Talking Points

  • Canadian Dollar: Economic Activity Contracts, BoC To Retain Pledge
  • U.S. Dollar: ADP Misses, Highlights Dour Outlook For NFP's
  • Euro: ECB To Drop Hawkish Tone On Slower Growth, Inflation
  • Swiss Franc: Rallies Across The Board As SNB Sits Pat
  • British Pound: Gains Ground Despite Dovish BoE

Canadian Dollar: Economic Activity Contracts, BoC To Retain Pledge

Economic activity in Canada contracted 0.4% in the second-quarter, and the renewed weakness in the economy certainly dampens the likelihood of seeing higher borrowing costs as the central bank curbs its fundamental assessment for the region. According to Credit Suisse overnight index swaps, market participants see the benchmark interest rate being held at 1.00% over the next 12-months, and the Bank of Canada looks poised to uphold its wait-and-see approach for most of 2012 as Governor Mark Carney maintains his pledge to carefully consider future rate hikes. In turn, the recent rally in the loonie could be short-lived, and the USD/CAD may work its way back towards parity as the pair appears to be carving out a short-term bottom just above 0.9700.

U.S. Dollar: ADP Misses, Highlights Dour Outlook For NFP's

The U.S. dollar struggled to hold its ground on Wednesday and the reserve currency may weaken further over the remainder of the week as employment growth in the world's largest economy tapers off. Indeed, the smaller-than-expected print for the ADP employment report suggests we will see Non-Farm Payrolls miss market expectations, and a dismal reading is likely to dampen the outlook for the U.S. as private sector consumption remains one of the leading drivers of growth. As the Federal Reserve looks at additional policy tools to stem the risks for the region, it seems as though the FOMC will expand monetary policy further at the two-day meeting on September 21, and market participants may continue to diversify away from the reserve currency as the central bank maintains a cautious outlook for the economy.

Euro: ECB To Drop Hawkish Tone On Slower Growth, Inflation

The Euro fell back from an overnight high of 1.4468 and the single-currency may trade heavy throughout the remainder of the day as the developments coming out of Europe dampens the prospects for higher interest rates. Slowing inflation paired with high unemployment certainly limits the risk of seeing another rate hike this year, and the European Central Bank may continue to soften its hawkish tone for monetary policy as the region faces a tepid recovery. Moreover, the ongoing turmoil within the financial system may put increased pressure on the ECB to shore up the economy, and we expect the central bank to keep the benchmark interest rate at 1.50% throughout the remainder of the year as the fundamental outlook for the euro-area remains clouded with high uncertainty.

As there appears to be an increased reliance on the ECB, the Governing Council may step up its efforts to stabilize the banking system, but such measures could instill a bearish outlook for the single-currency as the group continues to delay its exit strategy. In turn, the Euro is likely to face additional headwinds over the near-term, and the EUR/USD should give back the advance from earlier this month as European policy makers struggle to restore investor confidence.

Swiss Franc: Rallies Across The Board As SNB Sits Pat

The Swiss franc rallied across the board as market participants scaled back speculation for a currency intervention, and the low-yielding currency may recoup the losses from earlier this month as the central bank continues to stand aside. In terms of the USD/CHF, the failed test of the 100-Day SMA (0.8351) could lead the near-term reversal to gather pace in the days ahead, and the exchange rate may fall back towards the 20-Day SMA at 0.7816 as the sharp rebound from 0.7070 tapers off.

British Pound: Gains Ground Despite Dovish BoE

The British Pound regained its footing despite the dovish comments coming from the Bank of England, and the GBP/USD may continue to retrace the decline from earlier this month as it continues to trade within an upward trending channel. However, as members of the MPC show an increased willingness to expand the asset purchase program beyond the GBP 200B target, the sterling is likely to face additional headwinds over the near-term, and the pound-dollar may threaten the bullish trend as the fundamental outlook for the U.K. turns bleak.

Will the EUR/USD Trend Sideways in Septmber? Join us in the Forum

Related Articles: Weekly Currency Trading Forecast

To discuss this report contact David Song, Currency Analyst: dsong@dailyfx.com

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

13:45

9:45

Chicago Purchasing Manager (AUG)

53.0

58.8

USD

14:00

10:00

Factory Orders (JUL)

1.5%

-0.8%

USD

14:00

10:00

NAPM-Milwaukee (AUG)

59.0

USD

14:30

10:30

DOE U.S. Crude Oil Inventories (AUG 26)

-2213K

USD

14:30

10:30

DOE U.S. Gasoline Inventories (AUG 26)

1355K

USD

14:30

10:30

DOE U.S. Distillate Inventory (AUG 26)

1731K

Currency

GMT

Release

Expected

Actual

Comments

GBP

23:01

GfK Consumer Confidence Survey (AUG)

-33

-31

Lowest since April.

JPY

23:15

Nomura/JMMA Manufacturing Purchasing Manager Index (AUG)

--

51.9

Expands for fourth month.

JPY

23:50

Industrial Production (MoM) (JUL P)

1.4%

0.6%

Slowest pace of growth since March.

JPY

23:50

Industrial Production (YoY) (JUL P)

-1.9%

-2.8%

JPY

23:50

Loans & Discounts Corp (YoY) (JUL)

--

-1.6%

Contracts for 21 straight months.

NZD

1:00

NBNZ Activity Outlook (AUG)

--

43.3

Confidence falls to the lowest since April.

NZD

1:00

NBNZ Business Confidence (AUG)

--

34.4

AUD

1:30

Private Sector Credit (MoM) (JUL)

0.2%

0.2

Expands for the fifth time this year.

AUD

1:30

Private Sector Credit (YoY) (JUL)

2.7%

2.7%

JPY

1:30

Labor Cash Earnings (YoY) (JUL)

-0.5%

-0.1%

Falls for second month.

NZD

3:00

Money Supply M3 (YoY) (JUL)

--

6.3%

Slow for first time since August 2010.

JPY

4:00

Vehicle Production (YoY) (JUL)

--

-8.9%

Weakens for eleven months.

JPY

5:00

Housing Starts (YoY) (JUL)

4.9%

21.2%

Biggest advance since September 2008.

JPY

5:00

Annualized Housing Starts (JUL)

0.829M

0.955M

JPY

5:00

Construction Orders (YoY) (JUL)

--

5.7%

EUR

6:00

German Retail Sales (MoM) (JUL)

-1.5%

0.0%

Fails to grow for the fourth time this year.

EUR

6:00

German Retail Sales (YoY) (JUL)

-0.8%

-1.6%

EUR

7:55

German Unemployment Change (AUG)

-10K

-8K

Contracts for 26 consecutive months.

EUR

7:55

German Unemployment Rate s.a. (AUG)

7.0%

7.0%

EUR

8:00

Italian Unemployment Rate s.a. (JUL P)

8.0%

8.0%

Holds steady for second month.

EUR

9:00

Euro-Zone Unemployment Rate (JUL)

9.9%

10.0%

Holds steady for third month.

EUR

9:00

Euro-Zone Consumer Price Index Estimate (YoY) (AUG)

2.5%

2.5%

Slowest pace of growth since February.

EUR

9:00

Italian CPI (NIC incl. tobacco) (MoM) (AUG P)

0.2%

0.3%

Fastest pace of growth since October 2008.

EUR

9:00

Italian CPI (NIC incl. tobacco) (YoY) (AUG P)

2.7%

2.8%

EUR

9:00

Italian CPI - EU Harmonized (MoM) (AUG P)

0.2%

0.3%

EUR

9:00

Italian CPI - EU Harmonized (YoY) (AUG P)

2.1%

2.2%

EUR

10:00

Italian Producer Price Index (MoM) (JUL)

0.4%

0.3%

Highest reading since April.

EUR

10:00

Italian Producer Price Index (YoY) (JUL)

4.8%

4.9%

USD

11:00

MBA Mortgage Applications (AUG 26)

--

-9.6%

Falls for second week.

USD

11:30

Challenger Job Cuts (YoY) (AUG)

--

47.0

Holds in double-digit figures for second month.

USD

12:15

ADP Employment Change (AUG)

100K

91K

Lowest since May.

CAD

12:30

Quarterly GDP Annualized (2Q)

0.0%

-0.4%

Growth contracts for the first time since 2Q 2009.

CAD

12:30

Gross Domestic Product (MoM) (JUN)

0.1%

0.2%

CAD

12:30

Gross Domestic Product (YoY) (JUN)

1.9%

2.0%

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