Market outlook for the week of 12-16 September

The main event for next week is Tuesday’s US inflation data, but there are plenty more that traders will be keeping an eye on.

In the euro zone, the ZEW economic sentiment indicator will also land on Tuesday, but this is unlikely to cause too much volatility in the FX market. It is worth watching, however, as it shows how analysts and investors see the future performance of the German economy, one of the largest and most important in the euro area.

On Wednesday, traders will be looking at the CPY y / y data for the UK and the PPI m / m for the US, while on Thursday we will have the employment change and unemployment rate for Australia and the major retail sales m / m and retail sales m / m for the US The BOE meeting has been postponed due to the Queen’s funeral process. On Friday we will have preliminary UoM consumer sentiment for the US and Quadruple Witching could cause some volatility.

UK CPI is expected to rise again with a consensus forecast of 10.2% and core CPI of 6.3%. If these figures come true, the market will expect a 50 bps rate hike from the BOE at the next meeting.

According to CFTC and Reuters data, speculators have pushed net long bets on the US dollar to their highest level since early August. So it’s worth watching how the USD reacts this week.

The consensus for the US consumer price index this week is to fall to 8.1% from 8.5% and core inflation to rise from 5.9% to 6.1%. Inflation data fell short of expectations in July due to falling energy prices. Wells Fargo expects August to show a similar trend, due to a 0.2% drop in overall prices, the largest since spring 2020, along with a further drop in gasoline prices.

The inflation data is very important as it can give us clues about the upcoming FOMC decision at the September meeting. The odds now appear to favor a 75 bps rate hike according to WSJ. A press above expectations could pave the way for a more aggressive reaction and vice versa.

In any case, the CPI alone will not be enough to convince the Fed that inflation has peaked and is now on a downward trend. Other data such as PPI (Wednesday), September manufacturing polls (NY and Philly Fed) and August industrial production data (Thursday), September Michigan preliminary sentiment data are also expected this week.

The ECB made a 75bp rate hike last week and left the door open for another 75bp hike for its next October meeting.

Labor market data for Australia still points to solid employment growth for the foreseeable future, but a factor of concern is the labor force participation rate which, if it were to decline, could be a sign that the labor market work is more tense than expected.

Another important thing to watch this week is how the JPY will react following recent comments from the BOJ and the Japanese Ministry of Finance regarding the JPY’s recent aggressive depreciation against the dollar. This has certainly caught the attention of the BoJ and Japan’s Deputy Finance Minister Masato Kanda noted that the depreciation of the yen has “come against the background of speculative moves and is clearly excessive”. He added that “the authorities are ready to take the necessary measures without excluding any possible measure”.

Citi analysts believe foreign exchange interventions could have a short-lived impact and that to be effective they must be coupled with changes in monetary policy. So far, the BOJ and Governor Kuroda have remained accommodative and are unlikely to be open to major changes in policy that they believe will have a negative impact on the Japanese economy. A more accommodative stance by the Fed could help curb the depreciation of the Japanese yen against the dollar going forward, but this is likely not to happen until US inflation data shows signs of cooling. Also, we should keep in mind that Governor Kuroda’s term will end next year in April, so major policy changes are unlikely to occur until then. The country’s opening up to foreign tourism could fuel retail demand for the yen, but it will depend on Japan’s Covid policy.

GBP / CHF expectations

Last week, Governor Jordan said the SNB is not ruling out anything but has no comment on currency intervention to curb the appreciation of the CHF. After the latest economic data, it appears that the CHF still has room to strengthen further. The pair ended the week near 1.1100, the March 2020 low.

From a technical point of view the pair still has room for depreciation on the H1 chart, but it appears that a bullish divergence is forming on the MACD, which could suggest a major correction to the resistance level 1.1215 or even 1.12900 before resuming the trend below. discount. Keep an eye on the UK CPI which could be a risk to the direction of the pair this week.

Another reason for the GBP / CHF depreciation is that a more aggressive political reaction from the SNB is likely at the next meeting. After the BOE has postponed its meeting, the next one will fall on the same day as the SNB press conference on 22 September. Until then GBP / CHF still looks good for sell opportunities.

USD / CAD Expectations

On the H1 chart, USD / CAD looks good for sell opportunities. A correction up to the 1.3080 resistance level is expected, but 1.3115 would be a more interesting area to keep an eye on. From there, the downtrend should resume pointing to 1.2915. On the upside, the next resistance level is 1.3190.

US inflation data could pose a risk to this trade, so keep an eye on it.

From a fundamental point of view, the CAD is losing strength due to the weak August employment report, with a higher-than-expected decline in employment and the unemployment rate. However, hourly wage growth has increased. In the last meeting the BOC raised the interest rate by 75bps, as expected, and as Senior Lieutenant Governor Rogers pointed out that the bank was “a long way from where we need to be” in terms of policy, even as the economy was. responding to rising interest rates, but remained in a state of excess demand.

This article was written by Gina Constantin.

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