Looking forward to the upcoming week, forex market promises to be eventful, with a crucial US Consumer Price Index (CPI) report and the European Central Bank's (ECB) interest rate decision taking center stage. These developments are poised to have a significant impact on the EUR/USD currency pair, attracting the attention of forex traders worldwide.
Looking back previous week, rising bond yields dominated market sentiment, bolstering the US dollar's strength. The release of stronger-than-expected economic data from the United States on September week 1, further reinforced the notion of 'higher for longer' interest rates by the Federal Reserve (Fed). The robust ISM services Purchasing Managers' Index (PMI) data, reaching a six-month high, provided evidence of growth trends, boosting expectations for a sustained GDP rate of 1.6% year-on-year. This positive economic backdrop has implications for forex markets, especially the EUR/USD pair.
The European Central Bank's upcoming interest rate decision remains uncertain, with arguments for both maintaining rates and implementing a final 25 basis point (bp) hike. A Reuters poll suggests a slight preference for the ECB to keep rates steady, driven by weak economic data in Germany and waning business and consumer confidence across Europe. Nevertheless, nearly half of the experts anticipate a final 25bp rate hike. While this decision remains finely balanced, ECB policymakers have hinted at the potential for a hike, suggesting they are combating weak growth and high inflation. The ECB's action or inaction will significantly impact forex markets, particularly the EUR/USD pair.
China's economic data releases are poised to impact forex sentiment in the coming week. Traders will closely monitor China's loan growth figures to gauge domestic demand, which has been lackluster in recent times, potentially signaling weaker global growth trends. Additionally, China's inflation data could provide insights into future inflationary pressures, affecting forex markets in the fourth quarter or 2024. The week will culminate in a data dump, featuring industrial production, retail sales, fixed asset investment, and employment figures, all of which have been underwhelming lately.
The Australian employment data for the upcoming week holds substantial significance, particularly considering the Reserve Bank of Australia's (RBA) recent monetary policy decisions. The majority view is that the RBA has completed its tightening cycle. Consequently, strong employment figures may be needed to challenge this consensus. With cracks appearing in the August labor force report, the forex market will scrutinize whether these cracks widen, confirming concerns about economic health, or if they prove to be an isolated data blip. Factors such as negative job growth, a lower participation rate, and increased unemployment will be closely watched to assess the Australian economy's overall resilience.