FX WEEK AHEAD OVERVIEW:
for the , where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.
08/26 MONDAY | 12:30 GMT | USD Durable Goods Orders (JUL P)
The US economy revolves around consumption trends, given that approximately 70% of GDP is accounted for by the spending habits of businesses and consumers. As such, the durable goods orders reportmake for an important barometer of the US economy. Durable goods are items with lifespans of three-years or longer – from refrigerators and washing machines to cars and airplanes. These items typically require greater capital investment or financing to secure, meaning that traders can use the report as a proxy for business’ and consumers’ financial confidence and health. The preliminary July print is expected to show a gain of 1.1% after the 1.9% drop in June.
08/29 THURSDAY | 12:30 GMT | USD Gross Domestic Product (2Q S)
According to a Bloomberg News survey, the US economy grew by 2.1% in Q2’19, down from the initial 2.2% pace reported last month. Even as financial markets price in greater odds of a US recession per the US Treasury yield curve, US economic data simply hasn’t been that bad: are holding in the low 2% range as well.
But as mounting uncertainty over the US-China trade war continues to erode certainty over the near-term economic outlook, traders seem to be paying less attention to backwards-looking reports (“hard data”) and are more concerned with forward-looking surveys and sentiment indicators (“soft data”). Only a significant deviation from the estimate would provoke a sharp repricing in Fed rate cut odds.
NY Fed Nowcast Q2’19 US GDP Forecast (August 23, 2019) (Chart 1)
The New York Fed Nowcast estimate for Q2’19 US GDP isn’t as rosy as economists surveyed by Bloomberg News. Based on the data revisions received thus far about Q2’19, the NY Fed Nowcast is looking for growth at 1.5% after hitting a low of 1.0% in the first week of June.
08/29 THURSDAY | 12:30 GMT | USD Advanced Goods Trade Balance (JUL)
On Thursday, US trade figures for July will show that the US has its largest trade deficit ever, another development surely to displease US President Donald Trump and his administration’s trade representatives.On Saturday, the Chinese Manufacturing PMI reading is due to show that the manufacturing sector remained in contraction with the index due below 50. The fact of the matter is that US consumers are buying few products from Chinese producers, raising the costs of goods in the US and reducing economic activity in China.
With the , it seems likely that expectations for any sort of substantive agreement between the US and China in the coming weeks are low; and traders should obviously expect some retaliation by US President Trump.
08/30 FRIDAY | 09:00 GMT | EUR EUROZONE CONSUMER PRICE INDEX (AUG A)
The preliminary August Eurozone Consumer Price Index is due on Friday, less than two weeks before European Central Bank policymakers meet for their September policy meeting. According to Bloomberg News, the headline Eurozone inflation reading is due in at 1% from 1.1% (y/y), while the core reading is due in at 1% from 0.9% (y/y).
European Central Bank Interest Rate Expectations (August 23, 2019) (Table 1)
Overnight index swaps are currently pricing in an 89% chance of a 10-bps rate cut at the September ECB meeting. There is a 72% chance of a second 10-bps rate cut coming in October, while there is an 84% chance of the second 10-bps of rate cut at the December ECB meeting. Rates markets are pricing a third rate cut over the next 12-months most likely coming in March 2020.
08/30 FRIDAY | 12:30 GMT | CAD GROSS DOMESTIC PRODUCT (JUN)
The June Canada GDP report doesn’t appear like to will motivate Bank of Canada policymakers to act any faster than rates markets are currently pricing in as central banks around the world join the “race to the bottom.” Year-over-year growth is due in at 1.4%, the same pace in May; the monthly rate is due to moderate to 0.1% from 0.2%.
There is a strong argument to be made that, but for deteriorating global economic conditions, the Canadian economy may be doing better than the current middling rate of growth. Looking at data trends in June, the Citi Economic Surprise Index for Canada gained from 119 to 139.6. On balance, continued improvement among domestic factors may offset rising issues among external factors.
Bank of Canada Interest Rate Expectations (August 23, 2019) (Table 1)
Even though Canadian economic data has rebounded over the past week (the Surprise Index is now at 70.6, up from the yearly low of 8.4 on August 19), concerns over global growth have provoked the Bank of Canada into a more cautious policy stance. Overnight index swaps are discounting a 68% chance of a 25-bps rate cut in October and a 71% chance of a second 25-bps rate cut over the next 12-months coming in June 2020.
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
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