Trading Week Ahead: 14th – 18th September 2020
Key Events and Data Releases This Week
USD Retail Sales, Core Retail Sales
USD FOMC Economic Projections, FOMC Statement, Federal Funds Rate, FOMC Press Conference
AUD Employment Change, Unemployment Rate
JPY Monetary Policy Statement
GBP MPC Official Bank Rate Votes, Monetary Policy Summary, Official Bank Rate
(Times adapted to AEST timezone)
Last Week’s Wrap
Traders, we had an interesting week on a few fronts from FX to equities. The GBP was the worst-performing major to the USD and JPY, which was most likely caused by the increasing worries surrounding the Brexit agreement withdrawal between the UK and the EU.
The GBPUSD tumbled 3.41% and the GBPJPY plunged 3.43% during the week, and this will remain a key issue, with Britain said to be drawing up legislation that will override their current agreement with Northern Ireland. An ultimatum will be placed on the heads of the negotiators and the UK and Europe will be advised to agree on a post-Brexit deal by October 15th, if not then the UK could walk away completely without a deal.
According to UK’s Guardian newspaper, Labour said the prime minister was “threatening to renege on the UK’s legal obligations” and called it “an act of immense bad faith: one that would be viewed dimly by future trading partners and allies around the world”.
The news was condemned by Ireland’s foreign affairs minister, Simon Coveney, who helped broker the original Brexit settlement. As reported by The Guardian, Coveney said any change would be “very unwise”.
With updates like these, it’s no surprise traders jumped out of the GBP last week as Brexit uncertainty came flooding back, continuing what has been a long line of back and forth over this particular issue. Johnson stated a no-deal would be a “good outcome”. I’m not exactly sure how much exporting the UK is doing at the moment, but I can say that if they do walk away, the Sterling could become a lot cheaper!
Questions are also arising around what is happening behind the scenes. Supposedly speculation has been made around whether the legislation being drafted is legal. There is also word of a Tory revolt making it more complicated if Johnson does proceed.
On the flip side, the EUR saw its highest close to the GBP in several years finishing at 0.9258, while finishing flat last week to the safe-havens, after a choppy week. The European Central Bank statement on Thursday set the price higher for a short period before the rally was cut down. The word from the ECB said that they’re not currently too concerned with the value of the EUR, and there’s no need to overreact to its recent gains.
Tech stocks were once again another talking point last week as heavy selling continued. News of Softbank’s options position was also seen as a factor to the decline. Tech stocks saw falls not seen since March, with Tesla shedding 21% at one stage. The NDX100 closed the week 3.96% lower, taking its fall to 7.74% over the last two trading weeks. At one stage the Nasdaq hit 10% in declines briefly before moving into correction territory.
Data and news on the horizon this week revolve once again around this coming Thursday with FOMC funds rate, projections, statement, and press conference. Rates are expected to remain on hold, as the policy has shifted with the inflation target no longer fixed at 2%. Will there be any new details in the statement? With rates near zero and billions being bought in bonds, we’ll certainly be on the lookout.
Thursday will also see Australian employment data and New Zealand GDP. Japanese monetary policy is due, with Suga seen as the favourite to take over from Shinzo Abe. A Bank of England summary caps off a full-on Thursday. No movement is expected from the BOE on the official bank rate.
With the UK and Brexit fully back in the spotlight, this week’s chart shows how powerful uncertainty on a Government level can be on its currency. Just two weeks ago, the GBPUSD closed at 1.33489 – a closing level not seen since 2018. Now, well, the chart says it best! Updates about this should continue to be a key influencer on the GBP this week.