Week Ahead: US-China trade and Brexit back to forefront
Fawad Razaqzada September 20, 2019 12:51 PM
The week ahead features one major central bank decision and only a handful of market-moving data.
The week ahead features one major central bank decision and only a handful of market-moving data. So, it should be a quieter week. But following this week’s central bank bonanza, there will be some aftershocks to stir volatility. Meanwhile, with geopolitical tensions heating up in the Middle East, the Brexit situation becoming more uncertain and the US-China trade negotiations set to resume again in early October, there will be plenty of reasons to expect heightened volatility, despite what will be a subdued week for economic data.
Economic Data Highlights
- Monday: Eurozone flash PMIs and speeches by ECB President Draghi and Fed’s Williams and Bullard
- Tuesday: German Ifo Business Climate and US Consumer Confidence (CB)
- Wednesday: RBNZ rate decision
- Thursday: US Final GDP
- Friday: US Core PCE Price Index; Core Durable Goods Orders, and Personal Spending and Income
Among next week’s data highlights, traders should watch closely: (1) Eurozone flash services and manufacturing PMIs, (2) RBNZ rate decisions and (3) US macro data released throughout the week.
Eurozone PMIs in focus
Concerns over the health of the Eurozone economy is the reason why the ECB restarted QE and cut interest rates last week. The latest PMIs provide a leading indication of economic health. Businesses and their purchasing managers tend to react quickly to changing market conditions. If the PMIs – especially in the manufacturing sector – continue to paint a bleak picture, then the single currency could come under renewed pressure in early next week. The EUR/USD bulls huffed and puffed this week, but macro concerns kept a lid on the exchange rate. With the Fed turning out to be less dovish than expected, the path of least resistance remains to the downside for this popular exchange rate. Will the EUR/USD follow the NZD/USD in hitting a new 2019 (and thus a post-ECB) low next week?
RBNZ likely to hold rates steady after the surprise 0.5% cut
The Reserve Bank of New Zealand is likely to hold interest rates unchanged at the historically-low rate of 1.0% after delivering a shock 50 basis point cut when a 25bp cut was expected in the previous meeting in August. In total, rates have been trimmed by the RBNZ by 75 basis points since May. Going forward, the rate setters at the central bank will likely sit on theirs hands and monitor the ongoing trade situation between the US and China. However, if the RBNZ makes any hints of forthcoming rate cuts then the NZD/USD could drop further lower after it hit a new 2019 low below the old low of 0.6270 on Friday to drop to 0.6255 at the time of this writing.
US-China trade and Brexit back to forefront
Deputy trade negotiators from the US and China resumed talks for the first time in almost two months this week. Their aim is to lay the groundwork for high-level talks in early October. Will they finally bridge their differences and find a way out of the trade war? As the high levels talks near, expect more tweets and tariff threats from US President Donald Trump, which could highs some risk-sensitive markets. However, for the time being, stock markets remain supported with US equity indices near record levels after a week of central bank bonanza, where the message was loud and clear: global interest rates will remain at or near record lows for the foreseeable future.
Meanwhile, hopes over an imminent Brexit breakthrough rose earlier this week and the GBP/USD shot above the 1.25 handle to trade 20 pips shy of 1.26 by early Friday session. However, it then sold off sharply after the Irish Foreign Minister Simon Coveney dashed those hopes by saying: “I think we need to be honest with people and say that we’re not close to that deal right now. But there is an intent I think by all sides to try and find a landing zone that everybody can live with here."
Featured chart: GBP/USD
Source: Trading View and FOREX.com.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.