GemForex - weekly analysis

The week starts out very quietly on the data front with no major releases on the calendar, but keeps up pace during the following days, with many interesting developments and events being unfolded. During the previous week, we witnessed the strengthening of the dollar versus all other major currencies, as the Fed was discussing how the inflation battle is going and the conclusion that the Fed still has a way to go to calm the markets. Let us take a look at the week ahead. 

This week, the macroeconomic calendar will start slow but will increase the pace as the days progress. On Monday, the market does not expect any sudden movements, but on Tuesday, we have some other economic data to be on the lookout for, as Global Flash Manufacturing and Services PMIs will be released for Germany, the Eurozone as a whole, the UK and later during the day for the US. Last month‘s European prints showed that many countries were below the consensus level. A reading of above 50 is said to be expansionary while a reading of below 50 means a country’s economy is contracting. 

On Wednesday, the theme was picked up by the US, with Durable Good Orders for July, a metric that calculates the cost of orders received by manufacturers for durable goods, an important metric for the diagnosis of Industrial output. 

On Thursday, the German GDP will set the tone for the short-term trajectory for the EUR/USD. With an expectation of a 1.4% increase for the German GDP year on year, the German economy continues to illustrate the challenging environment the economy is facing, and if that consensus number is viable, considering the unfolding energy crisis in Europe. Just last week, voices in Germany got louder for keeping their remaining three nuclear power plants running after the scheduled end in December this year, something which the German government decided to move ahead with by the end of 2022.

Both Scholz and Habeck mentioned this at a government open day in Berlin yesterday. On the positive side, news over the weekend was that the much-focused water key point of Kaub on the Rhine is said to be passable again and financially viable for most companies as of Tuesday due to an expected rise in the water level from 31cm to 148 cm. During the weekend, Bundesbank president Nagel also said that a German recession seems probable if the energy crisis worsens. It was also announced that the Nord Stream 1 pipeline will be down for maintenance for three days later this month.

In addition, the ECB will release the Minutes from its July meeting on Thursday. This usually is not a large market mover, but with EUR/USD heading towards parity, traders will be looking for hawkish clues to push the Euro higher. Other economic releases to watch during the days are across the Atlantic, such as the long-awaited US GDP Annualized MoM & YoY, and the Initial Jobless Claims for the past weeks. 

Also on Thursday, from across the Atlantic, the Jackson Hole Symposium will commence, and Fed members set up Fed Chairman Powell to speak at the Jackson Hole Symposium on Friday.

In addition, Friday will bring about the Feds favorite measure of inflation for July, Core PCE. Will it confirm the weaker CPI print seen earlier this month？ This week we will know the long-term trajectory of that. 

From the other side of the Pacific on Friday, we also expect to see the fresh prints for the Japanese CPI MoM & YoY, with a consensus of 2.5%, the lowest inflation prints across all major economies and currencies at this point. 

In general, global inflation pressures from oil, metals, food, and freight rates have come down but labor markets remain tight in the US and Europe keeping wage pressures high. The euro area was hit by a further inflation shock over the summer from the sharp rise in gas and electricity prices. Looking forward, we expect inflation to stay high in the short term (rise further in the Euro Area) but decline during 2023 as the recession looms.

Major weeks economic releases to watch ahead are as follows:

Tuesday

• Global: Manufacturing and Services PMIs Flash (AUG)

• UK: CBI Industrial Trends Orders (AUG)

• EU: Consumer Confidence Flash (AUG)

• US: New Home Sales (JUL)

• US: Richmond Fed Manufacturing Index (AUG)

Wednesday

• Canada: Manufacturing Sales Prel (JUL)

• US: Durable Goods Orders (JUL)

• US: Pending Home Sales (JUL)

• Crude Inventories

Thursday

• US: Jackson Hole Economic Symposium

• New Zealand: Retail Sales (Q2)

• Germany: GDP Growth Rate Final (Q2)

• Germany: Ifo Business Climate

• US: GDP Growth Rate 2nd Est (Q2)

• EU: ECB Monetary Policy Meeting Minutes

• US: Kansas City Fed Manufacturing Index (AUG)

Friday

• US: Jackson Hole Economic Symposium

• New Zealand: ANZ Roy Morgan Consumer Confidence (AUG)

• Japan: Tokyo CPI (AUG)

• Germany: GfK Consumer Confidence (SEP)

• US: Personal Income (JUL)

• US: Personal Spending (JUL)

• US: PCE Core Price Index (JUL)

• US: Michigan Consumer Sentiment Final (AUG)

• US: Fed Chairman Powell's Speech