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FX Markets Look to Pockets of Event Risk During US Holiday Week

November 20
19:08 2017
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Talking Points:

– There are two ‘high’ importance releases for the US Dollar this week, despite the fact that all US markets will be closed on Thursday and Friday is a half-day.

– Elsewhere, there are no ‘high’ importance data releases from the Asian-Pacific currencies in the coming days, while there are two ‘high’ importance release out of Europe.

Retail trader positioning suggests a less favorable environment for the US Dollar, particularly against the European currencies.

Join me on Mondays at 7:30 EST/12:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

FX markets are starting to quiet down already as traders prepare for the mid-week liquidity drain around the US Thanksgiving holiday. The US Dollar, which has struggled in November, may just find some reprieve: traders prefer to square their books before stepping away for an extended period of time. Illiquid trading conditions will be present for tail end of the week, but before then, there are a handful of data releases worth paying attention to.

11/22 Wednesday | 12:30 GMT | GBP Chancellor of the Exchequer Delivers Budget to Parliament

UK Chancellor of the Exchequer Phillip Hammond will deliver the Budget on Wednesday, formerly known as the “Autumn Statement.” Dodged by Tory party infighting and speculation that his ‘pro-Remain’ stance has impacted his effectiveness as a leader, Chancellor Hammond will use this opportunity to assert the May government’s vision of the UK economy as it grapples with the realities of the impending economic fallout from Brexit. Last year, the Autumn Statement proved to be an unexpected source of optimism that provoked a British Pound rally.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

11/22 Wednesday | 13:30 GMT | USD Durable Goods Orders (OCT P)

Durable Goods Orders are an important barometer for US consumption, which constitutes roughly 70% of GDP. Typically, consumers hold off on buying durable goods during poor economy conditions; thus, improved orders suggest confidence among American consumers with respect to their future financial security. The preliminary October print is expected to show an increase of +0.3% over the prior month after the +2.0% increase in September. The data won’t likely help US growth expectations for Q4’17, which have recently increased (per the Atlanta Fed GDPNow forecast) to +3.4% annualized.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

11/22 Wednesday | 19:00 GMT | USD November FOMC Meeting Minutes

The Federal Reserve’s October 31 to November 1 policy meeting was a placeholder for the US Dollar: policymakers were staying the course for a rate hike in December. The FOMC’s decision to signal to markets that it intended on fulfilling its preset course for interest rates – as laid out initially in the December 2016 summary of economic projections (SEP) – by raising rates a total of three times in 2017 and another three times in 2018 reaffirmed what market participants already knew: there was a 100% chance of a 25-bps rate hike next month, according to Fed funds futures contracts. If anything, the minutes may contain some asymmetric risk for the US Dollar as any extended conversation about inflation will probably be USD-negative.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

11/23 Thursday | 09:30 GMT | GBP Gross Domestic Product (3Q P)

The second look at Q3’17 UK GDP is expected to show the UK economy grew by +1.5% annualized, the same rate reported at the initial release. The middling headline figure may be evident of the overhanging uncertainty the Brexit negotiations have wrought. A combination of stunted wage growth and rising inflation has crimped consumer expenditure, the prime growth driver in the UK. In effect, there is a state of mini-stagflation going on right now: save the labor market (which is doing quite well, thus the UK is not in a state of ‘true’ stagflation), inflation continues to run above +3% and headline GDP is below +2%.

The initial UK GDP reading is published around 25 days after the end of the quarter and is based on 44% of actual data. The second estimate (due Wednesday) is released around seven and a half weeks after the end of the quarter and is based on around 80% of actual data. The third estimate is released 90 days after the quarter’s end and is based on around 91% of actual data.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

Read more: Euro Looks to Hold onto Gains During US Holiday Week

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at [email protected].

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