page background with bitcoin and star page background cristal

Forex Major Currencies Outlook (Aug 17 – Aug 21)

USD

Headline inflation in July rose to 1% y/y from 0.6% y/y the previous month. Core inflation for the same period rose to 1.6% y/y vs 1.2% y/y the previous month. Headline inflation is continuing its path toward 2% level while core staged a first rebound after four months of falls which was unprecedented in its history. Initial jobless claims for the week ending August 8 came in at 963k vs 1100k as expected. This is the first time that claims came below 1 million number in 21 weeks. Continuing claims came in at 15486k and continued with their downward trajectory.

Retail sales in July came in at 1.2% m/m vs 2.1% m/m as expected but previous month’s reading was revised up from 7.5% m/m to 8.4% m/m. Core retail sales came in better than expected at 1.4% m/m and previous month’s reading was revised up. Electronics and appliance stores were the biggest contributors with 22.9% m/m followed by gasoline stations at 6.2% m/m. Sporting goods, musical instruments and book stores were the biggest drag on the reading with -5% m/m. The $600/week benefit package stopped on July 31 so we can expect that numbers in August reading will be much weaker.

During the weekend President Trump granted an executive order that will offer federal unemployment insurance for the unemployed of $300 per week if individual states pay $100 per week. This move, although not clear that the president has the power to make it, will slowdown negotiations between Republicans and Democrats and will lower the total amount to below $2 trillion (Democrats wanted a package that is north of $3 trillion).  The funds come from re-directing disaster-relief funds which amount to around $44bn. Considering the demand, those funds are not expected to last much longer than a month.

This week we will have housing data and FOMC minutes from the latest meeting.

Important news for USD:

Tuesday:

  • Housing Starts
  • Building Permits

Wednesday:

  • FOMC Minutes

Friday:

  • Existing Home Sales

EUR

ZEW current situation survey came in at -81.3, much worse than expected and down from the -80.9 level the previous month. Expectations category on the other hand smashed expectations and came in at 71.5 vs 59.3 the previous month. This is the highest level in over 16 years. Survey respondents are not satisfied with what they see in the economy but their hopes for a significant rebound are undiminished.

Second reading of GDP came in line with preliminary readings of -12.1% q/q and -15% y/y. Markets are turning their attention toward Q3 data and German economy ministry expects strong growth in that period. They stated that German economy has been recovering since May.

This week we will have final July inflation data and preliminary August PMIs.

Important news for EUR:

Wednesday:

  • CPI

Friday:

  • Markit Manufacturing PMI (EU, Germany, France)
  • Markit Services PMI (EU, Germany, France)
  • Markit Composite PMI (EU, Germany, France)

GBP

Claimant count in July came in at 94.4k vs -68.5k the previous month. A spike in claims pushed the claimant count rate to 7.5% from 7.2% the previous month. ILO unemployment rate for June stayed the same at 3.9% but employment change dropped by -220k almost doubling the previous month’s -125k. Numbers are skewed by the government’s furlough scheme which makes them hard to interpret and do not paint a proper picture regarding the state of the labour market. ONS acknowledges that employment is weakening. Average weekly earnings came in at -1.2% 3m/y continuing with the decline. If this trend continues, they do not contribute positively to inflation. This may prompt BOE to react in Q3 or Q4. Finance minister Sunak reiterated that extending furlough scheme is not sustainable and that many will lose their jobs.

Abysmal data that is Q2 GDP showed a decline of -20.4% q/q and -21.7% y/y. Private consumption plunged -23.1% q/q while business investment showed an even bigger drop of -31.4% q/q. GDP for the month of June came in at 8.7% m/m. The rise in June reading helped offset the decline in Q2 GDP but not by much. The rebound in the activity was slow but since we are in mid-August markets are turning their attention to Q3 data.

This week we will have inflation, consumption and preliminary August PMI data. Brexit talks will resume in Brussels from August 18 to August 21.

Important news for GBP:

Wednesday:

  • CPI

Friday:

  • Retail Sales
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI 

AUD

July employment report showed employment change of 114.7k vs 30k as expected. The unemployment rate ticked higher from the previous month to 7.5% but came in much better than 7.8% as was expected. Participation rose to 64.7% making the better than expected unemployment rate more impressive. Additional positive from the strong jobs report is that full-time employment rose 43.5k vs falling -23.6 the previous month. One caveat to the report is that it was conducted before lockdown was reintroduced in the state of Victoria. August numbers will not be this good. RBA Governor Lowe stated that it is possible for rate to stay at 0.25% level for as long as 5 years. He added that it would be nice to see AUD lower, but the currency is not overvalued.

Inflation data from China continued to climb and came in at 2.7% y/y in July on the back of the rise in food prices. PPI posted a smaller decline of -2.4% y/y vs -3% y/y the previous month on the back of rising commodity and industrial product prices. Industrial production remained at 4.8% y/y but missed expectations of 5.1% y/y. Retail sales continued to miss expectations and remain negative for the entire calendar year of 2020 coming in at -1.1% m/m. Domestic demand proves to be the biggest headache for China. 

NZD

RBNZ has left the cash rate at 0.25% as widely expected. They have, however, increased their asset purchase program by NZD100bn and extended it from 12 to 22 months. Expectations were for an increase between NZD75 and 90bn. The committee has instructed RBNZ to prepare a package of additional monetary policy measures to be applied if needed. These measures encompass the negative official cash rate as well as purchases of foreign assets. Governor Orr added that rising NZD prices have had impact on exports.  Fiscal policy remains primary response to the crises and the path RBNZ of stable inflation and full employment is through low rates and low NZD. Overall, the decision was full on dovish and NZD was pushed down.

Preliminary July ANZ business confidence came in at -42.4 vs -31.8 the previous month. Activity outlook also turned south coming in at -17 vs -8.9 the previous month. These may be warning signs that post-lockdown rebound has run its course.

CAD

Housing starts in July surged 15.8% m/m to 245.6k units in July. This was the highest reading since November 2017. Urban starts led the jump with 17.4% rise m/m. Manufacturing sales in June jumped 20.7% m/m vs 16.4% m/m as expected. The rise in sales was present in all 21 industries. New orders component jumped 23.6% m/m indicating ongoing reactivation of the economy after lockdown.

This week we will have inflation and consumption data. 

Important news for CAD:

Wednesday:

  • CPI

Friday:

  • Retail Sales

JPY

Tertiary industry index, which measures the change in total value of services purchased by businesses, came in at 7.9% m/m in July. This comes as the first positive reading of the index since the start of the year indicating that the services sector is picking up after the virus outbreak. JPY had a rough week, weakening against all major currencies with GBPJPY going as high as the 140 level.

This week we will have preliminary Q2 GDP reading, industrial production, machinery orders, trade balance as well as national inflation and preliminary August PMI data.

Important news for JPY:

Monday:

  • GDP
  • Industrial Production

Wednesday:

  • Core Machinery Orders
  • Trade Balance

Friday:

  • CPI
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

CHF

The unemployment rate in July stayed the same at 3.3%. Total sight deposits for the week ending August 7 came in at CHF695.8bn vs CHF693.7bn the previous week. SNB is continuing to intervene in the FX markets to keep EURCHF well above the 1.07 level.

This week we will have trade balance data.

Important news for CHF:

Thursday:

  • Trade Balance

You can follow all economic events on the Economic Calendar page on our Website. Server time is set to GMT+3 and if you need assistance converting server time to your local time you can use some of the online time converters such as WorldTimeBuddy.

Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that .PRO account have Market Execution. Please note that execution might work differently during high impact news and other times of low liquidity.