​Euro and British Pound at Risk (Weekly Review)

The topic of trade wars and the topic of interest rates continue to occupy the minds of financial market participants. Successful completion of US trade disputes with Mexico and Canada and the signing by the parties of a new trade agreement returned optimism and bullish mood to the markets, which triggered the stock indices to grow again, and the Japanese yen was under pressure. Nevertheless, the US trade conflict with the EU is in limbo, and the trade war with China is only gaining momentum, carrying serious risks not only for the economies of both countries, but for the global economy as well. Taking into consideration these and some other factors, indices at the end of the week were sold out, and the JPY got a breather, although its prospects still look negative.

Dynamics of the British pound traditionally depends on the incoming news related to the procedure of the UK exit from the European Union. Positive news is replaced by negative ones, and vice versa, and as a result the GBP shows a rapid growth, and then a sharp drop. Bank of England increasing the interest rate after a long period of "soft" policy once supported the GBP making it more attractive in this regard compared to the EUR, but the prospects for the next increase in the light of ongoing battles around the Brexit deal look rather vague. Thus, its positions will remain vulnerable in the foreseeable future, and growth attempts can be used for sales, while any positive on Brexit will return bulls to the market.

Market participants expect the European Central Bank to complete the asset purchase program at the end of this year, but as for the beginning of the interest rate increase, here they will have to be patient. Central Bank President Mario Draghi made it clear that the rates will not be increased before the next autumn, so such factor as the differential in interest rates will continue to play into the hands of the USD, not the EUR, which also looks vulnerable against the background of budget «dances» of the new Italian government. Related risks will also negatively affect dynamics of the EUR, and only possible negative consequences for the US economy from the trade wars can force the EUR/USD bears be extremely cautious.

Schedule for this week:

Monday, October 8
06:00 GMT – Germany. Industrial Production;
08:30 GMT – Eurozone. Sentix Investor Confidence;
USA.  Columbus Day.

Tuesday, October 9
06:00 GMT – Germany. Trade Balance;
06:00 GMT – Germany. Import/Export;
12:15 GMT – Canada. Housing Starts;
12:55 GMT – USA. Redbook Index.

Wednesday, October 10
23:30 GMT – Australia. Westpac Consumer Sentiment;
08:30 GMT – United Kingdom. GDP (MoM) (Aug);
08:30 GMT – United Kingdom. Manufacturing Production;
12:30 GMT – USA. Producer Price Index (PPI);
13:00 GMT – United Kingdom. NIESR Gross Domestic Product (GDP) Estimate (QoQ) (Sep).

Thursday, October 11
22:30 GMT – Australia. Reserve Bank of Australia Assist Governor Ellis Speaks;
23:50 GMT - Japan. Foreign Investments in Japanese Stocks;
23:50 GMT - Japan. Foreign Bonds Buying;
01:00 GMT – Australia. MI Inflation Expectations;
08:30 GMT - United Kingdom. BoE Quarterly Report;
11:30 GMT – Eurozone. ECB Publishes Account of Monetary Policy Meeting;
12:30 GMT – Canada. New Housing Price Index;
12:30 GMT – USA. Core Consumer Price Index (CPI);
12:30 GMT - USA. Consumer Price Index (CPI).

Friday, October 12
21:30 GMT – New Zealand. Business NZ Purchasing Managers Index (PMI);
00:30 GMT – Australia. Home Loans;
00:30 GMT – Australia. Invest Housing Finance;
02:00 GMT – PRC. Trade Balance;
02:00 GMT – PRC. Import/Export;
06:00 GMT – Germany. Harmonised Index of Consumer Prices (HICP);
06:00 GMT – Germany. Consumer Price Index (CPI);
09:00 GMT – Eurozone. Industrial Production;
14:00 GMT – USA. Michigan Consumer Sentiment Index;
18:00 GMT – USA. Monthly Report (Sep).

Author: Anthony Porter, IAFT Analyst