It’s the last full trading week of October, fellas!
We’ve got a busy one ahead with three rate decisions and top-tier GDP data.
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
PMI readings (Oct. 24, starting 7:15 am GMT) – Got a fresh round of manufacturing and services PMIs to kick things off this week!
First up, France is slated to report another dip in activity for both industries. The services sector could see a decline from 52.9 to 51.6 while the manufacturing sector could report a drop from 47.7 to 47.0.
After that we’ve got Germany likely printing an even slower pace of growth in its manufacturing industry, with the index estimated to fall from 47.8 to 46.9. The services PMI is expected to hold steady at 45.0.
Over in the U.K. the manufacturing PMI probably slowed from 48.4 to 47.9 while the services PMI might have dropped from 50.0 to 48.0.
Lastly, Uncle Sam could report an improvement from 49.3 to 49.6 in the services PMI and a dip from 52.0 to 51.0 for the manufacturing PMI.
Australian quarterly CPI (Oct. 26, 12:30 pm GMT) – Will we see an inflation slowdown in the Land Down Under?
Australia is set to print a dip from 1.8% to 1.6% in its headline CPI for Q3 and no change in its trimmed mean CPI at 1.5%. The drop in oil prices over the past few months probably contributed to weaker price pressures, but stronger than expected results might still boost RBA rate hike expectations.
Chinese quarterly GDP (Oct. 26) – One of the big events that traders are looking forward to this week is the quarterly GDP release from China.
A strong rebound in growth is eyed for the third quarter, as the economy probably grew by 3.3% after the earlier 0.4% expansion. Weaker than expected data, however, could bring risk-off flows back in the game as this might increase the odds of a global recession.
BOC rate statement (Oct. 26, 2:00 pm GMT) – Canada’s central bank is set to announce their rate decision this week, and many are counting on policymakers to agree on a 0.50% hike.
Keep in mind that the BOC has been pretty aggressive with its tightening efforts lately, as they increased rates by a full 1.00% in July and by 0.75% in September.
Inflation and spending data from Canada has been mostly upbeat, which means that the BOC might have room for yet another hawkish move.
ECB monetary policy statement (Oct. 27, 12:00 pm GMT) – The European Central Bank is also scheduled to announce their rate decision this week, and many are hoping to see more aggressive action as policymakers suggested.
Recall that the ECB hiked rates by 0.50% in July, followed by a 0.75% increase in September. Officials have been buzzing about how they need to act more decisively in order to combat inflation, so traders are on the lookout for yet another 0.75% hike this time.
U.S. advance GDP (Oct. 27, 12:30 pm GMT) – After contracting by 0.6% in the previous quarter, the U.S. economy is projected to have grown by 2.3% in Q3.
Stronger than expected GDP data could keep dollar traders hopeful that the Fed would pull off an even larger 1.00% rate hike in their next decision, possibly boosting safe-haven flows for the dollar and putting bond markets in a tailspin again.
BOJ monetary policy statement (Oct. 28) – With the Japanese yen mostly in freefall these days, all eyes and ears are on the BOJ to see if policymakers will step up their efforts to stop the selloff.
Note that the central bank has already been busy with stealth intervention measures over the past weeks, but none of these appear to have had a lasting impact on the currency.
U.S. core PCE price index (Oct. 28, 2:00 pm GMT) – Lastly we’ve got the Fed’s preferred inflation measure up for release on Friday. A slight dip in price pressures is eyed, as the index could fall from 0.6% to 0.5%.
Forex Setup of the Week: USD/JPY
Aha! I spy another sneaky yen-tervention move!
USD/JPY tumbled sharply lower early in the week, yet Japanese officials continue to be mum about whether they stepped in the FX market or not.
In any case, the pair is still keeping its head above the rising trend line support that’s been holding since August. This happens to be in line with an area of interest, the 61.8% Fib and the 145.00 major psychological mark.
Will it be enough to keep losses in check?
Stochastic seems to be hinting that more losses are possible, as the oscillator has room to head south before reaching the oversold area. This means that sellers have a bit more bearish pressure left to go around.
Meanwhile, the 100 SMA is still above the 200 SMA to indicate that the path of least resistance is to the upside or that support levels are more likely to hold than to break.
Of course we gotta keep an eye out for the top-tier U.S. releases namely the GDP and core PCE price index, as well as the BOJ decision coming up this week.
Will we see USD/JPY climbing back above 152.00 again?