Forex Weekly Outlook October 5-9

The US dollar retreated on poor data. It’s down but not out.  US ISM Non-Manufacturing PMI, Trade Balance, Mario Draghi’s speech, rate decision in Japan, Australia and the UK and the important FOMC Meeting Minutes are the main events on Forex calendar. Here is an outlook on the market movers for this week.

The  U.S. Non-Farm Payrolls report  for September was a big disappointment, showing a lukewarm job gain of 142,000 positions, far below the 201,000 reading forecast by analysts. Meanwhile, the unemployment rate remained unchanged at 5.1% due to a further deterioration in the labor force participation rate, plunging to 62.4%, the worse rate since October 1977. Furthermore, wages remained flat, indicating subdued inflationary pressures. The negative report cools expectations for a near-term rate hike. Will this downturn trend continue?  Let’s start,

1. US ISM Non-Manufacturing PMI: Monday, 14:00. The U.S. service sector expanded more than expected in August, showing a solid growth rate, but was weaker than July’s reading.  Non-manufacturing purchasing managers index declined to 59 in August from 60.3 in the prior month. July’s reading was the highest since 2008. The upbeat release indicates solid growth in the US domestic economy. The non-manufacturing purchasing managers index is expected to decline further to 58.0 this time.
2. Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia kept the cash rate at 2% for the fourth month in a row, after a quarter of a percentage point cut performed in May. Market volatility in China and fears its negative economic effects were the main reason for maintaining rates unchanged. Most analysts expected the RBA to maintain its monetary policy until the end of the year. However, some economists said  the RBA  could cut the cash rate for the third time this year in November.
3. US Trade Balance: Tuesday, 12:30. The U.S. trade deficit contracted in July to $41.9 billion, its lowest level in five months, indicating the US economy continues to strengthen, despite a global growth slowdown. Economists expected the trade gap to reach $43.2 billion. Exports increased 0.4% to $188.5 billion, the first increase since April. Imports of consumer goods declined in July. U.S. trade deficit is expected to reach $42.2 billion.
4. Mario Draghi speaks: Tuesday, 17:00. ECB President Mario Draghi is scheduled to speak in Frankfurt. He may talk about the recent ECB downgrade of the Eurozone’s economic outlook as well as the continuous deterioration in inflation levels. Clues about further QE measures may be enclosed. Market volatility is expected.  He sounded calm last time. Will he become more bearish?
5. Japan rate decision: Wednesday. The Bank of Japan maintained its monetary policy in September, admitting Japan’s economic growth was held back by the slowdown in emerging economies, but the BOJ believes advanced economies continue to grow at a moderate pace despite the slowdown of emerging economies. Therefore, the general growth trend remains positive. The BOJ will also expand the monetary base at about $667 billion a year to boost inflation. There is talk of action in October, but perhaps in the next meeting.
6. UK rate decision: Thursday, 11:00. The Bank of England voted to keep interest rates on hold in its September meeting. The Central Bank also lowered its estimate for the UK’s economic growth in the third quarter from 0.7% to 0.6%. Policy makers also claimed that the slowdown in Chinese economy and in emerging economies could badly affect UK’s economic growth. However, despite this, the MPC remained optimistic about the UK economy. A bank is expected to raise rates gradually starting from the first half of 2016.
7. US Unemployment Claims: Thursday, 12:30. U.S. jobless claims increased by 10,000 to 277,000 last week, but remained near 15-year lows. Economists expected the number of claims to reach 273,000. The four-week moving average  declined  1,000 to 270,750. The total number of people receiving jobless benefits is 2.19 million. The labor market continues to strengthen hand in hand with economic growth. Analysts expect the number of jobless claims to reach 274,000 this week.
8. US FOMC Meeting Minutes: Thursday, 18:00. Yellen and her colleagues refrained from hiking in September, and now we’ll get a better look about their thoughts, especially the expectations towards the December decision.
9. Canadian employment data: Friday, 12:30. Canada labor market added an unexpected 12,000 jobs in August, while expected to contract by 4,800. However, the unemployment rate rose to a one-year high of 7% as the participation rate edged up to 65.9% from 65.7%. Overall, the rise in full-time work showed a positive improvement in the Canadian job market, which can offset the rise in the unemployment rate.
10. Stephen Poloz speaks: Saturday, 18:45. BOC Governor Stephen Poloz is due to speak at the Institute of International Finance, in Lima. In a recent speech, Polozs said he believes Canada will bounce back from oil plunge despite current hardships. Companies may scale back investment and production amid lower prices, but this will boost demand, which eventually will lead to a price increase.

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