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

On the Macro

It’s a particularly busy week ahead on the economic calendar, with 88 stats in focus in the week ending 4th December. In the week prior, 50 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, the market’s preferred ISM Manufacturing PMI and ADP Nonfarm Employment Change figures are due out.

With plenty of focus on labor market conditions, the ADP figures could overshadow the ISM numbers.

On Thursday, however, both the initial jobless claims and the ISM Non-Manufacturing PMIs will draw plenty of attention.

At the end of the week, nonfarm payrolls and November’s unemployment rate will provide riskier assets with direction.

Weak numbers could force the FED into action should lawmakers continue to grapple over a stimulus package.

Away from the economic calendar, COVID-19 and U.S politics will continue to remain the key drivers, however.

The Dollar Spot Index ended the week down by 0.65% to 91.790.

For the EUR:

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

Private sector PMIs for Spain and Italy and finalized PMIs for France, Germany, and the Eurozone are due out.

On Tuesday, German unemployment figures will also be in focus alongside the manufacturing numbers.

Mid-week, German retail sales figures are due out ahead of German factory order numbers on Friday.

Other stats in the week include prelim November inflation and Eurozone unemployment and retail sales figures.

These numbers are unlikely to have a muted impact on the EUR, however.

Away from the economic calendar, COVID-19 news updates will remain a key driver in the week. Expect Brexit to also influence…

The EUR ended the week up by 0.89% to $1.1963.

For the Pound:

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

Finalized private sector PMIs are due out on Tuesday and Thursday, with November’s construction PMI on Friday.

Barring any downward revisions, however, the stats are likely to have a muted impact on the Pound.

Sentiment towards Brexit and COVID-19 will remain the key drivers in the week.

The Pound ended the week up by 0.27% to $1.3311.

For the Loonie:

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

In the 1st half of the week, 3rd quarter and October GDP and RMPI numbers are in focus. Expect the GDP numbers to have the greatest impact.

The focus will then shift to trade and employment figures due out on Friday. Expect the employment numbers to have the greatest impact at the end of the week.

From elsewhere, private sector PMIs numbers from China, the Eurozone, and the U.S will also provide direction.

Away from the calendar, COVID-19 vaccine news and stimulus talk from Capitol Hill will also influence.

The Loonie ended the week up by 0.81% to C$1.2989 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

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

AIG manufacturing index figures are due out ahead of 3rd quarter GDP numbers on Wednesday.

The focus will then shift to trade data and retail sales figures due out on Thursday and Friday.

On the monetary policy front, the RBA policy decision on Tuesday will also draw plenty of attention. While the markets are expected rates to be left unchanged, there could be the talk of further support via its bond-buying program.

From elsewhere, private sector PMI numbers from China will also influence.

Away from the economic calendar, COVID-19 news will continue to provide direction. U.S politics could also play a role should lawmakers make progress towards a stimulus package.

The Aussie Dollar ended the week up by 1.16% to $0.7387.

For the Kiwi Dollar:

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

November business confidence figures at the start of the week will draw interest. With the RBNZ assuring continued support disappointing numbers would test Kiwi Dollar support.

Late in the week, building consent figures for October would likely have a muted impact on the Kiwi.

From elsewhere, private sector PMI numbers from China will also provide direction in the week ahead.

The Kiwi Dollar ended the week up by 1.41% to $0.7027.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

October industrial production and retail sales figures are due out on Monday. Both sets of numbers will be of interest, though the impact on the Yen will likely be limited.

The focus will then shift to finalized manufacturing and services PMIs are due out on Tuesday and Thursday.

Barring marked deviation from prelim figures, however, the markets will likely brush aside the numbers.

From elsewhere, economic data from China will influence.

Away from the economic calendar, any further positive updates on COVID-19 vaccines would likely ease demand for the Yen.

The Japanese Yen ended the week down by 0.22% to ¥104.09 against the U.S Dollar.

Out of China

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

Private sector PMI numbers for November are due out in the week. The market’s preferred Caixin Manufacturing PMI on Tuesday will likely have the greatest impact.

Economic data from China has continued to impress. Any disappointing numbers would test market risk appetite early in the week.

The Chinese Yuan ended the week down by 0.23% to CNY6.55781 against the U.S Dollar.

Geo-Politics

U.S Politics

Following last week’s Thanksgiving holidays, the markets will look towards Capitol Hill. There will be two areas of focus. Firstly, any government interventions to curb the spread of the COVID-19 pandemic and, secondly, stimulus talks.

A failure to make progress on stimulus and reintroduction of lockdown measures would be the worst-case scenario for riskier assets.

Brexit

For the Pound and the UK economy, Brexit remains a key driver. Talks resumed on the weekend and time is rapidly running out.

With U.S President-Elect Biden also getting involved, the markets are hoping for an imminent deal.

The Weekly Wrap – COVID-19 Vaccine News Supported Riskier Assets in the Week

The Stats

It was a quieter week on the economic calendar, in the week ending 27th November.

A total of 50 stats were monitored, following 62 stats from the week prior.

Of the 50 stats, 25 came in ahead of forecasts, while 21 economic indicators came up short of forecasts. 4 stats were in line with forecasts in the week.

Looking at the numbers, 16 of the stats reflected an upward trend from previous figures. Of the remaining 35 stats, 31 reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive week in the red. The Dollar Spot Index fell by 0.65% to 91.790. In the week prior, the Dollar had fallen by 0.39% to 92.392.

Hopes of a COVID-19 vaccine before the end of the year provided riskier assets with support in the week. Softer demand for the Greenback came in spite of disappointing economic data from the U.S and the continued rise in new COVID-19 cases.

Out of the U.S

It was a busy week on the economic data front.

In the 1st half of the week, prelim private sector PMI numbers for November impressed. The all-important services PMI rose from 56.9 to 57.7, with the manufacturing PMI climbing from 53.4 to 56.7.

Consumer sentiment waned in November, however, with the CB Consumer Confidence Index falling from 101.4 to 96.1. This was to be expected, with the latest spike in new COVID-19 cases and dire labor market conditions.

Mid-week, the weekly jobless claims, core durable goods orders, 3rd quarter GDP, and personal spending figures were in focus.

The stats were mixed. Initial jobless claims rose from 742k to 778k in the week ending 20th November. The latest figure further confirmed that the labor market recovery had stalled.

Core durable goods orders impressed with a 1.3% rise in October, with personal spending rising by 0.5% to come in ahead of forecasts. Spending was down from a 1.2% rise in September, however.

2nd estimate GDP numbers for the 3rd quarter were in line with 1st estimates, which came up short of a forecasted upward revision.

Other stats ahead of the Thanksgiving holidays included finalized consumer sentiment and inflation figures.

The Michigan Consumer Sentiment Index came in at 76.9, down from a prelim 77.0. Of greater significance was softer inflationary pressures in October. The annual rate of inflation eased from 1.6% to 1.4%.

On the monetary policy front, the FOMC meeting minutes had a muted impact. The FED focus on the COVID-19 pandemic was somewhat dated following the latest COVID-19 vaccine updates.

In the equity markets, the NASDAQ rose by 2.96%, while the Dow and S&P500 gaining 2.21% and 2.27% respectively.

Out of the UK

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

Prelim private sector PMI numbers for November were in focus at the start of the week.

It was a mixed bag, with manufacturing sector activity seeing a pickup, while the services sector contracted.

The all-important services PMI slid from 52.3 to 45.8 as lockdown measures hit the sector.

Away from the economic calendar, the Pound did find some support on hopes of an imminent Brexit deal, however.

In the week, the Pound rose by 0.27% to $1.3311. In the week prior, the Pound had risen by 0.65% to $1.3275

The FTSE100 ended the week up by 0.25%, following on from a 0.56% gain in the previous week.

Out of the Eurozone

It was a busy week on the economic data front.

Prelim private sector PMIs for France, Germany, and the Eurozone were in focus at the start of the week.

With lockdown measures in place, the services sector took a hit, with the Eurozone Services PMI falling from 46.9 to 41.3.

Eurozone manufacturing sector activity eased as a result of a contraction in France, while Germany continued to report solid growth in the sector.

On Tuesday, the focus shifted to Germany. Finalized 3rd quarter GDP and November’s IFO Business Climate figures were in focus.

While an upward revision to 3rd quarter GDP numbers was positive, a slide in business sentiment disappointed. The Ifo Business Climate Index fell from 92.5 to 90.7.

The markets were expecting a deterioration in sentiment, however, which limited the impact on the EUR.

In the 2nd half of the week, Germany’s GfK Consumer Climate indicator reflected consumer sentiment towards the COVID-19 pandemic. A reintroduction of containment measures dragged the headline indicator down from -3.2 to -6.7.

From France, finalized 3rd quarter GDP, October consumer spending, and prelim inflation figures for November were in focus on Friday.

Consumer spending and inflation were the main areas of focus, with the markets less interested in 3rd quarter numbers in spite of an upward revision to 18.7%.

The stats were skewed to the positive, with consumer spending jumping by 3.7%, following a 4.4% slide in September.

Consumer prices were also on the rise. In November, consumer prices rose by 0.2%. Prices had been flat in October.

From the ECB, November’s financial stability review and monetary policy meeting minutes delivered a grim view. There was EUR resilience, however, coming from progress towards a COVID-19 vaccine.

For the week, the EUR rose by 0.89% to $1.1963. In the week prior, the EUR had risen by 0.19% to $1.1857.

For the European major indexes, it was another bullish week. The CAC40 rose by 1.86%, with the DAX30 and EuroStoxx600 gaining 1.51% and 0.93% respectively.

For the Loonie

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

There were no material stats to provide direction. The lack of stats left the Loonie in the hands of COVID-19 news updates and crude oil inventory numbers.

In the week ending 27th November, the Loonie rose by 0.81% to C$1.2989. In the week prior, the Loonie had risen by 0.32% to C$1.3095.

Elsewhere

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

In the week ending 27th November, the Aussie Dollar rose by 1.16% to $0.7387, with the Kiwi Dollar rallying by 1.41% to end the week at $0.7027.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats included 3rd quarter construction work down and new capital expenditure figures.

The stats were skewed to the negative, with both taking a larger hit than expected in the quarter.

While the stats were disappointing, hopes of a COVID-19 vaccine by the end of the year delivered support.

For the Kiwi Dollar

It was a busier week on the economic calendar.

3rd quarter retail sales and October trade figures were in focus, with both sets of numbers beating forecasts.

Retail sales surged by 28%, reversing a 14.6% slide from the 2nd quarter, with the annual trade deficit widening to a 28-year high NZ$2,190m.

From the RBNZ, November’s Financial Stability report also delivered support to the Kiwi Dollar, while risks remained tilted to the downside.

For the Japanese Yen

It was a quiet week on the economic calendar.

November inflation figures at the end of the week failed to move the dial. A pickup in deflationary pressures was aligned with the market outlook. Tokyo’s core consumer prices fell by 0.7%, following a 0.5% decline in October.

While the inflation figures disappointed, updates on the COVID-19 vaccine eased demand for the Yen.

The Japanese Yen fell by 0.22% to ¥104.09 against the U.S Dollar. In the week prior, the Yen had risen by 0.74% to ¥103.86.

Out of China

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

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

In the week ending 27th November, the Chinese Yuan fell by 0.23% to CNY6.5781. The Yuan had risen by 0.66% to CNY6.5630 in the week prior.

The CSI300 rose by 0.76%, with the Hang Seng ended the week up by 1.68%.

Beware of the False Break

The major currencies remained within well-worn ranges. The JP Morgan Emerging Market Currency Index rose by around 1%, for its third weekly gain. It is at its best level in eight months. The Bannockburn World Currency Index rose by more than 0.5% to new two-year highs.

Equities were generally higher, and benchmark 10-year yields were mostly lower. China’s 10-year government bond was an exception. The yield rose a few basis points on the week to poke above 3.3% for the first time in over a year. The recovery has advanced to the degree that Chinese officials warn that monetary policy may need to adjust.

That said, it did sell a 5-year euro-denominated issue with a negative yield for the first time. Still, a string of high-profile failures continues, including a car manufacturer, real estate developer, and chipmaker last week suggests there may not be much appetite for any aggressive measures to tighten financial conditions.

Talking points in the foreign exchange market are still dominated by the virus and vaccine. Thin trading in the US afternoon seemed to have been subject to exaggerated responses to headlines (e.g., Shelton’s nomination to the Fed and stimulus talks). Turkey’s central bank delivered a strong statement to the market, and the lira tested two-month highs. South Korean officials’ verbal intervention reinforced the importance of the KRW1100 level, while Thailand’s resistance to baht strength prompted officials to relax rules on capital outflows.

Dollar Index

The Dollar Index hovered around the trough a little above 92.00 last week. It barely held above the month’s low set on November 9, a little below 92.15. It probably takes a break of the spike low on September 1 to about 91.75 to signal a breakout. The momentum indicators show room to the downside, albeit limited before getting stretched. Perhaps a macro development, like a trade agreement between the UK and EU, could be the spark. Still, with the virus continuing to ravage Europe, three-month Euribor at record lows, and the implicit threat of verbal intervention if the euro approaches $1.20, it does not seem time for a sustained breakout.

Euro:

Within the $1.16-$1.20 range that has confined the euro for a few months, the euro looks comfortable in a narrow $1.1750-$1.1900 range. It spent last week on the $1.18 handle. The MACD and Slow Stochastic show momentum still favoring the upside, and the five-day moving average is about the 20-day. However, we expect the market to be reluctant to push the euro much higher. The speed to which it came off after seeing $1.1920 on November 9 warns of possibly weak conviction. A weak preliminary PMI will increase concerns of a new economic contraction after the Q3 rebound.

Japanese Yen:

The dollar takes a seven-day decline into next week. The dramatic short squeeze lifted the dollar from eight-month lows near JPY103.20 to around JPY105.65, sparked by Pfizer’s news on November 9, has almost been completely unwound. The greenback spent the pre-weekend session near JPY103.60. While the technical indicators point lower, the selling pressure appears to have dried up in recent days. A break of JPY103 would likely spur some official comments, but it may take a move above JPY104.20 to stabilize the tone.

British Pound:

Sterling rose by about 0.75% last week, its third weekly advance in a row. It met selling pressure a little over $1.33 like it did earlier the month. Another trade talk deadline is seen early next week, and we suspect there would be a larger market reaction if there was no deal than if there were. Many talk about the potential for as much as a 5% swing in either direction, which seems exaggerated. The momentum indicators are at a mature part of their cycles, and sterling is up around 2.5% so far this month.

The one-week implied volatility finished the week near 10.25%, its lowest weekly close in four weeks. Sterling has also gained around 1% against the euro over the past two weeks. Our thought is to fade dramatic moves.

Canadian Dollar:

The greenback’s gains scored in the wake of the Pfizer news against the Canadian dollar were partly unwound last week. In fact, the US dollar had approached the (61.8%) retracement objective found near CAD1.3020. The momentum indicators did not move much last week as the US dollar traded within the previous week’s range.

Next week, the light economic calendar reinforces our sense that the main drivers of the Canadian dollar are not to be found in Canada but the broader appetite for risk. Although the US fell to lows for the year on November 9 near CAD1.2930, initial support is still seen around CAD1.30. The CAD1.3100-CAD1.3120 area may provide the nearby cap.

Australian Dollar:

The Australian dollar finished its third consecutive weekly advance on a firm tone above $0.7300. However, it spent the week in a narrow band around there and could not take out the previous week’s high near $0.7340, despite a larger than expected jump in employment. The Australian dollar has appreciated by 4% this month, and the momentum indicators are getting stretched. While a marginal new high is possible, the September 1 and year-high near $0.7415 seems too far.

Mexican Peso:

The dollar posted its lowest weekly close since early March against the Mexican peso, below MXN20.10. Since the end of July, the greenback has managed to close higher on a weekly basis only three times. It is not Mexico’s macro situation that underpins the peso and has driven nearly 5.5% already this month. Portfolio capital flows, drawn to its relatively high yields (e.g., ~4.25% on three-month bills), appear to be the main considerations on top of a trade surplus and strong worker remittances.

The peso is also a favorite of the speculative community and carry-trades. A break of MXN20.00 is possible near-term, and the pressure is relentless. The momentum indicators stretched and reflect that the dollar has fallen from the MXN22.00 spike high on November 4.

Chinese Yuan:

The yuan strengthened by about two-thirds of a percentage point last week to make it about 2% richer on the month. Year-to-date, its 6.1% gain leads the emerging market currencies. Even shallow pullbacks are bought. Old support for the US dollar, near CNY6.60, now serves as resistance. Given China’s importance as a trading partner, it was thought the yuan appreciation would give scope for other emerging Asia currencies to appreciate.

South Korea and Thailand showed that this might not be the case and dollar invoicing is still common even when a US company is not involved. If the yuan’s adjustment is on par with the one in 2010-2011 or 2017-2018, the dollar could be headed toward CNY6.40. Alternatively, the US Treasury opined that the yuan was 5% undervalued. If this was corrected, the dollar would be near CNY6.20.

Gold:

The combination of the prospects for a vaccine and that Shelton looks unlikely to join the Fed sent gold down for a second consecutive week and the first back-to-back weekly loss in three months. Support was found a little above the previous week’s low near $1850. The upticks were not impressive, and the bounce stalled near $1880. A break of $1850 could open the door to $1800, but we suspect bargain hunters are lurking and are looking for some sign that the selling pressure has abated and will likely react strongly to any reversal pattern in the price action. A move above $1900 would begin healing the scar tissue,

Oil:

If the prospects of a vaccine weighed on gold prices by reducing the perceived need for a safe-haven, it helped oil by strengthening the case for demand. January WTI rose a little more than 4% last after surging around 11.5% over the previous two weeks. Except for a brief and limited disruption in the middle of the week, the price of oil stayed within Monday’s range (~$40.40-$42.35). The November 9 high was set near $43.35, and that remains the near-term objective. Initial support is seen near $41.80. The MACD is trending higher, but the Slow Stochastic is flatlining near its highs.

US Rates:

The US 10-year yield slipped six basis points last week to finish near 0.83% and is four basis points lower than the end of last month. Speculation that the Fed will shift its purchases to the longer-dated maturities countered the “reflation trade” that has helped lift the yield to 0.97%, where it stalled. With the two-year anchored by the Fed’s steady rate policy, the lion’s share of the decline in the 10-year yield filtered to the 2-10-year yield curve.

Despite the rise in oil prices, and commodity prices more broadly (including soy and copper), with the CRB Index at eight-month highs, inflation expectations softened as reflected in the five-year forward forward and the 10-year breakeven. The 10-year note futures’ momentum indicators suggest there is more upside potential, but prices are stalling around 138-16, a (61.8%) retracement objective of the decline since the November 5 high.

S&P 500:

The high for the week was set last Monday after a gap higher opening, and a new closing record high was set near 3627. The gap was closed the following session, and prices did not bottom until Thursday around 3544. Price reversed higher, but there was no follow-through buying, and the pre-weekend session was spent in a narrow 15 point range, the smallest range in three-months.

When Pfizer’s news first broke, there was a rotation, and the NASDAQ underperformed the other benchmarks and the Russell 2000, but last week, the NASDAQ gained while the Dow and S&P 500 slipped. However, the Russell 2000 beat the NASDAQ again (~2.3% to 0.8%). Indeed, the Russell 2000 is up 14% over the past three months while the S&P and NASDAQ are up 5.6% and 5.8%, respectively. Near newly minted record highs, resistance is not meaningful. Support is seen near 3500.

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 – Private Sector PMIs, COVID-19, Brexit, and Capitol Hill in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 52 stats in focus in the week ending 27th November. In the week prior, 62 stats had also been in focus.

For the Dollar:

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

In the 1st half of the week, prelim November private sector PMIs and consumer confidence figures are in focus.

Expect the Services PMI and CB Consumer Confidence figures to be the key drivers.

The focus will then shift to a particularly busy Wednesday.

Key stats include the weekly jobless claims, core durable goods orders, and personal spending figures.

2nd estimate GDP numbers for the 3rd quarter are also due out. Barring a marked deviation from 1st estimate, however, the numbers should have a muted impact on risk sentiment.

Other stats due out in the week include house price, trade, inflation, new home sales, and finalized consumer sentiment figures.

We don’t expect these to have a material impact on the Dollar, however.

On the monetary policy front, the FOMC minutes due out late in the week will also draw attention. Any contingency plans, in event of lawmakers failing to deliver an additional stimulus, would draw interest.

Away from the economic calendar, COVID-19 and U.S politics will continue to remain the key drivers, however.

The Dollar Spot Index ended the week down by 0.39% to 92.392.

For the EUR:

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

Prelim November private sector PMI figures for France, Germany, and the Eurozone are due out on Monday.

Expect plenty of influence from the numbers, with COVID-19 containment measures likely to hit service sector activity.

On Tuesday, the focus will shift to finalized GDP and November Ifo business sentiment figures from Germany.

With lockdown measures in place, the GDP numbers are unlikely to have too much influence.

On Thursday, German consumer sentiment figures are due out that will also draw plenty of attention.

At the end of the week, French consumer spending, inflation, and finalized GDP numbers are due out.

Expect inflation and consumer spending figures to have the greatest impact.

Eurozone consumer confidence and French jobseeker totals due out in the week should have a muted impact on the EUR.

On the monetary policy front, the ECB monetary policy meeting minutes are due out on Thursday. The markets will be looking for an indication of what policy easing measures are likely next month.

Away from the economic calendar, COVID-19 news updates will remain a key driver in the week.

The EUR/USD ended the week up by 0.19% to $1.1857.

For the Pound:

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

Prelim November private sector PMIs are due out at the start of the week. With lockdown measures in place, expect plenty of influence from the PMIs.

The Services PMI would likely have the greatest impact on the Pound.

Away from the economic calendar, the markets will be looking for some updates on Brexit.

The GBP/USD ended the week up by 0.65% to $1.3275.

For the Loonie:

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

There are no material stats due out of Canada to influence the Loonie in the week.

A lack of stats will leave the Loonie in the hands of COVID-19 news updates and crude oil prices.

The Loonie ended the week up by 0.32% to C$1.3095 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

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

3rd quarter construction work done and private capital expenditure figures are due out on Wednesday and Thursday.

The CAPEX numbers will likely have a greater influence in the week.

Away from the economic calendar, COVID-19 news and U.S politics will continue to influence.

The Aussie Dollar ended the week up by 0.44% to $0.7302.

For the Kiwi Dollar:

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

3rd quarter retail sales figures are due out on Monday. With the RBNZ ready to drop rates into negative territory, expect sensitivity to the numbers.

The focus will then shift to October trade data, due out on Thursday.

From the RBNZ, the RBNZ Financial Stability Report and a Governor Orr speech on Wednesday will draw plenty of attention.

The Kiwi Dollar ended the week up by 1.23% to $0.6929.

For the Japanese Yen:

It is a quieter week on the economic calendar, with Japanese markets closed on Monday.

November inflation figures are due out on Friday ahead of October retail sales figures on Saturday.

We don’t expect the stats to influence, with COVID-19 remaining the key driver near-term.

The Japanese Yen ended the week up by 0.74% to ¥103.86 against the U.S Dollar.

Out of China

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

There are no material stats to provide direction in the week. A lack of stats will leave foreign policy and sentiment towards Hong Kong in focus.

The Chinese Yuan ended the week up by 0.66% to CNY6.5630 against the U.S Dollar.

Geo-Politics

U.S Politics

The focus in the week will be on Capitol Hill, as the markets look for progress towards a COVID-19 stimulus package.

With the COVID-19 2nd wave hitting the U.S, failure to make progress will test support for riskier assets.

From the Oval Office, will this be the week when President Trump concedes? To date, Trump has failed to make any headway in reversing the outcome of the Presidential Election.

Brexit

For the Pound and the UK economy, Brexit will remain a key driver. After talks were suspended last week, will there be some form of an extension to the transition period?

News from the weekend was positive, suggesting progress towards a deal, despite differences remaining.

The Weekly Wrap – COVID-19 and U.S Politics Drove Risk Sentiment

The Stats

It was a busier week on the economic calendar, in the week ending 20th November.

A total of 62 stats were monitored, following 48 stats from the week prior.

Of the 62 stats, 33 came in ahead of forecasts, with 20 economic indicators came up short of forecasts. 9 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 31 stats, 25 reflected a deterioration from the previous.

For the Greenback, it was back into the red after the previous week’s partial recovery. The Dollar Spot Index fell by 0.39% to 92.392. In the week prior, the Dollar had risen by 0.53% to 92.721.

While a continued spike in new COVID-19 cases tested support for riskier assets, progress towards a COVD-19 vaccine delivered support in the week. Impressive efficacy rates from Moderna Inc. and Pfizer Inc. eased demand for the Dollar in the week.

Out of the U.S

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

In the 1st half of the week, October retail sales and industrial production figures were in focus.

The stats were skewed to the negative, with retail sales disappointing at the turn of the quarter.

While industrial production figures were positive, consumer spending remains the key driver for the U.S economy. Continued failure to deliver on a COVID-19 stimulus package is likely to deliver weaker numbers ahead on the spending front.

In the 2nd half of the week, the Philly FED Manufacturing and weekly jobless claims figures also disappointed.

Initial jobless claims rose from 711k to 742k in the week ending 13th November. The Philly FED Manufacturing Index fell from 32.3 to 26.3.

Other stats in the week included manufacturing numbers from NY State, housing sector data, and inventories.

The stats had a muted impact on the Dollar and broader market risk sentiment, however.

In the equity markets, the NASDAQ rose by 0.22%, while the Dow and S&P500 fell by 0.73% and by 0.77% respectively.

Out of the UK

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

Early in the week, October inflation figures were in focus. A pickup in inflationary pressures was Pound positive. The annual rate of inflation picked up from 0.5% to 0.7%.

That was the only positive, however, with consumer prices stalling in October and wholesale inflationary pressures easing.

Mid-week, the CBI Industrial Trend Orders index also came in negative, with a fall from -34 to -40 in November.

Wrapping things up were retail sales figures at the end of the week. In October, core retail sales rose by 1.3%, following a 1.5% increase in September. Retail sales increased by 1.2%, following a 1.4% rise in September. Both sets of figures came in ahead of forecasts, whilst softer than September figures.

Year-on-year, core retail sales were up by 7.8%, with retail sales up by 5.8%.

Away from the economic calendar, negotiators suspended Brexit negotiations. Members of the EU negotiating team self-isolated due to one member testing positive for COVID-19. Talks of a possible extension provided the Pound with support as did hopes of an agreement.

In the week, the Pound rose by 0.65% to $1.3275. In the week prior, the Pound had risen by 0.26% to $1.3189.

The FTSE100 ended the week up by 0.56%, following on from a 6.88% gain in the previous week.

Out of the Eurozone

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

Finalized October inflation figures for Italy and the Eurozone provided little direction in the week.

The finalized numbers were in line with prelim figures, with the Eurozone’s core annual rate of inflation holding steady at 0.2%.

Following ECB President Lagarde’s assurances of more monetary policy support, there was little EUR reaction.

At the end of the week, wholesale inflation figures from Germany also had a muted impact.

With the COVID-19 2nd wave hitting the Eurozone, the Eurozone’s consumer confidence figure drew some attention.

The Flash Consumer Confidence Indicator fell from -15.5 to -17.6, which was better than a forecasted -17.7. Downside risks to the economic recovery were affirmed by the number. Lockdown measures are expected to sink the Eurozone economy, as a result, in the 4th quarter.

For the week, the EUR rose by 0.19% to $1.1857. In the week prior, the EUR had fallen by 0.34% to $1.1834.

For the European major indexes, it was another bullish week. The CAC40 rallied by 2.15%, with the DAX30 and EuroStoxx600 gaining 0.46% and 1.15% respectively.

For the Loonie

It was a busy week on the economic data front.

Manufacturing and wholesale sales figures for September were skewed to the positive providing support.

Mid-week, October inflation figures were also Loonie positive, with the core annual rate of inflation holding steady at 1%. Rising core consumer prices and consumer prices in October delivered support.

At the end of the week, retail sales figures for September were also Loonie positive.

Core retail sales rose by 1.0%, month-on-month, following on from a 0.5% increase in August. Retail sales were also on the up, rising by 1.1% off the back of a 0.4% increase in August.

While the stats were skewed to the positive, progress towards a COVID-19 vaccine was key in the week.

In the week ending 20th November, the Loonie rose by 0.32% to C$1.3095. In the week prior, the Loonie had fallen by 0.67% to C$1.3137.

Elsewhere

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

In the week ending 20th November, the Aussie Dollar rose by 0.44% to $0.7302, with the Kiwi Dollar rallying by 1.23% to end the week at $0.6929.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats included 3rd quarter wage growth and October employment and retail sales figures.

While wage growth figures disappointed, employment and retail sales figures impressed.

A 178.8k jump in employment and a 1.6% increase in retail sales were positives for the Aussie Dollar.

On the monetary policy front, however, the RBA meeting minutes revealed the willingness to deliver more support. While unwilling to drop rates into negative territory, the commitment to delivering more support pegged the Aussie Dollar back.

COVID-19 vaccine news provided support, however, to offset the negative sentiment towards the rise in new cases.

For the Kiwi Dollar

It was a particularly quiet week on the economic calendar.

3rd quarter wholesale inflation figures were in focus. A pickup in input prices was considered Kiwi positive, though falling output prices remained a concern.

While the stats were positive, positive economic data from China and progress towards a COVID-19 vaccine were positives.

For the Japanese Yen

It was a busy week on the economic calendar.

3rd quarter GDP numbers were in focus at the start of the week. While rebounding from the 2nd quarter woes, growth was not enough to reverse the contraction from the 2nd quarter.

Quarter-on-quarter, the economy grew by 5%, partially reversing an 8.2% contraction from the 2nd quarter.

Trade data also failed to impress mid-week, with imports tumbling by 13.3% to widen the trade surplus. Exports also declined, though at a slower pace than in September.

Wrapping things up were inflation figures at the end of the week. A buildup of deflationary pressures was yet another negative for the Japanese economy.

A market grappling with a continued spike in new COVID-19 cases and hopes of a vaccine supported the Yen, however.

The Japanese Yen rose by 0.74% to ¥103.86 against the U.S Dollar. In the week prior, the Yen had fallen by 1.24% to ¥104.63.

Out of China

It was a busy week on the economic data front.

October fixed asset investment, industrial production, retail sales, and unemployment figures were in focus.

The stats were skewed to the positive, reaffirming market sentiment towards the Chinese economic recovery.

Fixed asset investments rose by 1.8%, year-on-year, following a 0.8% rise in September. Industrial production increased by a further 6.9%, following a 6.9% rise in September.

Retail sales also impressed, jumping by 4.3%. In September, retail sales had risen by 3.3%.

Labor market conditions improved, with the unemployment rate falling from 5.4% to 5.3%.

The figures continued to reflect Beijing’s goal to reignite the economy from within.

In the week ending 13th November, the Chinese Yuan rose by 0.66% to CNY6.5630. In the week prior, the Yuan had risen by 0.09% to CNY6.6065.

The CSI300 rose by 1.78%, with the Hang Seng ended the week up by 1.13%.

The Week Ahead – U.S Politics, COVID-19, and Brexit Likely to Overshadow Data

On the Macro

It’s a busy week ahead on the economic calendar, with 61 stats in focus in the week ending 20th November. In the week prior, 48 stats had also been in focus.

For the Dollar

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

At the start of the week, NY Empire State manufacturing figures for November will be in focus.

Barring dire numbers, however, there should be a limited impact on the Dollar.

On Tuesday, retail sales, industrial production, and business inventory numbers for October will draw attention.

Expect the retail sales figures to have the greatest impact. With labor market conditions quite dire, weakness in consumption will test risk sentiment.

In the 2nd half of the week, Philly FED manufacturing and weekly jobless claims figures will provide direction.

Other stats in the week include housing sector data for October that should have a muted impact on the markets.

Away from the economic calendar, COVID-19 and U.S politics will remain the key driver, however. The markets will be looking for some sort of progress on the stimulus front and for Trump to concede.

The Dollar Spot Index ended the week up by 0.57% to 92.755.

For the EUR:

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

Finalized October inflation figures for Italy and the Eurozone are due out in the 1st half of the week.

With the ECB expected to provide further support next month, the stats should have a limited impact on the EUR.

At the end of the week, wholesale inflation figures from Germany and flash consumer confidence figures for the Eurozone are due out.

Expect the Eurozone’s flash consumer confidence figure to have the greatest impact. It’s likely to be a grim figure as EU member states look to contain the 2nd wave of the COVID-19 pandemic.

On the monetary policy front, ECB President Lagarde is scheduled to speak in the week. Any further details on what to expect from the ECB next month will influence.

Away from the economic calendar, COVID-19 news updates and Brexit will remain key drivers in the week.

The EUR/USD ended the week down by 0.34% to $1.1834.

For the Pound

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

On Wednesday, inflation figures for October will draw attention. With the BoE ready to hit the negative rate button, any pickup in deflationary pressures would pressure the Pound.

In the 2nd half of the week, November’s CBI Industrial Trend orders and October retail sales figures are due out.

Expect the retail sales figures to be the key driver in the week. With England going into lockdown mode for November, the numbers may not reveal what lies ahead, however.

That suggests that any upside for the Pound would be limited should the numbers be upbeat. On the monetary policy front, BoE Governor Bailey is scheduled to speak early in the week. Any chatter on monetary policy will influence as Brexit talks continue.

Away from the economic calendar, expect Brexit to be the key driver. Negotiators have just 3-days to come up with a deal ahead of Thursday’s EU Summit. News of a deal would support a breakout from the Pound.

The GBP/USD ended the week up by 0.25% to $1.3189.

For the Loonie:

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

Manufacturing sales and wholesale sales figures for September kick things off.

We don’t expect too much influence from the stats early on in the week.

October inflation figures on Wednesday and September retail sales figures on Friday will influence, however.

Away from the economic calendar, market sentiment towards the economic outlook will remain a key driver. The markets will be looking for progress towards a COVID-19 vaccine. Expect any positive news to support the Loonie.

The Loonie ended the week down by 0.67 % to C$1.3137 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

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

Employment figures on Thursday and prelim retail sales figures on Friday will provide direction.

On the monetary policy front, the RBA meeting minutes due out on Tuesday will also draw attention. There should be few surprises, however, following the RBA’s statement on monetary policy. RBA Governor Lowe is scheduled to speak on Wednesday, which could provide a more current view.

From elsewhere, expect economic data from China and COVID-19 news updates to also influence.

The Aussie Dollar ended the week up by 0.17% to $0.7270.

For the Kiwi Dollar:

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

3rd quarter wholesale inflation figures are due out on Wednesday.

While we can expect some sensitivity to the numbers, China’s stats will have a greater impact.

The Kiwi Dollar ended the week up by 1.05% to $0.6845.

For the Japanese Yen:

It is a busier week on the economic calendar.

3rd quarter GDP and finalized industrial production numbers are due out on Monday ahead of October trade figures on Wednesday.

At the end of the week, October inflation figures will also be of interest.

Will the stats give the BoJ a reason to stand pat for longer? Much will depend on the containment of the COVID-19 2nd wave.

The Japanese Yen ended the week down by 1.24% to ¥104.63 against the U.S Dollar.

Out of China

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

Key stats include October industrial production, retail sales, and unemployment figures due out on Monday.

The markets will need to see a continued improvement in economic conditions to support riskier assets.

At the end of the week, the PBoC is also in action. The markets are not expecting any moves on the Loan Prime Rates, however.

The Chinese Yuan ended the week up by 0.09% to CNY6.6065 against the U.S Dollar.

Geo-Politics

UK Politics:

Negotiators have until Wednesday to wrap up an agreement. Failing that, the EU and Britain may decide to walk away from any agreement at the EU Summit on Thursday.

While the Pound has been resilient until now, volatility may well pick up in the days ahead. Expect the news wires to garner more interest than normal. Hopes of a last-minute deal may linger, however, which would provide early support.

U.S Politics

Last week, President-Elect Joe Biden rubbed salt in Trump’s wounds by sealing Arizona and Georgia.

We have yet to see Trump concede. Expect plenty of chatter in the week. With Trump unlikely to be able to reverse the outcome, however, the markets should be fairly resilient to any Tweets.

From Capitol Hill, the markets will be looking for progress towards a pre-2021 stimulus package, however.

With the 2nd wave of the COVID-19 pandemic hitting Europe and the U.S, much will depend upon support and containment measures near-term.

The Weekly Wrap – U.S Politics, COVID-19, and Economic Data Were in Focus

The Stats

It was a quieter week on the economic calendar, in the week ending 13th November.

A total of 48 stats were monitored, following 61 stats from the week prior.

Of the 48 stats, 15 came in ahead of forecasts, with 31 economic indicators coming up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 13 of the stats reflected an upward trend from previous figures. Of the remaining 35 stats, 33 reflected a deterioration from previous.

For the Greenback, it was a partial recovery of the previous week’s slide. The Dollar Spot Index rose by 0.57% to 92.755. In the week prior, the Dollar Spot Index had tumbled by 1.92% to 92.229.

It was a quieter week following the U.S Presidential Election week. Solid progress was made towards a COVID-19 vaccine. Further spikes in new COVID-19 cases weighed on market risk sentiment, however. The anticipated economic impact of further COVID-19 containment measures supported the Greenback.

Out of the U.S

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

In the 1st half of the week, JOLTs job openings for September disappointed. Falling from 6.493m to 6.440m, it was yet another red flag for the labor market.

The focus then shifted to October inflation and the weekly jobless claims figures on Thursday.

Inflationary pressures eased at the turn of the quarter, with the annual core rate of inflation softening from 1.7% to 1.6%. Core consumer price and consumer prices both stalled in the month of October.

Jobless claims figures were a little more upbeat but not enough to ease concerns over labor market conditions.

In the week ending 6th November, initial jobless claims came in at 709k, down from the previous week’s 757k.

At the end of the week, prelim November consumer sentiment and October wholesale inflation figures were also in focus.

The Michigan Consumer Sentiment Indicator fell from 81.8 to 77.0. Concerns over the 2nd wave of the COVID-19 pandemic and economic uncertainty weighed.

Wholesale inflation figures also disappointed, with the core Producer Price Index rising by just 0.10% in October. In September, the core producer price index had risen by 0.4%.

In the equity markets, the NASDAQ fell by 0.55%, while the Dow and S&P500 saw gains of 4.08% and 2.16% respectively.

Out of the UK

It was a busy week on the economic data front.

Early in the week, retail sales and unemployment numbers were in focus.

In October, retail sales rose by 5.2%, year-on-year, falling short of a 6.1% rise in September. Also disappointing were average earnings, which fell by 1.3%, and rolling quarter unemployment numbers. In the 3-months to September, employment tumbled by 164k, following a 153k fall to August.

As a result, the unemployment rate rose from 4.5% to 4.8%. On the positive, however, was an unexpected 29.8k slide in claimant counts in October. In September, claimant counts had tumbled by 40.2k.

In the 2nd half of the week, 3rd quarter GDP, industrial production, and manufacturing production figures disappointed.

Quarter-on-quarter, the economy grew by 15.5%, failing to reverse a 19.8% contraction from the 2nd quarter.

Month-on-month, the economy expanded by just 1.1% in September, which was weaker than 2.1% growth in August. The economy contracted by 9.6%, year-on-year. In August, the economy had contracted by 21.5%.

At the end of the 3rd quarter, manufacturing production rose by just 0.2%, with industrial production rising by 0.5%. Manufacturing production had risen by 0.90% in August.

Away from the economic calendar, a failure to make progress towards a Brexit agreement also pegged the Pound back in the week.

In the week, the Pound rose by 0.26% to $1.3189. In the week prior, the Pound had rallied by 1.61% to $1.3156.

The FTSE100 ended the week up by 6.88%, following on from a 5.97% gain in the previous week.

Out of the Eurozone

It was a quieter week on the economic data front.

In the 1st half of the week, German trade data and ZEW Economic Sentiment figures were in focus.

A widening in Germany’s trade surplus failed to impress, with the latest spike in new COVID-19 cases weighing.

ZEW Economic Sentiment figures for Germany and the Eurozone disappointed. In November, Germany’s ZEW Economic Sentiment Indicator slid from 56.1 to 39.0. The Eurozone’s indicator fell from 52.3 to 32.8, reflecting investor sentiment towards the latest lockdown measures.

In the 2nd half of the week, the ECB’s Economic Bulletin raised more red flags over the economic outlook.

Eurozone industrial production figures also disappointed, with production falling by 0.4% in September.

At the end of the week, 3rd quarter GDP numbers for the Eurozone failed to move the dial. 2nd estimates came up short of 1st estimates. Quarter-on-quarter, the economy grew by 12.6%, coming up short of the 1st estimate of 12.7%. Year-on-year, the economy contracted by 4.4%, which was worse than the 1st estimate of 4.3%.

Finalized inflation figures from Germany, France, and Spain, and Eurozone trade data had a muted impact in the week.

On the monetary policy front, ECB President Lagarde assured the markets of more support next month. The comments came following upbeat vaccine trial numbers from Pfizer Inc.

For the week, the EUR fell by 0.34% to $1.1834. In the week prior, the EUR had rallied by 1.95% to $1.1874.

For the European major indexes, it was another bullish week. The CAC40 rallied by 8.45%, with the DAX30 and EuroStoxx600 gaining 4.78% and 5.13% respectively.

For the Loonie

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

There were no stats to provide the Loonie with direction. A lack of stats left the Loonie in the hands of market risk sentiment and crude oil prices.

Market jitters over the economic recovery and near-term outlook weighed on the Loonie in the week. Crude oil prices spiked early in the week, however, supported by COVID-19 vaccine news. The jump in crude oil prices cushioned the Loonie to a certain extent.

In the week ending 13th November, the Loonie fell by 0.67% to C$1.3137. In the week prior, the Loonie had rallied by 2.03% to C$1.3050.

Elsewhere

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

In the week ending 13th November, the Aussie Dollar rose by 0.17% to $0.7270, with the Kiwi Dollar rising by 1.05% to end the week at $0.6845.

For the Aussie Dollar

It was a quiet week on the economic calendar.

Key stats included October business confidence and November consumer confidence numbers.

Business confidence improved in October, with the NAB Business Confidence Index rising from -4 to +5.

Consumer confidence also saw further improvement, with the Westpac Consumer Sentiment Index rising by 2.5% to 107.7%. While this was positive, the rise fell short of a forecasted 3.8% increase.

Following the RBA’s monetary policy easing in the week prior, both will need to see a marked improvement in the coming months.

Uncertainty stemming from the 2nd wave of the COVID-19 pandemic, however, remains a drag.

For the Kiwi Dollar

It was also a relatively quiet week on the economic calendar.

In the first half of the week, electronic card retail sales jumped by 8.8% in October. Following a 5.4% rise in September, it was an impressive set of figures.

At the end of the week, October’s business PMI fell from 54.0 to 51.7, however, to pin back the Kiwi.

While the stats did influence, the RBNZ monetary policy decision on Wednesday was the main event.

The RBNZ held interest rates unchanged at 0.25%, which was in line with expectations. There was further talk of negative rates, however, as members noted that a failure to deliver additional support would lead to further weakness in labor market conditions near-term.

For the Japanese Yen

It was a quiet week on the economic calendar.

Current account figures for September had a muted impact on the Japanese Yen.

A continued rise in new COVID-19 cases led to the demand for the Dollar, ultimately weighing on the Yen.

The Japanese Yen slid by 1.24% to ¥104.63 against the U.S Dollar. In the week prior, the Yen had rallied by 1.25% to ¥103.35.

Out of China

It was a quiet week on the economic data front.

October inflation figures disappointed, with consumer prices falling by 0.3% in October. As a result, the annual rate of inflation softened from 1.7% to 0.5%.

Wholesale inflation figures were not much better. Year-on-year, the producer price index fell by 2.1%, following a 2.1% decline in September.

In the week ending 13th November, the Chinese Yuan rose by 0.09% to CNY6.6065. In the week prior, the Yuan had risen by 1.18%. The downside came in spite of Biden’s Presidential Election victory.

The CSI300 fell by 0.59%, while the Hang Seng ended the week up by 1.73%.

Bears Drive the Greenback Lower, but was it Too Quick?

Many participants were caught wrong-footed by the dollar’s drop and the sharp drop in US yields. Equities were unexpectedly strong, and impressively, the Nikkei posted its highest close since 1991 ahead of the weekend, despite the yen’s strengthening to its best level in eight months.

The macro news stream will be considerably light next week. Even if nothing changes, the sharp moves in recent days have left some momentum indicators stretched, and many participants may be reluctant to simply extend trends. The lockdowns and other measures will interrupt the economic recovery. The ECB will ease ahead of the Federal Reserve, though both the Australian dollar and British pound extended their gains after the respective central banks eased policy.

While the RBA more or less matched expectations, the BOE boosted its Gilt purchase by 50% more than expected (GBP150 bln vs. GBP100 bln). The US October employment report exceeded forecasts, and the solid details likely set the tone for a resilient month of high-frequency data. More people working a little longer workweek for a little more pay should help underpin output as well as consumption. On the other hand, the lame-duck Congress may find it still difficult to reach common ground on a new stimulus package.

Dollar Index

With a few exceptions, the Dollar Index has traded between 92.00 and 94.00 since late July. On September 1, when the euro pushed above $1.20, the Dollar Index briefly traded to 91.75, a two-year low. Momentum indicators have turned lower, but the pace of the drop has seen it trade below the lower Bollinger Band (~92.25). This area also holds a trendline on the weekly charts drawn from the 2011 and 2014 lows. A convincing break opens the door to a move into the 90.00-91.00 area, but the medium-term target is the 2018 low near 88.50 when the euro was around $1.25.

Euro

In those brief, chaotic moments when US polls began closing, the euro seemingly inexplicably fell to almost $1.16, key support, and then launched a rally that carried it to almost $1.19 ahead of the weekend. It closed the week near the highs, and the momentum indicators are moving higher. The upper Bollinger Band begins the new week near $1.1905.

Momentum traders may see risk-reward considerations change as the single currency approaches that September 1 high (~$1.20), which saw some jawboning by ECB officials. Implied euro volatility seems cheap, around 6.75% (three-month). The 50, 100, and 200-day moving averages converge around 7.3%. The put-call skew has moved in favor of euro calls.

Japanese Yen

After several successful tests, the JPY104-level yielded to the bears, and once broken, the support now acts as resistance. However, this reflected the broad-based dollar weakness. In fact, the yen was the weakest of the major currencies gaining only about 1.25% against the dollar. Although three-month implied yen vol is at the lower end of where it has been over the past three months, Japan’s Prime Minister and BOJ Governor warned of the importance of stable markets.

The momentum indicators give scope for further dollar weakness. The market may fish for the bottom end of the range. Technically, the JPY100-JPY101 area has much to recommend itself, while there may be intermittent support near JPY102.60.

British Pound

Ahead of the weekend, sterling posted its highest close in more than three months and continues to flirt with the (61.8%) retracement objective of the loss since September 1. A move above $1.3200 would signal a new test on that September 1 high (~$1.3480), though initial resistance may be seen in the $1.3280-$1.3300 area.

The momentum studies are constructive, but the pace of the recent rally has sterling kissing the upper Bollinger Band (~$1.3170). Initial support is pegged around $1.3100. Sterling’s 1.6% gain last week against the dollar makes it the second-worst performing major currency after the yen.

Canadian Dollar

In absolute and relative terms, the Canadian dollar has a solid week, rising slightly more than 2% against its southern counterpart. Apparently, improved risk appetites, the recovery in oil prices, and the US dollar’s broad weakness were the chief drivers.

After testing the CAD1.34 the previous week, the greenback posted a big outside down day on Monday, before the US election day, and proceeded to fall to nearly CAD1.30 before the session ended ahead of the weekend. A convincing break of CAD1.30 (~CAD1.2995 on September 1) would target CAD1.28 and possibly CAD1.26 over the medium-term. Momentum is clearly on the downside. The CAD1.3100-CAD1.3130 offer nearby resistance.

Australian Dollar

Even with the RBA’s rate cut and stepped up bond-buying and China’s import ban widening, the Australian dollar rallied strongly last week. Its nearly 3.5% rally put it behind the Norweigan krone’s 4.2% advance to lead the majors. The Aussie consolidated in a narrow range near the week’s highs (~$0.7285), and momentum indicators give it scope to run.

However, it too is numbing against its Upper Bollinger Band (~$0.7270). The $0.7300 area offers psychological resistance, maybe, but the $.07325-$0.7350 area is more important technically. The high for the year was set on September 1, near $0.7415. Initial support is likely in the $0.7175-$0.7200 band.

Mexican Peso

The US dollar will take a four-day skid against the Mexican peso into next week. The peso’s 2.6% gain against the dollar, which took it to its best level in eight months, was the least among the Latam currencies. The Brazilian real led the world’s currencies with a 5.3% surge against the greenback. The Colombian peso gained 4%, and the Chilean peso rose by almost 2.7%.

The dollar shot up to nearly MXN22.00 late on November 4 before reversing dramatically and slipped through MXN20.90 by the end of the session. The greenback continued to sold and fell to MXN20.57 ahead of the weekend. The downward momentum is powerful, but the dollar finished the last two sessions below the lower Bollinger Band (~MXN20.68). The MXN21.00 area may cap a bounce, while the market seems to be looking for MXN20.00.

Chinese Yuan

The dollar fell by about 1.2% against the Chinese yuan last week and returned to levels near CNY6.6050 that it had not seen since early Q3 18. The broad dollar weakness is making it difficult for the PBOC to resist a stronger yuan. The fix before the weekend seemed to contain an element of protest. If the currency floated and was convertible, would we note that the dollar fell to the (61.8%) retracement objective of the rally from the 2018 low (CNY6.2430). The retracement objective is near CNY6.6030.

It is difficult to talk about support for the heavily managed currency pair, and in 2018 the dollar rally so quickly from CNY6.40 to CNY6.60 that there does not appear to many chart points before the low is revisited. We suspect the CNY6.70 area may act as resistance if that has meaning.

Gold

The yellow metal had its best week in nearly 3 1/2 months, rising nearly 4%. Rising equities and a weaker dollar helped lift gold above $1950 for the first time since September 21. It broke the downtrend line we have been monitoring (drawn off the mid-August, September, and October highs found around $1913 on November 5. It closed above it and saw a little follow-through ahead of the weekend to a little above $1960.

It is not quite off-to-the-races and a rechallenge of $2000. First, it must overcome the $1962 area, which is the halfway mark of the decline from the early August record high and then the (61.8%) retracement near $1989. The momentum indicators look constructive, but the speed of the move pushed gold above the upper Bollinger Band (~$1946). Support may be seen in the $1930-$1935 area.

Oil

It was a week of two halves for crude. The week began off with a slump to about $33.65, the lowest level since May, before posting a key reversal by closing above the previous session’s high. Follow-through buying saw the contract rally to $39.25 in the middle of the week, which corresponded with the 20-day moving average. The momentum stalled.

Even though a marginal new high was made on November 5, it finished lower and sold off to almost $37 ahead of the weekend. The surging virus raised questions about demand, even though the US (and Canadian) employment reports were solid. The retreat pared the gains and met the (38.2%) retracement objective near $37.15. The next retracement objective (50%) is closer to $36.50.

US Rates

The election whipsawed the US 10-year yield on November 4. It first spiked higher to almost 0.95% before beating a retreat to nearly 0.71% by the next day. The better than expected jobs data helped yields correct higher, reaching almost 0.84%, recouping roughly half the decline. The December 10-year Treasury note futures contract’s momentum indicators seem to favor a return the lower yields. Perhaps a little concession for the quarterly refunding.

The October CPI report on November 12 may pose headline risk. The Fed is comfortable with its current purchases of $80 bln of Treasuries and $40 bln of Agency MBS a month. The two-year yield was virtually flat at 15 bp, so the 2-10 year yield curve flatted by the roughly six basis point net decline in the 10-year yield.

S&P 500

Equities had a good week. It began off slowly with gains with the recent ranges on Monday before gapping higher on Tuesday (election day proper) and on Wednesday. It nearly gapped higher on Thursday and consolidated on Friday (inside day). The net gain of 7% last week was the largest weekly advance since April.

The high near 3530 could be the third point in the trendline drawn off the record high in September and the secondary high on October 12. The momentum indicators have turned up, and a break of the trendline could signal a run at the highs. If the first gap was a breakaway gap, leaving a four-day island in its wake, then the second gap may be a measuring gap, in which case it projects toward 3600.

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 – U.S Politics, COVID-19, and Brexit Likely to Overshadow Data

On the Macro

It’s a quieter week ahead on the economic calendar, with 48 stats in focus in the week ending 13th November. In the week prior, 61 stats had also been in focus.

For the Dollar:

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

September’s JOLTs job openings are due out on Tuesday, in what’s a particularly quiet start to the week.

The focus will then shift to October inflation and weekly jobless claims figures due out on Thursday.

Expect the jobless claims figures to have the greatest impact, with the markets expecting inflationary pressures to be muted.

At the end of the week, wholesale inflation figures for October and prelim November consumer sentiment figures will also draw attention.

We would expect the consumer sentiment figures to have the greatest impact on the day.

Away from the economic calendar, COVID-19 and U.S politics will remain the key driver, however.

The Dollar Spot Index ended the week down by 1.92% to 92.229.

For the EUR:

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

At the start of the week, German trade data for September will be in focus. The markets will be looking for a pickup in demand from overseas. Concerns over the economic outlook would limit any upside for the EUR, however.

On Tuesday, November’s ZEW Economic Sentiment figures for Germany and the Eurozone will be in focus.

The focus will then shift to 2nd estimate GDP numbers for the Eurozone, due out on Friday.

We won’t expect too much influence, however, with the markets now looking for the ECB to deliver next month.

Finalized October inflation figures for member states and Eurozone trade and industrial production figures will also likely be brushed aside.

From the ECB, ECB President Lagarde is due to speak in the week and could deliver some clues on what’s next. The ECB’s Economic Bulletin on Thursday will also draw interest.

Away from the economic calendar, COVID-19 news updates and U.S politics will remain a key driver in the week.

The EUR/USD ended the week up by 1.95% to $1.1874.

For the Pound:

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

On Tuesday, claimant counts and employment figures are due out ahead of a particularly busy Thursday.

On Thursday, 3rd quarter GDP and September manufacturing and industrial production figures will draw plenty of interest.

September trade data, retail sales, and house price figures are also due out. The stats should have a muted impact on the Pound, however.

Away from the economic calendar, expect Brexit to remain the key driver along with COVID-19 news updates.

The GBP/USD ended the week up by 1.61% to $1.3156.

For the Loonie:

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

Economic data include housing start figures that should have a muted impact on the Loonie.

The lack of stats will leave the Loonie in the hands of COVID-19 and market sentiment towards the economic outlook.

The Loonie ended the week up by 2.03 % to C$1.3050 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 in the week include October business confidence and November consumer sentiment figures.

Expect plenty of interest in the numbers. The RBA will be looking for last week’s rate cut to support a pickup in confidence, spending, and investment.

From elsewhere, economic indicators from the U.S and COVID-19 news updates will also influence. And, there’s U.S politics to also factor in.

The Aussie Dollar ended the week up by 3.27% to $0.7258.

For the Kiwi Dollar:

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

Electronic card retails for October are due out on Tuesday ahead of the Business PMI on Friday.

While the stats will influence, the RBNZ monetary policy decision on Wednesday will be the main event.

Following the RBA’s rate cut last week, will the RBNZ deliver a dovish tone amidst the 2nd wave of the COVID-19 pandemic?

The Kiwi Dollar ended the week up by 2.40% to $0.6774.

For the Japanese Yen:

It is a particularly quiet week on the economic calendar.

September’s current account figures, due out on Tuesday, will have a muted impact on the Yen.

The focus in the week will be on geopolitics and COVID-19.

Expect a continued rise in new COVID-19 cases to support demand for the Yen.

The Japanese Yen ended the week up by 1.25% to ¥103.35 against the U.S Dollar.

Out of China

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

Key stats include October inflation figures due out on Tuesday and new loan figures on Wednesday.

The markets will be looking for wholesale deflationary pressures to ease as manufacturing sector activity continues to pick up.

The Chinese Yuan ended the week up by 1.18% to CNY6.6125 against the U.S Dollar.

Geo-Politics

UK Politics:

As mid-November rapidly approaches, its last chance saloon for the UK and the EU to form an agreement.

News from the weekend suggests that a deal may be close.  It remains to be seen, however, whether there’s just plenty of hype or legitimate resolutions to key hurdles.

U.S Politics

Over the weekend, Biden became President-Elect. Trump’s unwillingness to concede and potentially lengthy legal battles could test the markets, however.

The Weekly Wrap – U.S Election Results Sink the Dollar, while Supporting Riskier Assets

The Stats

It was another busy week on the economic calendar, in the week ending 6th November.

A total of 61 stats were monitored, following 62 stats from the week prior.

Of the 61 stats, 38 came in ahead of forecasts, with 21 economic indicators coming up short of forecasts. 2 stats were in line with forecasts in the week.

Looking at the numbers, 38 of the stats also reflected an upward trend from previous figures. Of the remaining 23 stats, 21 also reflected a deterioration from previous.

For the Greenback, it was back into the red. The Dollar Spot Index slid by 1.92% to 92.229. In the week prior, the Dollar Spot Index had risen by 1.37% to 94.039.

Market reaction to the U.S Presidential Election and a likely gridlock on Capitol Hill sent the Dollar south. Expectations are that the onus will now fall on the FED to deliver support, suggesting further monetary policy easing ahead.

Out of the U.S

It was another busy week on the economic data front.

In the 1st half of the week, ISM Manufacturing and Service PMI and ADP Nonfarm numbers were in focus.

It was a mixed bag for the Dollar, however.

While manufacturing sector activity picked up in October, service sector activity saw slower growth.

The all-important ISM Services PMI slipped from 57.8 to 56.6.

ADP nonfarm employment change figures also suggested another speed bump in the labor market recovery. In October, the ADP reported 365k nonfarm payrolls added. This was well short of a forecasted 650k and September’s 749k.

On Thursday, the weekly jobless claims also disappointed, with claims standing at 751k in the week ending 30th October. This was down marginally from a previous week 758k.

At the end of the week, nonfarm payrolls and unemployment numbers provided some hope.

The unemployment rate fell from 7.9% to 6.9%, with 638k nonfarm payrolls added in October.

On the monetary policy front, the FED left rates unchanged at 0.25%, which was in line with expectations.

Neither the FED nor the stats influenced, however, with the U.S Presidential Election the key driver.

In the equity markets, the NASDAQ surged by 9.01%, with the Dow and S&P500 seeing gains of 6.87% and 7.32% respectively.

Out of the UK

It was a relatively quiet week on the economic data front. Finalized private sector PMIs, construction PMI, and house price figures were in focus.

While there was an upward revision to the manufacturing PMI, a downward revision to the services PMI disappointed.

October’s Construction PMI also fell short of expectations, with the PMI falling from 56.8 to 53.1. Economists had forecast a fall to 54.0.

House price figures had a muted impact in the week, however.

On the monetary policy front, the BoE was in action. While holding interest rates steady, the BoE cranked up its QE by an additional £130bn to £875bn.

With England now in lockdown mode for a month, the prospects of negative rates remain. Much will depend on the outcome of Brexit negotiations, however. The decision to hold rates steady provided the Pound with support on Thursday.

Hopes of a Brexit deal by next week and a slump in the Greenback also supported the Pound in the week.

In the week, the Pound rallied by 1.61% to $1.3156. In the week prior, the Pound had fallen by 0.71% to $1.2947.

The FTSE100 ended the week up by 5.97% reversing a 4.83% loss from the previous week.

Out of the Eurozone

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

In the 1st half of the week, October’s private sector PMIs were in focus.

Finalized manufacturing numbers for France, Germany, and the Eurozone all came in ahead of prelim figures. Italy and Spain also reported a pickup in manufacturing sector activity.

Service sector activity continued to disappoint, however. Both Italy and Spain saw service sector activity contract at a quicker pace amidst the 2nd wave of the COVID-19 pandemic.

The Eurozone, France and Germany’s services sector also continued to contract.

Thanks to a pickup in manufacturing sector activity, however, the Eurozone’s private sector avoided a contraction. The Composite PMI came in at 50.0 for October.

In the 2nd half of the week, German factory orders and industrial production figures were in focus.

Both sets of numbers fell short of forecasts, though both were on the rise in September.

While there were plenty of stats to consider, the upside for the EUR came off the back of the U.S Presidential Election.

A Joe Biden victory is considered positive for both the EUR and the European majors.

For the week, the EUR rallied by 1.95% to $1.1874. In the week prior, the EUR had fallen by 1.80% to $1.1647.

Away from the economic calendar, the continued rise in new COVID-19 cases and new lockdown measures remained negative.

For the European major indexes, it was a bullish week. The DAX30 and CAC40 rallied by 7.99% and by 7.98 respectively, with the EuroStoxx600 gaining 7.02%.

For the Loonie

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

Key stats included September trade figures and October employment and Ivey PMI numbers.

It was a mixed bag for the Loonie. A widening of the trade deficit and weaker than expected employment figures were Loonie negative.

A pickup in the Ivey PMI was the only positive, though the employment figures drew greater interest.

Market reaction to the U.S Presidential Election and a jump in crude oil prices supported the Loonie, however.

In the week ending 6th November, the Loonie rallied by 2.03% to end the week at C$1.3050. In the week prior, the Loonie had fallen by 1.49% to C$1.3321.

Elsewhere

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

In the week ending 6th November, the Aussie Dollar rallied by 3.27% to $0.7258, with the Kiwi Dollar rising by 2.40% to end the week at $0.6774.

For the Aussie Dollar

It was a relatively busy week on the economic calendar.

Key stats included September retail sales and trade data and October manufacturing numbers.

The stats were skewed to the positive, though a continued decline in retail sales was a concern in the week.

On the monetary policy front, the RBA delivered a rate cut and further policy measures to support inflation and employment.

The RBA also released its Statement on Monetary Policy upwardly revising growth, inflation, and employment forecasts.

For the Aussie Dollar, however, the upside came off the back of the U.S Presidential Election.

For the Kiwi Dollar

It was also a relatively quiet week on the economic calendar.

Key stats included 3rd quarter employment and inflation expectation figures.

The stats were skewed to the negative. While better than forecasts, the unemployment rate rose from 4% to 5.3% as a result of a 0.8% fall in employment.

Inflation expectations were positive, however, with an upward trend in inflation forecasts continuing in the 4th quarter.

With the RBNZ in action next week and the U.S Dollar on the slide, however, it remains to be seen whether the inflation numbers are good enough… There could be some jawboning ahead.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

Key stats included finalized private sector PMIs for October and household spending figures for September.

Upward revisions to private sector PMIs were positive, with household spending getting a boost in September.

Both the manufacturing and services sectors continued to contract in October, however.

The Japanese Yen rallied by 1.25% to ¥103.35 against the U.S Dollar. In the week prior, the Yen had risen by 0.05% to ¥104.66.

Out of China

It was a week on the economic data front.

The market’s preferred Caixin private sector PMIs for October were in focus.

A pickup in private sector activity supported riskier assets and the positive outlook towards the Chinese economy.

The manufacturing PMI rose from 53.0 to 53.6, with the services PMI rising from 54.8 to 56.8.

For Yuan, a Trump loss in the U.S Presidential Election would be a boost and ultimately supported the upside in the Yuan.

In the week ending 6th November, the Chinese Yuan rose by 1.18% to CNY6.6125. In the week prior, the Yuan had fallen by 0.07%.

The CSI300 rose by 4.05%, with the Hang Seng ending the week up by 6.66%.

November Monthly – Forex

The underlying drivers of the $6.6 trillion-a-day turnover in the foreign exchange market are about the broad monetary and fiscal policies in both absolute and relative terms. The policy mix in the US will remain the same in 2021 of easy monetary and accommodative fiscal policy. Meanwhile, the mid-October deadline for the UK-EU trade talks was extended.

The rhetoric is not nearly as bellicose as it was, and the atmosphere appears to have improved. The new deadline is the mid-November EU summit, to give the 27 EU countries and the EU Parliament time to ratify an agreement.

The optimists hope that an effective vaccine can be announced in the coming weeks. However, the most immediate concern is the surge in the virus in Europe and the United States. Low nominal and often negative real rates coupled with government borrowing has helped support aggregate demand with few exceptions.

Regardless of the scale, countries, companies, households, and individuals are vulnerable to another shock. The bar is low, and the pandemic’s extension well into next year would likely be sufficient. The month-long new social restrictions in Europe, for example, way cut quarterly growth by around 0.5%. At the same time, the game of great powers continues, and potential flashpoints in Asia, the Caucuses and Northern Africa have not been resolved.

Based on the projected policy mixes and other considerations, we expect the dollar to depreciate on a trend basis. The dollar was little changed at mid-year against the euro and yen and was about 1.4% higher against the Chinese yuan. Now, through ten months, the euro is about 5.3% higher, the yen 3.6%, and the yuan has appreciated by almost 3.8% against the dollar. However, this may be somewhat misleading.

The dollar has been range against both the euro and yen. Since the last week of July, the euro has been confined to roughly a $1.16 to $1.20 trading range. The 50-day moving average is flat near the middle of the range. The contagion, the new restrictions, and the ECB’s commitment to ease in December warn of downside risks in the euro.

For nearly as long, the dollar has been in a JPY104-JPY107 range, as well. The recent range is even smaller, as the dollar has been below JPY106 since the middle of September, with a brief exception earlier in October. Nevertheless, October was the fourth consecutive month that the dollar recorded lower highs and found bids near JPY104.00. A move back toward JPY106 is likely in the weeks ahead.

The Chinese yuan has been trending higher. Indeed, it has only declined in four of the past eighteen weeks. After falling by about 6.25% to levels not seen since mid-2018, the dollar consolidated in late October. If the managed currency has strengthened, it must be assumed that Beijing allows it. Some currency strength is consistent with the “dual circulation” drive, but more importantly, maybe a signal for global investors.

As China’s markets are integrated into global benchmarks, and its sheer size will boost its weight over time. This is going on while trade tensions remain elevated. Both impulses, the decoupling on trade and China’s inclusion in international capital markets, will likely continue regardless of the US election results.

This is a different kind of internationalization of the yuan than an offshore currency (CNH) and bond market (Dim Sum) entailed. Attractive economic fundamentals, coupled with improved access, and inclusion in industry benchmarks, encourage capital inflows from foreign investors. In turn, the combination of the large current account surplus and the portfolio capital inflows should exert upward pressure on the exchange rate.

Beijing uses such periods of upward pressure on the yuan to relax some rules that discourage capital outflows, like the quota for the Qualified Domestic Institutional Investors for overseas investments or the reserve requirement on forwards. In late October, the PBOC adjusted how the dollar’s reference rate was set, making it somewhat more transparent. In the weeks ahead, Beijing’s intentions may become clearer, and investors will have a better idea of the extent of that of the yuan’s appreciation that will be sanctioned. The currency may become more volatile than it has been.

Dollar

The dollar generally trended lower from late September through the first of October against most of the major currencies and but turned higher against as the virus surged in Europe and policymakers from Australia and Europe signaled a policy response, while the Federal Reserve expounded on its new average inflation target without committing to fresh actions. More fiscal stimulus is likely to be forthcoming. The election will determine the extent and priorities. Next year, as was the case this year, the US will again likely have the largest budget deficit among the high-income countries. The Federal Reserve meets on November 5. It does not seem prepared to take new measures.

The possibility of yield curve control appears to have been eclipsed by signals suggesting officials, at some point, may extend the duration of the $80 bln a month of Treasuries currently being purchased. The decision does not appear imminent. The Bank of England, the Reserve Bank of Australia, and the European Central Bank are likely to move before the Federal Reserve. This implies that the dollar may be stronger than we previously anticipated into early next year. However, when the situation stabilizes, we still expect the twin-deficit meme to frame a trend lower for the dollar.

Euro

After falling to nearly $1.16 in late September, the euro trended higher to around $1.1880 in the third week of October. The surging pandemic, which led to new social restrictions that even if they last a month, will sap the recovery that had already appeared to be stalling. As a rough estimate, a month-long closure may reduce Q4 GDP around 0.5-0.7 percentage points. The ECB has all but formally committed itself to ease policy in December, which could very well include a rate cut in addition to new low rate loans and more bond-buying for longer. The much-heralded joint fiscal initiative (750 bln euro, Recovery Fund) appears bogged down in political negotiations at the European Parliament.

Even after the technical details are agreed upon, the use of the funds to enforce the “rule of law” practices will still encounter objections (e.g., Hungary, Poland). The summer’s bullishness toward the euro that had lifted it to $1.20 has been undermined by the virus. Speculators in the futures market have trimmed their net long euro position, but it remains at a record high but this recent period. We see these recent developments as tempering the pace of the euro’s uptrend we expect, but at this juncture, we do not see it changing the trend.

(end of October indicative prices, previous in parentheses)

  • Spot: $1.1645 ($1.1720)
  • Median Bloomberg One-month Forecast $1.1725 ($1.1785)
  • One-month forward $1.1655 ($1.1735) One-month implied vol 7.9% (6.5%)

Yen

The Bank of Japan now projects the world’s third-largest economy will contract by 5.5% in the current fiscal year that runs through March 2021. Previously it forecast a 4.7% contraction. Part of the growth was shifted to FY2021, which is now expected to expand by 3.6% rather than 3.3%. Prime Minister Suga appears to be preparing for a third supplemental budget for this year that could be formally announced in the weeks ahead.

Talk is of a JPY10 trillion package, of which nearly three-quarters may come from re-directing unspent funds from past budgets. The US 10-year premium over Japan has trended higher since early August when it was below 50 bp. Although it is near 80 bp now, it has rarely been lower over the past 30 years. Moreover, for yen-based investors hedging the dollar currency risk is expensive. After spending most of the August-September period inversely correlated with the S&P 500 on a purely directional basis, the dollar-yen exchange rate spent most of October positively but albeit slightly, correlated.

  • Spot: JPY104.65 (JPY105.50)
  • Median Bloomberg One-month Forecast JPY104.85 (JPY105.70)
  • One-month forward JPY105.00 (JPY105.60) One-month implied vol 8.0% (5.7%)

Sterling

After falling by about 3.35% in September, sterling rebounded by about 1% in October. Sterling proved resilient in the face of the brinkmanship tactics that had seemed to end the talks in the middle of the month and rallied when the talks resumed. While many are still hopeful of an agreement, it is not at hand yet, and might not be until closer to the next brink (middle of November).

The implied volatility curve peaks in November and then gradually falls almost two percentage points over the next year. We remain concerned that many businesses are unprepared, and even with an agreement, disruptions can be significant. For businesses that rely on product either directly from the UK or EU goods via the UK, inventory management for some industries may be a way to minimize disruption.

The Bank of England meets on November 5 and if it does not extend is Gilt buying, the market will be disappointed. The bank rate is set at 10 bp, but the bills and Gilt yields through five-years remain below zero. A ten basis point rate cut is also a possibility. The BOE has purposely not ruled out adopting a negative interest rate target but has clearly signaled it is not ready. The UK’s budget deficit is expected to be near 14% of GDP this year, among the largest in the G7. Improvement depends on the course of the virus.

  • Spot: $1.2950 ($1.2920)
  • Median Bloomberg One-month Forecast $1.2975 ($1.2950)
  • One-month forward $1.2950 ($1.2930) One-month implied vol 11.3% (10.7%)

Canadian Dollar

The New Democrat Party came to the minority Trudeau government’s support twice in recent weeks. Neither the Liberals nor Conservatives are prepared to go to the polls. However, minority governments do not typically last more than a couple of years in Canada and the current government has begun its second year. There is political pressure for Trudeau to re-introduce a new fiscal anchor, but the pandemic does not make it practical. Finance Minister Freeland is expected to provide her first fiscal update in November.

The last estimate in July put the deficit at near 16% of GDP, but the new initiatives suggest it may be closer to 18%-19%. The Bank of Canada pledges to keep the target rate at 0.25% until the economic slack is absorbed, which it does not anticipate until 2023. It no longer will buy mortgage-backed securities. Perhaps, most importantly, the Bank of Canada will reduce its government bond-buying program to CAD4 bln from CAD5 bln and shift its attention to longer-term bonds.

  • Spot: CAD1.3320 (CAD 1.3320)
  • Median Bloomberg One-month Forecast CAD1.3285 (CAD1.3275)
  • One-month forward CAD1.3300 (CAD1.3325) One-month implied vol 8.3% (6.2%)

Australian Dollar

The Australian dollar underperformed last month. Although the loss was small (~0.5%), it was the only major currency that falls for the second consecutive month. In addition to the virus, which is daunting enough, Canberra also must cope with expressions of China’s displeasure that has impacted trade. The Reserve Bank of Australia has downplayed the efficacy of negative interest rates but has mused aloud about other measures it can take to provide more stimulus.

The next RBA meeting is November 3, and many participants expect a move. It targets a 25 bp cash rate and three-year bond (yield curve control). However, the three-year yield is about 11 bp, and the effective cash rare is 13 bp. The RBA indicated that targeting a longer-dated rate was a possibility. Although it also cited the possibility of buying foreign bonds, this may be too controversial to venture now.

  • Spot: $0.7030 ($0.7160)
  • Median Bloomberg One-Month Forecast $0.7115 ($0.7175)
  • One-month forward $0.7030 ($0.7165) One-month implied vol 12.0% (10.0%)

Mexican Peso

The Mexican peso was the strongest currency in October, appreciating nearly 6% against the dollar to pare its year-to-date loss to about 9.3%. The peso’s gains are driven by a large trade surplus, strong worker remittances, and portfolio flows attracted by relatively high-interest rates. The central bank has been signaling that after nearly halving its target rate to 4% and inflation probing the upper end of its 3% +/- 1% target, it was running out of room to cut interest rates further.

However, with President Andres Manuel Lopez Obrador (AMLO) reluctant to use fiscal stimulus, which entails borrowing and boosting debt, it leaves monetary policy as the main tool. The central bank’s decision is finely balanced. Two of the board’s five members thought there is no room to cut rates, and two saw additional scope, leaving one as the tie-breaker.

  • Spot: MXN21.18 (MXN22.11)
  • Median Bloomberg One-Month Forecast MXN21.60 (MXN22.07)
  • One-month forward MXN21.25 (MXN22.19) One-month implied vol 20.5% (18.2%)

Chinese Yuan

The yuan has been adjusting higher for several months. It finished October near its best level in two years. The increasing integration of China into the global capital markets means that strong portfolio capital inflows compound the yuan’s upside pressure stemming from the growing trade surplus. Beijing’s strategy appears to be two-fold: accept some appreciation of the yuan and reduce some (not all) regulatory hurdles to capital outflows.

We suspect many market participants do not trust the price action and focus instead on the precise mechanism by which the PBOC has managed the pace of the yuan’s appreciation. The median year-end forecast in the Bloomberg survey is for CNY6.75. This may overstate the case. If, on the other hand, the integration into the global capital markets has required a change in Beijing’s strategy, there could be potential toward CNY6.6500 before year-end.

  • Spot: CNY6.6915 (CNY6.7900)
  • Median Bloomberg One-month Forecast CNY6.7210 (CNY6.8125)
  • One-month forward CNY6.7150 (CNY6.7935) One-month implied vol 6.6% (5.9%)

This article was written by Marc Chandler, MarctoMarket.

A Technical Word Ahead of Macro Events

Nevertheless, the dollar’s strength was more than we anticipated.

While the Reserve Bank of Australia and the Bank of England are expected to ease policy in the coming days, the larger focus swings back to the US, where national elections, the FOMC meeting, and October employment report are the highlights. None should be particularly bullish for the dollar.

A solid showing for the Democratic Party has been favored by polls and surveys using traditional and non-traditional approaches, like Ravenpack. They don’t appear to have changed very much recently. Although there is angst over the possibility of a protracted period of uncertainty as the results are challenged, we suspect that the risk is exaggerated.

The actual results could expedite some M&A activity, corporate tax planning and spur industry-specific (e.g., health care, energy) reactions. The Federal Reserve is not going to do anything, but its somber economic assessment and forward guidance cannot be construed as favorable for the dollar. The risk may be on the downside of the median forecast in the Blomberg survey of a 600k increase in non-farm payrolls given the recently announced lay-offs, the little change in weekly jobless claims over the survey period, and seasonal adjustments.

It is always interesting to look at the technical condition ahead of what are obviously significant macro events. Broadly speaking, the momentum indicators favor additional dollar gains, but as sketched above, we are less sanguine. Still, we will seek here to identify levels that would be technically significant and could accelerate moves.

Dollar Index

Pushing above 94.00 last week was more than expected last week, but there was not much follow-through, and a softer tone was seen ahead of the weekend. The momentum indicators are pointing higher, and a convincing break of 94.00 could spur a move to the September high near 94.70. The 93.00 area may provide support, which is the middle of the 92.00-94.00 range that has dominated since the end of July, save those few days in late September.

Euro

The one-two punch of the escalated social restrictions in the face of the surging pandemic and the dovish ECB saw the euro buckle to $1.1660, a new low for October, though above the September low (~$1.1610). The push above $1.17 ahead of the weekend was repelled. The Slow Stochastic is trending lower while MACD has softened slightly but is little changed. A break of $1.1600, which the euro has held above since late July, would give immediate scope for another cent decline. A move above $1.1700 would help stabilize the tone, but resistance around $1.1750-$1.1760 needs to be overcome.

Japanese Yen

As stocks were selling off hard on October 29, the dollar tested key support near JPY104.00. It held like a rock, and the greenback recovered to JPY104.70. This marks the lower end of as bad of resistance that extends a little above JPY105.00. The MACD and Slow Stochastic look poised to cross higher. A move above JPY105.00 would still be constrained by the larger range with intermittent resistance near JPY105.50.

British Pound

There has been no major breakthrough in UK-EU trade talks, and a German official from the finance ministry was quoted on the news wires expressing disappointment. The broader dollar gains set the tone, and sterling has recorded lower higher for the past four sessions. If sterling’s trend higher from late September’s low (~$1.2675) is being retraced since October 21, then it neared a (61.8%) retracement objective (~$1.2865).

A move now above $1.3000-$1.3030 would lend credence to this scenario. Recapturing the $1.3065 would improve the technical tone. The euro was sold through GBP0.9000 ahead of the weekend for the first time since September 8. Although it bounced back, it found new sellers near GBP0.9030 and finished on a soft note. The next area of chart support is seen around GBP0.8965.

Canadian Dollar

The US dollar rose by about 1.6% against the Canadian dollar last week, the most since March. The risk-off mood, sharp drop in oil prices, and the greenback’s broader strength were the main driving forces. The Bank of Canada will reduce its bond-buying but extend maturities leaving the broad impulse in favor of accommodation.

The US dollar’s high for October was set on the 29th, a little shy of CAD1.3400. A break of the CAD1.3450 area would target the 200-day moving average (~CAD1.3550) and then CAD1.3600. The momentum indicators are moving higher. Initial support is seen near CAD1.3280, and if a consolidative phase emerges, the greenback can pullback to CAD1.3200.

Australian Dollar

The Aussie held important support at $0.7000 last week, but the subsequent price action was not inspiring, and it finished the week near $0.7030. The RBA meets and is expected to ease policy, including a small rate cut and more bond-buying. It probably requires a break of the $0.6965 area to confirm a downside break, in which case the 200-day moving average around $0.6800 offers an initial target.

The MACD is bouncing along its trough, while the Slow Stochastic has turned down from mid-range. The $0.7080-$0.7100 area now offers resistance, but overcoming the weekly downtrend line from the August high (~$0.7160 next week) may be the key to the medium-term outlook.

Mexican Peso

The dollar snapped a four-week slide that saw it lose around 7% against the Mexican peso. Its nearly 1.9% gain is only the third weekly increase since late July. Last week’s bounce appeared to lose momentum in front of the minimum retracement objective (38.2%) of the latest leg down, which started in late September, found near MXN21.55. The peso’s pre-weekend gain was impressive because it took place even amid the continued retreat from risk assets more broadly. Initial support for the dollar is seen in the MXN21.10-MXN21.20 area.

Chinese Yuan

The dollar furnished virtually unchanged against the Chinese yuan last week near CNY6.6915. This is a bit misleading as the greenback strengthened to almost CNY6.73 in the middle of the week when the PBOC announced that banks no longer had to use a counter-cyclical function when submitting bids to set the daily reference rate for the dollar. The dollar weakened in the second half of the week and posted its lowest close of the week on Friday. Broad consolidation appears to be the most likely near-term scenario. The market may get cautious near CNY6.65 while attracting investment flows in the CNY6.73-CNY6.75 area.

Gold

The 1.1% decline in gold prices last week was sufficient to ensure the third consecutive losing month. The price tumbled with stocks in the middle of the week but traded firmer ahead of the weekend even as equities headed south. The Slow Stochastic is falling, and the MACD is softened at low levels. September’s low was around $1848, and last week’s low was about $1860. A recovery above $1900 would solidify the base. At the same time, it has been over a month since gold was above $1935.

Oil

December crude oil prices had a tough week. It fell 10.5%, the most since April. It was off about 1.5% for the month coming into last week. It briefly traded below $35 a barrel for the first time since the end of May. The momentum indicators are headed down but getting stretched. A convincing break of $35 could spur losses toward $33.50. Demand concerns mount, and market talk suggests Saudi Arabia is likely to cut its official selling price for Asia for December when a decision is made in the coming days. Previous support around $37 may now be resistance.

US Rates

The US 10-year yield rose three basis points last week, but the fact that it rose at all in the face of the biggest slide in stock since March is notable. Moreover, it finished at 0.87%, the highest in nearly five months, and closed above the 200-day moving average (0.83%) for the first time since late 2018. The yield bottomed near 0.50% in August, the chaotic low in March near 0.30% notwithstanding. The market is looking stretched, and the 10-year note futures contract finished the week below the low er Bollinger Band. Some observers attribute the sell-off to election positioning.

Still, we would expect the Fed to be dovish and the employment data to show that the labor market’s improvement is slowing. With the two-year yield virtually unchanged on the week at 15 bp, the long-end accounts’ backing up accounts for the steeper curve. It finished at 72 bp, the steepest since early 2018. The fact that the 10-year breakeven is about 10 bp lower than at the end of August suggests that the yield curve’s steepening may not result from elevated inflation expectations.

S&P 500

The index fell 5.6% last week and offset the earlier gains to finish the month with a nearly 2.8% decline. It had fallen by almost 4.0% in September, snapping the five-month recovery from the 20% decline in Q1. The key technical development last week was the gap lower opening on Wednesday that remains unfilled. Gap theory, which helped us anticipate and identify the month’s high on October 12 (third consecutive gap exhausts the market), suggest that area (~3342.5-3388.7) has technical significance now.

Prices may be attracted to the vacuum of the gap, but it may also act as resistance. Even though the month’s low was set before the weekend near 3234, the selling pressure abate ahead o the September low and support closer to 3200. A break of 3200 would have negative technical consequences for likely the remainder of the year. It would boost the chances that a significant high is in place.

A potential double top could be confirmed on the break of 3200 that projects toward 2800-2900, which corresponds to a (50%) retracement of the gains rally from the March lows. Yet, the momentum is clearly on the downside. The MACD and Slow Stochastic have entered the overextended territory, Remember lows even after smaller pullbacks often take a couple of days or so to forge.

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

This article was written by Marc Chandler, MarctoMarket.

The Weekly Wrap – COVID-19 and U.S Election Jitters Sink Riskier Assets

The Stats

It was a busier week on the economic calendar, in the week ending 23rd October.

A total of 62 stats were monitored, following 56 stats from the week prior.

Of the 62 stats, 37 came in ahead of forecasts, with 17 economic indicators came up short of forecasts. 8 stats were in line with forecasts in the week.

Looking at the numbers, 35 of the stats also reflected an upward trend from previous figures. Of the remaining 27 stats, 31 reflected a deterioration from previous.

For the Greenback, it was just the 2nd week in the green out of 5. The Dollar Spot Index rose by 1.37% to 94.039. In the week ending 23rd October, the Dollar Spot Index had fallen by 0.98% to 92.768.

Market sentiment towards COVID-19 drove demand for the Dollar, as EU member states reintroduced lockdown measures.

Economic data and geopolitics were also in focus in the week, with U.S election jitters also supporting the Greenback.

Out of the U.S

It was a busy week on the economic data front.

In the 1st half of the week, durable and core durable goods orders for September impressed. Consumer confidence weakened in October, however, with concerns over COVID-19 and labor market conditions weighing.

The focus then shifted to 3rd quarter GDP numbers and weekly jobless claims figures on Thursday.

Both were positive, with the U.S economy surging by 33.1% to reverse the 2nd quarter’s 31.4% contraction.

In the week ending 23rd October, initial jobless claims came in at 751k, which was down from a previous week of 791k.

At the end of the week, personal spending and inflation figures were skewed to the positive. Personal spending rose by 1.4%, following a 1% rise in August, with the annual rate of core inflation picking up from 1.4% to 1.5%.

PMI numbers from Chicago were also upbeat, in spite of a modest decline in October. The PMI fell from 62.4 to 61.1.

In the equity markets, the NASDAQ fell by 5.51%, with the Dow and S&P500 seeing losses of 6.47% and 5.64% respectively.

Out of the UK

It was a particularly quiet week on the economic data front, with no material stats to provide the Pound with direction.

The lack of stats left the Pound in the hands of Brexit, COVID-19, and market risk sentiment.

In the week, the Pound fell by 0.71% to $1.2947. In the week prior, the Pound had risen by 0.97% to $1.3040.

The FTSE100 ended the week down by 4.83% following on from a 1.00% loss from the previous week.

Out of the Eurozone

It was a busy week on the economic data front.

In the 1st half of the week, Germany’s Ifo Business Climate Index fell from 93.2 to 92.7, reflecting sentiment towards the 2nd wave of the COVID-19 pandemic.

While there was improved sentiment towards current conditions, there were rising concerns over the economic outlook.

The focus then shifted to a particularly busy 2nd half of the week.

German unemployment numbers impressed on Thursday, with the unemployment rate falling from 6.3% to 6.2%.

Of greater significance, however, was a dovish ECB. While holding policy unchanged, Lagarde talked of further monetary policy easing next month. The ECB President also noted that, while 3rd quarter GDP numbers would likely impress, there would be a contraction in the 4th quarter.

On Friday, 3rd quarter GDP numbers for France, Germany, Spain, and the Eurozone were key stats. Eurozone and member stats saw a v-shaped economic rebound in the 3rd quarter. While the numbers were better than forecasts, however, the impact on the majors was modest.

French and German consumer spending and Eurozone inflation figures were also in focus. Consumer spending slumped in September, with deflationary pressures persisting in October.

For the week, the EUR slid by 1.80% to $1.1647. In the week prior, the EUR had risen by 1.21% to $1.1860.

Away from the economic calendar, the continued rise in new COVID-19 cases and new lockdown measures were negative for the major bourses and for the EUR.

For the European major indexes, it was another bearish week. The CAC40 and EuroStoxx600 fell by 6.42% and by 5.56% respectively, with the DAX30 sliding by 8.61%.

For the Loonie

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

Key stats included September building permits and RMPI figures and August GDP numbers.

In September, building permits surged by 17%, following a 1.4% rise in August, reflecting improved economic conditions. Influence on the Loonie was limited, however, with crude oil prices on the slide.

The GDP and RMPI figures on Friday were disappointing, however. Canada’s economy grew by 1.2% in August, slowing from 3.1% growth in July. The RMPI slid by 2.2%, partially reversing a 3.2% rise in September.

Of greater interest in the week, however, was the Bank of Canada’s monetary policy decision on Wednesday.

The BoC left monetary policy unchanged, which was in line with market expectations. The BoC failed to distract the markets from sliding oil prices and negative sentiment towards the economic outlook.

In the week ending 23rd October, the Loonie fell by 1.49% to end the week at C$1.3321. In the week prior, the Loonie had risen by 0.49%.

Elsewhere

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

In the week ending 30th October, the Aussie Dollar slid by 1.55% to $0.7028, with the Kiwi Dollar falling by 1.14% to end the week at $0.6615.

For the Aussie Dollar

It was a relatively busy week on the economic calendar.

Key stats included 3rd quarter inflation and business confidence figures.

The stats were skewed to the positive. A pickup in inflationary pressures failed to give the Aussie Dollar a boost, with improving business confidence also failing to support.

Market risk aversion stemming from the 2nd wave of the COVID-19 pandemic weighed on commodity prices and the Aussie Dollar.

With the RBA in action next week, and a rate cut expected, the losses were on the heavier side.

For the Kiwi Dollar

It was also a relatively busy week on the economic calendar.

Key stats included September trade and October business confidence figures.

The stats were skewed to the positive for the Kiwi.

In September, the annual trade surplus widened to its largest since 2014. This was attributed to a slump in imports, however. Demand for crude waned, leading to the marked decline.

Business confidence improved, however, with firms being more confident about the economic outlook.

For the Japanese Yen

It was a relatively busy week on the economic calendar.

Key stats included retail sales, inflation, and industrial production figures.

It was a mixed bag for the Yen.

Retail sales slid by 8.7% in September, following a 1.9% decline in August.

Deflationary pressures also picked up, with Tokyo consumer prices falling by 0.5% in October, year-on-year. In September, consumer prices had fallen by 0.2%.

On the positive, however, was a 4% jump in industrial production, according to prelim figures. In August, industrial production had risen by 1.0%.

The stats had a muted impact on the Yen, however, with concerns over the economic outlook supporting demand for the Yen.

On the monetary policy front, the BoJ stood pat on policy, which was in line with market expectations.

The Japanese Yen rose by 0.05% to ¥104.66 against the U.S Dollar. In the week prior, the Yen had risen by 0.65%.

Out of China

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

There were no material stats to provide the Yuan and the equity markets with direction.

In the week ending 30th October, the Chinese Yuan fell by 0.07% to CNY6.6915. In the week prior, the Yuan had risen by 0.16%.

The CSI300 fell by 0.49%, with the Hang Seng ending the week down by 3.26%.

The Week Ahead – Brexit, U.S Politics, COVID-19, and a Busy Economic Calendar 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 30th October. In the week prior, 56 stats had been in focus.

For the Dollar:

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

On Tuesday, durable goods orders, core durable goods, and consumer confidence figures are in focus.

The focus will then shift to 3rd quarter GDP numbers and the weekly jobless claims figures on Thursday.

At the end of the week, September’s inflation and personal spending figures are due out.

Other stats in the week include trade data, housing sector figures. Chicago’s PMI, and finalized consumer sentiment figures for October. These stats are unlikely to have a material impact on the Dollar and market risk sentiment.

Away from the economic calendar, it’s less than 2-weeks before the U.S Presidential Election and Senate Elections. There is also the extended negotiations on Capitol Hill to continue monitoring.

The Dollar Spot Index ended the week down by 0.98% to 92.768.

For the EUR:

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

On Monday, Germany’s Ifo Business Climate Index and sub-indexes will provide direction.

The focus will then shift to Germany’s unemployment numbers for October on Thursday.

At the end of the week, 3rd quarter GDP numbers, consumer confidence, and retail sales figures wrap things up.

Throughout the week, prelim inflation figures for France, Germany, Italy, and the Eurozone are also due out. With market concerns over deflationary pressures, any further fall in prices will test support for the EUR.

On the monetary policy front, the ECB is in action on Thursday. While the markets are not anticipating a move, the fresh spike in new COVID-19 cases may force the ECB to promise further support. Expect Lagarde to call on Brussels and EU member states for more action.

Away from the economic calendar, COVID-19 numbers will also influence. More stringent lockdown measures will test the EUR.

The EUR/USD ended the week up by 1.21% to $1.1860.

For the Pound:

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

There are no material stats due out of the UK to provide the Pound with direction.

The lack of stats will leave the Pound in the hands of COVID-19 and Brexit. With more containment measures in place, the Pound could come under pressure ahead of November’s monetary policy decision.

Near-term, the only upside for the Pound would come from a Brexit deal. News from the weekend was hopeful of a deal.

The GBP/USD ended the week up by 0.97% to $1.3040.

For the Loonie:

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

Economic data includes building permits and RMPI figures for September and August GDP figures.

Expect the GDP figures to have the greatest influence on the data front.

Of greater significance in the week, however, is the Bank of Canada’s interest rate decision on Wednesday.

While the markets are expecting the BoC to leave policy unchanged, the latest spike in new COVID-19 cases could force a more dovish tone.

The Loonie ended the week up by 0.49% to C$1.3125 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

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

3rd quarter inflation and wholesale inflation figures are due out on Wednesday and Friday. Business confidence figures are also due out on Thursday.

Expect the numbers to garner plenty of interest, as chatter builds over a possible move by the RBA.

From elsewhere, 3rd quarter GDP numbers from the U.S and EU member states will also influence.

Away from the economic calendar, COVID-19 figures and U.S politics will also provide direction in the week.

The Aussie Dollar ended the week up by 0.82% to $0.7139.

For the Kiwi Dollar:

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

September trade data and October business confidence figures are due out in the week.

Expect Kiwi Dollar sensitivity to the numbers.

The Kiwi Dollar ended the week up by 1.35% to $0.6691.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

September retail sales and industrial production figures are due out in the week, along with October inflation figures.

We don’t expect too much influence from the numbers, however, with U.S politics in focus in the week.

Expect any continued rise in COVID-19 cases to also influence.

On the monetary policy front, the Bank of Japan is in action on Thursday. Will the BoJ hold back a little longer or deliver further monetary policy support?

The Japanese Yen ended the week up by 0.65% to ¥104.71 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 to influence riskier assets in the week.

The lack of stats will leave geopolitics in focus.

The Chinese Yuan ended the week up by 0.16% to CNY6.6868 against the U.S Dollar.

Geo-Politics

UK Politics:

With October coming to a rapid end, the markets will be looking for progress towards a Brexit deal.

News from the weekend was positive, though there was also chatter of Boris Johnson wanting to hold out until after the U.S Presidential Election.

From the EU, news reports suggest that there may be a greater incentive to reach an agreement. Media reports of Macron being willing to soften his hardline on access to UK Fisheries should support the Pound.

U.S Politics

Blue wave or a Donald Trump comeback? It’s the final week of October and the polls still have Biden out ahead…

Expect plenty of chatter in the week, with the markets likely to take an even greater interest in the polls.

Looking at the 8 swing states, Biden still holds a lead in 6, suggesting a Democrat victory on 3rd November.

While election fever will heat up in the week, any further updates from Capitol Hill on stimulus talks will also influence in the week ahead.

The Week Ahead – U.S Politics, COVID-19, Brexit, and Private Sector PMIs in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 57 stats in focus in the week ending 23rd October. In the week prior, 56 stats had been in focus.

For the Dollar:

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

On Tuesday, Wednesday, and Thursday, housing sector figures for September are in focus.

With mortgage rates hovering close to historic lows, the numbers are unlikely to have a material impact on the Dollar.

On Thursday, however, U.S jobless claims figures will influence ahead of private sector PMIs on Friday.

October’s prelim services, manufacturing, and composite PMIs are due out at the end of the week.

Expect the Services PMI to be the key driver. The markets will be looking for a pickup in service sector activity…

Away from the economic calendar, we are just over 2-weeks away from the U.S Presidential Election. Wednesday’s final live televised Presidential debate will garner plenty of attention as will chatter from Capitol Hill. We can also expect increased interest in the Senate Election polls.

The Dollar Spot Index ended the week up by 0.67% to 93.682.

For the EUR:

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

On Tuesday, German wholesale inflation figures are due out ahead of a busier 2nd half of the week.

On Thursday, Germany is back in focus, with November consumer climate figures due out.

Prelim October private sector PMIs from France, Germany, and the Eurozone will be the key drivers on Friday, however.

We can expect plenty of sensitivity to the numbers. A new spike in new COVID-19 cases in France and other parts of the EU may have impacted activity at the start of the quarter.

Away from the economic calendar, Brexit and COVID-19 will need monitoring throughout the week.

The EUR/USD ended the week down by 0.91% to $1.1718.

For the Pound:

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

The markets will have to wait until Wednesday, however, for the first set of numbers.

Inflation figures for September are due out ahead of CBI industrial trend orders on Thursday.

We would expect the Pound to be sensitive to the inflation figures ahead of a busy end to the week.

On Friday, retail sales figures for September and prelim October private sector PMIs will provide direction.

With the BoE open to negative rates, dire numbers will test support for the Pound.

Of greater influence in the week, however, will be Brexit and COVID-19 news.

The GBP/USD ended the week down by 0.93% to $1.2915.

For the Loonie:

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

At the start of the week, wholesale sales figures for August are in focus on Monday.

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

On Wednesday, September inflation and August retail sales figures will provide direction.

From elsewhere, expect GDP numbers from China and prelim private sector PMIs from the Eurozone and the U.S to also influence.

Away from the economic calendar, risk appetite will likely be dictated by COVID-19 and the U.S Presidential Election polls. There’s also the final presidential debate to consider on Wednesday.

The Loonie ended the week down by 0.52% to C$1.3189 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.

The lack of stats will leave the Aussie Dollar firmly in the hands of market risk sentiment in the week.

Expect China’s GDP numbers and prelim PMIs from the Eurozone and the U.S to influence

On the monetary policy front, the RBA meeting minutes at the start of the week will garner interest. There has been the talk of an RBA move next month, the minutes could reveal what is on the cards…

The Aussie Dollar ended the week down by 2.20% to $0.7081.

For the Kiwi Dollar:

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

In the 1st half of the week, 3rd quarter business confidence figures are due out. A pickup in confidence would provide support to the Kiwi ahead of a busy Friday.

Trade data for May and 3rd quarter inflation figures will influence at the end of the week.

While the stats will provide direction, however, economic data from China and COVID-19 will likely be the key drivers.

The Kiwi Dollar ended the week down by 0.96% to $0.6602.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

Trade data for September will draw interest at the start of the week ahead of inflation at the end of the week.

We don’t expect the numbers to have too much influence on the Yen, however.

The key driver for the Japanese Yen, however, will be COVID-19 news and U.S politics.

The Japanese Yen ended the week up by 0.21% to ¥105.40 against the U.S Dollar.

Out of China

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

3rd quarter GDP numbers due out on Monday will be the key driver for the Yuan and market risk sentiment.

September’s industrial production, retail sales, and unemployment figures will also influence.

Barring particularly dire numbers, the fixed asset investment numbers should have a muted impact.

On the monetary policy front, the PBoC is in action on Tuesday. The markets are expecting the PBoC to leave loan prime rates unchanged. Any unexpected rate cut could spook the markets…

The Chinese Yuan ended the week down by 0.04% to CNY6.6976 against the U.S Dollar.

Geo-Politics

UK Politics:

On Friday, Boris Johnson announced that Brexit negotiations were over. Downing Street added the EU chief negotiator Barnier does not need to return to London in the week ahead.

Following the EU’s attempts to leave the ball in Britain’s court, with Fisheries a key issue, it now rests with the EU to compromise. Johnson has been clear that it would not leave fishing access unchanged, despite Macron’s attempts to strong-arm Britain into yielding.

For French fishermen, it would ultimately mean no access to UK fisheries should Britain leave without a deal…

Also at the start of the week, the British Prime Minister is due to announce more containment measures. With the number of new COVID-19 cases continuing to rise, further restrictions would be Pound negative.

U.S Politics

After last week’s individual town hall sessions, the final live televised debate will take place on Wednesday.

It will be a chance for Trump to narrow the gap ahead of the 3rd November Election.

If past performance is any indicator of future performance, however, it could just give Biden a greater edge.

As the markets begin to write-off a Trump victory, the focus will likely shift to the Senate Elections.

A blue wave is expected that would support further stimulus in the New Year.

The Weekly Wrap – Brexit, COVID-19, and U.S Politics Drive the Majors

The Stats

It was a busier week on the economic calendar, in the week ending 16th October.

A total of 56 stats were monitored, following 43 stats from the week prior.

Of the 56 stats, 24 came in ahead of forecasts, with 21 economic indicators came up short of forecasts. 11 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 36 stats, 27 reflected a deterioration from previous.

For the Greenback, it was back into the green after 2 consecutive weeks in the red. The Dollar Spot Index rose by 0.67% to 93.682. In the week ending 9th October, the Dollar Spot Index had fallen by 0.87% to 93.057.

Market risk appetite waned in the week. There were a number of factors driving demand for the Dollar. A lack of progress towards a U.S stimulus bill and a spike in COVID-19 cases were front and center in the week.

Disappointing economic data and Brexit woes also supported the demand for the safety of the Dollar.

Out of the U.S

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

Inflation figures drew interest early in the week. In the 2nd half of the week, however, jobless claims and retail sales figures were the key drivers. Prelim October consumer sentiment figures were also in focus late on Friday.

In the week ending 9th October, initial jobless claims stood at 898k, which was up from 845k from the week prior. The numbers reinforced the view that the labor market recovery had stalled.

A combination of dire labor market conditions, rising new COVID-19 cases, and a lack of further stimulus was a bad combination.

At the end of the week, retail sales impressed, however. In September, retail sales rose by 1.9%, with core retail sales rising by 1.5%. Economists had forecasted increases of 0.5% and 0.7% respectively.

Aligned with the retail sales figures was a further pickup in consumer sentiment. The Michigan Consumer Sentiment Index rose from 80.4 to 81.2 in October, according to prelim figures. The Expectations Index increased from 75.6 to 78.8.

The only negative on the day was an unexpected 0.6% fall in industrial production.

In the equity markets, the NASDAQ rose by 0.79%, with the Dow and S&P500 gaining 0.07% and 0.19% respectively.

Out of the UK

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

Key stats included August unemployment rate and employment change and September claimant count figures.

While claimant counts came in lower than expected, employment fell by more than expected over the 3-months to August.

A 153k fall in employment led to an increase in the unemployment rate from 4.1% to 4.5%.

While the stats provided direction, it was ultimately Brexit and COVID-19 that sank the Pound in the week.

A continued rise in new COVID-19 cases and a new round of containment measures were Pound negative.

More significantly, however, was a lack of progress towards a Brexit agreement, with the EU pushing for more talks next week.

On Friday, Boris Johnson announced that it was time to prepare for a no-trade deal Brexit unless the EU changed its stance. Downing Street also stated that there was no point in EU negotiator Michel Barnier returning to London in the week ahead.

In the week, the Pound fell by 0.93% to $1.2915. In the week prior, the Pound had risen by 0.78% to $1.3036.

The FTSE100 ended the week down by 1.61%, partially reversing a 1.94% gain from the previous week.

Out of the Eurozone

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

Early in the week, key stats included ZEW Economic Sentiment figures for the Eurozone and Germany.

The indicators flashed red for October. Germany’s Economic Sentiment Indicator fell from 77.4 to 56.1, with the Eurozone’s falling from 73.9 to 52.3. A lack of progress on Brexit and jitters over the U.S Presidential Election weighed in October.

Mid-week, industrial production figures for the Eurozone came up short of expectations, rising by just 0.7%. In July, production had jumped by 5.0%.

In the 2nd half of the week, Eurozone trade data and finalized inflation figures for September were in focus.

Inflation figures reaffirmed market concern over deflationary pressures. Trade data also failed to impress, with the Eurozone’s trade surplus narrowing from €27.9bn to €14.7bn in August.

While the stats provided direction, a marked increase in new COVID-19 cases weighed on the EUR in the week. France and other member states were forced to reintroduce containment measures amidst the 2nd wave.

For the week, the EUR fell by 0.91% to $1.1718. In the week prior, the EUR had risen by 0.94% to $1.1826.

For the European major indexes, it was a bearish week. The CAC40 and EuroStoxx600 fell by 0.22% and by 0.77% respectively, with the DAX30 declining by 1.09%.

For the Loonie

It was a quiet week on the economic data front.

Key stats included August’s foreign security purchases and manufacturing sales figures.

Neither set of numbers had an impact, however, as the fresh spike in new COVID-19 cases weighed on market risk sentiment.

The threat of a reintroduction of lockdown measures pegged back crude oil prices in the week.

In the week ending 16th October, the Loonie fell by 0.52% to end the week at C$1.3189. In the week prior, the Loonie had risen by 0.87%.

Elsewhere

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

In the week ending 16th October, the Aussie Dollar slid by 2.20% to $0.7081. The Kiwi Dollar ended the week down by a more modest 0.96% to $0.6602.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats consumer confidence and employment figures.

It was a mixed bag for the Aussie Dollar. While consumer confidence continued to improve, employment figures were somewhat disappointing.

The unemployment rate rose from 6.8% to 6.9%, driven by a 29.5k fall in employment.

For the Aussie Dollar, it was ultimately market sentiment towards monetary policy and risk aversion that did the damage. There is the talk of an RBA next month…

For the Kiwi Dollar

It was a relatively quiet week on the economic calendar.

Key stats included electronic card retail sales figures and business PMI numbers.

The stats were Kiwi Dollar positive, with retail sales up by 5.4% and the PMI rising from 50.7 to 54.0.

While positive, however, market risk aversion pegged the Kiwi Dollar back in the week.

For the Japanese Yen

It was also a relatively quiet week on the economic calendar.

August’s core machinery orders and finalized industrial production figures were in focus.

The stats were skewed to the negative in the week. Core machinery orders rose by just 0.2%, following a 6.3% jump in July. Industrial production was revised down from 1.7% to 1.0%.

Ultimately, however, it was market risk sentiment that delivered the support for the Yen.

The Japanese Yen rose by 0.21% to ¥105.4 against the U.S Dollar. In the week prior, the Yen had fallen by 0.31%.

Out of China

It was a relatively busy week on the economic data front following last week’s holiday.

Key stats included September’s trade data and inflation figures, which were skewed to the negative.

China’s U.S Dollar trade surplus narrowed from $58.93bn to $37.00bn, driven by a 13.2% jump in imports. Exports rose by a more modest 9.9%.

Inflationary pressures also softened at the end of the quarter. China’s annual rate of inflation softened from 2.4% to 1.7% in September. Wholesale deflationary pressures picked up marginally. The producer price index fell by 2.1%, following a 2.0% decline in August.

In the week ending 16th October, the Chinese Yuan slipped by 0.04% to CNY6.6976. In the week prior, the Yuan had risen by 1.42%.

The CSI300 rose by 2.36%, with the Hang Seng gaining 1.11%.

FX Traders Monitoring Yuan after PBOC Makes Moves to Attract Foreign Investors

Investors are monitoring China’s Yuan movements on Monday after the People’s Bank of China (PBOC) announced a rule change that made it cheaper to short the national currency.

Traders short the Yuan when they expect the currency to weaken in the future. One way to do so is to borrow in Yuan in hopes of buying it back at a lower price later and pocketing the difference.

In the Monday morning trade, the onshore Yuan changed hands at 6.7224 per dollar, as compared to levels below 6.7 against the greenback seen last week. Meanwhile, its offshore counterpart last traded at 6.7188 per dollar. The price action in the currency was directly influenced by the rule change, “which makes it less expensive to short the (Chinese Yuan) and signals less (concern) about currency weakness,” said National Australia Bank’s Tapas Strickland.

China’s Central Bank to Cut FX Risk Reserve Ratio to Zero

China’s central bank said it will lower the reserve requirement ratio for financial institutions when conducting some foreign exchange forwards trading to zero with effect from Monday.

Under current rules, financial institutions must set aside 20% of the previous month’s Yuan forwards settlement amount as foreign exchange risk reserves.

“The People’s Bank of China (PBOC) will continue to maintain flexibility in the exchange rate, stabilize market expectations, and keep the Yuan basically stable at reasonable and balanced levels,” the central bank said on its website.

The move came after the onshore spot Yuan rate ended at a 17-month high on Friday against the dollar, its biggest one-day percentage gain since 2005.

Policymakers Want to Open Up Domestic Financial Markets to Foreign Investors

Tommy Xie, economist at OCBC Bank in Singapore, said the PBOC’s move could serve to keep the Yuan’s appreciation in check, and that is also reinforced how policymakers are keen to open up domestic financial markets to foreign investors.

“It is the exit of intervention, which marks the further step for RMB to move towards market driven pricing mechanism,” Xie said, referring to the renminbi, or Yuan.

“By removing the restrictions on derivatives, it will create a more flexible (hedging) environment for foreign investors.”

Chinese Officials Worried About Yuan Appreciation Ahead of US Presidential Election

Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong, said the PBOC’s move was not meant to reverse the Yuan’s rising trend, but had come earlier than he expected.

“The authorities might be worried about Yuan appreciation risk driven by the U.S. presidential election,” he said.

On Friday, the onshore spot Yuan rate ended at a 17-month high on Friday against the U.S. Dollar, its biggest one-day percentage gain since 2005.

Friday’s gains in the Yuan were largely prompted by speculation that Democrat challenger Joe Biden might win the U.S. presidency and improving Sino-U.S. relations.

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

The Week Ahead: A Brexit Showdown, U.S Politics, and Economic Data in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 68 stats in focus in the week ending 16th October. In the week prior, 53 stats had been in focus.

For the Dollar:

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

On Monday and Tuesday, September inflation and wholesale inflation figures are due out.

The focus then shifts to manufacturing sector activity and labor market numbers on Thursday.

Expect the Philly FED Manufacturing PMI for October and the weekly initial jobless claims to impact.

At the end of the week, retail sales and industrial production figures are due out, along with October consumer sentiment numbers.

Expect the retail sales and prelim Michigan consumer Sentiment figures to have the greatest impact.

Away from the calendar, the next Presidential debate on 15th October will also provide direction. That is assuming that Trump decides to attend…

The Dollar Spot Index ended the week down by 0.84% to 93.057.

For the EUR:

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

On Tuesday, ZEW Economic Sentiment figures for Germany and for the Eurozone are in focus.

Expect some EUR sensitivity to the numbers on the day.

The focus will then shift to Eurozone industrial production figures for August, due out on Wednesday.

At the end of the week, the Eurozone’s trade figures for August will also garner some interest.

Finalized inflation figures for member states and the Eurozone are also due out. Barring deviation from prelims, however, the numbers should have a muted impact on the EUR.

On the monetary policy front, ECB President Lagarde is scheduled to speak on a number of occasions in the week. Expect any forward guidance or views on the economy to influence.

Away from the economic calendar, Brexit and COVID-19 will need monitoring throughout the week.

The EUR/USD ended the week up by 0.94% to $1.1826.

For the Pound:

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

September claimant counts and August’s unemployment rate are due out on Tuesday and will influence.

BRC Retail Sales Monitor figures, due out in the early hours of Tuesday, will also draw some attention.

August’s employment change and average earnings figures are also due out but should have a muted impact on the day.

Away from the calendar, Brexit and COVID-19 will also provide direction. David Frost is due to attend talks in Brussels. The markets will be looking for an agreement.

The GBP/USD ended the week up by 0.78% to $1.3036.

For the Loonie:

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

In a shortened week, August manufacturing sales figures on Friday will provide direction.

Market risk sentiment and crude oil prices will drive the Loonie ahead of Friday’s numbers.

OPEC and the IEA’s monthly reports are due out in the week. Projections on demand will be of particular interest as the global economic recovery sputters.

The Loonie ended the week up by 1.41% to C$1.3121 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

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

On Wednesday, consumer confidence figures are in focus ahead of September employment figures on Thursday.

Expect the employment figures to have a material impact on the Aussie Dollar.

At the end of the week, new home sales figures will likely have a muted impact on the Aussie.

On the monetary policy front, RBA Governor Lowe is scheduled to speak on Thursday. Expect the Aussie Dollar to be particularly sensitive to any chatter on monetary policy.

While the stats will influence, economic data from China and U.S politics will be the key drivers.

The Aussie Dollar ended the week up by 1.10% to $0.72400.

For the Kiwi Dollar:

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

Key stats include Electronic card retail sales figures on Tuesday and Business PMI numbers on Friday.

Expect both sets of numbers to influence in the week.

While the stats will influence, economic data from China and updates from Washington will be the key drivers.

From China, trade, industrial production, and inflation figures will influence in the week.

The Kiwi Dollar ended the week up by 0.38% to $0.6666.

For the Japanese Yen:

It is a relatively quiet week on the economic calendar.

Key stats include core machinery orders, finalized industrial production, and tertiary industry activity figures.

We would expect the core machinery order numbers to garner the greatest interest in the week.

The key driver for the Japanese Yen, however, will be chatter from Capitol Hill and the U.S Presidential Election race.

The Japanese Yen ended the week down by 0.31% to ¥105.62 against the U.S Dollar.

Out of China

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

Mid-week, September trade figures will draw plenty of attention. The markets will be eyeing both the import and the export figures.

The focus will then shift to inflation, industrial production, and unemployment figures due out on Thursday.

Fixed asset investment figures are also due out but would likely have a muted impact on the markets.

The Chinese Yuan ended the week up 1.42% to CNY6.6947 against the U.S Dollar.

Geo-Politics

UK Politics:

It’s last chance saloon for Britain and the EU to come up with the needed compromises to deliver a trade agreement.

Expect plenty of chatter as the markets continue to pin hope on a last-minute agreement.

Failure to come up with a deal will sink the Pound, which has very little going for it at present.

The UK economy is in trouble and the government is expected to inflict more pain in the week ahead. A sharp pickup in new COVID-19 cases is going to force the government to reintroduce containment measures this week.

U.S Politics

There’s never a dull moment in U.S politics and the markets have abandoned Trump and his quest for a 2nd term.

Trump and Biden are scheduled to go head-to-head in the 2nd of 3 debates on Thursday.

Following Trump’s hospitalization, however, the debate had been changed to a virtual debate. The U.S President had responded by refusing to take part, which led to the cancellation of this week’s debate. For Trump, the next debate is still on for 22nd October. It may be too late, however… Trump’s latest loss was a court decision to allow the use of drop boxes and mobile sites to collect mail-in ballots in Pennsylvania. As a swing state, the Republicans are eager to overturn the ruling… It would be a blow should Trump also lose the appeal…

With the polls favoring a Biden/Harris clean sweep, the markets have warmed to Biden’s policies.

While a repeal of Trump’s tax bills is expected, Biden is expected to deliver greater fiscal support.

Don’t expect Trump to go down without a fight, however, which should make things interesting…

The Weekly Wrap – Trump and U.S Politics Drove Demand for Riskier Assets

The Stats

It was a quieter week on the economic calendar, in the week ending 9th October.

A total of 43 stats were monitored, following 74 stats from the week prior.

Of the 43 stats, 23 came in ahead of forecasts, with 17 economic indicators came up short of forecasts. 3 stats were in line with forecasts in the week.

Looking at the numbers, 26 of the stats also reflected an upward trend from previous figures. Of the remaining 17 stats, 14 reflected a deterioration from previous.

For the Greenback, it was a 2nd consecutive week in the red, with the Dollar Spot Index falling by 0.84% to 93.057. In the week ending 2nd October, the Dollar Spot Index had fallen by 0.84% to 93.844.

Market risk appetite returned, with the U.S President returning to the Oval Office from the hospital. Stimulus was the key area of focus upon Trump’s return to the White House. Late in the week, Trump stated that stimulus talks with the Democrats had become productive. Nancy Pelosi was also upbeat, stating that she wanted a big deal.

On the U.S political front, there was also hope that a blue wave in the election would remove any contest over the outcome of the election.

Out of the U.S

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

Key stats included September’s ISM Non-Manufacturing PMIs, August JOLT’s job openings, and the weekly jobless claims figures.

A pickup in non-manufacturing sector activity was the only positive on the data front. The PMI increased from 56.9 to 57.8.

Employment figures raised more red flags, however. Job openings came up short of expectations and July levels in August.

The weekly jobless claims figures also suggested a possible stall in the labor market recovery.

In the week ending 2nd October, initial jobless claims came in at 840k, down marginally from 849k from the week prior.

For riskier assets, however, U.S politics and the continued hope of a COVID-19 relief Bill delivered support.

Concerns over a lengthy contest over the outcome of the U.S Presidential Election also eased in the week.

As things stand, the polls suggest a clean sweep for Biden and the Democrats. An orderly transition of power and easing political uncertainty was market positive in spite of Biden’s tax plans.

On the monetary policy front, the FOMC meeting minutes had a muted impact. FED Chair Powell, speaking mid-week, called on Congress to deliver more stimulus else face a slower economic recovery.

The comments had come ahead of Trump’s mid-week announcement to end stimulus negotiations until after the election.

In the equity markets, the NASDAQ rallied by 4.56%, with the Dow and S&P500 gaining 3.27% and 3.84% respectively.

Out of the UK

It was a busy week on the economic data front.

In the 1st half of the week, September PMIs were in focus. Upward revisions to the composite and services PMI and a pickup in construction sector activity were Pound positive.

The markets then had to wait until Friday, for GDP, trade, industrial production, and manufacturing production figures.

In August, Manufacturing production rose by just 0.7%, following a 6.9% jump in July. Economists had forecast a 3% increase.

The economy grew by 8% over the 3-months to August, reversing a 6.8% contraction in the 3-months to July.

There was a marked slowing in growth in August, however, with the economy growing by 2.1%. In July, the economy had grown by 6.4%.

Other stats including industrial production, which disappointed, and a mixed set of trade data that had a muted impact.

While the stats influenced, Brexit remained the key driver in the week. News of progress in talks and a possible willingness by Michel Barnier to compromise supported the Pound.

COVID-19 remained negative for the Pound, however. Expectations are for an announcement of more restrictions and further government support to limit the damage.

In the week, the Pound rose by 0.78% to $1.3036. In the week prior, the Pound had risen by 1.48% to $1.2935.

The FTSE100 ended the week up by 1.94%, following on from a 1.02% gain from the previous week.

Out of the Eurozone

It was another busy week on the economic data front.

In the early part of the week, September’s private sector PMIs for Italy and Spain and Eurozone retail sales figures were in focus.

Finalized PMIs for France, Germany, and the Eurozone also influenced, however.

The PMIs were skewed to the positive, with better than expected numbers from Italy. There were also upward revisions to Germany and the Eurozone’s services and composite PMIs.

Over the remainder of the week, the focus was on Germany. August factory orders, industrial production, and trade data were in focus.

While factory orders impressed, industrial production and trade data disappointed. The impact was muted, however, with the jump in factory orders aligned with Germany’s PMI numbers for September.

On the monetary policy front, the ECB monetary policy meeting minutes provided little influence late in the week.

For the week, the EUR rose by 0.94% to $1.1826. In the week prior, the EUR had risen by 0.73% to $1.1716.

For the European major indexes, it was another bullish week. The CAC40 and EuroStoxx600 rose by 2.53% and by 2.11% respectively, with the DAX30 gaining by 2.85%.

For the Loonie

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

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

The stats were mixed in the week.

While the trade deficit narrowed marginally, the Ivey PMI tumbled from 67.8 to 54.3 in September.

The disappointing PMI number came ahead of the all-important employment figures.

In September, 378.2k jobs were added following 245.8k jobs in August. Economists had forecast a 156.6k increase in employment. The jump in employment brought the unemployment rate down from 10.2% to 9.0%. Economists had forecast a fall in the unemployment rate to 9.7%.

Adding to the upside for the Loonie was a jump in crude oil prices in the week. WTI rallied by 9.58%, with Brent up by 9.12%.

The Loonie rose by 0.87% to end the week at C$1.3121. In the week prior, the Loonie had risen by 0.58%.

Elsewhere

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

In the week ending 9th October, the Aussie Dollar rose by 1.10% to $0.72400. The Kiwi Dollar ended the week up by 0.38% to $0.6666. A bullish end to the week delivered the upside for the pair.

For the Aussie Dollar

It was a relatively quiet week on the economic calendar.

Key stats business confidence and trade data.

It was a mixed bag, with business confidence improving, while the trade surplus narrowed.

While the stats did provide direction, the RBA’s monetary policy decision was the main event of the week.

The RBA stood pat on policy while continuing to assure the markets of further support should the need arise. Some positive views on the recovery in labor market conditions provided the Aussie Dollar with support.

At the end of the week, the RBA Financial Stability Review also painted a relatively robust picture. The positive views on Australia’s financial stability added further support to the Aussie Dollar.

For the Kiwi Dollar

It was a quiet week on the economic calendar.

Key stats included business confidence figures for October.

The ANZ Business Confidence Index rose from -28.5 to -14.5 according to prelim figures.

Another widespread improvement in forward-looking indicators supported the improvement in confidence.

For the Japanese Yen

It was a relatively quiet week on the economic calendar.

September’s finalized services PMI and August household spending figures were in focus.

While there was an upward revision to the services PMI, the sector continued to contract at a marked pace.

Household spending also failed to impress. While spending up by just 1.7% in August, spending was down by 6.9% year-on-year.

The figures continued to reflect a weak economic recovery.

The Japanese Yen fell by 0.31% to ¥105.62 against the U.S Dollar. In the week prior, the Yen had risen by 0.27%.

Out of China

It was a quiet week on the economic data front, with China on Holiday for 4 of the 5 days.

Key stats included September’s private sector PMIs, which were positive for market risk sentiment.

September’s Caixin Service PMI at the end of the week was the only major start for the markets to consider.

An increase from 54.0 to 54.8 continued to support the positive sentiment towards the economic recovery.

The upside came from domestic demand, as overseas orders continued to decline.

In the week ending 9th October, the Chinese Yuan rose by 1.42% to CNY6.6947. In the week prior, the Yuan had risen by 0.48%.

The CSI300 rose by 2.04%, with the Hang Seng gaining 2.81%.

The Week Ahead – U.S Politics, Trump, Brexit, and Economic Data in Focus

On the Macro

It’s a busy week ahead on the economic calendar, with 53 stats in focus in the week ending 9th October. In the week prior, 74 stats had been in focus.

For the Dollar:

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

On Monday, the market’s preferred ISM Non-Manufacturing PMI for September is due out. With some market jitters over the economic outlook, expect some sensitivity to the numbers.

The focus will then shift to JOLT’s job openings on Tuesday and the weekly jobless claims on Thursday.

On the monetary policy front, the FOMC meeting minutes due out on Wednesday will draw interest, as will FED Chair Powell. Powell is scheduled to speak on Tuesday.

After last week’s 1st presidential debate, however, it could be election fever that begins to grip the markets. The markets will also be monitoring Trump’s health in the week. Any deterioration and expect risk aversion to hit the markets.

The Dollar Spot Index ended the week down by 0.84% to 93.844.

For the EUR:

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

On Monday, September service sector PMIs for Italy and Spain are due out along with retail sales figures for the Eurozone.

Finalized composite and services PMIs are also due out from France, Germany, and the Eurozone.

Expect EUR sensitivity to the PMIs and retail sales figures.

On Tuesday, the focus then shifts to German factory orders, due out ahead of German industrial production and trade data.

Expect Tuesday’s factory orders and Wednesday’s industrial production figures to have the greatest impact.

On the monetary policy front, ECB President Lagarde is scheduled to speak in the week. On Thursday, the ECB monetary policy meeting minutes will also garner plenty of interest.

The EUR/USD ended the week up by 0.73% to $1.1716.

For the Pound:

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

At the start of the week, September’s finalized services and composite PMI are in focus. With the BoE talking of negative rates, expect Pound sensitivity to any revisions.

On Tuesday, retail sales figures are in focus ahead of a busy end to the week.

GDP, industrial and manufacturing production and trade data are due out on Friday.

Expect the GDP and manufacturing PMI figures to have the greatest impact on the day.

Away from the economic calendar, Brexit news and COVID-19 updates will also influence and could overshadow the numbers.

Updates from the weekend of high-level talks will set the tone.

The GBP/USD ended the week up by 1.48% to $1.2935.

For the Loonie:

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

In the early part of the week, August trade data and September’s Ivey PMI will draw interest.

Expect Tuesday’s trade data to have the greatest impact.

The focus will then shift to September employment numbers due out on Friday.

Away from the economic calendar, crude oil prices will also influence. There are some concerns over the sustainability of the economic recovery amidst fresh COVID-19 spikes.

The Loonie ended the week up by 0.58% to C$1.3308 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

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

On Tuesday, business confidence figures are in focus ahead of August trade data on Tuesday.

The main event of the week, however, will be the RBA’s interest rate decision on Tuesday.

Economic data has been largely positive since the last meeting, which should leave the RBA promising support if needed.

The Aussie Dollar ended the week up by 1.85% to $0.7161.

For the Kiwi Dollar:

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

Key stats include 3rd quarter business confidence figures on Tuesday and Business PMI numbers on Friday.

Expect both sets of numbers to influence in the week.

While the stats will influence, market risk sentiment and updates from Washington will be the key driver.

The Kiwi Dollar ended the week up by 1.45% to $0.6641.

For the Japanese Yen:

It is another busy week than usual on the economic calendar.

Key stats include finalized service sector PMI numbers, GDP figures, and household spending data.

Expect the GDP and household spending figures to have the greatest influence in the week.

Of greater influence in the week, however, will be the vice-president’s debate and updates from Washington. While progress towards a COVID-19 relief Bill would be Yen negative, Trump’s health will need to improve, else expect the Yen to find support.

The Japanese Yen ended the week up by 0.27% to ¥105.29 against the U.S Dollar.

Out of China

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

Service sector PMI numbers for September are due out at the end of the week.

In a shortened week, expect plenty of influence from the numbers. As things stand, economic indicators have pointed to a robust economic recovery from the COVID-19 lockdown. Any disappointing numbers will test market risk appetite.

Away from the economic calendar, chatter from the U.S will also draw interest in the week.

The Chinese Yuan ended the week up 0.48% to CNY6.7910 against the U.S Dollar.

Geo-Politics

UK Politics:

From the weekend, high-level talks between Boris Johnson and Ursula von der Leyen should support the Pound. The British PM and EU Commission President agreed on the importance of a trade agreement. During Saturday’s talks, it was also agreed to extend Brexit negotiations for another month.

With some progress having been made last week, Michel Barnier will travel to London this week. The following week, David Frost is then scheduled to travel to Brussels.

Ahead of talks this week, Barnier will reportedly visit Angela Merkel on Monday.

While the news is positive for the Pound it could be a choppy week, with updates from Germany and London to provide direction.

U.S Politics

While Election fever is picking up, the markets will now be looking for updates on the U.S President’s health.

On the campaign trail, the VPs go head to head this week. For Biden and the Democrats, Harris’s performance is particularly important. Now that Trump has been infected with COVID-19, however, Pence will also be in the spotlight.

Away from the campaign trail, there is also the COVID-19 relief Bill that will influence risk sentiment. There was no reported progress over the weekend, with Pelosi stating that the two sides continued to disagree on key areas.