FX Markets Look to Busier Calendar after US Holiday Week
– The economic calendar is saturated once again that the holiday is over; although it is the first Friday of the month, December 1 will not see the release of the November US Nonfarm Payrolls report.
– Inflation data from Canada, Germany, Japan, the Euro-Zone, and the United States will be the most important set of factors guiding FX markets in the coming days.
– Retail trader positioning points to a decidedly mixed trading environment for the US Dollar.
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11/29 Wednesday | 13:30 GMT | USD Gross Domestic Product (3Q S)
Annualized US GDP in Q3’17 is expected to be revised higher from the initialgrowth rate of +3.0% to +3.2%, according to a Bloomberg News survey. The data is particularly optimistic given that there was a spat of hurricanes that dealt significant damage to the southeastern United States during August and September. Overall, there still seems to be a divide between ‘soft’ and ‘hard’ economic data, with confidence readings remaining near multi-decade highs without a commensurate gain in actual economic activity. Looking ahead, the Atlanta Fed GDPNow forecast sees Q4’17 US GDP growth at +3.4%. Evidence of faster growth could instill confidence in the Fed’s projected tightening path, which would help the US Dollar.
Pairs to Watch: DXY Index, EUR/USD, USD/JPY, Gold
11/30 Thursday | 01:00 GMT | CNY Manufacturing PMI (NOV)
The Caixin Chinese Manufacturing PMI held in October at 51.0, its fifth straight month of expansion, driven by a strong outturn in output and new orders. The Manufacturing Purchasing Managers Index is based on five individual indexes with the following weights: New Orders (30%), Output (25%), Employment (20%), Suppliers’ Delivery Times (15%) and Stock of Items Purchased (10%). Expectations are for a small drop in the official PMI reading from 51.6 to 51.5.
Pairs to Watch: AUD/JPY, USD/CNH
11/30 Thursday | 10:00 GMT | EUR Euro-Zone Consumer Price Index (NOV)
Inflation remains below the ECB’s medium-term target of +2% in the Euro-Zone, despite near-term advances on the headline CPI figures. European Central Bank President Mario Draghi, at the October ECB policy meeting, noted that an “ample degree of stimulus is still needed,” pointing to “domestic price pressures [remaining] muted” and that “core inflation has yet to show convincing upward trend” to justify the ECB’s patience on rates. Incoming inflation figures point to price pressures increasing from +1.4% to +1.6% in November, in what should be a good enough reading to keep the current Euro rally on track as the calendar turns into December.
Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD
11/30 Thursday | 23:30 GMT | JPY National Consumer Price Index (OCT)
Inflation in Japan steadied for most of 2017, after spending the end of last year near deflation territory. Yet incoming data does not look encouraging. The National Consumer Price Index is expected to show a drop from +0.7% to +0.2% (y/y). Needless to say, such soft inflation falls well short of the Bank of Japan’s +2% medium-term target. As we’ve heard from the BOJ time and again, the central bank has said that loose monetary policy would remain in place for the foreseeable future, and in recent months they’ve underscored this notion by pushing back the expected timeline for when the Japanese economy would achieve +2% inflation. Further disinflation, or outright deflation, will raise calls for more easing from Japan in 2018.
Pairs to Watch: AUD/JPY, EUR/JPY, USD/JPY, Gold
12/01 Friday | 13:30 GMT | CAD Gross Domestic Product (3Q)
The first look at Canadian Q3’17 GDP growth is expected to show significant divergence relative to the September reading. Annualized Q3’17 GDP is due in at +1.7% from +4.5%, while the year-over-year print through September is due to show growth at +3.3% from +3.5%. Truly, these readings highlight how the base effect in statistics can skew data readings. Ultimately, these are the types of data that would suggest that the Bank of Canada won’t be thinking about raising rates in the next few months; at the first policy meeting of the year in January 2018, rates markets are pricing in less than a 35% chance of a rate move.
Pairs to Watch: CAD/JPY, USD/CAD
Read more: Euro Has Chance to Build on Gains as Liquidity Returns; CPI on Thursday
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at [email protected].
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