Weekly trading forecast October 22 - 26

Two major central banks’ meetings and rate decisions will influence the price action this week: Bank of Canada and European Central Bank. The third-quarter earnings season in the U.S. will definitely add volatility for the stock indices. Investors will try to find an answer to the key question, will equities be able to recover some of the recent losses, or are we entering a long-lasting bearish market? Add here an extremely busy economic calendar with a huge lot of crucial reports and a number of monetary policy-makers aimed to speak this week, and you will get a strong cocktail of fundamental events affecting the financial markets. The week ahead promises to be very volatile also due to several geopolitical decisions and negotiations on the table.

Monday, October 22.

Monday kicks off the trading week with RBA Assistant Governor Debelle’s speech in Australia. Aussie traders will try to catch some positive words from the official, as AUD/USD needs support from fundamentals to finish the bullish reversal technical pattern. Otherwise, we might see a further decline of the pair due to the U.S. dollar’s strength. Japanese economy reports All industries activity index, and USD/JPY and Nikkei 225 traders will watch that report closely in order to confirm the recent uptrend. The rest of the regions do not have any significant reports scheduled for Monday, except German Buba Monthly report in Europe and Canadian Wholesale sales. Both of the events do not have any significant impact traditionally, so the price action in currency markets will be influenced mainly by the stock indices worldwide.

Tuesday, October 23.

Bank of Japan will publish its Core CPI report on Tuesday. The absence of any improvements in inflation will confirm the soft monetary policy by the regulator, so no threats for USD/JPY uptrend are expected from that side. German Producer Price Index is the main report during the European trading session and a slight slow down is expected in September on yearly basis (2.9% versus 3.1% previously). If that happens, European Central Bank President Mario Draghi will still have a stable background for keeping the interest rates at low levels in the European Union. ECB meeting is scheduled for Thursday. Several officials are going to speak on Tuesday about their monetary policy as well. Bank of England MPC Member Haldane and Governor Carney will talk about the perspective for the British economy in the light of the UK - EU Brexit negotiations and recent crucial economic reports. FOMC Member Bosnic, the well-known hawk, will speak in the U.S. about further rate hikes and the impact on the economic growth. The API weekly Crude Oil stocks report will be monitored by the black gold traders in the scope of demand cuts and falling oil price. Any decline in that report would help oil bulls to find at least a local bottom.

Mario Draghi
Source: Telegraph

Wednesday, October 24.

Wednesday’s calendar is much more busy with several crucial reports before the ECB meeting. French Business survey, German, French and EU Manufacturing PMI as well as EU market composite and services PMI - these are the reports to watch for EUR/USD traders. South Africa reports September’s inflation figures on Wednesday and that report is important for USD/ZAR which was declining recently. Any pick up in the inflationary pressure would force South African Central Bank to hike interest rates more rapidly which is the supportive factor for the Rand. New York session starts with Housing sector data and Manufacturing and Services PMI reports. That news together with several large U.S. corporations reporting the third-quarter earnings will influence equities’ volatility. Bond market traders will also monitor those reports in order to understand how fast the Fed will tighten the financial conditions. The main event for USD/CAD will be the Bank of Canada meeting and rate decision. Rumours about hikes eased last week due to softer-than-expected data in Canada, so the market players do not expect any changes from the regulator. However, the following press conference will be extremely important for Loonie traders to predict further moves by BoC and the direction of the trend for USD/CAD. Crude oil inventories would also add fuel to the fire of declining Canadian dollar if the situation with oil demand worsened in the U.S. Extremely volatile trading session is expected.

Thursday, October 25.

New Zealand will release the country’s trade balance on Thursday and some improvement is forecasted. That fact would support NZD/USD from more bearish slides, otherwise, the pair would keep posting fresh yearly lows in the scope of the greenback’s strength. German Ifo Business Climate survey will be the last report before the ECB meeting which is scheduled for 11:45 AM GMT. No changes are expected for the interest rates and deposit facility rates in Eurozone with the same volume of additional liquidity injected into the financial system by the regulator. However, the upcoming ECB press conference hosted by President Mario Draghi is set to find an approximate term when the tightening cycle is expected to start. If the previous forecast of the second half of 2019 will be confirmed, EUR/USD will have some additional support from long-term investors who are interested in borrowing market differentials, especially from the Asian side. On the other side of the Atlantic, Core Durable Goods orders are expected to support the greenback’s demand ion case if the report will come in with a strong reading. Pending Home sales in the U.S. are important for Housing and Banking sector development and in the light of growing mortgage rates.

Friday, October 26.

The Asian trading session will start with Tokyo Core CPI report from Japan on Friday. EUR/JPY currency pair will be in focus after the ECB rate decision and press conference. The European economic calendar is empty on Friday, however, the price action will be determined by the EU stock indices. One of the most important events for the whole trading week will be the U.S. GDP report. Some analysts forecasted a slow down in economic growth of the largest economy worldwide and the final revision of the third quarter of 2018 is expected to be revised down significantly: 3.3% versus the previous reading of 4.2%. If that confirmed, U.S. equities will extend losses as tightening financial conditions together with the GDP growth slowing down would force businesses to cut dividend payouts on lower corporate profits. Such a negative scenario would also affect the greenback, and the main reserve currency worldwide could reverse its recent uptrend on a long-term perspective.
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