Forex Weekly Outlook September 23-27 – After the Fed fallout, the dollar is data-dependent again

The dollar emerged as a winner in a week that included a “hawkish cut” by the Fed and mixed messages on trade. While trade remains in the spotlight, top-tier figures such as GDP and durables are eyed. Here the highlights for the next week.

The Federal Reserve has cut its interest rates but signaled no further moves, initially sending the US dollar higher. However, Fed Chair Jerome Powell later left the door open to moves. Similar confusion accompanied reports related to US-Sino talks. Tension in the Middle East flared up after a brazen drone attack against Saudi oil installations. However, an all-out war seems to have a low probability. Brexit talks are going on between the EU and the UK, but there are many details to iron out.

1. Euro-zone flash PMIs: Monday, 7:15 for France, 7:30 for Germany, and 8:00 for the whole euro-zone. Markit’s forward-looking Purchasing Managers’ Indexes have been signaling a general slowdown in the euro-zone economies and at outright contraction in Germany’s critical manufacturing sector. The manufacturing PMI for the continent’s economy will probably have the biggest impact. It is expected to rise from 43.5 to 44.6 points, still below the 50-point threshold that separates expansion from contraction. The services sectors, both in Germany and elsewhere, are doing better. The services PMI for the euro-zone is forecast to drop from 53.5 to 53.1 points.
2. Mario Draghi speaks: Monday, 13:00. The President of the European Central Bank is set to testify before the European Parliament in one of his last appearances at the top job before he steps down in November. Draghi oversaw a rate cut and the addition of more Quantitative Easing earlier in September as the economic situation and the economic outlook deteriorated. He also intensified his call for governments to do more — add fiscal stimulus. He will likely repeat the same messages and may comment on the PMI data.
3. US CB Consumer Confidence: Tuesday, 14:00. The Conference Board’s measure of consumer confidence remained high throughout the summer and did not dip — contrary to the parallel gauge from the University of Michigan. This time, it is predicted to drop from 135.1 points in August to 134.1 in September. These levels remain high.
4. New Zealand rate decision: Wednesday, 2:00. The Reserve Bank of New Zealand shocked markets with a 50 basis point cut in August — double the standard 25bp reduction. Governor Adrian Orr and his colleagues are set to leave interest rates unchanged at this juncture. The Wellington-based institution hinted it would take a long pause before changing its policy. Nevertheless, the RBNZ’s fresh assessment of the local and domestic economies are set to move markets.
5. US final GDP: Thursday, 12:30.The final read of US GDP for the second quarter is expected to confirm the previous read of 2% annualized growth — a return to the “new normal.” However, even the final read may provide surprises. Moreover, investors will be eyeing the composition of growth. The second quarter saw a surge in personal consumption while investment dragged growth down. Any upgrade of the investment component may boost the dollar.
6. US Durable Goods Orders: Friday, 12:30. Orders of durable goods reflect investment — and this is fresh data for August — contrary to the somewhat stale data for the second quarter published in the previous day. Headline orders are expected to drop by 1.1% in August after a jump of 2% in July. Core orders, which tend to have a more substantial impact, are projected to rise by 0.2% after falling by 0.4%.
7. US Core PCE Price Index: Friday, 12:30. The Federal Reserve’s preferred gauge of inflation is the Core Personal Consumption Expenditure (Core PCE). Despite an increase in the parallel Core CPI, this measure is expected to remain unchanged at 1.6% in August. Month on month, the Core PCE is expected to rise by 0.2% once again. CPI and PCE use different methodologies.

*All times are GMT

Follow us on Sticher or iTunes

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

Safe trading!