With the US midterm elections in the rear view mirror, the focus will be on what is a jam-packed economic calendar around the globe which will likely set the trading mood. Particular interest will be on upcoming US data points to see if this confirms market expectations for a tightening of policy by the FOMC in December.
Last week, US equities ended on a down note, with tech stocks exhibiting notable weakness to drag the NASDAQ lower by 1.65%. However for the week, the DJIA climbed 2.1% while the S&P 500 added a very healthy 2.8%, with equities beginning to claw back the steep declines witnessed in October.
Friday saw the better than expected release of US PPI data for October, which came in at +0.6% (vs. +0.2% expected). This was the latest indication that inflation pressures are beginning to bubble to the surface, albeit that inflation is very late to arrive to the party so to speak, given that the economy has been booming for the last 2 years. But with the PPI data having had its largest monthly gain since 2012, this again has traders bracing for “further gradual increases” in interest rates, to quote the FOMC.
The US Dollar found form to close out last week, appreciating against the other majors with traders pricing in a greater likelihood of a December rate move by the Fed. The short to medium term outlook appears quite constructive for the USD, and traders will be looking at a raft of new data this week which includes the latest reading on CPI (Wednesday US time) as well as Retail Sales, Empire State Manufacturing and the Philly Fed Manufacturing numbers which are all due on Thursday.
Critically, in the latter half of the week we will be hearing from Fed Chairman Jerome Powell and this could drive a fresh round of USD strength if his tone is hawkish.
The Euro closed a quarter of a percent lower against the USD on Friday to slip back onto the 1.13 handle, due to a combination of stronger US data and concern over a slowing Italian economy and the impact this could have on budget deficits.
The Euro has had a reprieve recently but a test of levels below 1.13 as part of a longer downtrend could occur if the divergent growth stories of the US and Europe are further highlighted this week. On the calendar is German ZEW on Tuesday and Flash GDP on Wednesday, while traders will be keenly listening to Mario Draghi when he speaks on Friday for any signs of dovishness from the ECB President.
Elsewhere, the GBPUSD will remain very much driven by Brexit headlines, with the Pound also showing some weakness on the back of a GDP-miss to end last week. The Aussie Dollar will look to build on recent gains, and although directionally it will take the lead from global equity performance this week, Australian employment data on Thursday will be closely monitored.
Wednesday will see a number of key releases from China, including Industrial Production and Retail Sales. If we do see weakness here it could subdue risk-assets, although the focus will remain on the upcoming meeting between President’s Trump and Xi, with financial markets awaiting further developments regarding a possible trade agreement.
For further details of this week’s events, please visit the AxiTrader economic calendar.
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