Forex Weekly Outlook Oct. 29 – Nov. 2 – NFP buildup, political warm up, and more

The US dollar gained against its major peers as stocks tumbled. The upcoming week features a quick buildup to the NFP, the BOE’s Super Thursday, and additional events. Here the highlights for the next week.

Stock markets suffered once again and this supported the US Dollar and the Japanese yen. Data were mixed with durable goods orders beating on the headline but missing on the core figure. The ECB left its policy unchanged and Draghi did not rock the boat. Brexit negotiations saw no progress but internal fights within the British government weighed on the pound. The BOC raised rates and sounded quite optimistic, boosting the Canadian dollar. The US Mid-Term elections on November 6th are getting closer and the polls continue showing Democrats winning the House while Republicans retain the Senate. The bombs sent to former Presidents Clinton and Obama, as well as CNN, George Soros, and other Trump critics grabbed the headlines. The impact on the elections is unclear but polling data will likely impact markets as the vote draws near.

1. Core PCE Price Index: Monday, 12:30. This indicator is the Fed’s preferred measure of inflation and it differs from the CPI in methodology. After Core CPI disappointed and remained unchanged in the read for September, the Core PCE is also projected to remain unchanged at 2% y/y, bang on the Fed’s inflation goal. Month over month, the figure remained flat and is now projected to rise by 0.1%.
2. Euro-zone GDP: Tuesday, 10:00. The initial read of GDP tends to have the most significant impact, even though it does not include data from Germany. Back in Q2, the first read showed a growth rate of 0.3% but this was later upgraded to 0.4% and the 19-country economic bloc grew by 2.1% y/y. Similar growth rates, which are OK but not exciting, are likely now. +0.4% is on the cards once again.
3. CB Consumer Confidence: Tuesday, 14:00. The Conference Board’s gauge of consumer sentiment broke yet another record in September, hitting 138.4 points, the best in 18 years. Will it continue rising? The parallel University of Michigan gauge has not been that robust. Consumer confidence is correlated to retail sales. A small drop to 136.3 is expected.
4. Australian  CPI: Wednesday, 00:30. The land down under publishes its official inflation figures only once per quarter, making the impact greater than in other numbers. The Consumer Price Index rose by 0.4% q/q in Q2 while the Trimmed Mean CPI (known as core inflation in other countries) advanced by 0.5%. We may get higher. Headline CPI carries expectations for a rise of 0.5% while the Trimmed Mean is forecast to advance by 0.4% q/q. Annual levels of inflation stood at 2.2% while Core CPI was at 1.9% in Q2.
5. BOJ rate decision: Wednesday, early in the morning. The Bank of Japan is the most dovish central bank in the developed world. The Tokyo-based institution will likely leave the interest rate at 0.1% and also continue with its pledge to keep 10-year yields at low levels. Prime Minister Shinzo Abe said that loose monetary policy will not last forever but the BOJ is unlikely to budge as inflation remains low. Governor Haruhiko Kuroda will meet the press after the decision and will provide more information.
6. Euro-zone inflation: Wednesday, 10:00. Headline consumer price index is around the ECB’s target, standing at 2.1% y/y in September. However, underlying price pressures remain weak. Core CPI rose by only 0.9% y/y. It will need to accelerate in order to convince the ECB that inflation is genuinely sustained at around 2% and that the increase is not only related to the annual increase in oil prices. Headline CPI is expected to rise by 2.1% y/y once again and Core CPI carries expectations for an increase of 1%, a tad higher than last month.
7. ADP Non-Farm Payrolls: Wednesday, 12:15. The ADP report for the US private sector employment beat expectations in September with an increase of 230K positions. However, the correlation between this publication and the official BLS Non-Farm Payrolls report was non-existent. The report moves markets regardless of the correlation and shapes NFP expectations. A more moderate increase is likely now: 190K.
8. Canadian GDP: Wednesday, 12:30. Canada publishes GDP on a monthly basis, providing up to date data on the economy. The Canadian economy grew by 0.2% in July, the first month of Q3. The report for August could be similar. Uncertainty about NAFTA prevailed during the summer and may have caused a slowdown. The effects of the new trade deal, called the USMCA, will be seen only in Q4.
9. BOE decision: Thursday, 12:00, press conference at 12:30. This is a more important rate decision by the Bank of England and it has been dubbed “Super Thursday.” The Bank not only publishes its rate decision and the meeting minutes from the event but also makes public its Quarterly Inflation Report (QIR) with an accompanying press conference by Governor Mark Carney and some of his colleagues. The BOE is set to leave its policy unchanged: the interest rate at 0.75% (raised to this level in August) and the QE program at 435 billion pounds. The Monetary Policy Committee (MPC) voted unanimously to maintain this policy in the previous meeting and the same voting pattern will probably be repeated. Any change in this will likely trigger an immediate reaction. The QIR includes new inflation and growth projections, known as “fan charts.” Given the uncertainty surrounding Brexit negotiations, forecasts could go anywhere. Recent data was mixed with inflation slowing down to 2.4% while wages advanced to 2.7% y/y. Retail sales fell short of expectations. Governor Carney will likely be asked many questions about Brexit but he will probably dodge political ones. The BOE plans to raise interest rates very gradually, with a maximum of two hikes in 2019 now on the cards, one being more likely. A hard Brexit could result in a rate cut, but the BOE’s base case scenario is for a smooth transition.
10. ISM Manufacturing PMI: Thursday, 14:00. The manufacturing sector continues enjoying robust growth according to this forward-looking survey. The score of 59.8 points beat expectations back in September. The topline number serves as a last-moment hint for the Fed while the Prices component is a  measure of inflation expectations eyed by the Fed. The component dropped to 66.9 points in September, off the highs but still at a substantial clip. We will now get fresh figures for October. A small rise slide to 59 points is projected for October.
11. US Non-Farm Payrolls: Friday, 12:30. The all-important US jobs report is no longer dominated by wage data. Salaries have been stable of late while the headline change in jobs has been volatile. Both figures will compete for attention. In September, the US gained 134K jobs, worse than had been expected but with upwards revisions. Wages advanced by 0.3% m/m and 2.8% y/y back then. The unemployment rate fell to 3.7%, the lowest since 1969, but this was accompanied by a weak participation rate of 62.7%. The data for October will help shape the Fed’s policy. Current expectations stand a rise of 191K jobs while wages are projected to advance at a slower monthly pace of 0.2%. The unemployment rate is forecast to tick up to 3.8%.
12. Canadian jobs report: Friday, 12:30. Canada’s jobs reports have been volatile of late. The Canadian economy gained no less than 63.3K positions in September, but it was accompanied by slower wage growth. The unemployment rate dropped back below 6% to 5.9%. Apart from the headline numbers, it is important to watch the composition of the changes: part-time vs. full-time positions.

*All times are GMT

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Further reading:

• EUR/USD forecast – for everything related to the euro.
• GBP/USD forecast – Pound/dollar analysis
• USD/JPY forecast – the outlook for dollar/yen
• AUD/USD forecast – projections for the Aussie dollar.
• USD/CADc forecast – Canadian dollar predictions

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