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Week Ahead: Headline Watching

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Fundamental analysis of Forex market

With lack of macroeconomic events this week, headlines are likely to rule the markets.

Last week, the US Fed, BOJ and the BOE provided little new information in terms of each Central Bank’s monetary policy.  Ultimately, all three central banks provided the same theme: lower interest rates for an extended period of time.  Brexit negotiations are stalled at this point while The Internal Market Bill is still debated.  US/China tensions heat up as the US said it will ban TikTok from download, beginning  Monday.  Coronavirus fears are on the rise and has led UK Prime Minister Boris Johnson to declare, “we are now seeing a second wave come in”.  Is there a vaccine close at hand?  Trash talk will likely escalate, with only one week before the 1st US Presidential debate. With lack of macroeconomic events this week, headlines are likely to rule the markets.

The US FOMC said rates will remain low at least until 2023.  The focus now turns to stimulating the economy, rather than stabilizing it.  Powell stated that rates will remain highly accommodative until the economy is far along its recovery. Both Fed Chair Powell and Treasury Secretary Mnuchin  will testify before Senate Committee on Thursday.  The BOJ hinted that they may buy more bonds going forward, however they also upgraded their economic assessment for the first time since the coronavirus began.  As expected, the LDP selected Yoshihide Suga to be their leader and the new Prime Minister of Japan.  Suga is expected to continue the path of “Abenomics”, and no changes are expected in the relationship between the Suga administration and the BOJ.  And although the BOE continues to say they won’t use negative rates, they continue to discuss and explore it with regulators.  It is still in their toolkit, but they don’t intend to use it.

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The Internal Market bill continues to be dissected and discussed this week; however, Boris Johnson’s self-imposed deadline of October 15th for a Brexit trade deal is looming.  If the internal market bill passes, it will override the initial Brexit agreement and as a result, break international law.  European lead negotiators initially said they will table the Brexit discussion until next month’s European Council summit; however, they have now said it will be on the agenda at the September meeting.  Regardless of the outcome, the UK will face far less goodwill from the EU.

The UK is also dealing with a second wave of cornonavirus cases.  On Friday, a further 4,322 cases were confirmed, the highest daily total since May.  Outbreaks occurred England, Scotland, Wales and Northern Ireland.  The government has implemented targeted interventions; however, it has not ruled out a national lockdown.  Similarly, Canada has seen a spike in cases as well and Ontario has announced new restrictions and steep fines.  Meanwhile, the US is extending border restrictions with Canada and Mexico until October 21st.  US President Trump said on Friday that he expects to have a coronavirus vaccine for every American by April.  Next week, we will probably hear more talks of a stimulus bill from US congress, however there is still the possibility that we will not get one.

The economic calendar is light next week, however there are several speakers.  In addition, we get the RBNZ interest rate decision as well as US senate testimony from US Fed Chairman Powell and Treasury Secretary Mnuchin. Other economic data is as follows:

Monday

  • Canada: New Housing Price Index (AUG)
  • US: FOMC Member Williams Speaks

Tuesday

  • Australia: RBA Deputy Gov Debelle Speaks
  • UK: CBI Industrial Trends Orders (SEP)
  • UK: BOE Gov Baily Speaks
  • EU: Consumer Confidence Flash (SEP)
  • US: Existing Home Sales (AUG)
  • US: Richmond Fed Manufacturing Index (SEP)
  • US: Fed Chair Powell Speaks

Wednesday

  • Global Manufacturing PMI Flash (SEP)
  • Global Services PMI Flash (SEP)
  • New Zealand: Interest Rate Decision
  • Germany: GfK Consumer Confidence (OCT)
  • US: FOMC Member Mester Speaks
  • Crude Inventories

Thursday

  • New Zealand: Trade Balance (AUG)
  • Japan: BOJ Meeting Policy Meeting Minutes
  • Germany: Ifo Business Climate (SEP)
  • EU: ECB Economic Bulletin
  • UK: BOE Gov Baily Speaks
  • US: Initial Jobless Claims (week ending September 19th)
  • US: Fed Chair Powell and Treasury Secretary Mnuchin testify before Senate Committee
  • US New Home Sales (AUG)
  • US: FOMC Member Williams

Friday

  • UK: BOE Quarterly Bulletin
  • US: Durable Goods Orders (AUG)

Chart of the Week: Daily EUR/JPY

Source:  Tradingview, FOREX.com

EUR/JPY has been moving higher since bottoming on May 7th near 114.39. On September 1st, the pair reached a high of 127.07.  We can see now that the high on September was the head of a Head and Shoulders pattern, which broke through the neckline last Wednesday.  The pair traded as low as 123.23, which is also the 50% retracement level from the low on June 19th to the highs on September 1st, then retested the neckline on Friday, only to move lower and close the week at 123.78.  The previous low at 123.23 is now the first support level.  The 61.8% retracement level of the previously mentioned timeframe is the next level near 122.32.  Resistance is at Friday’s highs if 124.31.  The target for a Head and Shoulders pattern is the distance from the head to the neckline, added to the breakdown level below the neckline.  This puts the target near 121.50.  The 200 Day Moving Average is near 121.00.

This week is going to be all headline watching.  Watch for Brexit comments, coronavirus cases numbers, rumors of vaccines, and Presidential jabs between Donald Trump and Democratic Candidate Joe Biden.

Have a great week and please remember to always wash your hands!