Analysts at Danske Bank explained that after two weeks of central bank action, focus will likely turn to the real economy, starting with the PMI and the Ifo. They point out it will be interesting to see if the service sector can continue to support growth despite the weakness in manufacturing.

Key Quotes:

“In the euro area, the most important data release next week is the PMI figures for the euro area and Germany on Monday. Last month, the manufacturing PMIs ticked up in both the euro area and Germany. However, both remain two-speed economies, with the service sectors shielding growth from the weak manufacturing sectors. With new orders improving slightly in August, we expect the manufacturing PMI to remain broadly stable at 47.0 in September. However, we see downside potential for the service print after the drop in business expectations last month and expect it to decline to 53.0.”

On Tuesday, we get German Ifo prints for September. Both the expectations and current situation component have been on a falling trend for the last year, but we expect to see some stabilization this month in line with the uptick we got in the ZEW expectations last week.”

Data released today showed that retail sales in Canada rose 0.4% in July, slightly below the +0.6% expected. According to Jocelyn Paquet, analyst at National Bank of Canada, the economic numbers suggest household consumption on goods may not contribute much to GDP growth
in July.

Key Quotes:

“The Canadian retail data for July came in weaker than expected. Although headline sales advanced for the first time in three months, most of the improvement stemmed from the motor vehicle/parts category. Without the latter, consumer outlays actually retreated slightly. Year on year, ex-auto sales slowed to just 0.5% in July, highlighting the recent malaise of Canadian consumers.”

“Real sales stalled in July while ex-auto sales retraced 0.4%. These results suggest household consumption on goods may not contribute much to GDP growth in July (due to come out on October 1st). This may also be the case in Q3 as a whole, with retail sales volumes currently on pace for just a marginal expansion in the quarter. Although this is consistent with our call for a slowdown in GDP growth from an annualized 3.7% in Q2 to about 1.5% in Q3, we still expect the quarterly outlook to improve with the release of retail data for August and September.”

“Stellar job gains in the country in the last 12 months is one reason to believe a pickup in consumer spending may be coming. The enhancement of the child benefit, which came into effect in July, may also provide some breathing space for Canadian households.”

  • Stocks hit fresh lows and Yen gains momentum after Chinese officials cancel visit to view US agriculture.
  • USD/JPY consolidates weekly losses as risk sentiment deteriorates.

The USD/JPY fell during the American session following reports that the Montana Farm Bureau said China's delegation has canceled a planned trip to view US agriculture. According to the media, Chinese officials will return to their country sooner than expected. The pair dropped to 107.60, reaching the lowest level since September 16.

Gold prices rose and Wall Street turned red. The Aussie printed fresh lows across the board. The report triggered risk aversion at the end of the week and also after US President Trump mentioned that Chinese agricultural purchases will not be enough, adding he wants a complete deal.

Rally ends on central bank’s weeks

After hitting the strongest level in a month near 108.50, USD/JPY reversed and it is about to end the week lower, after Federal Reserve and the Bank of Japan meetings. Price found resistance around the 20-week moving average and the 108.50 barrier and turned lower.

Higher US yields failed to boost the Greenback. The prevailing precautions tone around financial markets added support to the Yen.

US-China trade tensions are likely to continue to be a key driver in USD/JPY. Regarding data next week, in Japan the flash PMI is due on Tuesday while in the US, the PMI will be released on Monday and on Friday PCE data. “Japan PM Abe and US President Trump might be signing a trade agreement at the United Nations General Assembly in New York. Japan has previously said it would be willing to consider a deal that would reduce agriculture tariffs to levels previously contemplated under the Trans-Pacific Partnership. For Japan, the key thing is that Trump does not impose national security tariffs on Japanese vehicles and auto parts”, explained analysts at Danske Bank.

Levels to watch

Dallas Fed President Robert Kaplan on Friday argued that economies need a broader menu of other policy tools than just monetary policy. "The monetary policy cannot be the only game in town, negative rates would be a case of the central bank trying to do too much," Kaplan added.

Regarding the economic outlook, Kaplan said that he was expecting the economy to expand by 2% in 2019 and around 1.7% in the second half of the year.

The US Dollar Index largely ignored these comments and was last up 0.16% on the day at 98.52.

"My concern is that that weakness may seep into other parts of the U.S. economy, so that ultimately over the next several months, that weakness intensifies, and will ultimately catch up with the job markets, and will ultimately catch up and diminish consumer confidence, and maybe affect consumer behaviour," Kaplan further elaborated, as reported by Reuters.

On Friday, the Montana Farm Bureau told Reuters that Chinese agricultural officials, who were expected to visit US farm states next weeks, have cancelled their trip and were expected to return to China sooner than initially planned.

It's not clear whether or not officials will visit the other farm states.

This development seems to have triggered fresh risk-off flows. As of writing, the Dow Jones Industrial Average and the S&P 500 were both losing 0.4% on the day while the Nasdaq Composite was down more than 1%. Additionally, the 10-year US Treasury bond yield is erasing almost 2%.

  • The Sterling dropped sharply this Friday as EU doubts the UK proposals on Brexit.
  • The level to beat for sellers is the 1.2460 support level.

GBP/USD daily chart

The Pound is trading in a bear trend below the 100 and 200-day simple moving averages (SMAs). However, this market has been on the rise in Septembre. It has been fighting for the 1.2500 handle in the last week.

GBP/USD four-hour chart

GBP/USD is trading above the main SMAs, suggesting bullish momentum in the medium term. However, the market is challenging the 1.2460/78 support zone as bears created a sharp reversal down this Friday. If the market break below the 1.2460 level, GBP/USD can correct down towards 1.2405 and 1.2340 price levels, according to the Technical Confluences Indicator.

GBP/USD 30-minute chart

The Sterling is challenging the 200 SMA. Immediate resistance is the 1.2510 level followed by 1.2530 price level, according to the Technical Confluences Indicator.

Additional key levels

  • EUR/USD is trading at weekly lows on USD strength.
  • The level to beat for bears is the 1.1000 handle.

EUR/USD daily chart

The single currency, on the daily chart, is trading in a bear trend below the main daily simple moving averages (DSMAs). The Fiber remains in a two-week range as investors are waiting for the next catalyst.

EUR/USD four-hour chart

EUR/USD is trading below the main SMAs, suggesting a bearish bias in the medium term. The Euro bears are looking for a downside break below the 1.1000 handle to potentially reach 1.0965 and 1.0930 support levels, according to the Technical Confluences Indicator.

EUR/USD 30-minute chart

EUR/USD is hovering near the weekly lows below the main SMAs. Resistances are seen at 1.1023, 1.1045 and 1.1074 price levels, according to the Technical Confluences Indicator.

Additional key levels

In a joint press conference with Australian Prime Minister Morrison, US President Donald Trump said that China's increased agricultural purchases will not be enough to reach end the dispute and added that they want to have a "complete deal."

"I do not need a US-China trade deal before the 2020 election," Trump said. "I have an amazing relationship with China's Xi but we are having a little spat."

The 10-year US Treasury bond yield edged lower on these comments and was last down 1% on the day. Additionally, the Nasdaq Composite Index was erasing 0.4% pressured by the increasing selling pressure on the risk-sensitive technology shares.

  • The Greenback is gaining steam this Friday as the market is rising to weekly tops.
  • The level to beat for buyers is the 98.55/98.68 resistance zone.

DXY daily chart

DXY (US Dollar Index) is trading in a bull trend above its main daily simple moving averages (DSMAs). The Greenback, in the last two weeks, has been trading in a trading range around the 98.40 level.

DXY four-hour chart

DXY is trading above the primary SMAs, suggesting bullish momentum. The market is gaining strength as it broke above the triangle pattern. However, buyers will need to defend the 98.42 and 98.20 support if they don’t want the market to stay stuck in the range. The Greenback would need a daily close above 98.68 to pull away from the current range.

DXY 30-minute chart

DXY is trading above the main SMAs, suggesting bullish momentum in the near term. Support is seen at the 98.55 and 98.42 price levels.

Additional key levels