Market outlook for the week of September 12-16

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The main event for the week ahead is Tuesday’s US inflation data, but there are several others that traders will be keeping an eye on as well.

In the Eurozone, the ZEW Economic Sentiment Gauge will also land on Tuesday, but this is not likely to cause too much volatility in the FX market. However, it is worth watching as it shows how analysts and investors see the future performance of the German economy, one of the largest and most important in the euro area.

On Wednesday, traders will watch CPY y/y data for the UK and PPI m/m for the US, while on Thursday we will get the Employment Change and Unemployment Rate for Australia and the main Retail Sales. m/m and retail. m/m sales for the US The BOE meeting is postponed due to the Queen’s funeral. On Friday we will get the preliminary UoM Consumer Sentiment for the US and Quadruple Witching could cause some volatility.

UK CPI is expected to run again with a consensus forecast of 10.2% and core CPI of 6.3%. If these figures are fulfilled, the market would expect a rate hike of 50 bp by the BOE at the next meeting.

According to data from the CFTC and Reuters, speculators pushed US dollar net long bets to their highest level since early August. So it is worth seeing how the USD reacts this week.

The consensus for the US CPI this week is to print lower to 8.1% from 8.5% and core inflation to rise to 6.1% from 5.9%. Inflation data came in below expectations in July due to a drop in energy prices. Wells Fargo expects August to show a similar trend, due to a 0.2% decline in overall prices, the largest since spring 2020, coupled with a further decline in gasoline prices.

Inflation data is very important as it can give us clues about the next FOMC decision at the September meeting. The odds now seem to favor a 75bp rate hike according to WSJ. A print above expectations could open the way for a more aggressive reaction and vice versa.

In any case, the CPI alone will not be enough to convince the Fed that inflation has peaked and is now on a downward trend. Other data such as PPI (Wednesday), September manufacturing surveys (NY and Philly Fed) and August industrial production data (Thursday), preliminary U. Michigan sentiment data for September are also expected this week.

Last week the ECB delivered a 75bp rate hike and left the door open for another 75bp rate hike for the next meeting in October.

Australian labor market data still indicates strong job growth in the near future, but one factor for concern is the labor force participation rate which, if it declines, could be a sign the labor market is tighter. than expected.

Another important thing to watch this week is how the JPY will react after recent comments from the BOJ and Japan’s Ministry of Finance regarding the JPY’s recent aggressive depreciation against the USD. This certainly caught the attention of the BoJ, with Japan’s Deputy Finance Minister Masato Kanda commenting that the JPY’s depreciation “occurred in the context of speculative moves and is clearly excessive.” He added that “the authorities are ready to take the necessary measures without ruling out any possible measures.”

Citi analysts believe that currency interventions are likely to have a short-lived impact and must be accompanied by changes in monetary policy to be effective. So far, the BOJ and Governor Kuroda have remained dovish and are unlikely to be open to big changes in policy that they believe could negatively affect the Japanese economy. A more dovish stance by the Fed could help curb JPY depreciation against the dollar going forward, but this is unlikely to happen until US inflation data shows signs of cooling. Also, we should note that Governor Kuroda’s term ends next year in April, so major changes in policy are unlikely to happen until then. Opening the country to foreign tourism could boost retail demand for yen, but it will depend on Japan’s Covid policy.

GBP/CHF Expectations

Last week, Governor Jordan said that the SNB does not rule anything out, but has no comment on currency intervention to curb CHF appreciation. After the latest economic data, it seems that the CHF still has room to strengthen further. The pair closed the week near 1.1100, the low of March 2020.

From a technical point of view, the pair still has room to depreciate on the H1 chart, but it seems that a bullish divergence is forming on the MACD, which could suggest a further correction to the resistance level of 1.1215 or even 1.12900 sooner. to resume the downtrend. Keep an eye on UK CPI which could be a risk to the pair’s direction this week.

Another reason for the GBP/CHF depreciation is that a more aggressive policy reaction from the SNB is likely at the next meeting. After the BOE postponed its own meeting, the next one will be held on the same day as the SNB press conference on September 22. Until then, GBP/CHF still looks good for short opportunities.

USD/CAD Expectations

On the H1 chart, USD/CAD looks good for short opportunities. A correction to the 1.3080 resistance level is expected, but 1.3115 would be a more interesting area to watch. From there, the downtrend should resume targeting 1.2915. On the upside, the next resistance level is 1.3190.

US inflation data could pose a risk to this trade, so keep an eye out.

From a fundamental point of view, the CAD is losing steam due to the weak employment report for August, with a larger than expected drop in employment and the unemployment rate. However, hourly wage growth picked up. At the last meeting, the BOC raised the interest rate by 75 bps, as expected, and as Senior Lieutenant Governor Rogers pointed out, the bank was “a long way from where we need to be” on policy, even though the economy was responding to an increase in interest rates, but remained in a state of excess demand.

This article was written by Gina Constantin.

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