Strong currency fluctuations and dispersion by traders about investing at the best, this is what marked the performance of the currency market last week. A good breakthrough for Brexit boosted the Pound's gains to a five-month high. Investors were optimistic and risk appetite boosted. Expectations have become almost certain that the Fed will cut US interest rates for the third time this month, adding to the losses of the US dollar, supported by recent weak economic data. The Euro is making stronger gains, but fears of economic weakness in the Euro zone may cost it these gains soon. The wave of risk appetite was halted after China's economic slowdown raised some serious concerns about the future of global economic growth.
In the following lines we will review together this week’s most important factors affecting the movements and performance of currencies:
With the beginning of trading, prices will react to the disappointment of the recent Brexit deal between the EU and Britain not being able to pass through the British House of Commons and we await the European reaction to that. Only 10 days remain for the official date of Brexit.
Also today, Canada will hold its national elections. Opinion polls show a fierce race between the two largest parties, the Liberals, led by Trudeau and the Conservatives led by Cher. However, the main rivals do not seem to have the support of more than a third of the electorate. This means that a coalition will probably be necessary, and this seems to give an advantage to the liberals who will have a potential ally from the New Democrats who poll about 20%. It can said that attracting the Green Party as well, which has about 9% support, would lead to a stronger government. Quebec block, which says it does not seek to join the government, has only about 6%.
Ahead of the election, the Canadian dollar is considered the strongest major currency this year, rising about 3.9% against the greenback. Canada's central bank resisted international pressure and took a steady and neutral path. Canada has become one of the world's leading economies that have not eased monetary policy.
Tuesday: Canadian Retail Sales figures. In Canada, core retail sales, which exclude cars, fell 0.1 percent in July from 0.9 percent the previous month.
In the same day, Bank of Canada Business Outlook Survey, which is published on a quarterly basis, and the report is well respected because of its origin and timing. It has an impact on interest rate decisions. In addition, it is known for its predictive qualities regarding future economic conditions. This is because of the selection of companies surveyed on the basis of their contribution to the country's GDP; it is a strong indicator of the economic situation in Canada where companies react quickly to market conditions. Changes in corporate sentiment provide early signals about future economic activities - for spending, investment and employment.
Wednesday: US Crude Oil Inventories. In the US, crude oil inventories rose by 9.281 million barrels during the week ending October 11, after a rise of 2.927 million barrels the previous week. Analysts had expected inventories to rise by 2.878 million barrels. This was the largest increase in crude oil inventories since the week ending April 26th. Meanwhile, gasoline inventories fell by 2.562 million barrels, after a decline of 1.213 million barrels the previous week. Analysts had expected gasoline stocks to fall by 1.209 million barrels.
Thursday: French Services PMI. In France, the Services PMI fell to 51.1 in September from a nine-month high of 53.4 in August. The month's reading came in below analysts' expectations of 51.6. However, the latest reading indicates the weakest growth in the services sector since last April. New orders growth slowed to a four-month low due to lower international sales. Exports fell for the first time in four months and each sub-sector declined, regardless of the brokerage sector. In addition, job creation rose at the weakest rate since April. Input cost inflation slowed to its weakest level in just over two years. However, service providers expressed optimism regarding the outlook for employment due to expectations of increased new work. Forecast for October 2019: 51.6.
German Manufacturing PMI. In Germany, the manufacturing PMI was revised up to 41.7 in September from an initial reading of 41.4. Last month, the final manufacturing PMI was at 43.5. The latest reading pointed to the biggest contraction in the manufacturing sector since June 2009. Output has fallen more than ever since July 2012. New orders posted the biggest drop since April 2009. This has led to further declines in the backlog. Moreover, the job loss rate increased to its fastest level since January 2010. The low cost of inputs was the second fastest since April 2016. Production fees fell to their highest level in almost three and a half years. The latest data showed that manufacturers were pessimistic about the outlook for September. However, their expectations were higher compared to a seven-year low recorded in August.
Forecasts for October 2019: 42.0.
German Services PMI. In Germany, the Services PMI was revised down to 51.4 in September from an initial reading of 52.5. Last month, the index stood at 54.8. The latest reading of the index indicates the slowest pace of growth in the services sector since September 2016. New business flows declined for the first time since December 2014. New export business declined more than others in more than five years. While the outstanding business fell for the second consecutive month, employment continued to rise at a strong pace. Input cost inflation slowed to its lowest level since March 2018. Inflation in production fees slowed to the second weakest level in the past year and a half.
Forecasts for October 2019: 52.0.
ECB Interest Rate Announcement. At the September meeting, members of the European Central Bank's monetary policy committee decided to leave the key interest rate unchanged at 0.00 percent. However, the deposit rate was reduced by 10 basis points to the level of -0.5 percent. Moreover, policymakers agreed to buy bonds at a monthly rate of 20 billion Euros starting from November 1, 2019, to boost growth and inflation amid uncertainty about Brexit and global trade tensions. The ECB also lowered its GDP forecast to 1.1 percent in 2019 and 1.2 percent in 2020. Moreover, inflation expectations were also reduced to 1.2 percent in 2019, 1.0 percent in 2020, and 1.5 percent in 2021.
Forecast for October 2019: 0.00% unchanged.
Eurozone Monetary Policy Statement. The ECB usually changes the tone of the statement slightly in each issue. Traders often focus on these changes. The ECB uses the monetary policy statement as a tool for communicating with investors regarding monetary policy decisions. It provides the results of the members' decision on setting interest rates and commenting on the economic conditions that have affected their decision. More importantly, the statement discusses the economic outlook and provides evidence of future decisions.
European Central Bank Press Conference. The ECB President and Vice President will hold a press conference about 45 minutes after the rate announcement. The press conference lasts for one hour and consists of two parts. In the first part, reading a prepared statement. In the second part, answer the questions of the press. As the questions can lead to unknown answers, the EUR's performance against the other major currencies is expected to fluctuate.
In the same day. US Durable Goods Orders Numbers. In the United States, core durable goods orders, which exclude transportation, increased 0.5 percent in August, pouncing from an upwardly revised 0.5 percent rise in July. It is expected to drop to -0.5%.
We wish you a profitable week and successful trading opportunities.