• EZ final CPI and flash PMIs
• BOJ, Norges Bank, and SNB monetary policy meetings
• UK CPI and Retail sales

Ahead of BOJ meeting JPY crosses are in focus. On top of it, recent development over US-China Trade disputes earns more attention. The combination of these factors shapes the JPY crosses in the sandwich position. Data wise, it is a quiet week except for few economic risk events from Canada, UK, and NZ. 

Week’s highlights:

Central banks: Key market events for the week includes Bank of Japan and Swiss National Bank monetary policy meetings, we expect on hold. In contrast, we hope the Norges Bank is likely to hike from 0.50% to 0.75%. With the recent NOK strength, we believe this week’s rate hike is nearly priced in, but further NOK appreciation will be available if the Norges bank hints the second hike in December 2018.

“We expect the bank’s forecast path to steepen somewhat, especially for 2020 and 2021. In particular, we expect about an 8bp upward revision to the projected rate for year-end 2020 and about 12bp for year-end 2021” Barclays reported in the weekly note.

Our base case scenario into this week’s monetary policy meetings:
BOJ: Neutral, SNB: Dovish and Norges Bank: Hawkish


Macroeconomic data:

The week ahead, a set of economic data releases likely to steer the FX market especially G10 currencies. Data front flash PMIs for EZ, CPI and Retail sales for UK and Canada, and 2Q GDP for NZ are the highlights.

On the EZ economic data front, we see August final CPI (Monday) not a market mover though. Besides euro traders are focusing more on the flash IHS Markit PMIs (Fri), which provides economical
performance insights into the end of Q3.
“The predictive powers of the PMI in 2018 have been rather wanting, particularly in the first two months of each quarter. As such, the recent stability might be simply reflecting the stability in 2Q GDP, with September’s PMI taking on increased importance as a result.” Macquarie reported in a note to clients.

Turning to the UK data front, we see CPI and Retail sales, given an increase in expectations of a downtick. The CPI 12-month rate was 2.5% in July 2018, up from 2.4% in June 2018, whereas the BOE’s 2.00% inflation target. We expect August headline inflation and core inflation is likely to drop back to 2.4% and 1.8% respectively.
Besides, UK retail sales set to fall in August. We expect a contraction to 0.0% or even into negative territory. Back in July, retail sales increased by 0.7% from a decrease of 0.5% in June.

Besides, for the US we see limited data releases. We expect Housing starts flash Manufacturing and Services PMIs unable to change the dollar index landscape. Last week’s missed inflation and retail sales data drag the dollar index to a month low. Whereas the rising trade tensions have supported the dollar index.

Elsewhere we see NZ Q2 GDP, and Canada inflation and retail sales.
NZ economic growth has slowed recently.
Annual GDP growth was 2.7 percent in the March 2018 quarter, down from over 4 percent in mid-2016, RBNZ reported in the August MPS. The central bank also highlighted the risk “with surveyed business confidence falling and continued softness in the housing market, GDP growth may not recover as expected.”
Back in Q1, NZ economy grows 0.5% and 2.7% over the year ended March 2018. With the recent strong retail sales, in Q2 we expect the country’s economy to increase by 0.7%.


Trade for the week: Sell EURNOK

It is important to always keep in mind the risks involved in trading with leveraged instruments.

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