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The Week Ahead – Brexit, the BoE and the FED are in Focus

Bob Mason

On the Macro

For the Dollar:

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

September’s NY Empire State Manufacturing Index and August industrial production figures are due out on Monday and Tuesday.

Having disappointed of late, European and U.S private sector PMI figures suggested some upside to support the Dollar.

August building permit and housing start figures on Wednesday will also garner some interest. Strong labor market conditions, consumer confidence, and 3-year low mortgage rates have continued to provide support to the sector. The numbers would need to be quite dire to raise any red flags.

On Thursday, September’s Philly FED Manufacturing Index will also influence

We would expect the weekly jobless claims figures and existing home sales on Thursday to have a muted impact on the Dollar.

The main event of the week for the Greenback, however, is the FED interest rate decision on Wednesday.

A 25 basis point rate cut is priced in. It will boil down to the economic projections and the press conference…

The Dollar Spot Index ended the week down 0.14% to $98.257.

For the EUR:

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

Economic sentiment figures out of Germany and the Eurozone on Tuesday will influence. Forecasts are EUR positive, with sentiment towards Brexit and trade likely to provide support.

The market focus will then shift to finalized August inflation figures for the Eurozone.  The numbers are unlikely to have a material impact on the EUR, however, barring a deviation from prelims.

At the end of the week, Eurozone consumer confidence figures will influence, however. With the manufacturing sector in the doldrums, consumer consumption remains a key contributor to the economy.

Finalized Italian inflation figures on Monday and wholesale inflation figures out of Germany on Friday will likely have a muted impact on the EUR.

Outside of the stats, economic data out of China will influence market risk sentiment and the EUR, as will Brexit chatter.

The EUR/USD ended the week up by 0.40% to $1.1073.

For the Pound:

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

August inflation figures due out on Wednesday will influence the Pound ahead of the BoE’s monetary policy decision on Thursday.

Ahead of the Thursday MPC vote, August retail sales are also due out on Thursday and will likely influence messaging from the BoE.

The UK economy may have avoided a contraction in the 2nd quarter, but economic data through the 3rd quarter has been negative. Retail sales will need to hold up to support the Pound.

For the Pound, the BoE is expected to leave rates unchanged. Key will be the vote split, with any dissenters likely to weigh on the Pound.

Ultimately, the BoE has been holding out for Brexit. If there is an extension to January next year, it may be too long for the BoE to wait…

While the BoE will have a material influence, Brexit and British politics will likely continue to be the key driver.

The GBP/USD ended the week up by 1.77% to $1.2501.

For the Loonie:

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

July manufacturing sales figures on Tuesday, August inflation figures on Wednesday and July retail sales on Friday will influence.

With the Canadian economy performing well, a pickup in inflationary pressures and rise in retail sales would support the BoC’s latest outlook on policy, which remains Loonie positive.

From elsewhere, industrial production figures out of China on Monday will also be of influence at the start of the week.

The Loonie ended the week down by 0.87% to C$1.3288 against the U.S Dollar.

Out of Asia

For the Aussie Dollar:

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

2nd quarter house price figures on Tuesday and August employment figures on Thursday will provide direction.

We can expect the Aussie Dollar to be particularly sensitive to the employment figures…

On the monetary policy front, the RBA minutes due out on Tuesday will also get some attention. The RBA is holding steady following 2 consecutive rate cuts in the summer.

Following last week’s moves by both the U.S and China on trade, hopes of an end to the trade war would likely dilute the influence of any dovish chatter.

From elsewhere, industrial production figures out of China on Monday will also provide direction.

The Aussie Dollar ended the week up by 0.48% to $0.6879.

For the Japanese Yen:

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

August trade figures due out on Wednesday and inflation figures on Friday will provide direction.

It will ultimately boil down to market risk sentiment as the FED delivers its economic projections. Geopolitics will also be in focus. There’s Brexit to consider and the imminent U.S – China trade talks…

The Japanese Yen ended the week down 1.09% to ¥108.09 against the U.S Dollar.

For the Kiwi Dollar:

It’s another quiet week ahead. Economic data is limited to 3rd quarter consumer sentiment figures on Tuesday and 2nd quarter GDP numbers on Thursday.

We can expect plenty of Kiwi Dollar sensitivity to the numbers. 2nd quarter current account figures due out on Wednesday will likely be brushed aside.

The Kiwi Dollar ended the week down by 0.42% to $0.6377.

Out of China:

It’s a relatively quiet week ahead on the economic data front. Key stats are limited to August’s fixed-asset investment, industrial production, and unemployment figures due out on Monday.

While we expect market reaction to the numbers, hopes of a resolution to the extended trade war would likely limit any downside reaction.

The market focus will continue to be on the U.S – China trade war. With October rapidly approaching, the rhetoric will need to remain positive to support risk appetite.

The Yuan ended the week up by 0.53% to CNY7.0787 against the Greenback.

Geo-Politics 

Trade Wars:  We saw a material shift in trade war rhetoric last week. Positive comments in the week ahead would provide further support to risk appetite ahead of the FED policy decision on Wednesday. While both the U.S and China have taken a softer stance, China will be looking for a resolution to Huawei and removal of tariffs…

UK Politics: Boris Johnson is meeting with Juncker and Barnier on Monday. Expect plenty of chatter on Brexit from the start of the week. Hopes are of a new deal that would find the support of Parliament. The markets will learn just how likely a new deal is following Monday’s meeting.

The Rest

The BoE:  The BoE will likely leave rates unchanged on Thursday. With the UK economy stalling in the 2nd quarter and stats in the 3rd doing little to inspire, will there be any dissent to sink the Pound?

The FED: The FOMC is expected to cut rates by 25 basis points. Assuming that there are no surprises, the FOMC economic projections and rate statement will have the greater influence. FED Chair Powell’s press conference shortly after will also need monitoring on Wednesday. A hawkish rate cut could ultimately drive demand for the Greenback on the day.

This article was originally posted on FX Empire

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