Forex Weekly Outlook – Oct. 30 – Nov. 3 2017

The US dollar had an excellent week, mostly thanks to speculation about the next Chair of the Fed. What’s next? The upcoming week opens a new month and packs both a Fed decision and the Non-Farm Payrolls.   Here are the highlights for the upcoming week.

According to reports, Yellen is out as Fed Chair. Being the most dovish candidate in the shortlist and given the growing chances of Taylor to inherit her, the dollar rallied. However, Powell, also has a chance at getting the top job, and he is somewhat more dovish than Taylor.  US data was quite positive as well. The landslide victory of Abe in Japan sent the yen lower. The Catalan crisis continued worsening and continued weighing on the euro but the bigger blow came from the ECB: they tapered but left the door open for bond-buying beyond September 2018. Brexit talks are going nowhere fast and the pound also suffered from hesitation regarding the rate hike. but enjoyed an upbeat GDP figure. The Canadian dollar fell on a dovish BOC while the Aussie struggled due to low inflation.

1.  US Core PCE: Monday, 12:30. The core PCE Price Index is the Fed’s favorite inflation measure. The publication of this measure lags the Core CPI, but tends to track it quite closely. The measure dropped to 1.3% in August and will likely remain unchanged in September, given the Core CPI did not change. A monthly rise of 0.1% is on the cards.
2. Japanese rate decision: Tuesday morning. The Bank of Japan has failed to lift inflation despite a massive QE program and a negative interest rate. The current policy is to hold 10-year bond yields at 0%, thus buying bonds whenever needed. After the Japanese elections, the BOJ may reconsider its policy measures, but most BOJ meetings do not yield a change.
3. Euro-zone inflation data: Tuesday, 10:00. The European Central Bank already had its say, but the decision in December will certainly be impacted by inflation. Headline inflation was OK in October, at 1.5%. However, core CPI slipped back down to 1.1%. Will it pick up now? A full repeat is predicted now: 1.5% in the headline CPI and 1.1% in core CPI.
4. Canadian  GDP: Tuesday, 12:30. The Canadian economy had a great start to the year but is showing some signs of a slowdown of late. Canada is unique in publishing GDP figures every month. In July, the economy stalled. It is likely to return to growth in this publication for August. A growth rate of 0.1% m/m is predicted.
5. US CB Consumer Confidence: Tuesday, 14:00. The Conference Board’s measure of consumer confidence has been relatively stable on high ground, around 120 points. It stood at 119.8 points in September. The score for October is higher: 121.1 points.
6. New Zealand jobs report: Tuesday, 21:45. New Zealand publishes its jobs report only once per quarter, making every publication a big splash. Back in Q2, the authorities reported a disappointing drop of 0.2% in the level of employment, but the unemployment rate remained low, at 4.8%. An improvement is likely now. The level of employment is predicted to jump by 0.8% and the unemployment rate is estimted to tick down to 4.7%.
7. US  ADP Non-Farm Payrolls: Wednesday, 12:15. The report for the private sector by ADP is published two days before the official Non-Farm Payrolls report but has not been a good predictor of the NFP in recent months. In September, it showed a gain of 135K jobs, lower than in previous months, but that was due to the effect of the hurricanes. A gain of 191K jobs is on the cards.
8. US  ISM Manufacturing PMI: Wednesday, 14:00. The manufacturing sector is on fire according to ISM. The score stood at 60.8 points, reflecting robust growth in this small, yet important sector. The employment component serves as an indicator towards the NFP. A small slide to 59.4 is expected in the headline number.
9. US Fed decision: Wednesday, 18:00. This is a meeting that does not consist of a press conference nor new forecasts and thus is not expected to yield a change in policy. The focus is on the December meeting when the Fed is likely to deliver its third and last rate hike for the year. So far, Yellen and her colleagues are not deterred by lower inflation and intend to proceed as usual. This November meeting provides them with an opportunity to give a hint if they may change their minds. Any expressions of concern about inflation could send the dollar lower, while confidence could send it higher.
10. UK rate decision: Thursday, 12:00. The Bank of England will probably raise the interest rate from 0.25% to 0.50%, reversing the post-Brexit hike of August 2016. In the previous meeting and in consequent speeches, the Bank of England gave heavy hints that they are going to raise the rates due to higher inflation (reached 3% y/y) and also on worries about rapidly expanding credit. However, one member cast doubt about the timing of the hike while Governor    Carney seemed unenthusiastic about further hikes. In case the BOE surprises with a no-change, the pound will crash, but the chances are low. In case they hike but hint it is only a one-off, the pound will likely wobble but no go anywhere fast. In case it is the beginning of a tightening cycle, the pound will leap. This is a “Super Thursday” meeting, that also consists of the Quarterly Inflation Report in addition to the rate decision and the meeting minutes. The QIR consists of inflation forecasts that could provide some prospects about the next moves while the meeting minutes could show if there were dissenters against the decision. The event will surely trigger high volatility.
11. US Non-Farm Payrolls: Friday, 12:30. The “king of forex indicators” will likely show a rebound in jobs after the extraordinary report for September. The impact of the hurricanes resulted in a loss of 33K jobs, the first drop since 2010. On the other hand, wages were up 0.5%, a big jump. The report for October will already be more “normal” with a gain in jobs to compensate for the loss. Wages may be more mysterious. If the report shows that the gain in salaries is persistent, it will certainly strengthen the case for a rate hike, given that higher paychecks impact core inflation.   The unemployment rate stood at 4.2% in September and could tick up from here. Jobs are expected to jump by 311K in October and the unemployment rate to remain at 4.2%. Average hourly earnings carry expectations for a rise of 0.2%.
12. Canadian jobs report: Friday, 12:30. Canada gained 10K jobs in September, slightly below expectations, but the unemployment rate dropped to 6.2%. All in all, the Canadian economy had an excellent first half, with more moderate growth later on. A gain of 13.6K jobs is on the cards and the unemployment rate is projected to remain unchanged at 6.2%.
13. US ISM Non-Manufacturing PMI: Friday, 14:00. This forward-looking indicator for the services sector has been looking quite good, rising to 59.8 points in November. This time, it will have a more modest impact, as it is overshadowed by the Non-Farm Payrolls published just 90 minutes earlier. A lower score of 58.3 is expected.

*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 – outlook for dollar/yen
• AUD/USD forecast – projections for the Aussie dollar.
• USD/CAD forecast – Canadian dollar predictions

Safe trading!