Forex Weekly Outlook – Sep. 18-22 2017

The US dollar staged an impressive recovery, based on better data, political calm and more. Is this a correction or a total change of trend? The highly anticipated Fed decision is easily the most important event. Here are the highlights for the upcoming week.

Florida escaped most of the storm, and that was only one source of relief for the US dollar. Bipartisan agreements in Washington, mostly positive data and some short covering also supported the recovery of the US dollar. The euro and the yen were the big losers and commodity currencies retreated as well. The pound stood out with gains that were fuelled by higher inflation and hawkish signs from the BOE.

1. US housing data: Tuesday, 12:30. There is a significant correlation between the housing sector and the wider economy. Building permits stabilized at 1.23 million (annualized) in July. A small slide to 1.22 million is predicted. Housing starts were somewhat lower, at 1.16 million and are now projected to rise to 1.18 million.
2. US Existing Home Sales: Wednesday, 14:00. Just before the Fed decides, they will get yet another figure from the housing sector. Sales of second-hand homes make up the majority of the market. The annualized level reached 5.44 million in July, a slight disappointment. They are expected to increase to 5.46 million now.
3. Fed decision: Wednesday, 18:00, press conference at 18:30. The Fed is expected to announce the beginning of Quantitative Tightening or the beginning of reducing its 4.5 trillion dollar balance sheet. Fed Chair Janet Yellen said it will be akin to “watching paint dry” and in any case, that will not be a surprise after the Fed talked about it for long months. The focus will be on the timing of the next interest rate hike. Will it happen in December, completing three hikes in 2017? Or has recently weak inflation undermined the chances? This is the big question for skeptical markets and the US dollar. The Fed will also release updated forecasts for growth, employment, and inflation. The biggest focus will be on the interest rate forecast, which will contain hints about future moves. Yellen will begin speaking at 18:30. Reporters will likely press her on the next rate hikes. The usual phrase about the Fed being “data dependent” will probably be heard more than once, but the general stance about the economy will set the tone. Other topics of interest will be comments about the stock market, the global economy, and oil prices. Markets could freeze just before the publication and go wild afterward.
4. New Zealand GDP: Wednesday, 22:45. The economy of New Zealand grew by a solid 0.5% q/q in Q1. At last, the nation publishes its Q2 2017 figures. Further growth is on the cardsÑ 0.8% is forecast. The data will also feed into the tight election campaign which culminates in the vote on September 23rd.
5. Japanese rate decision: Thursday, early morning, the exact time is unavailable. The Bank of Japan is not really successful in achieving the 2% inflation goal, to say the least. The future of Governor Kuroda also hangs in the balance. The BOJ is unlikely to change its policy now: holding 10-year yields at 0%. They are probably pleased with the most recent weakening of the Japanese yen.
6. US jobless claims: Thursday, 12:30. This weekly barometer has risen from its low range, probably due to the hurricanes. At 284K last week, it is now expected to rise to 300K.
7. Canadian inflation data: Friday, 12:30. The Canadian dollar remains strong after a not-really-priced-in hike by the BOC, and hints about further increases. The Bank will be data-dependent and inflation remains key. Headline CPI remained flat in July while core CPI slipped by 0.1%. The BOC also publishes various other measures of changes in nonvolatile items. Common CPI advanced 1.4% y/y, the Median CPI rose by 1.7% and Trimmed CPI by 1.4%.

*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!