Good Morning All DukascopyCommunity;
we’ll see now a New Wekkly Analysis Of Forex Market.
°Last Week’s Highlights
Brexit remains in focus
Fed Meeting Minutes largely as expected
US Retail Sales return to growth
°This Week’s Highlights
UK employment and Retail Sales data
Eurozone, UK, US CPI
Central Banks Interest Rates
Brexit remained in focus last week with a quieter data calendar providing limited distraction. The pound remained relatively stable against the euro, trading within the 1.1050 to 1.1150 range last week, outside of a drop during US trading hours on Tuesday evening. The pound fell from above 1.2400 against the dollar to trade primarily within a range of 1.2150 to 1.2300 during the latter half of the week. Brexit uncertainty, including concerns over a possible “hard” Brexit remain a key driving force of the pound and have contributed to the recent renewal of downwards pressure. Sterling received some support on Friday as Bank of England Governor Carney said the BoE is “not indifferent” to the pound’s strength.
This week’s calendar is a busy one for the pound, which could prompt some volatility. CPI inflation is expected to pick up to 0.8% from 0.6%, with core inflation rising from 1.3% to 1.4%. Gains could offer the pound some support. PPI figures will also be closely watched and could prompt additional volatility. Also of interest are Wednesday’s employment figures. An unchanged Unemployment Rate of 4.9% and Average Earnings growth of 2.3% may prompt limited movement unless the figures vary from expectations. A gain in Retail Sales could offer the pound some support on Thursday.
Last week’s calendar was quieter for the euro. Economic Sentiment figures showed increased optimism in both Germany and the Eurozone as a whole. The German index rose from 0.5 to 6.2, while the Eurozone index rose from 5.4 to 12.3. Industrial Production rose 1.6%, up from 0.7% the previous month.
The main event for the euro this week will be Thursday’s ECB meeting. Interest rates are expected to remain unchanged at 0.0%, and the deposit rate to remain unchanged at -0.4%. Markets will watch for any signals as to the future of the QE programme. Recent speculation that the ECB might wind down QE had supported the euro, although the ECB is still more widely expected to maintain or expand the timeline of QE purchases. ECB President Draghi said last month that the ECB did not discuss such topics; any direct discussion this month could therefore prompt volatility. The press conference in particular often serves as a source of volatility. Final CPI figures out Monday morning confirmed CPI inflation rose to 0.4% in September, while Core inflation held at 0.8%.
One of the key driving forces of the dollar’s strength against both the pound and the euro last week was increased expectations that the Fed will raise interest rates in December. Both GBP/EUR and EUR/USD fell 2% over the course of the week. While the Fed was divided over whether to hike in September, with three members dissenting in favour of raising rates, its meeting minutes indicated that the decision to stand pat was a “close call” and that a hike could be needed “relatively soon”. A busy Fed speaker calendar continued to keep the door open for a hike by December. Key economic releases from the US included a drop in Initial Unemployment Claims to 246K, a 43-year low, and a 0.6% gain in Retail Sales, with core sales up 0.5%. Monday was a Bank Holiday.
Fed rate hike expectations will remain key drivers of the dollar’s strength, with only two weeks to go until the next interest rate decision. Key releases this week include Industrial Production, CPI inflation, housing, and Initial Unemployment Claims figures. Politics will be in focus with the third and final Presidential debate to be held on Wednesday. Uncertainty stemming from a potential Trump Presidency remains a risk to the dollar’s strength over the coming weeks, but has thus far had a more significant impact on the Mexican Peso, which has fluctuated with Trump’s expected chances.
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