The Fed and the ECB reiterated that inflation remains undefeated and interest rates may remain elevated during the Jackson Hole Symposium last week, but again they refrained from providing any clear signals about what the next rate decision will be. That throws a brighter spotlight on upcoming economic data. Specifically, the US nonfarm payrolls report, eurozone’s CPI inflation and China’s PMI figures will be important to watch as USD/JPY, EUR/USD and AUD/USD trade near a make-or-break point.
US Nonfarm payrolls, core PCE inflation –> USD/JPY
Jerome Powell hinted at the possibility of further tightening during his Jackson Hole speech. He thinks more confidence needs to be built before the Fed can guarantee a return to its 2.0% inflation target.
At the same time, though, he telegraphed that the central bank will carefully decide its next policy steps as the uncertain economic outlook requires data assessment practices, with investors remaining convinced that a pause in rate hikes will occur during September’s gathering.
The week ahead could be crucial in providing more clarity about the next rate announcement, as a plethora of data is on the agenda. The core PCE inflation index could tick marginally higher to 4.2% y/y on Thursday, August’s nonfarm payrolls report is expected to show a softer job creation of 170k on Friday, while investors will also closely monitor house figures, the ISM manufacturing PMI index, and the second estimate of the Q2 GDP.
In the meantime, USD/JPY is eagerly looking for a break above the tough resistance of 146.40 to gain fresh bullish fuel, though the way higher could be rocky.
Eurozone flash CPI figures –>EUR/USD
Despite a recent drop to 1.0764, EUR/USD is still trying to bounce back near its 200-day exponential moving average (EMA) at 1.0800, which has been an essential support level this year.
ECB president Christine Lagarde’s speech at the Jackson Hole symposium left investors with mixed feelings, making it difficult to predict what will happen to rates in September.
Her neutral stance makes Thursday’s preliminary CPI readings for August important to watch. According to forecasts, the headline CPI is expected to ease to 5.1% and the core measure could edge down to 5.3%, but overall both could stay well above the ECB’s 2% target.
After a week of dull business data, a negative surprise in the figures could call for a pause in monetary tightening, likely bringing the 1.0730 support region into view.
Stronger-than-expected data may help the pair cut some losses, but it remains to be seen whether it will recover above its 20- and 50-day EMAs and above 1.0900.
China PMI, Aussie CPI –> AUD/USD
From a technical perspective, there are a couple of interesting pairs to keep a close eye on this week such as USD/CHF and USD/CAD, but AUD/USD may attract some extra attention as China’s manufacturing and non-manufacturing PMI figures for August will be out on Thursday.
A worsening economic outlook in China has been significantly weighing on the pair lately. Analysts await a mixed report this time, with the manufacturing PMI expected to edge slightly up and the non-manufacturing index to extend its decline.
Australia’s monthly CPI figures could trigger some volatility earlier on Wednesday given the RBA’s growing reluctance over higher interest rates. Estimates point to a weaker core CPI print of 5.2% y/y from 5.4% previously.
