Next Week’s FX Forecast & Events Nov 18, 2019

Trade and politics still set to dominate

Trade developments will continue to be watched closely as the US and China attempt to reach a deal.  Agreement on the phase-one deal would underpin risk appetite while demand for defensive assets would decline sharply if there is an agreement to cut existing tariffs. 

In this environment, the dollar, yen and Swiss franc would tend to lose ground. This is the most likely outcome, although there are still very important risks given underlying tensions between the US and China.

A breakdown in talks would lead to strong demand for defensive currencies.

US

The flash PMI business confidence readings will be released on Frida and will have an important impact on sentiment towards the US economy. The Philadelphia Fed manufacturing index is due for release on Thursday.

Minutes from the October Federal Reserve meeting will be released on Wednesday. The extent of divisions within the committee will be important and rhetoric on future policy will be watched closely, although the overall impact is likely to be limited with markets not expecting a further rate cut at the December meeting.

Political developments will be monitored closely with further hearings in Congress to decide whether or not President Trump should be impeached.

Any crumbling of Republican support for Trump would have a significant market impact and potentially weaken the US currency.

UK

There are no major economic data releases during the week while Sterling will gain some net support if global risk appetite improves.

Political developments will continue to be monitored closely as the election campaign continues. Sterling will tend to gain ground if there is stronger evidence of a likely Conservative majority government following the General Election. In contrast, signs of a reversal would tend to undermine Sterling.

Euro-zone

The ECB policy minutes will be released on Thursday, but little impact is likely given that Lagarde has now taken over as central bank President.

The latest PMI business confidence data will be very important for Euro-zone sentiment on Friday. There has been evidence of a recovery in German sentiment and any evidence of significant recovery within the Euro-zone would underpin Euro confidence, especially if the German manufacturing sector registers an improvement. In contrast, a weak set of data would certainly unsettle the Euro.

International

The latest Canadian inflation data is due on Wednesday and retail sales release on Friday.

Trends in commodity currencies overall are likely to be dominated by US-China trade trends.

Currency FX Forecast for Next Week