Week Ahead in FX Disappointing FOMC Impairs USD

The US Fed held rates and depreciated the USD across the Board

September’s FOMC was going to be memorable no matter what. The U.S. Federal Reserve was in a no-win situation. Damned if they hiked rates against the warning of the International Monetary Fund and former Treasury Secretary Larry Summers amongst others. Damned if they didn’t; as the Fed’s credibility in the market took a huge hit as the first interest rate raise since 2006 might not happen in 2015. The week from September 20 to 25 will highlight what was cited as major factors in delaying the rise of interest rates, although Chair Janet Yellen argued that they did not change the Fed’s view on the U.S. economy.

China’s preliminary factory survey will give insight into the status of the slowing economy on Tuesday, September 22. On Wednesday European Central Bank President Mario Draghi will testify in Brussels as pressure mounts on the central bank to cut interest rates after the Fed’s decision to stand pat. The Department of Commerce in the U.S. will publish the final gross domestic product figures for the second quarter of 2015. There are little changes expected to the first two versions, but any upside surprises will further dent the Fed’s certainty that they made the right call by holding rates in September.

Sunday, September 20
All Day EUR Greek Parliamentary Election
Monday, September 21
2:45pm CAD BOC Gov Poloz Speaks
Tuesday, September 22
9:45pm CNY Caixin Flash Manufacturing PMI
Wednesday, September 23
3:00am EUR French Flash Manufacturing PMI
3:30am EUR German Flash Manufacturing PMI
8:30am CAD Core Retail Sales m/m
9:00am EUR ECB President Draghi Speaks
5:45pm NZD Trade Balance
Thursday, September 24
4:00am EUR German Ifo Business Climate
5:15am EUR Targeted LTRO
8:30am USD Core Durable Goods Orders m/m
8:30am USD Unemployment Claims
5:00pm USD Fed Chair Yellen Speaks
Friday, September 25
8:30am USD Final GDP q/q

Elections To Underwhelm as Greeks Lose Faith in Democracy

Citizens of Greece will go to the polls for the fourth time in three years. After all-or-nothing game of bailout chicken and a referendum that was quickly reversed when Greece faced an exit from the Euro zone has caused political fatigue with voters.
Elections tents are empty. Syriza promised to stand up and face up to European paymasters and they did, until it was time to face reality but in doing so they have deflated Greeks faith in the political system. After the rebel party was forced to play by the same rules that they had previously criticized. Greeks have tried all the flavors of democracy from center-left to centre-right and now Syriza all with very similar outcomes.
Syriza is hoping to win a majority to avoid ruling by coalition, but the rebel party-that-could is facing backlash for how it handled the referendum and the quick capitulation to European demands. Another coalition is expected and since at least ten percent of voters are undecided it is not clear Alexis Tsipras will remain as Prime Minister.

BOC Governor Poloz to Jawbone Energy Outlook in Oil Producing Alberta

Bank of Canada Governor Stephen Poloz will deliver a speech with the topic Riding the Commodity Cycle: Resources and the Canadian Economy in Calgary on Monday, September 21 at 2:45 pm EDT. Low oil prices have pressured the Canadian economy in particular the province of Alberta so Governor Poloz’ words will address the central bank’s views on the topic of energy and the effects of monetary policy to aid the overall growth of the economy.

Flash PMI to Show State of Chinese Factories

Economic indicators continue to paint a bleak picture of Chinese growth. Cited by various central banks as one of the major factors affecting the global economy there is little China can do to improve the narrative around its economy. The fact that transparency is still a foreign word when it comes to its economy has not helped the Chinese authorities to deal with this lack of confidence from foreigners and chinese investors alike. The stock market sell off is a perfect example of economic growing pains that was the result of badly handled expectations by the People’s Bank of China (PBOC)

There is also the fact that given the state of the global economy economic indicators have not been taken in context. China has slowed down, but then again so has the rest of the world. The Federal Reserve pledged an end to lower rates more than two years ago, which triggered a “taper tantrum” and still the market waits for the start of a tightening cycle.

The Chinese purchasing managers index (PMI) published by Caixin and Markit gives a third party view of business conditions. After the record breaking pace of the past, it is no surprise the PMI figures have dropped into contraction at 47.1 (a six year low) but still close to the index reading of expansion (50). The preliminary version of this report published on Tuesday, September 22 will give traders a good idea of the state of Chinese factories.

ECB Draghi Under Pressure to Cut After FOMC

European Central Bank President Draghi will testify before the European Parliament’s Economic and Monetary Committee a week after the American central bank’s Federal Open Market Committee (FOMC) left rates on hold. The Fed’s inaction leaves the ECB under pressure and could trigger a rate cut as soon as October 10 when the Monetary Policy meeting takes place in Brussels.

European factories have shown uneven confidence from purchasing managers. German results have been steady and no surprise from the European economy’s engine, but results from France have been a revelation as they have managed to exceed expectations and managed to print signs of expansion for the first time in 18 months in June before tapering off, but still with expansion in sight.

Final Q2 US GDP to Do Little to Comfort Dollar Next Week

e Final gross domestic product (GDP) will be released on Friday, September 25. This is the third and final GDP release the is published 85 days after the end of the quarter. The U.S. economy had a terrible first quarter so all eyes were on spotting signs of a recovery as the advanced and preliminary GDPs were announced.

The GDP in the second quarter has exceeded expectations and is on track to record 3.7 percent growth. The Commerce Department revised the advanced GDP number from 3.2 percent but the final number should be closer to the advanced report. Improving GDP was one of the factors the market was counting on to persuade the Federal Reserve to deliver its much-awaited interest rate hike. The final GDP figures, will probably have a subdued impact on the USD as even exceeding expectations would do little to boost the currency.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza