Week Ahead: U.S. Dollar Recovers Ground Ahead of Fed Meeting

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Although the U.S. dollar bounced back on Friday, it could not offset the losses suffered during last week. The greenback was lower against most major pairs and market participants adjusted their positions before the weekend giving some breathing room to the USD.

The U.S. Federal Reserve will host its two-day meeting on Tuesday and Wednesday. The Federal Open Market Committee statement will be published at 2:00 pm EDT followed by a press conference by Fed Chair Jerome Powell at 2:30 pm EDT.

A rate lift by the U.S. central bank is highly anticipated and has been priced in to the dollar putting more focus on the words of the Fed chief.


Euro Appreciates as U.S. Trade War Fears Soften

The Trump administration unveiled the second round of tariffs against Chinese goods last Monday but as more details came out an all out trade war can still be averted.

Despite the rhetoric market participants are optimistic about a resolution that will not have a negative impact on global growth.

German data and E.U. inflation will be released this week. German confidence has improved of late and forecasts show that trend will continue but European inflation early results are not expected to have gained traction. The EUR has recovered from political uncertainty earlier in the year, but investors will look at fundamentals for guidance.


Canadian Inflation Lifts Probabilities of an October Rate Hike

The USD/CAD fell 0.92 percent in the last week. The currency pair was trading at 1.2921 after various phases of NAFTA jitters have helped and pressured the loonie. The Canadian currency gained on a weekly basis against a softening greenback.

U.S.-China trade rhetoric hast lost some traction, and as JP Morgan CEO Jamie Dimon put it, it’s more like a skirmish than a war.

NAFTA optimism remains high, but officials from both sides have begun to trade sound bites as frustrations mount.

U.S. White House Chief Economic Advisor Kevin Hasset said in a TV interview that the U.S. could forge ahead with the Mexico only trade deal. The U.S. has been trying to get Canada to join the quick agreement made with Mexico, but so far the negotiations have not been as smooth.

Canadian Foreign Minister wrapped up her Washington visit on Thursday with the Quebec elections on October 1, an important day if dairy concessions are given as part of the NAFTA renegotiation.

Canadian monthly GDP data will be released on Friday September 28, with a forecast of 0.1 percent. The stronger pace earlier in the year and with inflation above target will pressure the Bank of Canada to lift rates in October. Probabilities of a 25 basis points hike are at 88.74 percent.

Oil Ends Week Higher with OPEC Meeting to Provide Guidance

Oil prices rose ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting in Algiers last week that included supply concerns and pressure from U.S. President Trump to keep prices low.

The production cut agreement by the OPEC and other major producers has been the most important factor in the stabilization of crude prices since the 2014 drop.

Supply disruptions have kept prices in current ranges even as the OPEC and partners such as Russia will be discussing ramping up production.

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The biggest disruption to supply this year has come from the reapplication of U.S. sanctions against Iranian exports. Global producers that are part of the supply curb have telegraphed their intentions but weather and geopolitical factors have been offset with global growth and energy demand forecast downgrades.

Weekly U.S. inventories threw another drawdown data point on Wednesday and have kept the black stuff bid. President Trump has used twitter as a macro policy tool and this time his aim fell on the OPEC.

The organization has limited options and will look to Saudi Arabia for leadership as some members have pressured internally to increase production for their own national interests.

This time the U.S. is mixing political and economic factors to force an increase in supply, even though the White House is the one who triggered the latest disruption.


Yellow Metal Loses Shine on Friday Looks Ahead to Fed Rate Hike

Gold was lower on Friday by 0.65 percent, but gains earlier in last week still managed to put it in the black with a 0.19 percent gain.

The safe haven appeal of the yellow metal was lower as U.S. stock markets continued their rally stoked by improving economic data in America.

The Fed’s imminent rate hike is keeping gold close to the $1,200 price level and the Swiss franc is now the de facto refuge for investors.

With a 25 basis points fully priced in from the Fed metal investors will be focusing on the economic projections and any changes in the wording of the statement looking for clues on the rate hike path of the central bank.

Market events to watch this week:

Monday, September 24
4:00am EUR German Ifo Business Climate

Tuesday, September 25
10:00am USD CB Consumer Confidence
9:00pm NZD ANZ Business Confidence

Wednesday, September 26
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Economic Projections
2:00pm USD FOMC Statement
2:00pmUSD Federal Funds Rate
2:30pm USD FOMC Press Conference
5:00pm NZD Official Cash Rate
6:00pm NZD RBNZ Press Conference

Thursday, September 27

8:30am USD Core Durable Goods Orders m/m
8:30amUSD Final GDP q/q

Friday, September 28

4:30am GBP Current Account
8:30am CAD GDP m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar