good news, however, was that there was no increase. In the week prior claims also stood at 884k.

While the stats suggested that the Dollar should have been on the back foot, some jawboning and risk aversion supported the Greenback in the week.

In the equity markets, the NASDAQ and S&P500 slid by 4.06% and by 2.51% respectively. The Dow ended the week down by a more modest 1.66%.

Out of the UK

It was a busy week on the economic calendar. The markets had to wait for a Friday data deluge, however, to get a sense of what lies ahead on the monetary policy front.

The BoE is set to deliver next week and the stats were not conclusive on what the BoE will deliver.

Both industrial and manufacturing production rose by more than expected in July, while easing from a June spike.

GDP numbers did disappoint, however, coming up short of forecasts, with trade data also raising red flags.

In July, the manufacturing production rose by 6.3%, following an 11% jump in June. Economists had forecast a 5% rise.

All in all, however, the Pound was under the Brexit hammer in the week. The chances of a no-deal Brexit rose sharply amidst economic doom and gloom. A reintroduction of COVID-19 containment measures from 14th September was also negative for the Pound.

In the week, the Pound tumbled by 3.64% to $1.2796. In the week prior, the Pound had fallen by 0.55% to $1.3279

The FTSE100 ended the week up by 4.02%, reversing a 2.76% slide from the previous week.

Out of the Eurozone

It was a relatively busy week on the economic data front.

The focus was in the 1st half of the week, with economic data from Germany and the Eurozone in the spotlight.

Stats from German were mixed in the week, while numbers from the Eurozone were skewed to the positive.

In July, industrial production fell by 0.9%, following a 0.6% decline in June. While production was in decline, Germany saw its trade surplus widen from €14.5bn to €18.0bn.

The widening was positive, with exports rising by 4.7% versus a 1.1% increase in imports.

On the GDP front, the Eurozone’s 2nd quarter GDP figures were revised upwards. Nothing convincing enough, however, to support a EUR rebound.

For the 2nd quarter, the economy contracted by 11.8%. In the 1st quarter, the economy had contracted by 3.6%.

While the numbers influenced, the focus was on the ECB, the monetary policy decision, and the Lagarde press conference.

The EUR had spiked at a 5-day high $1.1977 before easing back during the ECB press conference.

For the current year, while the ECB revised up its economic forecasts from 8.7% to 8.0%, the ECB did note that the economic recovery would likely be slower.

On the exchange rate front, Lagarde stated that the ECB does not target the exchange rate. She did say, however, that the ECB will monitor the EUR from a price stability perspective.

For the week, the EUR rose by 0.07% to $1.1846. In the week prior, the EUR had fallen by 0.55% to $1.1838.

For the European major indexes, it was a bullish week. The DAX30 rallied by 2.80%, with the CAC40 and EuroStoxx600 gaining 1.39% and 1.67% respectively.

For the Loonie

It was a quiet week on the economic calendar.

While economic data was limited to housing start numbers, the Bank of Canada’s monetary policy decision was the main event.

Following the FED’s revision to its monetary policy framework, the BoC delivered a dovish message. While dovish, the BoC did hold policy unchanged on Wednesday.

On the positive, the BoC acknowledged that an economic bounce-back looked to be faster than previously forecasted. The BoC did warn, however, of indicators pointing to a slow and choppy recovery process.

A slide in crude oil prices in the week added downward pressure in the week.

The Loonie fell by 0.90% to end the week at C$1.3179. In the week prior, the Loonie had risen by 0.28%.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 11th September, the Aussie Dollar rose by 0.03% to $0.7284, while the Kiwi Dollar fell by 0.82% to $0.6666.

For the Aussie Dollar

It was a quiet week for the Aussie Dollar on the economic calendar.

Key stats including August business confidence and September consumer confidence figures.

Both showed improvement following the negative reaction to the Victoria lockdown measures in the month prior.

With the RBA looking for business investment and consumer spending to support recovery, the numbers delivered much-needed support.

For the Kiwi Dollar

It was also a quieter week on the economic calendar.

Key stats included August electronic retail sales and business PMI numbers.

Both were skewed to the negative, weighing on the Kiwi Dollar in the week.

In August, electronic card retail sales slumped by 7.9%, with the Business PMI falling from 58.8 to 50.7.

A reintroduction of COVID-19 containment measures weighed on spending and the PMI.

Following the RBNZ’s talk of negative rates, there will need to be an improvement in September. Further downside and expect the Kiwi Dollar to give up more ground.

For the Japanese Yen

It was a busier week on the economic calendar.

Household spending and 2nd quarter GDP numbers were in focus in the early part of the week. Neither set of numbers were positive, however, as the Japanese economy continues to struggle.

In July, household spending slid by 6.5%, following a 13% bounce in June. In the 2nd quarter, Japan’s economy contracted by 7.9%, which was a downward revision from a prelim 7.8%.

At the end of the week, there was some positive data, however. The BSI Large Manufacturing Conditions Index rebounded from -52.3 to 0.10 for the 3rd quarter.

With the BoJ in action next week, however, the 3rd quarter indicator may be of little consolation.

The Japanese Yen rose by 0.08% to ¥106.16 against the U.S Dollar. In the week prior, the Yen had fallen by 0.83%.

Out of China

It was a relatively busy week on the economic data front.

Key stats included August’s trade data and inflation figures.

The stats delivered mixed results in the week.

China’s USD trade surplus narrowed from $62.33bn to $58.93bn in August. While exports rose by 9.5%, imports fell by 2.1%, raising concerns over demand.

Inflation figures delivered mixed results. While wholesale deflationary pressures eased in August, inflation softened.

The annual rate of inflation eased from 2.7% to 2.4%. By contrast, the producer price index fell by 2%, year-on-year, following a 2.4% decline in July.

In the week ending 11th September, the Chinese Yuan rose by 0.12% to CNY6.8344. In the week prior, the Yuan had risen by 0.34%.

The CSI300 and the Hang Seng struggled in the week, with losses of 3.00% and 0.78% respectively.

Dollar Sits on the Precipice

However, profit-taking by momentum traders turned into a rout as some ECB officials seemed to push back, and the greenback ended on a firm tone.

Although equities continued to rise for a day or so after the dollar bottomed, broad corrective forces were unleashed. Three question face market participants: How deep is the correction? How long will it last? What are some events that could help facilitate a resumption of the underlying trend?

Dollar Index

The Dollar Index fell below 92.00 for the first time since April 2018. It rebounded to 93.25 ahead of the weekend. The 93.50 area capped upticks in the second half of August, and it did not trade above 94.00 in the first half of last month. The 94.00 is also a (38.2%) retracement of the DXY decline since the end of June. The next retracement objective (50%) is near 94.75. The MACD and Slow Stochastic have turned higher.

Euro

The euro’s shooting star candlestick on September 1, reversing lower after trading above $1.20 for the first time since May 2018, signaled the subsequent correction. In the sell-off before the weekend, the euro held above the previous week’s low (~$1.1765). The euro spent most of August in a two-cent range (~$1.1700-$1.1900).

The upside breakout was rejected, and a test on the lower end of the range ought not to surprise at this juncture, given market positioning. Stops are likely below $1.17, and triggering them could be worth another half-cent. The momentum indicators are moving lower. The downside pressure could persist until the middle of the new week or even into the ECB meeting, but once that is out of the way, the ball comes back to the US court with the FOMC meeting on September 15-16.

Japanese Yen

The dollar spent the entire week within the range set on August 28 (~JPY105.20-JPY106.95). Within the range, the dollar edged higher every day last week. The drama in the equity market did spur yen gains as it often does. Rising long-term US yields could support the greenback, but net-net, the 10-year yield was practically unchanged last week near 70 bp. The technical indicators do not appear to be generating robust signals. Unexciting as it may be, continued range trading is the most likely near-term scenario.

British Pound

Sterling peaked on September 1, near $1.3480. It fell to about $1.3175 before the weekend, a whisker below the 20-day moving average (~$1.3180). A trend line connecting the June and July lows since found near $1.3135 at the start of next week as sterling has a three-day losing streak into tow, its longest slump in a month. The lower end of the August range is near $1.30, and that (~$1.3015) corresponds to a (38.2%) retracement of the rally here in Q3. The momentum indicators did not confirm the new highs. The Slow Stochastic is moving lower, and the MACD has been moving sideways but is now softening.

Canadian Dollar

The Canadian dollar was the only major currency to hold its own against the resurging greenback. It was the eighth consecutive weekly slump for the US dollar. The US dollar’s bounce from the dip below CAD1.30 on September 1 fizzled near CAD1.3165 on September 3, just in front of the 20-day moving average (~CAD1.3175). The greenback has not closed above the 20-day moving average since July 14.

The MACD has flatlined, and the Slow Stochastic is turning higher from oversold territory. The Canadian dollar’s resiliency in the face of the dramatic drop in equities is noteworthy. The US dollar’s lows for the year was set on January 7 near CAD1.2955, and that is the next important target. The Bank of Canada meets on September 9. It is not expected to change policy but will confirm it is prepared to do so, if needed.

Australian Dollar

The move signaled by the shooting star candlestick pattern on September1, after briefly trading above $0.7400, may have ended with a hammer candlestick ahead of the weekend. The Aussie recovered from a low near $0.7220, near where a trendline off the late June, July, and August is found, to the $0.7290 area, despite evaporating risk appetites. The lower end of its previous range was closer to $0.7150. Momentum indicators warn that the correction may not be over, but a move above $0.7330-$0.7340 would suggest otherwise.

Mexican Peso

The Mexican peso was the second stronger currency in the world last week, gaining almost 1% against the US dollar. Only the Brazilian real was stronger, gaining nearly 1.5%. It was the fourth consecutive weekly advance. Ahead of the weekend, and despite the weakness in equities, the dollar traded below its 200-day moving average against the peso (~MXN21.5180) for the first time in six months.

The June lows in the MXN21.46-MXN21.47 region beckon. Below there, the next important chart area is near MXN21.22. The technical indicators look stretched, but there is no indication they are ready to turn higher. Resistance is now seen in the MXN21.70-MXN21.80 area.

Chinese Yuan

The dollar fell to new lows for the year against the yuan on September 1, near CNY6.8125. The broader dollar bounce saw it trade up to almost CNY6.8470 ahead of the weekend. Chinese officials have accepted the dollar to decline six weeks in a row and ten of the past 11 weeks.

While the strengthening of the yuan may go contrary to the direction of monetary policy, it would seem to serve its trade needs. The yuan’s appreciation could be confirmed that it plans to step up its imports, and, if true, could support commodity prices. The CNY6.90 area that served as support previously may now function as a near-term cap.

Gold

The record high was set on August 7, near $2075. The correction began. It was repulsed in the middle of August when it tried to recapture $2000, and in last week’s attempt was turned back from about $1992.50. Support is seen near $1900. The MACD and Slow Stochastic suggest the correction could continue. If the major central banks are engaged in an uncoordinated effort to convince investors that they are serious about pushing inflation higher and that in part, it means lower rates for longer, it is difficult to envision a deep or sustained decline in gold prices.

Oil

Oil had a tough week, even though US inventories continued to fall. At first, OPEC’s plan to boost output seemed to weigh on sentiment, and then at the end of the week, demand concerns and falling equity markets dragged prices lower. The outside down day ahead of the weekend was like an exclamation point for the price action.

The 6.7% drop in October WTI was the largest weekly loss since early June. It had been trading mostly between $41.50 and $43.50 since early August and bumping against the 200-day moving average (now near $42.85). It had posted its peak on August 26, nearThe momentum indicators are trending lower. A break of the late July low near $39.00 could spur losses toward $36.00.

US Rates

The US 10-year yields drifted lower for five sessions in a row through September 3, as what seemed like an exaggerated response to the FOMC’s average inflation target was unwound. However, the sharp drop in the unemployment rate to 8.4% from 10.2%, beyond what many economists forecast for year-end, saw the yield jump back and finished the week little changed.

The Treasury will auction $108 bln in coupons next week (roughly split between the three-year notes and 10- and 30-year bonds), and there are expectations for more investment-grade issuance. The 10-year break-even, which has been trending higher since bottoming in March, stalled around 1.80%, the high for the year. It has not been above 2.0% since late 2018.

S&P 500

From the midweek record high near 3588, the S&P 500 fell roughly 6.7% to about 3350 ahead of the weekend. At one point, the NASDAQ traded 10% below its record high. US equities began recovering around the time European markets closed for the week. The S&P 500 reached 3450 in late turnover. Its drop appeared to complete a (61.8%) retracement of the last leg up that began in late July (from around 3205).

The constructive close may encourage buyers after the long holiday weekend. A move above 3470 would lift the tone and above 3500, and a run to new record levels will be anticipated. The recovery bodes well for foreign markets at the start of the new week.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

The Week Ahead – Economic Data, Geopolitics, and Monetary Policy in Focus

On the Macro

It’s a quiet week ahead on the economic calendar, with just 39 stats in focus in the week ending 11th September. In the week prior, 78 stats had been in focus.

For the Dollar:

It’s a relatively quiet week ahead on the economic data front.

Key stats include July’s JOLTs job openings on Wednesday and the weekly jobless claims figures on Thursday.

August inflation figures, due out on Thursday and Friday, will also influence.

Expect the jobless claims figures to be the key driver, however.

The Dollar Spot Index ended the week up by 0.38% to 92.710.

For the EUR:

It’s a busy week ahead on the economic data front.

In the 1st half of the week, Germany is back in focus. Key stats include industrial production and trade figures for July. Expect the industrial production figures to have the greatest influence.

Finalized Eurozone GDP numbers, 2nd quarter French nonfarm payroll, and August inflation figures are also due out. These will likely have a muted impact on the EUR, however.

While the stats from Germany will influence, the ECB monetary policy decision on Thursday is the main event.

Following the FED change to the monetary policy framework, how will the ECB respond? A stronger EUR for longer would certainly not support a recovery in manufacturing…

The EUR/USD ended the week down by 0.55% to $1.1838.

For the Pound:

It’s a relatively busy week ahead on the economic calendar. In the 1st half of the week, August’s BRC Retail Sales Monitor figures are due out on Tuesday.

The focus will then shift to a busy Friday. Key stats include industrial and manufacturing production figures and trade data for July.

Away from the economic calendar, Brexit chatter will also influence in the week. Time is running out for both sides to find common ground…

The GBP/USD ended the week down by 0.55% to $1.3279.

For the Loonie:

It’s a relatively quiet week ahead on the economic calendar.

Economic data is limited to August housing starts. We don’t expect too much influence on the Loonie.

The Bank of Canada’s monetary policy decision on Wednesday is the main event. While the BoC is expected to leave policy unchanged, there may be the promise of more support…

The Loonie ended the week up by 0.28% to C$1.3062 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quieter week ahead on the economic calendar.

While on the quieter side, there are 2 key stats to consider that will have an impact on the Aussie Dollar.

On Tuesday, August business confidence figures are due out ahead of September consumer confidence figures on Wednesday.

In the 2nd quarter, the economy saw its largest quarterly contraction on record. Wages and hours worked also fell by record levels.

With consumption and business investment key to economic recovery, the stats will give an idea of what lies ahead.

Last week’s GDP numbers may also have veered away from the RBA’s base case scenario…

The Aussie Dollar ended the week down by 1.13% to $0.7282.

For the Kiwi Dollar:

It’s another quiet week ahead on the economic calendar.

Key stats include August electronic card retail sales and business PMIs due out on Thursday and Friday/

Expect both sets of figures to influence in the 2nd half of the week.

With the Kiwi Dollar particularly sensitive to numbers out of China, China’s trade data will also influence on Monday.

The Kiwi Dollar ended the week down by 0.33% to $0.6721.

For the Japanese Yen:

It is a relatively busy week ahead on the economic calendar.

On Tuesday, July household spending and finalized 2nd quarter GDP numbers are in focus.

Expect July household spending to garner the greatest interest on the day.

At the end of the week, the BSI Large Manufacturing Conditions Index figures for the 3rd quarter are due out.

There could be more doom and gloom ahead as Japan continues to struggle…

The Japanese Yen ended the week down by 0.83% to ¥106.24 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front.

Key stats include August trade and inflation figures due out on Monday and Wednesday.

The markets will be looking for a solid set of export and import figures and for inflationary pressures to hold steady.

Any disappointment and then expect riskier assets to take a hit. There are plenty of downside risks lingering amidst the global economic recovery.

The Chinese Yuan ended the week up 0.34% to CNY6.8425 against the U.S Dollar.

Geo-Politics

UK Politics:

There appears to be a continued lack of progress on fisheries that are holding back trade talks.

Pressure on the Pound may begin to build, however, if there really is no hope of a deal… The arm flexing is expected to continue until the eleventh hour…

U.S Politics:

We are expecting a focus on the U.S Presidential Elections to build. It is unlikely to have a material impact just yet, however. That will change once the debates kick-off.

Of greater influence will be civil unrest that could become the greatest threat to the U.S economy.

U.S – China

Trade talks resulted in assurances by China and a ramp-up in soybean imports.

Questions remain, however, over whether the flare-ups are over. China could begin to pull away from holding U.S Treasuries. More importantly, China may also show less interest in auctions that could become an issue for the U.S government…

Trump isn’t holding back either way. After bringing tech stocks into focus, it’s now reportedly onto Chinese scientists.

While the markets can stomach the rhetoric, a serious risk of a complete breakdown in relations lingers…

The Weekly Wrap – A Busy Economic Calendar Delivered Support for the Greenback

The Stats

It was a busy week on the economic calendar, in the week ending 11th September.

A total of 78 stats were monitored, following 47 stats from the week prior.

Of the 78 stats, 34 came in ahead forecasts, while 38 economic indicators came up short of forecasts. 6 stats were in line with forecasts in the week.

Looking at the numbers, 34 of the stats also reflected an upward trend from previous figures. Of the remaining 44, 39 stats reflected a deterioration from previous.

For the Greenback, it was a back into the green. After a bearish start to the week, 3 days in the green out of 4 partially reversed losses from the previous week. In the week ending 4th September, the Dollar Spot Index rose by 0.38% to 92.719. In the week prior, the Dollar Spot Index had fallen by 0.94% to 92.371.

Out of the U.S

It was another busy week on the economic data front.

Key stats in the week included August private sector PMIs, the weekly jobless claims, and the all-important nonfarm payrolls.

It was a mixed bag on the economic data front but ultimately enough to prevent another Dollar slide.

The ISM manufacturing PMI rose from 54.2 to 56.0 in August, while the non-manufacturing PMI fell from 58.1 to 56.9.

While service sector activity remains key, the combined figures were ultimately relief for the markets.

The weekly jobless claims also provided some comfort, with initial jobless claims easing to 881k in the week ending 28th August.

It ultimately boiled down to the Friday numbers, however, from the economic calendar.

While nonfarm payrolls saw a smaller increase than in July, another 1.371m rise was good enough. That was coupled with a fall in the U.S unemployment rate from 10.2% to 8.4%.

From the Dollar’s perspective, it was not the stats but ultimately central bankers that delivered the Dollar’s upside.

ECB member Lane jawboned the EUR on Tuesday, reminding the markets that central bank action is not one-sided…

In the equity markets, the NASDAQ and S&P500 slid by 2.31% and by 3.27% respectively. The Dow ended the week down by a more modest 1.82%.

Out of the UK

It was a quiet week on the economic calendar. Key stats included finalized August private sector PMIs and August’s construction PMI.

The stats were skewed to the negative in the week.

Finalized PMIs were revised downwards from prelim, with the construction PMI also reflecting softer growth.

On the monetary policy front, the chatter was gloomy. Central bankers expected the economy to see a more material contraction than forecasted back in June.

The combination of the gloomy economic outlook and the downward revisions to the PMIs weighed on the Pound.

Negative chatter towards Brexit added to the downside in the week.

In the week, the Pound fell by 0.55% to $1.3279. In the week prior, the Pound had rallied by 2.00% to $1.3352.

The FTSE100 ended the week down by 2.76%, following on from a 0.64% decline from the previous week.

Out of the Eurozone

It was a busy week on the economic data front.

Prelim August inflation, August manufacturing PMIs, and unemployment figures were in focus early in the week.

Inflation and manufacturing PMIs disappointed early in the week. It could have been worse. Unemployment numbers for Germany and the Eurozone provided the EUR with some support early on.

Ultimately, however, it wasn’t the stats that led to a reversal in the EUR.

Central bank commentary led to a pullback from $1.20 levels hit on Tuesday. The comments came ahead of next week’s ECB press conference where Lagarde could deliver a Draghi master class.

Mid-week, German retail sales also failed to impress, with sales falling in July.

To make matters worse, service sector PMIs for August also raised red flags on Thursday, as did Eurozone retail sales figures.

The service sector PMIs and retail sales figures questioned the ECB’s hope of a service sector and consumption-driven recovery.

At the end of the week, factory order numbers for July were relatively upbeat. This was aligned with PMI numbers for Germany that stood out from the pack.

For the week, the EUR fell by 0.55% to $1.1838, partially reversing a 0.90% gain from the previous week.

For the European major indexes, it was a bearish week. The EuroStoxx600 and DAX30 ended the week down by 1.86% and 1.46% respectively, with the CAC40 falling by 0.76%.

For the Loonie

It was a busier week on the economic calendar.

Key stats included July trade data and August employment and Ivey PMI figures.

It was a mixed bag on the economic data front, though ultimately support the Loonie.

In July, the trade deficit widened, with the pace of employment slowing in August. In spite of the pace slowing, employment rose by 245.8k in August, bringing the unemployment rate down from 10.9% to 10.2%.

The Ivey PMI also reflected a slower pace of growth in August, though nothing alarming, with the PMI coming in at 67.8. In July, the PMI had stood at 68.5.

The Loonie rose by 0.28% to end the week at C$1.3099. In the week prior, the Loonie had risen by 0.59%. The upside came from a 0.50% rally on Friday, with a slide in oil prices doing little on the day.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 4th September, the Aussie Dollar slid by 1.13% to $0.7282, with the Kiwi Dollar declining by 0.33% to $0.6721.

For the Aussie Dollar

It was a busy week for the Aussie Dollar on the economic calendar.

Early in the week, company gross operating profit and July private sector credit figures were in focus.

The stats were positive, with profits jumping by 15% and private sector credit seeing a modest 0.1% decline.

The focus then shifted to the RBA, with the September monetary policy decision on Tuesday. While holding cash rates unchanged, the RBA expanded the Term Funding Facility.

There was little response from the Aussie Dollar, however.

In the 2nd half of the week, economic data did influence, with GDP, trade, and retail sales figures in focus.

2nd quarter GDP figures suggested that the RBA may need to shift from its base case scenario. The economy contracted by 7% in the quarter.

Trade data also failed to impress, with the trade surplus narrowing from A$8.202bn to A$4.607bn in July.

Retail sales provided some support at the end of the week, with sales rising by 3.2% in July.

With the RBA focused on COVID-19 and consumer spending, plenty of uncertainty remains in spite of Friday’s stats.

For the Kiwi Dollar

It was a quieter week on the economic calendar.

Key stats included August’s business confidence and July building consent figures.

The stats were Kiwi Dollar negative, with business confidence waning and building consents sliding.

In August, the ANZ Business Confidence Index fell from -31.8 to -42.4, with the own activity indicator falling by 8 points to -17%.

It wasn’t much better for building consents, which slid by 4.5% in July. Relatively positive private sector PMIs from China limited the downside for the Kiwi, however.

For the Japanese Yen

It was a busier week on the economic calendar, with the stats relatively upbeat.

Industrial production jumped by 8% in July, with retail sales rising by 1%. Both sets of numbers came in well ahead of forecasts.

Service sector activity also avoided a more marked rate of contraction in August. The PMI slipped from 45.4 to 45.0, with the finalized number unchanged from prelim.

On the negative, however, was an 11.3% slide in capital spending in the 2nd quarter.

While the stats were skewed to the positive, it was Dollar strength that ultimately left the Yen in the red.

The Japanese Yen fell by 0.83% to ¥106.24 against the U.S Dollar. In the week prior, the Yen had risen by 0.41%.

Out of China

It was a busier week on the economic data front.

Key stats included August’s NBS and Caixin private sector PMIs.

The stats delivered mixed results in the week.

While the NBS Manufacturing PMI slipped from 51.1 to 51.0, the Caixin Manufacturing PMI rose from 52.8 to 53.1.

The NBS Non-Manufacturing PMI rose from 54.2 to 55.2, while the Caixin Services PMI slipped from 54.1 to 54.0.

All in all, some positive numbers, with private sector activity ultimately seeing a further pickup in growth.

In the week ending 4th September, the Chinese Yuan rose by 0.34% to CNY6.8425. In the week prior, the Yuan had risen by 0.78%.

The upside in the Yuan coincides with Beijing’s ramping up of U.S agri imports and the promise to stick to the phase 1 agreement.

The CSI300 and the Hang Seng joined the broader market in the red, with losses of 1.53% and 2.86% respectively.

September Monthly

New lows for the year against the euro, Swiss franc, the British pound, Swedish krona, and the Australian dollar were recorded in recent weeks. The Dollar Index (DXY), which is heavily weighted toward Europe, fell by over 4% in July, the largest monthly decline in a decade, and another 1.25% in August. In fact, the Dollar Index has not risen on a monthly basis since March. The surge in gold (reached a record high near around $1975 an ounce) was also seen in some quarters as an expression of dollar bearish sentiment.

The interest rate support for the dollar has fallen. Of course, with around $14.5 trillion of negative-yielding bonds, mostly in Europe and Japan, the US still offers a premium, but the premium has narrowed, and when hedging costs are included, it has disappeared. Growth differentials also had favored the dollar, but it is not so clear anymore. The eurozone’s August Purchasing Managers Survey disappointed, and as the month ended, the virus appears to be growing faster in Europe than the US. Yet, as with the interest rate differentials, growth differentials are simply less dollar supportive, and that is the takeaway.

It is not as if all things were equal. The relevant pre-existing conditions in this context were two-fold. First, after trending higher for several years, by various metrics economists use, the dollar was over-valued prior to the pandemic. At the end of last year, according to the OECD’s measure of purchasing power parity (a rough approximation of value in a world of currencies that are no longer backed by gold), the dollar was terribly rich against most of the major currencies.

The euro was estimated to be a little more than 26% undervalued against the US dollar Sterling was next, nearly 11% undervalued. The Canadian dollar was almost 9% undervalued, and the Japanese yen was 7% cheap to the greenback. As of June, the Economist’s “Big-Mac” model of purchasing power parity had the euro more than 16% undervalued, and sterling was 25% undervalued.

The second pre-existing condition was that growth and interest rate differentials attracted significant portfolio flows into the US. US stocks have outpeformed European shares handily over the past 3, 5, and 10-years. The narrowing of yield differentials means that US Treasuries have outpeformed German, British, and Japanese bonds over the past couple of years. This suggests that many asset managers are overweight US exposure. One estimate (13D Global Strategy and Research) suggested is that there has been “nearly $10 trillion of global capital concentration into US assets in less than a decade.”

Still, European stocks (Dow Jones Stoxx 600) outperformed US shares (S&P 500) on the downside in the first three months of the year and has underperformed in the recovery. June was the only month so far this year in which the Stoxx 600 outperformed the S&P 500 (~2.8% to 1.8%). In August, the S&P 500 gained around 7.2%, more than twice the Dow Jones Stoxx 600 3% gain. Year-to-date, the S&P 500 is the only G7 equity market index positive for the year.

Equity portfolio investment tends to carry low currency hedge ratios, and the greenback’s decline adds a tailwind for dollar-based investors in European markets. The Swedish stock market, for example, performed marginally better for unhedged dollar-based investors than the S&P 500 so far this year (~8.6% vs. 8.2%).

In a nutshell, the dollar’s main supports have weakened, it was overvalued, and it was a crowded trade. The adjustment has been nearly relentless. The euro has fallen in only five weeks since the end of April (19 weeks). Speculators in the futures market have amassed record net and gross long euro positions, and still, the biggest pullback has been limited to about 2.5-cents.

Most of the major central banks did not meet in August, and their September meetings will draw attention. Several central banks, including the Federal Reserve, the European Central Bank, and the Bank of Japan, will update their economic forecasts. The Federal Reserve may be the most likely to adjust policy as a follow-up to its formal decision to target the average rate of inflation.

Still, on balance, it might not be prepared to move quite yet to cap interest rates or boost it bond-buying, even though Congress has been unable to provide fresh fiscal stimulus. The Fed has not achieved its 2% inflation target since 2012. As of August 25, the Fed’s balance sheet was nearly $180 bln (~2.5%) below its peak in mid-June.

Many emergency measures were initially for six months or so, and governments and central banks will face some difficult choices. Most of the Fed’s facilities, though used less than anticipated, have been extended until the end of the year. The ECB has extended its Pandemic Emergency Purchase Program. The thrust of monetary policy is shifting from its initial efforts to ensure orderly markets to supporting the recovery.

Without a vaccine, a partial and uneven recovery may be the best that can be expected over the coming months. This means that elevated unemployment levels will prevail, even if partially hidden or socialized through furlough and short-time schemes. Canada has announced both a four-week extension of its emergency income program (through mid-September) before modifying initiatives to put them on a more sustainable basis. It has also extended its loan program for businesses.

In Germany, Finance Minister Scholz, who will be the Social Democrat candidate for chancellor next year, has pushed through an extension of its short-term work program (~government picks up about 2/3 of the wages for households with children) for 24 months from 12. France is preparing a large stimulus effort. UK Chancellor Sunak is under increasing pressure to extend funding for the furlough program that is supporting around four million people, but parts of Her Majesty’s Treasury is pressing for some funding through new taxation.

That said, with numerous vaccines in various stages of development, optimism is running high. Many governments are relaxing some of the procedures around creating vaccines to expedite the process. Until a vaccine is available of which people can be confident, flare-ups may be unavoidable, but they can be minimized and limited in scope. That will be the challenge in September. As the US flare-up appears to be being brought under control in late August, the contagion is rising in the Asia Pacific region and parts of Europe.

The US-Chinese relationship has deteriorated on many fronts, two issues that had been flashpoints, trade, and currency, have become less so. China has stepped up its imports of US agriculture goods, and with 19 tankers carrying a combined 37 mln barrels of oil from the US (~$1.55 bln), its energy imports will surge in September. Although many observers have emphasized that China is far behind its numerical commitments, top US officials (including Navarro, Lighthizer, and Kudlow) all publicly stated that the agreement was intact, and China was adhering to the deal.

A year ago, the US was citing China as a currency manipulator as the dollar rose above CN7.0. However, the link between the geopolitical competition and the yuan has loosened. The yuan traded at seven-month highs against the dollar at the end of August. Its nearly 2% gain makes it the strongest in the region last month. The JP Morgan Emerging Market Currency Index fell a little more than 0.5% in August, paring July’s roughly 2.4% rise. Regionally, South America underperformed, alongside the Turkish lira, which fell to new record lows in August (~-5.2%). After the lira, the next three emerging market currencies were Brazil real (~-4.7%), Argentine peso (-2.5%), and the Chilean peso (~-2.2%).

Dollar:

After trending lower since March, the dollar traded weakened broadly in the second half of August. Sentiment remains bearish as growth and interest rate differentials supports have been undermined. Although there has been some impact of the loss of the $600 a week in federal unemployment insurance and the fading effect of other fiscal efforts, the economic data have been mostly better than expected. Estimates for Q3 GDP around a little above 20% at an annualized rate. That said, there is concern that a quarter or more of the jobs there were lost temporarily will turn into permanent losses.

The Federal Reserve meets on September 16. The steepening of the yield curve through a relative increase in long-term yields cannot come as a surprise to Fed officials after adopting the average inflation rate target. Yet, on balance, it does not seem quite ready to move to cap rates either through yield curve control or through increased bond buying. The political campaigns get into full swing after Labor Day (September 7). It has yet to become much of a market factor except that investors appear to be buying options for protection, and this is seeing the volatility curve steepen.

Euro

The euro has not been the best performing major currency this year, this quarter, or last month. Its 6.6% advance through the first eight months puts in fourth place within the top ten major currencies against the US dollar. Most of those gains were registered here in Q3, where it is in fifth place. It was appreciated by a little less than 1.5% in August. Speculators have amassed a record net and gross long euro positions in the futures market.

The ECB meets on September 10 and is not expected to take new action. The economy has generally performed in line with the staff forecasts last updated in June when it forecast an 8.3% expansion here in Q3. The WTO may announce its preliminary ruling on EU charges that Boeing received illegal government assistance and could be a new flashpoint in the evolution of the trade relationship. In late August, the EU ended its controversial tariff on US lobster in exchange for reduced levies on around $200 mln of EU consumer goods.

(end of March indicative prices, previous in parentheses)

Spot: $1.1935 ($1.1780)
Median Bloomberg One-month Forecast $1.1905 ($1.1570)
One-month forward $1.1945 ($1.1785) One-month implied vol 7.9% (7.8%)

Yen

The dollar traded between JPY104 and JPY108 in July and a narrower JPY105-JPY107 range in August. On a purely directional view, the yen tends to weaken when US yields rise and/or when the S&P rally. The three-quarter contraction that began in Q4 19 with the sales tax increase and typhoon appears to be ending here in Q3.

Prime Minister Abe will step down due to health reasons around the middle of September when the LDP picks his successor. The situation is still fluid, and Cabinet Secretary Suga seems may get the not, which would underscore the continuity we see as the most likely outcome. The Diet’s term is up in a year, but the LDP may want a sooner election.

While there may be an alternative to Abe, there may not be for Abenomics, which is arguably the traditional policy thrust of the Liberal Democrat Party of loose monetary policy, deficit spending, and raise the consumption tax. A supplemental budget for the second half of the fiscal year (begins October 1) seems more likely that fresh initiatives from the Bank of Japan, which meets on September 17. BOJ Governor Kuroda is seen likely to fulfill his current term, which ended April 2023.

Spot: JPY105.90 (JPY105.85)      
Median Bloomberg One-month Forecast JPY105.95 (JPY106.50)     
One-month forward JPY105.90  (JPY105.90)    One-month implied vol  7.4% (7.3%)

Sterling

The pound fell by about 6.5% in H1 20 and rebounded by about 7.8% through the first two months of Q3.  Sterling made a new marginal high for the year in late August, a little below $1.34 on the back of a softer US dollar. The UK economy shrank by a fifth in Q2, the most in the G7, but appears to be gaining traction, though there is still pressure to extend the employee furlough program.  There has been little progress in trade negotiations with the EU.
A break-through is needed in the coming weeks in time for the mid-October EU summit and allow members sufficient time to ratify the agreement. This continues to seem unlikely. The potential disruption may already be a factor underpinning implied volatility.  Yet, August was the second consecutive month that sterling rose against the euro, and is near its best level in two-and-a-half months at the start of September.
Spot: $1.3370 ($1.3085)   
Median Bloomberg One-month Forecast $1.3285 ($1.2820) 
One-month forward $1.3370 ($1.3090)   One-month implied vol 8.7% (8.6%)

Canadian Dollar

The Canadian dollar was one of the strongest major currencies in August, appreciating about 2.9% against the US dollar.  Rising equities speaks to the elevated risk appetites that are correlated with the Canadian dollar. Rising commodity prices (CRB Index rose about 6.8% in August, its fourth consecutive monthly gain and now is above its 200-day moving average for the first time since January) have also been supportive.
Since the middle of March, the US dollar has fallen by about 11.3% against the Canadian dollar, but speculators in the futures market continue to carry a net short futures position. The Canadian dollar is the only major currency that is depreciated against the US dollar this year.  A scandal over favoritism and a dispute over fiscal policy led to the resignation of Finance Minister Morneau, but it did not derail the Canadian dollar’s recovery.
Canada has been more cautious than the US in lifting containment measures while seeing a slightly higher percentage of returning workers. The Bank of Canada meets on September 9 and is not expected to change policy. New fiscal initiatives are likely to be outlined on September 23, when the new session of parliament begins.  Ottawa’s decision about Huawei, on the one hand, and how to respond to the new US tariffs on Canada’s aluminum, on the other hand, risks escalating tensions with both Beijing and Washington.
Spot: CAD1.3045  (CAD 1.3410)
Median Bloomberg One-month Forecast  CAD1.3100 (CAD1.3515)
One-month forward  CAD1.3000  (CAD1.3415)    One-month implied vol  6.5%  (6.3%) 

Australian Dollar

The recovery of the Australian economy seemed to lag behind others even before the flare-up that led to the lockdown in Victoria.  Australia lost about 375k full-time positions between February and June and only gained 43.5k back in July (~11%).  However, the government has reduced the JobKeeper and JobSeeker payments.  Still, in the fiscal year that began July 1, the government anticipates a boost in spending and a reduction of tax revenues of around A$185 bln.

The Australian dollar gained about 3.3% in August, its fifth consecutive monthly increase, and is up about 5.1% for the year.  Reserve Bank Governor Lowe admitted to preferring a weaker currency, but suggest intervention would only be effective if there was a valuation misalignment. The OECD’s model of Purchasing Power Parity puts fair value at closer to $0.6950 (~5.7% over-valued), which represents a relatively modest deviation.

Spot:  $0.7375 ($0.7145)       
Median Bloomberg One-Month Forecast $0.70315 ($0.7035) 
One-month forward  $0.7380  ($0.7150)     One-month implied vol 9.8%  (10.4%)   

Mexican Peso:

The peso gained about 1.8% against the dollar in August, making it among the strongest of the emerging market currencies. The peso is off around 13% year-to-date, and the substantial depreciation that could still feed through to domestic prices.  Consumer prices have firmed in recent weeks and are now at the upper-end of 2%-4% target range.  After cutting the overnight rate by 50 bp at the past five meetings to 4.5%, Banxico sees itself with limited scope for additional easing.
The next meeting is on September 24, and it will likely standpat.  Outside of the auto sector, Mexico’s economy is still reeling from the virus and the limited policy response.  A new corruption scandal in President AMLO’s family may complicate next year’s local and state elections, but had little impact on the Mexican peso.

The dollar has been trading between MXN21.85 and MXN23.00 since the middle of June.  It edged lower to MXN21.74 into the end of the month before bouncing back to nearly MXN22.00 where it finished the month.  In the low interest-rate environment, the 4.5% available on short-term Mexican bills (cetes) is attractive and keeps the peso stronger than the macroeconomic considerations would suggest.

Spot: MXN21.89 (MXN22.27)  
Median Bloomberg One-Month Forecast  MXN21.92 (MXN22.12) 
One-month forward  MXN21.96 (MXN22.37)     One-month implied vol 13.4% (14.7%)

Chinese Yuan

The recovery of the world’s second-largest economy is being stymied by floods and weak domestic demand. The floods are disrupting food supplies and elevating prices.  By late August, and estimated $26 bln of damage has been inflicted and four million people displaced.
Agriculture imports have been boosted to meet the shortage of domestic supply.   Many expect the PBOC to continue to ease policy in a targeted way while holding back from the asset purchases that other major central banks are undertaking.  Since late May, the dollar has depreciated by around 4.7% against the Chinese yuan.   Chinese officials have allowed the yuan’s exchange rate to become decoupled from the ongoing political tension.
The yuan strengthened in seven of the nine weeks of Q3 through the end of August to finish near seven-month highs.  We suspect there is a limit to how much Beijing will allow the US to depreciate the dollar, but the 1.7% depreciation thus far this year is modest by any measure, and still fits the official rhetoric about the yuan’s stability.
Spot: CNY6.8485 (CNY6.9750)
Median Bloomberg One-month Forecast  CNY6.8815 (CNY7.0165)
One-month forward CNY6.9050  (CNY7.0795)    One-month implied vol  4.9% (4.4%)
For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

A Look at the Price Action

Make no mistake about it. After a wobble, the dollar fell. It recorded new lows for the year against the British pound, Australian dollar, and Swedish krona ahead of the weekend. New lows for the month recorded against the Canadian dollar and Norwegian krone. The euro and yen flirted with the edges but remained within their well-worn ranges.

It is the interest rate markets that saw a more nuanced response. The implied yield of the December 2022 Eurodollar futures contract rose 1.5 bp last week. The five-year yield also rose (less than a basis point), as the Fed signaled it would be more accepting of an inflation overshoot as a type of forward guidance meant to underscore its commitment to keep rates low for the foreseeable future.

The long-end of the curve backed up, with the 10-year yield rising 10 bp, and the 30-year yield increased 13 bp. However, the upside momentum was unsustainable, and yields pulled back from their best levels ahead of the weekend despite stronger than expected income, consumption, and deflator numbers.

Dollar Index

Ahead of the weekend, the Dollar Index approached the two-year low set in the middle of the month near 92.00. There was no meaningful bounce, and the broad sideways movement seen in the past few weeks has alleviated the over-extended momentum indicators.

A break of 92.00 would set the stage to test the 91.00 area, which has more technical significance. It is also the initial (38.2%) retracement of the rally in the Dollar Index from the historic lows in 2009 (~70.70). A move above 93.50 is needed to neutralize the negative technical tone.

Euro

Here in August, the euro has traded above $1.19 in six sessions and closed above it exactly twice and once was before the weekend. Perhaps it is a question of market positioning, where speculators in the futures market had amassed a record-long gross and net position and extended it further in the week ending August 25.

The broad, sideways movement in recent weeks ($1.17-$1.19) has seen the momentum indicators trend lower, but the firmer tone in recent days has steadied the MACD and Slow Stochastic, which now appear poised to turn higher. The upper Bollinger Band will begin the new week near $1.1925. A close above $1.20, is probably needed to signal a breakout. Support appears to have been carved around $1.1755-$1.1760 area.

Japanese Yen

The combination of the FOMC and Abe’s resignation saw the dollar transverse nearly its entire month’s range (~JPY105-JPY107) ahead of the weekend. Momentum traders have been whipsawed. The outside up day on August 27 was followed by an outside down day on August 28. The momentum indicators are not particularly helpful now. The dollar spiked to about JPY104.20 at the end of July, which was a four-month low and that is the obvious target on a break of JPY105.00, but the measuring objective of the chart pattern may be closer to JPY103.00.

British Pound

Sterling motored to new highs for the year ahead of the weekend a little above $1.3350. It has not ended a month above $1.33 since April 2018. The strong close leaves it in good shape to continue its run (three consecutive weeks and it has only fallen in two weeks here in Q3). While the MACD is uninspiring, the Slow Stochastic is turning higher after correcting from over-extended levels. The next important technical area is near $1.35. A caveat is it closed well above its upper Bollinger Band (~$1.3280).

Canadian Dollar

Nothing has been able to derail the greenback’s steady decline against the Canadian dollar, which has now been stretched into the seventh consecutive week. It has risen in one week here in Q3 and that was by about 0.3%. The US dollar pushed through CAD1.3050 briefly to fall to its lowest level since January, but it recovered a traced out a possible bullish hammer candlestick.

The long downtrend has left the momentum indicators stretched and do not appear to have confirmed the pre-weekend low. The downtrend line from March’s high will begin the new month near CAD1.3215. Only a break of this trend line is noteworthy, while CAD1.3000 has psychological significance and about CAD1.2985 is $0.7700. The lower Bollinger Band begins next week near CAD1.3080.

Australian Dollar

The Aussie was nearly flat coming into the start of last week and it gained almost 2.6% in the five-day rally that lifted it to almost $0.7360. It has not been at such levels since mid-December 2018. The next important technical objective is near $0.7500. It has fallen in only one week of the past 10 and that was by less than 0.2%. The Slow Stochastic corrected and is now turning higher. The MACD appears to be turning higher from its lowest level in a couple of months. On the other hand, the Australian dollar closed well above it upper Bollinger Band (~$0.7290), which also looks to be initial chart support.

Mexican Peso

The dollar appeared to have staged a key upside reversal on August 27 in the aftermath of the Fed’s statement. However, as cooler heads prevailed, the prospect of a faster-growing US economy and a softer inflation target by the Fed was understood to be good for emerging market currencies in general.

The JP Morgan Emerging Market Currency Index rallied a little more than 1% before the weekend, the most in a month. Its 1.5% gain for the week was the largest in nearly three months. The dollar lost about 1.4% against the peso ahead of the weekend to ensure its third consecutive weekly decline. The next target is the June low near MXN21.4650, around where the 200-day moving average is also found. The technical indicators offer little insight. Resistance is seen near MXN22.20.

Chinese Yuan

The dollar fell nearly 0.8% against the Chinese yuan last week. It has fallen in all but one week here in Q3. We had thought Chinese officials would have resisted more strongly the persistent demand for the yuan, which is at its strongest level since January. The dollar closed a gap left on the charts from the higher opening on January 21 near CNY6.8670.

The low for the year was set the previous day near CNY6.84. Technically, the CNY6.80-CNY6.82 would appear to offer support. It represents a retracement objective of the rally from the March 2018 low around CNY6.24 and the 200-day moving average.

Gold

The pre-weekend rally of about 1.3% prevented gold from falling for the third consecutive week. After testing $1900 in the middle of the week, gold rebounded initially in response to the Fed’s statement. It made it to almost $1977 before dramatically reversing back to $1910 before catching the bid ahead of the weekend that carried to nearly $1974. In the waning hours of activity, support was found ahead of $1960. Both the Slow Stochastic and MACD have corrected lower and now appear poised to turn higher. Initial resistance is in the $1995-$2000 range and then $2015.

Oil

The price of October WTI continues to trade broadly sideways in the $42-$43.50 range. It has progressed sufficiently for the contract to flirt with its 200-day moving average (~$43.15) without the kind of momentum that would usually signal a further advance. That said, October crude oil prices rose by about 1.5% to post the fourth consecutive weekly increase. A year ago, oil was a fifth higher.

US Rates

The US 10-year yields pulled back a couple of basis points ahead of the weekend to stop the four-day increase. Still, on the week, the 10-year yield rose 10 bp to around 73 bp, having traded a little above 78 bp. The 30-year yield edged up before the weekend to complete the fifth session higher. It reached 1.57%, the highest in a couple of months before settling back a little above 1.51%.

The September futures note tested the (50%) retracement of the rally from the June low around 138-22 at the end of last week and bounced off it. Are long-term interest rates on the rise? The technicals suggest otherwise. That said, the 10-year breakeven (spread between the conventional and inflation-linked bonds) rose to 1.77 bp, the most since April. Other market-based measures of inflation expectations are also elevated. The University of Michigan’s survey for 5-10-year inflation was confirmed at 2.7% in August, matching the high for the year.

S&P 500

The S&P 500 gapped higher to start the week and never looked back. The benchmark rose every day last week to bring its streak to seven sessions. The 3.1% rally was the biggest weekly rally of the month. As we have seen with some of the currencies, the S&P 500 has only fallen in one week over the past two months.

It began the week gapping above 3400 and finished the week poking above 3500 for the first time, which is just above the upper Bollinger Band. The trendline off the secondary low in March begins next week near 3400, which is also the bottom of the gap created by Monday’s higher opening.

This article was written by Marc Chandler, MarctoMarket.

The Week Ahead – Brexit, COVID-19 News, and Economic Data in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 75 stats in focus in the week ending 4th September. In the week prior, 47 stats had been in focus.

For the Dollar:

It’s yet another busy week ahead on the economic data front.

In the first half of the week, the focus is on August’s ISM Manufacturing PMI and ADP nonfarm employment change figures.

Following the impressive Markit survey numbers, the market’s preferred ISM survey will need to be aligned.

With sensitivity to labor market conditions remaining high, expect the ADP numbers to also influence.

It’s a busier 2nd half of the week.

On Thursday, the ISM Non-manufacturing PMI and weekly jobless claims figures will be key drivers.

The focus will then shift to August’s non-farm payrolls and unemployment figures.

Any weak numbers and expect risk aversion to sweep across the markets.

The Dollar Spot Index ended the week down by 0.94% to 92.371.

For the EUR:

It’s a busy week ahead on the economic data front.

On Tuesday, August manufacturing PMIs for Italy and Spain, and German unemployment figures are due out.

Finalized PMIs for France, Germany, and the Eurozone will also draw attention.

The focus will then shift to July retail sales figures for Germany on Wednesday, ahead of a busy Thursday.

August’s service sector PMIs for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone will also be of interest.

Expect the Eurozone’s services and composite PMIs to be the key drivers, however.

At the end of the week, German factory order numbers for July will also influence.

Expect unemployment and retail sales figures for the Eurozone and prelim August inflation figures for member states to have a muted impact.

The EUR/USD ended the week up by 0.90% to $1.1903.

For the Pound:

It’s a relatively quiet week ahead on the economic calendar. Finalized private sector PMIs for August are in focus in the week.

Any revisions to the prelim figures need to be considered. Expect the services PMI to have the greatest influence in the week.

On Friday, August’s BTC Retail Sales Monitor will also draw interest.

From the Bank of England, BoE Gov. Bailey is scheduled to speak late on Thursday.

The GBP/USD ended the week up by 2.00% to $1.3352.

For the Loonie:

It’s a busy week ahead on the economic calendar.

In the early part of the week, July’s RMPI will influence on Monday.

The focus will then shift to July trade figures on Thursday and August’s employment and Ivey PMI numbers on Friday.

We would expect August’s employment change figure to have the greatest significance.

The Loonie ended the week up by 0.59% to C$1.3099 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a busy week ahead on the economic calendar.

Early in the week, 2nd quarter company gross operating profits, July private sector credit, and the AIG Manufacturing Index are in focus.

The focus will then shift to 2nd quarter GDP numbers on Wednesday.

Finally, July trade data on Thursday and retail sales figures on Friday will also draw plenty of attention.

On the economic data front, expect the GDP and retail sales figures to be the key drivers. The RBA has continued to raise uncertainty regarding consumption, which it sees as key to any economic recovery.

On the monetary policy front, the RBA is also in action on Tuesday. While the markets expect the RBA to stand pat, any forward guidance will influence. Perhaps the FED’s shift in its monetary policy framework will give members food for thought…

Following the spike in new COVID-19 cases in Victoria, there may also be the promise of more support.

The Aussie Dollar ended the week up by 2.85% to $0.7365.

For the Kiwi Dollar:

It’s a quiet week ahead on the economic calendar.

Key stats include August’s business confidence figures on Monday and July building consent numbers on Tuesday.

Expect the business confidence figures to have the greatest impact in the week.

Any fall in confidence would point to a likely further pullback in business investment and hiring. Following the RBNZ’s talk of negative rates, the Kiwi will likely be sensitive to any soft numbers.

The Kiwi Dollar ended the week up by 3.09% to $0.6743.

For the Japanese Yen:

It is a relatively busy week ahead on the economic calendar.

Prelim industrial production and retail sales figures kick start the week on Monday.

Finalized manufacturing and service sector PMIs on Tuesday and Thursday will also draw interest.

With economic data having been particularly gloomy, we’re not expecting too much influence on the Yen, however.

The Japanese Yen ended the week up by 0.41% to ¥105.37 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front.

August’s NBS private sector PMI numbers are due out on Monday, ahead of the market’s preferred Caixin figures.

Expect some influence on market risk sentiment.

On Tuesday, the focus will then shift to the Caixin Manufacturing PMI ahead of Thursday’s Services PMI.

We can expect plenty of influence from the numbers. Any pullback in the PMIs and expect risk aversion to hit the markets.

The Chinese Yuan ended the week up 0.78% to CNY6.8655 against the U.S Dollar.

Geo-Politics

UK Politics:

Just over a month remains before a framework needs to be in place. Both sides continue to dig in their heels, however. The chances of a no-deal departure remain high, with fisheries the stumbling block…

U.S Politics:

With the respective party national conventions over, the election polls will begin to draw interest. Trump continues to trail in spite of the U.S equity majors hitting record highs last week.

COVID-19 and social unrest remain key issues for Trump and the Republicans. A ramp-up in agri purchases by China will likely be well-received, however.

U.S – China Trade Talks

Trade talks delivered positive news to the markets last week. China ramped up soybean imports and stated that it would stick to the phase 1 agreement.

Trump may look to push for more, however, in a bid to narrow the gap with Biden. It remains to be seen whether China will play ball…

Geopolitics, COVID-19 Updates, and Monetary Policy Drove the Markets

The Stats

It was a relatively busy week on the economic calendar, in the week ending 28th August.

A total of 47 stats were monitored, following 57 stats from the week prior.

Of the 47 stats, 24 came in ahead forecasts, while 21 economic indicators came up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 20 of the stats also reflected an upward trend from previous figures. Of the remaining 27, 24 stats reflected a deterioration from previous.

For the Greenback, it was a back into the red for the Greenback. After a bullish start to the week, 4 consecutive days in the red sunk the Dollar. In the week ending 28th August, the Dollar Spot Index slid by 0.94% to 92.371. In the week prior, the Dollar had risen by 0.11% to end a run of 6 consecutive weekly losses.

It was the FED once more that sent the Dollar reeling. This time around, FED Chair Powell laid out the FED’s new monetary policy approach. Low rates for longer delivered the blow in the 2nd half of the week.

Out of the U.S

It was another busy week on the economic data front.

Key stats in the week included August consumer confidence, July durable goods orders, and the weekly jobless claims.

The stats delivered yet more red flags in the week.

Consumer confidence hit reverse, with the CB Consumer Confidence Index falling from 91.7 to 84.8.

Initial jobless claims also disappointed. After having risen to 1.106m in the week ending 14th August, claims stood at 1.006m in the week ending 21st August.

Durable goods and core durable goods orders delivered some positive news, however.

While core durable goods orders rose by 2.4%, durable goods orders jumped by 11.2% in July.

Other stats in the week included:

  • 2nd estimate GDP numbers, which were revised up to a 31.7% contraction.
  • July’s personal spending, which rose by a further 1.9% following a 6.2% jump in June.
  • August’s Chicago PMI, which slipped from 51.9 to 51.2.
  • August’s finalized Michigan Consumer Sentiment index, which was revised up from 72.8 to 74.1.

On the monetary policy front, FED Chair Powell’s speech from the Jackson Hole Symposium was the main event.

Under the new policy framework, the FED will look to achieve an average 2% inflation rate over time. This would mean that the FED would allow inflation to offset periods of low inflation by hitting above 2% levels. The FED would also support strong labor market conditions and not allow for a fall from maximum levels.

In the equity markets, the NASDAQ and S&P500 rose by 3.26% and by 3.39% respectively. The Dow ended the week up by a more modest 2.59%.

Out of the UK

It was a particularly quiet week on the economic calendar. There were no material stats to provide the Pound with direction.

On the Brexit front, there was nothing positive to support the Pound. News of Germany canceling plans to hold talks at the EU ambassador’s summit was certainly negative.

With September approaching, there’s just 1 month left to get a deal in place. Fisheries and trade remain the key areas of focus and no progress has been made to-date…

In the week, the Pound rallied by 2.00% to $1.3352. The Pound had risen by 0.03% to $1.3090 in the week prior.

The FTSE100 ended the week down by 0.64%, following on from a 1.45% slide from the previous week.

Out of the Eurozone

It was another relatively busy week economic data front.

In the 1st half of the week, finalized 2nd quarter GDP and August IFO Business Climate figures from Germany provided support.

Business sentiment improved in August, with GDP numbers revised upwards.

Mid-week, numbers out of France were also skewed to the positive. Consumer confidence held steady in August, with the total number of job seekers falling.

It was a disappointing set of stats at the end of the week, however.

German consumer confidence declined in September, with French consumer spending lackluster in July.

While Germany saw GDP revised upwards, the finalized French numbers were in line with prelim figures.

In spite of the negative stats, fiscal policy news provided support. Germany unveiled further measures to prop up the economy, with France announcing plans to roll out fresh measures next month.

For the week, the EUR rose by 0.90% to end the week at $1.1903. In the week prior, the EUR had fallen by 0.38% to $1.1797.

For the European major indexes, it was a bullish week. The CAC40 and DAX30 ended the week up by 2.18% and 2.10% respectively, with the EuroStoxx600 gaining 1.02%.

For the Loonie

It was a quiet week on the economic calendar.

Key stats included the 2nd quarter and June GDP numbers on Friday.

It was a mixed bag for the Loonie. While the economy expanded by 6.5% in June, the economy contracted by 11.5% in the 2nd quarter. In the 1st quarter, the economy had contracted by 2.1%.

On an annualized basis, the economy contracted by 38.7% in the quarter, following an 8.20% contraction in the 1st quarter.

While the stats were mixed, the better than expected June GDP number provided support.

The Loonie rose by 0.59% to end the week at C$1.3099. In the week prior, the Loonie had risen by just 0.67%.

Elsewhere

It was a particularly bullish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 28th August, the Aussie Dollar rallied by 2.85% to $0.7365, with the Kiwi Dollar jumping by 3.09% to $0.6743.

For the Aussie Dollar

It was another relatively quiet week for the Aussie Dollar.

Key stats included 2nd quarter construction work down and private new CAPEX figures.

While both sets of numbers were better than forecasts, both declined in the quarter. The markets were in a forgiving mood, however, with COVID-19 to blame. In the 2nd quarter, private new CAPEX slumped by 5.9%, following a 1.6% decline in the 1st quarter.

Away from the economic calendar, positive updates from the U.S and China trade talks and the shift in the FED’s monetary policy framework delivered the upside.

For the Kiwi Dollar

It was a busier week on the economic calendar.

Key stats included 2nd quarter retail sales figures and July trade data.

The stats were skewed to the negative, with core retail sales sliding by 13.7% in the 2nd quarter.

COVID-19 delivered the slide as a result of lockdown measures.

By contrast, trade figures were mixed. While the monthly trade surplus narrowed, the trade deficit narrowed from NZ$1,130m to NZ$115m compared with July 2019.

Ultimately, it was geopolitics and monetary policy divergence that delivered the upside in the week.

Positive updates from U.S and China trade talks and the shift in the FED’s monetary policy framework delivered the upside.

For the Japanese Yen

It was a quiet week on the economic calendar.

Key stats included August inflation figures that had a muted impact on the Japanese Yen.

The stats were skewed to the negative, with deflationary pressures returning once more.

In August, Tokyo’s core consumer price index fell by 0.3%, reversing a 0.4% rise in July. Economists had forecast a 0.3% rise.

While economic data had a muted impact, the Yen responded to the resignation of Prime Minister Abe. The PM cited health reasons for his resignation on Friday.

Adding to the upside for the Yen was the market’s reaction to the FED’s change to the monetary policy framework.

The Japanese Yen rose by 0.41% to ¥105.37 against the U.S Dollar. In the week prior, the Yen had risen by 0.75%.

Out of China

It was another quiet week on the economic data front.

Key stats were limited to industrial profit figures for July, which were skewed to the positive.

Year-on-year, profits jumped by 19.6%, following an 11.5% rise in June. Year-to-date, profits were down by just 8.1%. In June, profits had been down by 12.8%.

While the stats provided support, positive updates from the U.S and China trade talks also supported riskier assets.

In the week ending 28th August, the Chinese Yuan rose by 0.78% to CNY6.8655. In the week prior, the Yuan had risen by 0.45%.

The CSI300 rallied by 2.66%, supported by a 2.39% gain on Friday, with the Hang Seng rising by 1.23%.

The Week Ahead – Stats, Geopolitics, COVID-19, and the Jackson Hole in Focus

On the Macro

It’s a quieter week ahead on the economic calendar, with 42 stats in focus in the week ending 28th August. In the week prior, 57 stats had been in focus.

For the Dollar:

It’s another busy week ahead on the economic data front.

In the 1st half, August consumer confidence and July durable and core durable goods orders are due out.

Expect consumer confidence figures on Tuesday and core durable goods orders on Wednesday to be the key drivers.

The focus will then shift to 2nd estimate GDP numbers and the weekly jobless claims figures on Thursday.

A decline in the jobless claims to sub-1m will be needed on the day… The markets will also be looking for an upward revision to GDP numbers.

On Friday, July inflation and personal spending figures and August’s Chicago PMI will be in focus.

Finalized consumer sentiment figures for August and July trade figures should have a muted impact.

On the monetary policy front, the Jackson Hole Symposium will be in focus on Thursday and Friday. Following last week’s FOMC meeting minutes and positive PMI numbers, Powell will draw plenty of attention.

Away from the economic calendar, geopolitics and the COVID-19 stimulus bill will also be of influence…

The Dollar Spot Index ended the week up by 0.16% to 93.247.

For the EUR:

It’s a quieter week ahead on the economic data front.

On Tuesday, finalized 2nd quarter GDP figures and August business sentiment figures are due out of Germany.

Upward revisions to 1st estimate GDP numbers and steady business sentiment figures would be EUR positive.

The focus will then shift to German consumer confidence figures and finalized 2nd quarter French GDP numbers on Friday.

As August comes to a rapid close, chatter on Brexit will also be a factor in the week.

The EUR/USD ended the week down by 0.38% to $1.1797.

For the Pound:

It’s also a particularly quiet week ahead on the economic calendar. There are no material stats due out to provide the Pound with direction.

On the monetary policy front, BoE Governor Bailey is due to speak on Friday. Following some quite dire GDP figures for the 2nd quarter, any chatter on monetary policy will influence. The good news for Bailey is that the private sector PMIs impressed last week…

Away from the economic calendar, Brexit chatter will likely build in the week and will be the key driver.

The GBP/USD ended the week up by 0.03% to $1.3090.

For the Loonie:

It’s a busy week ahead on the economic calendar.

The markets will have to wait until Friday, however. 2nd quarter GDP numbers are due out and will have a material impact on the Loonie.

The month-on-month and quarter-on-quarter figures will have the greatest influence.

Away from the economic calendar, sentiment towards the global economic outlook and geopolitics will remain key drivers.

The Loonie ended the week up by 0.67% to C$1.3177 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quiet week ahead on the economic calendar. Key stats include 2nd quarter construction work done and new CAPEX figures for the 2nd quarter.

While we can expect the new CAPEX figures to influence, market risk sentiment will be the key driver.

COVID-19 figures from Australia and key economies including the EU and the U.S will need consideration. There is also U.S – China tension to factor in…

The Aussie Dollar ended the week down by 0.14% to $0.7161.

For the Kiwi Dollar:

It’s also a relatively busy week ahead on the economic calendar.

2nd quarter retail sales figures on Monday and July trade figures on Wednesday will provide the kiwi with direction.

Away from the calendar, expect chatter from Beijing and Washington to also influence.

The Kiwi Dollar ended the week down by 0.02% to $0.6541.

For the Japanese Yen:

It is a relatively quiet week ahead on the economic calendar.

August inflation figures are due out on Friday. The numbers are unlikely to have any impact on the Yen, however.

Geopolitics and COVID-19 will remain key drivers.

The Japanese Yen ended the week up by 0.75% to ¥105.80 against the U.S Dollar.

Out of China

It’s another quiet week ahead on the economic data front.

There are no material stats due out of China to provide direction.

A lack of stats will leave the Yuan in the hands of any chatter from Beijing and Washington. The markets will be looking for a resumption of trade talks…

The Chinese Yuan ended the week up 0.45% to CNY6.9194 against the U.S Dollar.

Geo-Politics

UK Politics:

Last week there was no progress on fisheries and trade suggesting that the deadlock will remain. With August rapidly coming to an end, one side of the table is going to need to compromise.

If the news wires from the weekend are anything to go by, however, the chances of a no-deal Brexit remain elevated.

We can expect plenty of chatter in the week ahead and influence on the Pound.

U.S Politics:

There were no talks on the weekend over the COVID-19 stimulus package. Negotiations have stalled since the 1st week of the month.

We can expect more political wrangling in the week ahead, however. As the U.S Presidential Election nears, there is even less reason for either side to yield…

U.S – China Trade Talks

Beijing announced late last week that trade talks are set to resume in the coming days. The U.S administration, however, held back from confirming a return to the negotiating table.

A resumption of trade talks would ease some of the tension stemming from Trump’s attack on China’s tech companies.

The Weekly Wrap – Private Sector PMIs, Monetary Policy, and Geopolitics Drove the Majors

The Stats

It was a relatively busy week on the economic calendar, in the week ending 21st August.

A total of 57 stats were monitored, following 69 stats from the week prior.

Of the 57 stats, 30 came in ahead forecasts, with 25 economic indicators coming up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 30 of the stats also reflected an upward trend from previous figures. Of the remaining 27, 25 stats reflected a deterioration from previous.

For the Greenback, it was a mixed week that led to a fall to 92.2 levels before recovering to 93 levels and into the green. In the week ending 21st August, the Dollar Spot Index rose by 0.16% to 93.247. In the week prior, the Dollar had fallen by 0.36% to end a run of 6 consecutive weekly losses.

Private sector PMIs on Friday rounded off a recovery. Positive PMIs from the U.S and negative PMIs from the Eurozone led to a 0.44% gain on Friday to deliver the upside in the week.

Out of the U.S

It was another busy week on the economic data front.

Key stats in the week included August manufacturing numbers and the weekly jobless claims figures.

The stats delivered some red flags in the week.

Both the NY Empire State Manufacturing Index and Philly FED Manufacturing Index saw marked declines.

Initial jobless claims also disappointed, rising to 1.106m in the week ending 14th August.

At the end of the week, the Markit survey’s prelim PMI numbers for August eased some concern, however.

The manufacturing PMI rose from 50.9 to a 19-month high 53.6, with the services PMI rising from 50.0 to a 17-month high 54.8. Economists had forecast PMIs of 51.9 and 51.0 respectively.

Housing sector numbers continued to be the bright spot but failed to deliver any material support.

On the monetary policy front, the FOMC meeting minutes delivered a cautious note, with the FED showing very little optimism. Friday’s private sector PMIs will ease some of the negativity surrounding the U.S economy.

In the equity markets, the NASDAQ and S&P500 rose by 2.65% and by 0.72% respectively. The Dow ended the week flat, however.

Out of the UK

It was another busy week on the economic calendar. On Wednesday, July inflation figures were in focus.

A pickup in inflationary pressures provided support for the Pound mid-week.

The focus then shifted to a busy Friday. Retail sales continued to rise in July, coming in ahead of forecasts.

Private sector PMI numbers were also positive. The all-important services PMI rose from 56.5 to a 72-month high 60.1 in August, according to prelim figures.

Manufacturing sector activity also got a boost, with the PMI rising from 53.3 to 30-month high 55.3.

For the week, the only blemish on the report card was a worse than expected increase in CBI industrial trend orders. In August, the index increased from -46 to -44. Economists had forecast a rise to -35.

On the Brexit front, talks between Britain and the EU resumed and then ended. While Britain looked to push the trade agreement envelope, a lack of progress on fisheries left talks in deadlock once more.

In the week, the Pound rose by 0.03% to $1.3090. A 0.94% slide on Friday left the Pound flat for the week. In the week prior, the Pound had risen by 0.26% to $1.3086.

The FTSE100 ended the week down by 1.45%, reversing a 0.96% gain from the previous week.

Out of the Eurozone

It was another relatively busy week economic data front.

The markets had to wait for a busy Friday, however, for August’s prelim private sector PMIs that sounded the alarm bells.

It was grim reading and came in the week of the ECB’s monetary policy meeting minutes on Thursday that frequently talked of uncertainty…

From France, manufacturing PMI slid from 52.4 to 49.0, with the services PMI tumbling from 57.3 to 51.9.

It was a little better from Germany. The all-important manufacturing PMI rose from 51.0 to 53.0, while the services PMI slid from 55.6 to 50.8.

For the Eurozone, the manufacturing PMI slipped from 51.8 to 51.7, while the services PMI slid from 54.7 to 50.1.

The Eurozone’s Composite PMI fell from 54.9 to 50.1. Economists had forecast the PMI to hold steady at 54.9.

The loss of momentum and stagnation across the private sector reflected the impact of fresh COVID-19 spikes across the EU and beyond.

As a result, hopes of a v-shaped economic recovery evaporated. The numbers ultimately reflected the ECB’s concerns over the economic recovery…

Other stats in the week included inflation and consumer confidence figures that had a muted impact on the EUR.

For the week, the EUR fell by 0.38% to $1.1797, reversing a 0.47% gain from the previous week.

For the European major indexes, it was a bearish week. The CAC40 and DAX30 ended the week with losses of 1.34% and 1.06%, with the EuroStoxx600 falling by 0.81%.

For the Loonie

It was a busier week on the economic calendar.

Economic data included July inflation figures and June retail sales figures.

It was a mixed bag for the Loonie. While inflationary pressures eased in July, retail sales saw another jump in June.

Disappointing consumer prices for July suggested a possible waning in consumption in July. It wasn’t enough to leave the Loonie in the red, however.

Looking at the crude oil inventory numbers in the week, it was also mixed, with the IEA reporting lower than expected drawdowns.

The Loonie rose by 0.67% to end the week at C$1.3177. In the week prior, the Loonie had risen by just 0.88%.

Elsewhere

It was a bearish week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 21st August, the Aussie Dollar fell by 0.14% to $0.7161, with the Kiwi Dollar slipping by 0.02% to $0.6541.

For the Aussie Dollar

It was a quiet week for the Aussie Dollar.

Economic data prelim retail sales figures for July. The numbers were impressive on Friday, with retail sales rising by 3.3% in July. With the RBA’s reliance on consumption and concerns over the impact of the spike in new COVID-19 cases in Melbourne, the numbers were well received.

It wasn’t enough to prevent a 0.43% loss to leave the Aussie Dollar in the red for the week, however.

On the monetary policy front, the RBA meeting minutes on Tuesday tested support for the Aussie Dollar, however.

Dovish chatter and talk of uncertainty over what lies ahead failed to weigh on the Aussie early in the week, however.

For the Kiwi Dollar

It was a quiet week on the economic calendar.

Key stats included 2nd quarter wholesale inflation figures, which weighed on the Kiwi mid-week.

Ultimately, however, the Kiwi was unable to shake RBNZ talk of negative rates.

Away from the economic calendar, rising tension between the U.S and China certainly didn’t help.

For the Japanese Yen

It was a busy week on the economic calendar.

Key stats included 2nd quarter GDP numbers, July trade figures, and August’s prelim private sector PMIs.

In the week, the stats were skewed to the negative.

Japan’s economy contracted by 7.8% in the 2nd quarter versus a 0.6% contraction in the 1st quarter.

Trade figures also painted a gloomy picture, with both imports and exports taking another hit in July.

Core machinery orders slumped in June and private sector PMIs delivered mixed signals for August.

The only highlight was a slightly slower pace of contraction in the manufacturing sector. It was of little comfort, however, with service sector activity contracting at a quicker pace in August.

All in all, the Japanese economy looks unlikely to come out of the slump anytime soon.

The Japanese Yen rose by 0.75% to ¥105.80 against the U.S Dollar. In the week prior, the Yen had fallen by 0.64%.

Out of China

It was a quiet week on the economic data front.

There were no material stats to influence in the week,

On the monetary policy front, the PBoC left loan prime rates unchanged, leaving geopolitics in focus.

In the week prior, news had hit the wires of Trump canceling trade talks with China.

The decision to hold back had little impact, however, as the U.S administration targeted Chinese tech firms.

What’s next for Beijing remains to be seen. Beijing could be biding their time, however. Biden leads in the polls, suggesting that Trump’s days are numbered.

In the week ending 21st August, the Chinese Yuan rose by 0.45% to CNY6.9194. In the week prior, the Yuan had risen by 0.25%.

The CSI300 rose by 0.30%, supported by a 0.85% gain on Friday, while the Hang Seng slipped by 0.27%. A 1.30% rally on Friday limited the downside for the Hang Seng.

The Week Ahead – Geopolitics, Capitol Hill, COVID-19, and Economic Data in Focus

On the Macro

It’s a quieter week ahead on the economic calendar, with 56 stats in focus in the week ending 21st August. In the week prior, 69 stats had been in focus.

For the Dollar:

It’s a busy week ahead on the economic data front.

In the 1st half, August’s NY Empire State Manufacturing Index and July housing sector numbers are in focus.

Barring particularly dire housing sector figures, expect the Manufacturing figures to be the key driver.

The focus will then shift to the weekly jobless claims and August Philly FED Manufacturing Index figures on Thursday.

We can expect plenty of influence from these stats ahead of a busy end to the week.

On Friday, August’s prelim private sector PMIs and July existing home sales figures are due out. Expect the prelim Services PMI to be the key driver on the day.

From the FOMC, the meeting minutes are due out late on Wednesday. While there should be no surprises, there would likely be some caution ahead of the release.

Away from the economic calendar, updates from the U.S – China trade talks will influence at the start of the week. There is also the small matter of the COVID-19 stimulus package.

The Dollar Spot Index ended the week down by 0.36% to 93.096.

For the EUR:

It’s a relatively busy week ahead on the economic data front.

The markets will need to wait until Friday, however, for key stats.

August prelim private sector PMIs for France, Germany, and the Eurozone will influence at the end of the week.

Expect Germany’s manufacturing PMI and the Eurozone’s services and composite PMIs to be the key drivers.

The Eurozone’s finalized inflation figures for July and Germany’s wholesale inflation figures will likely be brushed aside.

A lack of stats through most of the week will leave the EUR in the hands of geopolitics and market risk sentiment.

On the monetary policy front, the ECB meeting minutes are due out on Thursday. The minutes should garner plenty of attention. Ahead of the last meet, there had been reports of dissent within the ranks…

The EUR/USD ended the week up by 0.47% to $1.1842.

For the Pound:

It’s also a relatively busy week ahead on the economic calendar. On Wednesday, July inflation figures are in focus. With the BoE’s gloomy outlook, however, we don’t expect too much influence from the numbers.

On Thursday, August’s CBI Industrial Trend Orders are in focus, ahead of a busy end to the week.

July retail sales and August prelim private sector PMIs will have an impact on Friday.

Expect the retail sales figures and service PMI to be the key drivers.

Away from the economic calendar, we should be hearing from the EU and the UK on how Brexit talks are progressing.

The GBP/USD ended the week up by 0.26% to $1.3086.

For the Loonie:

It’s a busy week ahead on the economic calendar.

July inflation figures on Wednesday and June retail sales figures on Friday will be the key drivers.

June wholesale sales figures and July house price figures will likely have a muted impact in the week.

From elsewhere, private sector PMIs from the Eurozone and the U.S and geopolitics will also influence.

The Loonie ended the week up by 0.88% to C$1.3266 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a quiet week ahead on the economic calendar. There are no material stats due out of Australia to provide the Aussie Dollar with direction.

A lack of stats will leave the Aussie Dollar in the hands of the private sector PMIs and geopolitics.

On the monetary policy front, the RBA meeting minutes will draw interest on Tuesday.

Following the spike in new COVID-19 cases in Melbourne, was there the talk of further easing???

The Aussie Dollar ended the week up by 0.20% to $0.7171.

For the Kiwi Dollar:

It’s also a quiet week ahead on the economic calendar.

On the economic data front, 2nd quarter wholesale inflation figures are due out on Wednesday.

We don’t expect too much influence from the numbers, however.

A lack of stats will leave the Kiwi in the hands of market risk sentiment in the week. Weak PMIs from the U.S and the EU would add further pressure on the Kiwi Dollar.

Expect updates from the U.S – China trade talks to also have an impact along with COVID-19 news.

The Kiwi Dollar ended the week down by 0.95% to $0.6542.

For the Japanese Yen:

It is a relatively busy week ahead on the economic calendar.

2nd quarter GDP and June industrial production figures kick things off on Monday.

The focus will then shift to July trade data due out on Wednesday.

At the end of the week, August’s prelim private sector PMIs and July inflation figures are due out. The inflation should have a muted impact on the Yen, however.

Away from the economic calendar, geopolitics and COVID-19 remain key drivers.

The Japanese Yen ended the week down by 0.64% to ¥106.60 against the U.S Dollar.

Out of China

It’s a quiet week ahead on the economic data front.

There are no material stats due out of China to provide direction.

A lack of stats will leave the Yuan in the hands of the PBoC and any chatter from Beijing.

On the monetary policy front, the PBoC is in action on Thursday. Following recent forward guidance, however, it remains to be seen whether recent economic data would force another cut in loan prime rates. The PBoC had recently stated that the easing cycle had come to an end.

Away from the economic calendar, U.S – China trade talks from the weekend will have a material impact.

The Chinese Yuan ended the week up 0.25% to CNY6.9504 against the U.S Dollar.

Geo-Politics 

UK Politics:

Brexit will likely garner more interest in the week ahead. One of the key sticking points remains EU access to UK fisheries. While the British Brexit team may concede on other issues, rights to UK waters is one that the government will likely stand firm on. That will make a trade deal all the more elusive unless EU negotiators bow to certain demands.

U.S Politics:

Still no progress towards a COVID-19 stimulus package. While the markets had largely brushed aside the lack of progress last week, we could see volatility pick up.

Much will depend upon labor market conditions over the summer. Any spike in jobless claims would make the markets more sensitive to a continued lack of progress.

U.S – China Trade Talks

Finally, updates from the U.S – China trade talks will also need monitoring. Tensions between the U.S and China have risen of late for a number of reasons. Hong Kong, COVID-19, and the hacking of U.S tech companies are amongst a lengthening list. U.S negotiators may turn the screw and attempt to rein China in. Trump’s need to distract the markets from COVID-19 will be another reason to make the trade talks explosive…

The Weekly Wrap – Economic Data, COVID-19, and U.S Politics Influenced in the Week

The Stats

It was a busy week on the economic calendar, in the week ending 14th August.

A total of 69 stats were monitored, following 59 stats from the week prior.

Of the 69 stats, 38 came in ahead forecasts, with 20 economic indicators coming up short of forecasts. 11 stats were in line with forecasts in the week.

Looking at the numbers, 30 of the stats reflected an upward trend from previous figures. Of the remaining 39, 31 stats reflected a deterioration from previous.

For the Greenback, it was back into the red. In the week ending 14th August, the Dollar Spot Index fell by 0.36% to 93.096. In the week prior, the Dollar had risen by 0.09% to end a run of 6 consecutive weekly losses.

Negative sentiment towards the lack of progress on the COVID-19 stimulus package weighed in the week.

The downside came in spite of economic data being skewed to the positive.

Out of the U.S

It was another busy week on the economic data front.

In the 1st half of the week, July inflation figures were skewed to the positive, with inflationary pressures building.

The producer price index rose by 0.6%, reversing a 0.2% decline from June. Consumer prices were also on the rise, with the annual rate of core inflation picking up from 1.2% to 1.6%.

On Thursday, the initial jobless claims eased back for the 2nd time in 4-weeks adding further support.

Initial jobless claims stood at 963k in the week ending 7th August. In the week prior, initial jobless claims stood at 1,191k.

At the end of the week, July retail sales and industrial production and August consumer sentiment figures were in focus.

Retail sales rose by 1.20%, with core retail sales rising by 1.90% following more than 7% increases in June.

Industrial production also continued to recover, rising by 3.0% in July, following a 5.7% increase in June. Year-on-year, however, production was still down by 8.18%.

Rounding off a positive week, consumer sentiment also improved. The Michigan Consumer Sentiment Index increased from 72.5 to 72.9, according to prelim August figures.

In the equity markets, the NASDAQ and S&P500 rose by 0.08% and by 0.64% respectively. The Dow led the way, however, gaining by 1.81%.

Out of the UK

It was a particularly busy week on the economic calendar. On Tuesday, claimant count and unemployment figures were in focus.

A 94.4k jump in claimant counts in July was Pound negative, while June’s unemployment rate held steady at 3.9%.

On Wednesday, the focus shifted to the 2nd quarter GDP and June manufacturing production figures.

While manufacturing production jumped by 11%, following an 8.3% rise in May, GDP numbers shocked…

In the 2nd quarter, the UK economy contracted by 20.4%, following a 2.2% contraction in the 1st quarter. On an annualized basis, the economy contracted by 21.7%, following a 1.7% contraction in the 1st quarter.

There was not much else for the markets to consider in the week, leaving the Pound on the defensive.

In the week, the Pound rose by 0.26% to $1.3086. In the week prior, the Pound had fallen by 0.25% to $1.3052.

The FTSE100 ended the week up by 0.96%, following on from a 2.28% gain from the previous week.

Out of the Eurozone

It was a relatively busy week economic data front.

In the 1st half of the week, August’s ZEW Economic Sentiment figures for Germany and the Eurozone were in focus.

The stats were skewed to the positive, with the sentiment in both Germany and the Eurozone seeing a marked improvement.

Mid-week, the Eurozone’s industrial production figures for June failed to support, in spite of a 9% rise. Economists had forecast a 10% increase following a 12.3% jump in May.

At the end of the week, the Eurozone’s 2nd estimate GDP numbers for the 2nd were in focus.

According to the 2nd estimate figures, the Eurozone’s economy contracted by 12.1% in the 2nd quarter. This was in line with 1st estimates as was the year-on-year 2nd estimate GDP that was unchanged at -15%.

July’s finalized inflation figures for France, Germany, and Spain and Eurozone trade data had a muted impact in the week.

For the week, the EUR rose by 0.47% to $1.1842, following on from a 0.08% gain from the previous week.

For the European major indexes, it was another bullish week. The DAX30 rose by 1.79%, with the CAC40 and EuroStoxx600 gaining by 1.50% and by 1.24% respectively.

For the Loonie

It was a quiet week on the economic calendar.

Economic data included July housing stats and manufacturing sales figures.

There was little influence on the Loonie, however. OPEC and the IEA’s monthly reports, the weekly inventories, and market risk sentiment remained the key drivers.

Ultimately, U.S Dollar weakness driven by Capitol Hill and a sizeable drawdown in inventories provided support.

The Loonie rose by 0.88% to end the week at C$1.3266. In the week prior, the Loonie had risen by just 0.21%.

Elsewhere

It was a mixed week for the Aussie Dollar and the Kiwi Dollar.

In the week ending 14th August, the Aussie Dollar rose by 0.20% to $0.7171, while the Kiwi Dollar fell by 0.95% to $0.6542.

For the Aussie Dollar

It was a relatively busy week for the Aussie Dollar.

Economic data included consumer and business confidence figures and wage growth and unemployment numbers.

It was a mixed bag for the Aussie Dollar in the week.

Both business and consumer confidence waned in July and August, respectively, as a result of the spike in new COVID-19 cases.

Wage growth was also lackluster in the 2nd quarter.

Employment figures for July were Aussie Dollar positive, however, providing support in the 2nd half of the week.

A 114.7k rise in employment and a 43.5k rebound in full employment limited the rise in the unemployment rate to 7.5%. Economists had forecast an unemployment rate of 7.8%.

For the Kiwi Dollar

It was a busy week on the economic calendar.

Key stats included July business confidence and electronic card retail sales figures early in the week.

Business confidence weakened, with electronic card retail sales only seeing a minor increase.

At the end of the week, the Business PMI rose from 56.3 to 58.8 in July to provide the Kiwi Dollar with support.

The main event of the week, however, was the RBNZ’s monetary policy decision.

While keeping interest rates steady at 0.25%, the RBNZ expanded its large scale asset purchase program to NZD100bn. The RBNZ also talked of the possibility of further support including negative rates.

With New Zealand reporting its first new COVID-19 cases in over 3-months, it was a bearish week for the Kiwi.

For the Japanese Yen

It was a particularly quiet week on the economic calendar.

There were no material stats from Japan to influence in the week.

A lack of stats left the Japanese Yen in the hands of geopolitics, COVID-19, and updates from Capitol Hill.

The Japanese Yen declined by 0.64% to ¥106.6 against the U.S Dollar. In the week prior, the Yen had fallen by 0.09%.

Out of China

It was another relatively busy week on the economic data front.

At the start of the week, July inflation figures provided support to riskier assets.

The annual rate of inflation picked up from 2.5% to 2.7%, with wholesale deflationary pressures easing. The producer price index fell by 2.4%, year-on-year, following a 3.0% slide in June.

At the end of the week, however, economic data tested market risk appetite.

Industrial production increased by 4.8%, year-on-year, with retail sales falling by 1.1%. Economists had forecast production to rise by 5.1% and for sales to increase by 0.1%.

In the week ending 14th August, the Chinese Yuan rose by 0.25% to CNY6.9504. In the week prior, the Yuan had risen by 0.10%.

The CSI300 slipped by 0.07%, while the Hang Seng gained 2.66%.

Gold and the Dollar are Sold while Stocks March Higher

The Dow Industrials and S&P 500 rose, the high flying NASDAQ fell for the second consecutive session for only the second time since May. However, today, the “rotation” seems to be only impacted gold, which is off for the third consecutive session, its longest decline in three months, helped by sales from the ETFs, which have been significant buyers.

The yellow metal is off almost 2% to around $1983. The technical target we suggested was $1950 on a break of $2000. Equities are rallying. Japan returned from yesterday’s holiday and took the Topix up 2.5% (Nikkei 1.95) and Hong Kong’s Hang Seng tacked on 2.1%, amid optimism Beijing preparing new tourist visas to Macau.

European shares are up for a third consecutive session, and the Dow Jones Stoxx 600 has advanced around 2.0% through the European morning. US shares are firmer with the S&P 500, about 0.65% better. Benchmark bond yields are a little firmer, though the European periphery bonds are more resilient (likely owing to the Eurosystem purchases). The US 10-year yield, which had flirted with 50 bp last week, is approached 60 bp now. September light sweet oil is confined to about a 50-cent range above $42. US inventories are expected to have fallen again. Key resistance is seen near the 200-day moving average (~$43.70).

Asia Pacific

The US is continuing to ratchet pressure higher on China. Following the latest sanctions and actions against two Chinese apps, the US has indicated that after late September, goods made in Hong Kong will be labeled “made in China” and subject to the same tariff schedule as the mainland. This measure, like sanctioning HK Chief Executive Lam, is about signaling, as there is little real substance in terms of inflicting pain or disruption. As we have noted before, most goods the US imports from Hong Kong have been re-exported from China, and the goods actually made in Hong Kong are less than 1.5% of US imports from it.

Meanwhile, China appears to be reining in the strong lending seen earlier this year. Indeed, the July lending figures were weaker than expected. New yuan loans, which is what the formal banking system generates, rose by CNY992.7 bln, and economists were looking for something closer to CNY1.2 trillion after CNY1.8 trillion in June. Aggregate financing, which includes non-bank financial institutions (shadow banking), rose by CNY1.69 trillion, less than half of the CNY3.43 trillion in June.

Japan reported June balance of payments and trade figures. Japan’s balance of payments in surplus (JPY167.5 bln) but considerably smaller than May’s JPY1.18 bln surplus. However, Japan continues to run a trade deficit (on BOP basis JPY77.3 bln in June after a JPY557 bln deficit in May. Japan’s broader surplus is a function of its capital account and income from dividends, royalties, licensing fees, profits, and earnings from operations abroad. In contrast, consider German trade numbers that were out last week. Its trade surplus drives its current account surplus (15.6 bln euro trade surplus in June and a 22.1 bln current account surplus.

The dollar traded at new six-day highs against the yen near JPY106.20. Last week’s high was a touch below JPY106.50, and trendline resistance is seen closer to JPY106.70. The option expiring today for about $765 mln at JPY106.00 may still cause some angst if the dollar pulls back in early North American trading. Initial support is pegged near JPY105.70.

The Australian dollar is coming back bid after posting a small loss yesterday, its first back-to-back loss in a month. It has found support around $0.7140 and appears set to re-test the $0.7200-$0.7220 area. The dollar is about 0.2% weaker against the Chinese yuan (~CNY6.9475). The reference rate was set at CNY6.9711, compared with the median bank model collected by Bloomberg of CNY6.9693.

Europe

The German ZEW investor survey showed minor deterioration in the assessment of the current conditions, but optimism over the future continued to improve. The August survey showed the view of current conditions slipped to -81.3 from -80.9. Recall it bottomed at -93.5 in May. Expectations, on the other hand, rose to 71.5 from 59.3. This is a particularly strong reading and is the highest since 2003. Between loan guarantees and actual spending, Germany has been more aggressive than most other European countries in responding to the pandemic. We can’t help but wonder if this lays the foundation for new divergence in the coming years, even though the EU has a recovery fund and will issue a common bond.

The UK’s employment data may spur pressure to increase the furlough program. In Q2, employment fell by 220k, and the claimant count rose 94.4k in July. July payrolls were about 770k lower than in March. Many people are discouraged from looking for work in current conditions, and this is helping keep the unemployment rate at 3.9% (three-months to June according to the ILO). It has been at 3.9% all year, except in February, when it briefly rose to 4.0%.

Separately, reports suggest that the UK’s try to get better terms than Japan gave to the EU is jeopardizing being able to conclude a trade agreement by the end of this month. The issue, which the UK appears to put pride and spin ahead of substance is over blue cheese. Note that the free-trade agreement with Japan, which phases out UK tariffs on autos and auto parts, is estimated to boost UK’s GDP by 0.7% over the long-term while leaving the EU costs an estimated 5% of GDP.

The euro recorded a five-day low a little above $1.1720 before rebounding to $1.1785 in the European morning. Yesterday’s it briefly poked above $1.18, where there is an option for roughly 675 mln euros that will be cut today. An option for 2.1 bln euros that expires tomorrow is struck at $1.1875. The intraday technical readings are stretched, and this may encourage early North American dealers to sell into the euro’s upticks. After bottoming near $1.3055 in late Asian turnover, sterling is testing the $1.31 area, where it peaked yesterday. The intraday technical readings are not as stretched as the euro’s, but gains are likely to be capped in front of the $1.3140 area.

America

Ahead of the review of the Phase 1 trade agreement later this week, reports suggest China is stepping up its purchases for US soy. Six cargoes for November and December shipments apparently were bought yesterday. Reports suggest the new soy orders may be coming at the expense of Brazil.

President Trump opined that Q3 GDP could be 20%. While this could simply be a case of cheerleading and aspirational, it is notable that the Atlanta Fed’s GDP tracker currently puts it at 20.5%. The NY Fed’s model is at 14.6%. Trump has said he is considering a capital gains tax cut. While the executive branch does not have that authority, it could index capital gains to inflation, which has long been advocated by some Republicans.

The US reports July producer prices today. They are not typically a market-mover even in the best of times. The headline year-over-year rate will remain in deflationary territory, (-0.7% likely instead of -0.8%). Even when energy (and food) are dropped, the core PPI is expected to have remained near zero. Still, the week’s data highlights, which include CPI, retail sales, and industrial production, lie ahead. Canada reports July housing starts. They may ease after jumping by more than a quarter in the May-June period. Like the US, housing and autos, appear to be leading the Canadian recovery.

Mexico is expected to announce that the four-month slide in industrial output came to an end with a bang in June. The median forecast in the Bloomberg survey projects a 17.1% increase in the month, as the manufacturing sector got some traction even though the pandemic continues to hit hard.

The highlight for Mexico will likely be the rate cut later in the week (from 5.0% to 4.5%). Minutes from last week’s Brazil’s central bank meeting, where a 25 bp rate cut was delivered. These may prove more important than usual as investors try to work out how much easing is left and the chances that the central bank uses its recently granted powers to buy long-term assets (government and corporate bonds).

The US dollar has given back the gains against the Canadian dollar scored in the last two sessions. The greenback is pushing through CAD1.33, where a $712 mln option is set to expire today. Last week’s lows were set near CAD1.3235-CAD1.3245. That is the next target. That said, the intraday technicals are stretched. Resistance is seen in the CAD1.3340-CAD1.3360 area. The US dollar is at the lower end of the five-day range (MXN22.30-MXN22.32).

While there is some scope for intraday penetration, the market does not appear to have much conviction. Here, too, the intraday technicals are a bit stretched, suggesting limited scope for follow-through dollar selling in the North American morning. The dollar settled yesterday at its best level against the Brazil real in over a month (~BRL5.48). Nearby resistance is seen in the BRL5.50-BRL5.53 area. Support is pegged around BRL5.34-BRL5.35.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

About that Dollar Bounce

The price action lends credence to our view that a technical consolidative/corrective phase is at hand. Further near-term dollar recovery looks likely but does not change our longer-term bearish outlook.

Dollar Index

A bottom was carved and tested near 92.50. It is potentially a double bottom. A move above 94.00 is needed to confirm it, though others might not be convinced until 94.50 area (20-day moving average) is surpassed. The measuring objective of the double bottom is around 95.50, and the 95.80 is a retracement objective. The MACD appears poised to turn higher while the Slow Stochastic bottomed late last month, setting up a modest bullish divergence.

Euro

A potential double top is in the euro. It checked the air above $1.19 at the end of July and made a fractional new high in recent days. In between, it had fallen a little through $1.1700. That is the neckline of the double top and implies a measuring objective of near $1.15. We had offered a $1.1650 target last week. The 20-day moving average (~$1.1630) and the halfway mark of the rally off last month’s low ($1.1640) are near there as well. The next retracement (61.8%) is found closer to $1.1550. The MACD and Slow Stochastic are rolling over. Note too that implied vol rose along with the euro, and as the single currency corrects lower, vol will likely ease. The chart here since 2008 illustrates the importance of the area euro has approached. The fate of the 12-year downtrend is at stake.

Japanese Yen

The dollar posted its first leg up against the yen in dramatic fashion, with a key reversal from JPY104 on July 31. Follow-through buying lifted it to nearly JPY106.50 at the start of last week. There were a few days on consolidation, and the next leg up appears to have begun before the weekend. We suspect it can rise into the JPY107.00-JPY107.50. The 200-day moving average lies a little above the JPY108, around the upper end of its previous range. The Slow Stochastic turned higher at the end of July. The MACD is also edging higher.

British Pound

A double top also may be in place for sterling. The pound reached a high on the last day of July near $1.3170, and on August 6, a little above $1.3185. In between, it slipped to around $1.2980. The break confirms the pattern with a measuring objective of the $1.2780 area. The 20-day moving average and the 50% retracement of the last leg up of sterling that began near $1.1520 on July 20 also comes in near there. The next retracement (61.8%) comes in a little below the double top objective (~$1.2770). The momentum indicators are just begun rolling over.

Canadian Dollar

The US dollar fell to six-month lows against the Canadian dollar around CAD1.3230 in the middle of last week, but rebounded back to CAD1.3400 amid the wider greenback recovery ahead of the weekend. The 20-day moving average is found near CAD1.3435, and the high from late last month is a little higher (~CAD1.3460). A push there would signal a test on the CAD1.3500-CAD1.3530, and near the upper end of that range, the 200-day moving average is found. The momentum indicators are floundering in over-extended territory and have yet to convincingly curl up.

Australian Dollar

The potential topping pattern is not as aesthetically pleasing as the euro or sterling. It made a high at the end of July a little above $0.7225. It fell to about $0.7075 before rebounding and reached nearly $0.7245 before the pre-weekend cent sell-off. The greenback’s recovery saw the Aussie fall through and close below the previous day’s low, for a key reversal. A break of the $0.7075 area would confirm the topping pattern and project toward $0.6925. There are several areas of intermittent support. The $0.7040 area is the (50%) retracement of the rally that began in early July. The $0.7000 area is of modest psychological importance, and the next retracement (61.8%) objective is also there. The MACDs are not helpful now, and the Slow Stochastic has turned lower.

Mexican Peso

Emerging markets, for which the Mexican peso often serves as a proxy, seemed to turn lower against the dollar before the majors. Leaving aside the Turkish lira, where officials have finally appear to abandon their ill-conceived currency strategy, emerging market currencies remained under pressure, with the JP Morgan Emerging Market Currency Index falling for the second consecutive week.

Last week’s 1.5% decline is the largest decline in three and a half months. The dollar rose around 3.3% against the rand last week after gaining 2.4% in the prior week. Last week, the dollar’s nearly 4% gain against the Brazilian real was the most among emerging market currencies. The greenback looks poised may be range-bound between around MXN22.30 and MXN23.00. Our near-term bias is for a stronger dollar, but it closed softly ahead of the weekend.

Chinese Yuan

The yuan looks rich, given the dollar’s recovery ahead of the weekend and given the escalation and broadening tensions with the US. It traded at its best level since March (with the dollar at a low ~CNY6.9360). A trendline drawn off the late May high (~CNY7.1770) comes at the start of next week near CNY6.9860, but a move back to if not above CNY7.0 seems likely. Around 4.75% three-month implied vol is low compared with other currencies, but it is above its 200-day moving average (~4.4%). The skew in the options market (three-month risk-reversal) favoring dollar calls edged up slightly last week. While the skew is still low, it did increase more than the one-month tenor and could be picking up some risks around the US election.

Gold

New record highs were seen before the weekend near $2075.50, but then gold reversed lower and fell below the previous day’s low (~2034.55), though closed slightly above it. The bearish price action is intuitively consistent with the dollar’s bounce and the signal from the momentum indicators. The Slow Stochastic is poised to turn lower and did not confirm the new price high. The MACD is poised to cross down. Initial support is expected in the $1980-$2000 area. The rally has been so sharp that even a modest (38.2%) of the recent rally from early last month is closer to $1955.

Oil

The September WTI contract reached a five-month high (~$43.50) in the middle of last week, just shy of the 200-day moving average (~$43.80). This marked the end of a four-day net (close-to-close) rally of nearly 5.7%. Crude trade heavily in the second half of the week. It tested the upper end of a band of support that extends from around $39.80 to $41 before the weekend. The MACD has been trending lower since early/mid-June. The Slow Stochastic has actually turned up from mid-range. Still, our bias is lower.

US Rates

The US rates have found a near-term floor. The 2-year has held the 10 bp record low. Traders may have thought about pushing the 10-year yield below 50 bp, but have pulled back. The 30-year yield held 1.15% and recovered to almost 1.25%. There is some thought that with a weak dollar environment and near-record low-interest rates, some concessions may be needed to induce a robust reception to the US quarterly refunding. It is as if the inventory must be distributed to make room for new product.

The Treasury will raise $112 bln ($48 bln 3-year, $28 bln 10-year, and $26 bln 30-year) in coupon sales, which is about 16% more than the previous quarterly refunding. The Treasury has announced intentions to sell $132 more coupons in the August-October period than it did the last three months as it seeks to fund the huge gap between revenues and expenditures. One implication is that it would seem to boost the chances that the yield curve steepens. The 2-10 year curve briefly dipped below 40 bp last week, a low since late April. There is scope to claw back toward 50 bp in the coming weeks. The 2-30 year curve has been bouncing off 107 bp for two weeks. It can steepen toward 125 bp in the period ahead.

S&P 500

The benchmark gained almost 2.5% last week and filled the old breakaway gap from February (~3328.5). The S&P 500 gapped higher to start the week, and the gap takes on additional technical significance because it appears on the weekly and monthly charts as well. That gap, for reference, is roughly between 3272.20 and 3284.5. It then gapped higher on Wednesday, and that gap is unfilled as well (~3306.8-3317.4).

This area may offer initial support. The MACDs are not yielding any useful signal, while the Slow Stochastic turned up in the past week after barely correcting the over-extended reading. The S&P closed firmly, setting new highs were set for the week in the run-up to the close. There seem to be little in the way of a test on the record high set in February around 3393.5.

For a look at all of today’s economic events, check out our economic calendar.

This article was written by Marc Chandler, MarctoMarket.

The Week Ahead – Economic Data, the RBNZ, and U.S. Politics in Focus

On the Macro

It’s a busier week ahead on the economic calendar, with 67 stats in focus in the week ending 14th August. In the week prior, 59 stats had been in focus.

For the Dollar:

It’s a relatively busy week ahead on the economic data front.

In the 1st half, June’s JOLTs job openings and July inflation figures are in focus. Barring particularly dire job opening figures, however, the stats should have a muted impact on the day.

The focus will then to Thursday’s initial jobless claims ahead of a busy end to the week.

On Friday, July retail sales and industrial production and August prelim consumer sentiment figures will influence.

After the positive PMIs for July, the industrial production and retail sales figures will also need to deliver.

Away from the calendar, expect chatter on the COVID-19 stimulus package and tension with China to also influence.

The Dollar Spot Index ended the week up by 0.09% to 93.435.

For the EUR:

It’s a quieter week ahead on the economic data front.

Key stats include August ZEW Economic Sentiment figures for Germany and the Eurozone on Tuesday.

Eurozone industrial production and 2nd estimate GDP numbers on Wednesday and Friday will also draw interest.

We would expect finalized July inflation figures for member states to have a muted impact, however.

The EUR/USD ended the week up by 0.08% to $1.1787.

For the Pound:

It’s a busy week ahead on the economic calendar. On Tuesday, retail sales, claimant count, and unemployment figures will garner plenty of interest.

The focus will then shift to manufacturing production and 2nd quarter GDP number on Wednesday.

We would expect wage growth, industrial production, and trade figures to have a muted impact on the Pound.

Away from the economic calendar, Brexit will remain a key driver.

The GBP/USD ended the week down by 0.25% to $1.3052.

For the Loonie:

It’s a quiet week ahead on the economic calendar.

Housing sector data and manufacturing sales figures are due out. Barring dire numbers, however, they will likely have little to no influence on the Loonie.

Expect geopolitics and market sentiment towards the demand for crude and the economic recovery to remain key drivers.

On the crude oil front, OPEC and the IEA’s monthly reports will also provide the Loonie with direction.

The Loonie ended the week up by 0.21% to C$1.3384 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

It’s a relatively busy week ahead for the Aussie Dollar.

Early in the week, key stats include July business and August consumer confidence figures.

Expect the stats to have a material impact on the Aussie Dollar ahead of July’s employment figures on Thursday.

With the RBA continuing to rely on a consumption and business investment-driven recovery, these stats are significant.

At the end of the week, industrial production figures from China will also influence.

The Aussie Dollar ended the week up by 0.20% to $0.7157.

For the Kiwi Dollar:

It’s also a relatively busy week ahead on the economic calendar.

On the economic data front, business confidence and electronic card retail sales are in focus early in the week.

The focus will then shift to Business PMI numbers due out at the end of the week.

For the Kiwi Dollar, however, the main event will be the RBNZ monetary policy decision on Wednesday.

Stats from China will also provide the Kiwi Dollar with direction on Friday.

The Kiwi Dollar ended the week down by 0.36% to $0.6605.

For the Japanese Yen:

It is a particularly quiet week ahead on the economic calendar.

There are no material stats due out of Japan to provide the Yen with direction.

A lack of stats will leave the Yen in the hands of geopolitics and COVID-19 in the week.

The Japanese Yen ended the week down by 0.09% to ¥105.92 against the U.S Dollar.

Out of China

It’s a relatively busy week ahead on the economic data front.

July’s inflation figures are due out on Monday ahead of industrial production figures on Friday.

We would expect the industrial production figures to have the greatest impact in the week.

Fixed asset investment figures that also due out on Friday should have a muted impact, barring dire numbers…

The ongoing spat between the U.S and China will also need monitoring in the week.

The Chinese Yuan ended the week up 0.10% to CNY6.9680 against the U.S Dollar.

Geo-Politics

UK Politics:

Brexit and bilateral trade talks with key trading partners will remain in focus. Talks are set to continue through August and September ahead of an EU Summit in October.

We’ve seen the Pound avoid a sell-off, with hopes of a more compromising EU providing support.

Any shift in stance and expect the Pound to come under pressure, particularly with the BoE’s gloomy economic outlook.

U.S Politics:

There’s never a dull moment in U.S politics. Lawmakers failed to reach an agreement on the COVID-19 stimulus package before the summer recess.

That leaves the unemployed with the normal benefits following the expiration of the previous unemployment benefits.

U.S foreign policy is also in the spotlight. U.S – China relations took yet another turn for the worse late last week. Expect plenty of chatter in the week ahead, as Trump looks to woo lost support ahead of the Presidential Election.