Review of the main events of the Forex economic calendar for the next trading week (07.09.2020 – 13.09.2020)

Review of the main events of the Forex economic calendar for the next trading week (07.09.2020 – 13.09.2020)

Trading on key Forex news: next week we are expecting the publication of important macro statistics from Japan, Eurozone, China, Great Britain, Germany, the US, as well as the results of meetings of the Bank of Canada and the ECB.

The recovery of the American economy continues. This was evidenced by the data published last Friday from the US labor market. The number of jobs in the US economy in August increased by more than 1.3 million, and the relatively high unemployment rate fell to 8.4% from 10.2% in July and a record high of 14.7% in April. Investors reacted positively to this information: American stock indices rose, but still could not level the fall on Thursday.

The dollar also reacted positively to the publication of data from the US labor market, and the DXY dollar index ended last week in positive territory.

In the long run, low-interest rates and a gradual recovery in the global economy will support risky stock market assets, but the dollar is likely to remain under pressure, maintaining negative dynamics and a tendency to weaken further.

Next week, two of the world's largest central banks (Bank of Canada and the ECB) will hold their regular meetings and decide on the interest rate. Economists do not expect the leaders of these banks to make any changes to the current monetary policy, although unexpected decisions are also possible. Any movements or signals toward further easing of the policies of these banks will cause increased volatility in the financial markets and weakening of the CAD or EUR, respectively.

Investors will also pay attention to the publication of important macro statistics from Japan, the Eurozone, China, Great Britain, Germany, and the US.

Traders should pay attention to the publication of the following macro indicators:

*during the coming week, new events may be added to the calendar and/or some scheduled events may be canceled

**GMT time

Monday, September 7

23:50 JPY Japan GDP Q2 2020 (final estimate)

GDP is considered an indicator of the general state of a country's economy and estimates the rate of its growth or decline. The report on gross domestic product published by the Cabinet of Ministers of Japan expresses in monetary terms the total value of all final goods and services produced by Japan over a certain period of time. An upward trend in GDP is considered a positive factor for the national currency (yen), while a low result is considered negative (or bearish).

In the previous 1st quarter of 2020, the country's GDP contracted by -0.6% (-2.2% yoy) after falling by -1.8% (-7.1% YoY) in the 4th quarter of 2019.

Japan's GDP is expected to contract by -0.7% in the second quarter of 2020 (-27.8% in annual terms). The preliminary estimate implied a decrease in GDP in the 2nd quarter by -7.8% or -27.2% in annual terms.

The data point to quite a noticeable slowdown in the Japanese economy since the end of 2019, and this is a negative factor for the yen and the Japanese stock market.

If the data turns out to be even weaker, then the yen may decline significantly in the short term. Better-than-forecast data may strengthen the yen (in the short term).

However, it should also be noted that in recent weeks, financial market participants have paid little attention to news and weak macro statistics, abandoning defensive assets, including the yen, in favor of riskier and more profitable stock market assets.

Tuesday, September 8

09:00 EUR Eurozone GDP for the 2nd quarter (final estimate)

GDP is considered an indicator of the overall health of the Eurozone economy. The growing trend in GDP is considered positive for the EUR; a low result weakens the EUR.

Recently, the macro data coming from the Eurozone have been showing a gradual recovery in growth in the European economy after a sharp drop earlier this year. However, the decision made by the EU leaders in July to provide additional support to the economy (a recovery package in the amount of 1.8 trillion euros was approved) will help stabilize the economy of the Eurozone. As a result of quarantine restrictions, restraint in spending by companies and consumers, as well as the collapse of exports, the economy is on the cusp of the deepest economic downturn since World War II.

The euro reacted positively to this decision. Nevertheless, according to the forecast of economists, the GDP of the Eurozone is expected to decrease in the 2nd quarter by -12.1% (-15.0% in annual terms) after an increase of +0.1% (+1.0% in annual terms) Q4 2019 and a -3.6% decline (-3.1% YoY) in Q1 2020. The preliminary (first) estimate of the Eurozone GDP in the 2nd quarter also amounted to -12.1% (-15% in annual terms).

If the data turns out to be weaker than the first estimate, the euro may decline. The data better than the first estimate may strengthen the euro in the short term, although there is still a long way to a full recovery of the European economy even to pre-crisis levels (quarterly growth within 0.2 - 0.4%).

GBP Inflation report (exact time unknown)

The Governor of the Bank of England and members of the Monetary Policy Committee of the Bank of England will speak in parliament to comment on the current economic situation and economic outlook. At this time, the volatility in trading on the pound may rise sharply. Apart from GDP, one of the main benchmarks for the Bank of England regarding the prospects for monetary policy in the UK is inflation. If the tone of the report is soft, the British stock market will gain support and the pound will decline. Conversely, tough rhetoric of the Bank of England representatives regarding inflation control implying an increase in the interest rate in the UK will lead to the strengthening of the pound.

Wednesday, September 9

01:30 CNY Consumer Price Index (CPI)

The National Bureau of Statistics of China will release the next monthly data reflecting the dynamics of consumer prices in China. A rise in consumer prices could trigger an acceleration in inflation, which could force the People's Bank of China to take measures aimed at tightening monetary policy. Increased growth in consumer inflation may cause an appreciation of the yuan, a weak result will put pressure on the yuan.

China's economy is the second-largest in the world after America's. Therefore, the publication of important macroeconomic indicators of this country has a noticeable impact on world financial markets, primarily on the position of the yuan, other Asian currencies, the dollar, commodity currencies, as well as on Chinese and Asian stock indices. China is the largest buyer of raw materials and a supplier of a wide range of finished products to the world commodity market.

In January 2020, the growth of the consumer inflation index amounted to +1.4% (+5.4% in annual terms), and in May - the value of the CPI index decreased to -0.8% (+2.4% in annual terms).

Deterioration in macroeconomic indicators, including a decrease in consumer inflation, may negatively affect the positions of the yuan, as well as commodity currencies such as the Canadian, Australian, and New Zealand dollars. To a greater extent, this applies to the Australian dollar, since China is Australia's largest trade and economic partner.

According to the forecast, another acceleration in the growth rate of the consumer price index is expected in August: +1.0% (+3.1% in annual terms) against +0.6% (+2.7% in annual terms) in July after its sharp fall in the previous months.

The growth of the consumer inflation index will positively affect the quotes of the yuan, as well as commodity currencies, primarily the Australian dollar. However, a relative decline in CPI may negatively affect them.

14:00 CAD Bank of Canada's decision on interest rate. Bank of Canada's accompanying statement

The Bank of Canada will decide on the interest rate. In March, the bank lowered the rate 3 times, bringing it to the level of 0.25%, in order to mitigate the economic damage from the novel coronavirus pandemic.

In an accompanying statement, the central bank of Canada said that the decision "aims to support the financial system, which plays a central role in lending to the economy, as well as to create a foundation that will allow the economy to return to normal." The central bank also said in a press release that the spread of the coronavirus and the plummeting global oil prices combined are weighing heavily on Canadians and the Canadian economy.

"I will not argue about describing these actions as QE," said Stephen Poloz, head of the Bank of Canada at the time (since June 3, 2020, this post has been occupied by Tiff Macklem). If the government bond market "does not function smoothly, with a narrow supply and demand spread, then the rest of the system also does not work as it should," Poloz said, explaining the need for QE.

Initially, at least 5 billion Canadian dollars per week will be allocated for these purposes (the terms of purchases will be adjusted taking into account the changing situation).

Quantitative easing and a significant cut in the interest rate should contribute to the weakening of the national currency.

The impact of the coronavirus on the Canadian economy and the country's labor market (in March, unemployment rose to 7.8% from 5.6% in February, and the number of employed, as reported by Statistics Canada, fell by 1.01 million), as well as weakness housing market put pressure on the Bank of Canada towards further easing of monetary policy.

However, the Bank of Canada is expected to keep its interest rate at 0.25% at its meeting on Wednesday.

The tough tone of the accompanying statement by the Bank of Canada on rising inflation and the prospects for further tightening of monetary policy will cause the Canadian dollar to strengthen. If the Bank of Canada signals the need for a soft monetary policy, the Canadian currency will decline.

Thursday, September 10

11:45 EUR ECB's decision on interest rates

The ECB will publish its decision on the key rate and on the deposit rate. The tough position of the ECB on inflation and the level of key interest rates contributes to the strengthening of the euro, soft position and the cut in rates weaken the euro. In September 2019, the European Central Bank lowered its key interest rate on deposits by 0.1% to -0.5% and began buying bonds worth 20 billion euros a month, renewing the so-called quantitative easing program.

In a subsequent press conference, former European Central Bank President Mario Draghi said the balance of risks to the eurozone's economic outlook "remains negatively biased," implying the possibility of additional stimulus if needed.

The ECB's September rate cut was the first since March 2016, and “until inflation is in line” with the target, which is just below 2%, the rate will remain low. Now inflation in the Eurozone is stubbornly holding around 1%, and the new forecasts of the ECB on rates and the QE program can be seen as a signal of the inclination to further soften policy.

After Brexit, escalating trade conflicts and political instability in the Eurozone are the main threats to the European economy.

Speaking earlier at the European Parliament, Christine Lagarde, who became the new president of the European Central Bank in November, said the ECB's monetary stimulus continues to have a beneficial effect on the Eurozone economy. “I agree with the ECB Governing Council's view that a stimulating monetary policy will remain appropriate over the long term,” Lagarde said.

An additional factor that may put pressure on the ECB to further ease monetary policy is the coronavirus pandemic. Back in March, the ECB signaled the possibility of policy easing, and the bank's representative admitted that the bank's management could lower the already negative interest rates even lower.

Following the results of this ECB meeting, the key interest rate will probably remain at the same level of 0%. The ECB's rate on deposits for commercial banks is also likely to remain at -0.5%. At the same time, it is highly likely that at this meeting the ECB will announce a new program to stimulate the economy.

12:30 EUR ECB press conference

During the press conference, a surge in volatility is possible not only in the euro quotes, but also in the entire financial market, if the ECB leaders make an unexpected statement. Similar previous decisions by the ECB on interest rates and subsequent press conferences have moved the euro rate by 3-5% in a short time. The ECB leaders will assess the current economic situation in the Eurozone and comment on the ECB's rate decision.

The soft tone of the statements will have a negative impact on the euro. Conversely, the tough tone of the ECB officials on the central bank's monetary policy will strengthen the euro.

16:30 CAD Speech by the Governor of the Bank of Canada Tiff Macklem

Tiff Macklem replaced Stephen Poloz as Governor of the Bank of Canada on June 3, 2020. Macklem faces essentially the same tasks as his predecessor in this post.

The Canadian economy, as well as the entire global economy, showed signs of a slowdown in the first half of this year, driven by the downturn in business activity due to the coronavirus pandemic. Earlier this year, Stephen Poloz said that the Canadian economy is robust enough to keep rates unchanged despite the worsening global economy. However, the situation is changing rapidly, and not for the better. It will be interesting now to listen to Macklem's opinion on the sustainability of the Canadian economy and the monetary policy of the central bank.

If Tiff Macklem touches on the topic of the monetary policy of the Bank of Canada, the volatility in the quotes of the Canadian dollar will rise sharply. His tough tone will help strengthen the Canadian dollar. Soft rhetoric of Tief Maclem's speech and the intention to conduct soft monetary policy will negatively affect the CAD quotes.

He might also provide some clarifications for investors after the next meeting of the Bank of Canada on September 9.

Friday, September 11

06:00 GBP UK GDP in Q2 (final release)

GDP is considered an indicator of the overall health of the British economy. The upward trend in GDP is considered positive for the GBP. The UK's GDP was one of the highest in the world until 2016, when the Brexit referendum was held. Then its growth slowed down, and with the onset of the global coronavirus pandemic, the growth rate of British GDP went into negative territory altogether.

The UK's annual GDP is forecast to decline by -20.4% in Q2 2020 (after zero in Q4 2019 and a -2.2% drop in Q1 2020). This is a negative factor for the GBP.

The main factors that can force the Bank of England to keep rates low are weak GDP and labor market growth, as well as low consumer spending. If the GDP data turns out to be weaker than the forecast, it will put even more downward pressure on the pound. Strong GDP report will strengthen the pound.

06:00 EUR Harmonized Index of Consumer Prices  (HICP) in Germany (final release)

This index is published by the EU Statistics Office and is calculated on the basis of a statistical method agreed between all EU countries. It is an indicator for assessing inflation and is used by the Governing Council of the ECB to assess the level of price stability. A positive result strengthens the EUR, a negative one weakens it.

In May, the HICP index (in annual terms) increased by +0.5%, in June by +0.8%, in July - by 0%. Forecast for August: -0.1%. Since this is the second, final assessment, which coincides with the first assessment, the euro is unlikely to react strongly to the publication of this indicator. If the data turn out to be better than the forecast, the euro may strengthen in the short term. The growth of the indicator is a positive factor for the euro. The data indicate that inflationary pressures are still low in Germany. The data is worse than the forecast and the previous value will negatively affect the euro.

12:30 USD Consumer Price Index (ex food and energy)

Consumer Price Index (CPI) determines the change in prices of a selected basket of goods and services for a given period and is a key indicator for assessing inflation and changes in consumer preferences. Food and energy have been excluded from this indicator to provide a more accurate estimate. A high score strengthens the US dollar, while a low score weakens it. In January the value of the indicator was +0.2% (+2.3% in annual terms), in February +0.2% and +2.4% (in annual terms), in March -0.1% (+2.1% in annual terms), in April -0.4% (+1.4% in annual terms). Forecast for August: +0.2% and +1.6% (in annual terms), which indicates some improvement after the fall of the index in March and April. If the August data turn out to be weaker than the forecast, then the dollar is likely to react with a short-term but strong decline. The data will strengthen the dollar better than the forecast.