Forex Weekly Outlook September 2-6 – Escalating trade wars, Brexit battle, NFP, and more

Some calm on the trade front has helped the US dollar against major currencies while UK PM Johnson’s prorogation decision has weighed heavily on the pound. New US tariffs on China, Brexit deliberations, and a buildup to the Non-Farm Payrolls stand out   Here the highlights for the next week.

After trade wars intensified, President Donald Trump and Chinese officials called for calm – and convinced markets. This helped the greenback strengthen against major currencies. Nevertheless, the yield curve inversion serves as an ominous sign of an upcoming recession. The Brexit drama reached new highs after prime minister Boris Johnson announced a five-week suspension of parliament – which would limit the opposition’s chances of blocking a no-deal Brexit. Sluggish euro-zone figures weighed on the euro and eventually pushed EUR/USD below 1.10. Are more falls coming?

1. New tariffs: Sunday, with responses during the week. The US is set to impose new tariffs on Sunday. While the duties were limited to a smaller scale after the initial announcement, they still serve as an escalation in the trade war and China has vowed to retaliate. Beijing has hinted it will not immediately respond, but the package of countermeasures is ready to be deployed. Markets will likely react to the Chinese announcement more than to the US one which is already priced in.
2. Chinese Caixin Manufacturing PMI: Monday, 1:45. The independent gauge of manufacturing in the world’s second-largest economy has been showing minor contraction in recent months – struggling to hold onto the 50 level that separates expansion from contraction. A small drop from 49.9 to 49.8 points is on the cards for August. The trade war with the US has hit the Chinese economy.
3. UK parliament battles Brexit: From Tuesday. The House of Commons returns after the summer break to a shortened session after Johnson’s dramatic announcement of its suspension – or “prorogation” – from the second week of September until October 14. The opposition parties will try to bring forward legislation to block leaving the EU without a deal – and the government will fight back. Another option is to bring the government down via a vote of no confidence (VONC) – but the fractured opposition has yet to agree on who will lead a caretaker government. The battle will also rage outside parliament. Two UK courts will hear urgent appeals that will try to undo the suspension of parliament. Negotiations continue between EU and UK officials, with special British enjoy David Frost scheduled for more meetings. Brussels wants to hear fresh proposals from the UK about the controversial Irish backstop.
4. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia has cut interest rates twice in recent months – after standing pat for over two years. The RBA is expected to leave the Cash Rate unchanged at 1% this time, keeping its powder dry as the domestic labor market is still doing well.
5. US ISM Manufacturing PMI: Tuesday, 14:00. This forward-looking survey of the US manufacturing sector has been showing signs of a slowdown – with a score of 51.2 points in July. The same score is expected now. The indicator also serves as a hint toward the all-important jobs report later in the week.
6. Australian GDP: Wednesday, 1:30. The land down under enjoyed satisfactory growth in the first quarter – 0.4%. A faster expansion is on the cards now – 0.5% – defying the global slowdown. A disappointment cannot be ruled out.
7. Canadian rate decision: Wednesday, 14:00. The Bank of Canada stood out early in the year by holding up its hawkish bias but has recently dropped its intentions to raise interest rates. Nevertheless, recent growth figures – at 3.7% annualized in the second quarter – give no reason for the BOC to join its peers by signaling rate cuts or any other type of stimulus. Governor Stephen Poloz and his colleagues are set to leave rates unchanged at 1.75% and may express concern about the global economy – yet without hurrying to any action.
8. US ADP Non-Farm Payrolls: Thursday, 13:15. America’s largest provider of payrolls software publishes its employment report for the private sector – a significant hint toward the official NFP. After an increase of 156K jobs in July – a return to normal growth – a similar level of 150K is on the cards. While ADP’s figures sometimes fail to correlate with the official data, the publication is a significant market mover.
9. US ISM Non-Manufacturing PMI: Thursday, 14: 00. The services sector outweighs the manufacturing sector and its perceived health – via this survey – has an impact on markets. After scoring 53.7 points in July – above the 50-point threshold that separates expansion from contraction – a similar score of 54 points projected for August. This is the last hint before Friday’s labor market report.
10. US Non-Farm Payrolls: Friday, 12:30. The all-important jobs report is the last one before the critical Fed decision later this month. After a few unstable months, the world’s largest economy gained 164K in July – bang on expectations. A similar increase of 168K is forecast for August while wages – which are no less important – are set to rise by 0.3% MoM once again. The unemployment rate carries expectations of remaining unchanged at 3.7%. Any significant deviation may move the Fed – not in its probable rate cut – but in future projections.
11. Fed Chair Jerome Powell talks Friday, 16:30. Just before the central bank enters its “quiet period” ahead of the September 18 decision, its boss will have the chance to shape expectations. Powell speaks in Zurich just four hours after the NFP and may provide more clarity after the balanced speech at Jackson Hole. The address is titled “Economic Outlook and Monetary Policy” – leaving o doubt about the importance of the event.

*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/CAD forecast – Canadian dollar predictions

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