The Week Ahead in FX

FX calendar next week and what’s at stake (times are GMT where shown):

Note for Europeans! Next week is the odd week for Europe and possibly elsewhere in which local clocks have been set back an hour while the US doesn’t set its clocks back until next weekend on November 3 - so US data an hour early next week.

Trump on Joe Rogan podcast (late today) – impossible to quantify this as an event risk, but this is likely the most high-profile appearance former president Trump could possibly do between now and election day. Rogan has millions of followers and listeners who are used to tuning in for hours-long discussions. So millions of possible voters will be listening and it might change some few thousands or tens of thousands of minds if – enough to determine the election outcome if things are very close, which they very much appear to be. Watch for any consensus takeaway, though it seems Trump can get away with saying just about anything and even reveling in that fact. 

Japan election (this weekend) The LDP may struggle to get its usual outright one-party majority in the key lower house (233 seats needed for that) due to a recent scandal in the LDP ranks, which saw new Prime Minister Ishiba booting some 12 LDP members from the party, although 10 of these are running as independents. This would require relying on the Komeito party for a coalition if Ishiba rules out rapprochement with the shunned former LDP members. The less power for the LDP, perhaps the more the inflationary risk for Japan as other parties call for more spending.

France budget (starting Monday night and lasting through Friday). The debate on the new budget will start with taxing plans and moves on later with the spending plans. In general, the impression is that PM Barnier wants to deliver years of growth killing austerity and tax rises – bad for the euro at the margin, but only becoming alarming if French sovereign debt misbehaves. This is not necessarily an event risk that will see immediate impact, but France’s ability to get its fiscal house in order and is critical for the longer haul as it is violating EU budget deficit rules (forecast at 6% for this year versus 3% max under EU rules). The hung parliament will make the going very tough for PM Barnier and President Macron. Worth keeping an eye on the France-Germany 10-year yield spread, which peaked on three occasions at around 80 basis points, the first time just ahead of the legislative elections in June. That spread is at 72 basis points going into this budget announcement.

Australia Q3 CPI (0030 Wednesday) The RBA has been quite firm that they are going to take it easy on the rate cuts – only a big acceleration lower in the core CPI (the “trimmed mean” usually the focus with these quarterly numbers) might change the narrative, with more than 50/50 odds of a rate reductio not priced at the moment until the February RBA meeting. Otherwise, AUD also held up at margin by hopes for more Chinese stimulus – any news there probably more impactful than potential for rate outlook shifts.

US Oct. ADP Payrolls (1215 Wednesday) – The market and USD will be very twitchy on all US labor market data – this data series ticked higher to 143k in September after two rather weak numbers the prior two months. October’s number expected at +99k.

UK autumn budget statement (1230 Wednesday). This is potentially pivotal for sterling. The degree to which Chancellor Rachel Reeves can deliver expanded spending priorities and new taxes without triggering either Gilt vigilantes on the one hand, or a more pessimistic outlook for growth on the other is the two-sided risk here. She has sent many of the right messages: wanting to avoid austerity and ruling out income tax hikes, while encouraging much-needed investment. If the market greets the effort with higher Gilt yields on the anticipation of stronger UK growth (as opposed to an ugly spike of yields a la the Truss/Kwarteng mini-budget of September 2022), it could keep the path of Bank of England cuts at a modest pace and boost sterling, especially versus the Euro as the contrast with the growth-killing approach in France and the woeful outlook for Germany is stark. 

US GDP first estimate (1230 Wednesday) - a lot of discussion that public sector is driving the US GDP outperformance, for what it’s worth (not much yet). 

Germany Flash Oct. CPI (1300 Wednesday) – delivered the same day as Q3 GDP, which is scraping along near  0% or worse. Tactically important as market struggles with mixed message from ECB – currently about 35% in favour of a larger 50 bps cut at December ECB meet.

Bank of Japan (Thursday – released during the night (most likely 0230-0330) – The Bank of Japan is seen not likely to move at this Thursday’s meeting, but the guidance will prove critical. The recent sharp rally in JPY crosses has been driven by the strong back-up in US yields at the long end of the yield curve, in part on the anticipation of Trump 2.0, or Republican sweep of the White House and both houses of Congress.

Eurozone October CPI – (1000 Thursday) Important as input for as ECB is supposedly still a single-mandate central bank focused on inflation.

US Oct. Nonfarm Payrolls Change and Unemployment Rate (1230 Friday) – This is the most important data release ahead of the election on November 5. Many have rightly bemoaned the quality of the Nonfarm payrolls data series, which has been plagued by massive revisions that should make us all wonder why we bother reacting to each new monthly data point. As well, the BLS has noted a huge drop in participation of the survey. Alas, I suppose we react because we have no other choice. Expectations for the October payrolls growth running at +120k and an unchanged 4.1% figure is expected for the Unemployment Rate.

Table: FX Board Trend Scoreboard for individual pairs.

What sticks out like a sore thumb here is the hot volatility levels in JPY pairs and precious metals (The ATR shading indicates from blue (suppressed trading ranges) to bright orange (large trading ranges). Elsewhere, most of the rest of FX is mired in low volatility ranges, even with some of the fairly persistent trending moves we have seen over the last couple of weeks in USD pairs.