Last week produced rather calms winds for FX traders as most of the major pairs traded in known ranges with a fairly consistent amount of consolidation. It helps that we are in the dog days of August and many investors are on holiday.
Tomorrow, Bank of Japan Governor Kuroda will be speaking in Tokyo, but it is doubtful he will say anything surprising at a Financial Tech conference. He is not about to convert the JPY into Bitcoin. He may talk a little about negative interest rates and try to convince those in attendance that the BoJ is on the right path.
Perhaps because it is a Financial Tech conference the attendees will want to convert JPY into Bitcoin after hearing the BoJ Governor speak. But again, we do not expect big surprises from Kuroda. The JPY remains at the stronger part of its range versus the USD. The Nikkei traded cautiously once again today. Safe haven investors in Asia seem to be prevalent.
Also on Tuesday, Europe will deliver PMI data via Flash Manufacturing and Services readings for Germany and France. The EUR has consistently traded near the upper realms of its short-term value against the USD.
The ECB does have a meeting in early September. If tomorrow’s data is negative it will not help the Single Currency. And it should be noted that off in the distance is the Italian referendum, which will bring into question its European Union affiliations. Very few are expecting the Italians to turn their backs on the E.U., but then again many did not expect the United Kingdom to either.
Sterling has done better the past few trading sessions and having been taken a bit lower on Friday, it has found some takers again and has been able to retrace its steps near to its short-term highs. On this coming Friday the U.K. will release its Second Estimate GDP data and a gain of 0.6% is expected. Should this number fall on its face it is doubtful that this will help the GBP. Investors will be watching the U.K. GDP outcome carefully.
Finishing off the week will be the American GDP numbers and this will have an equally strong effect on the FX markets and on Fed watchers. Growth in the States has been lackluster and this has been a main reason the Fed has not been able to raise its interest rates as much as they would have liked.
As the central bankers of the world converge on Jackson Hole the end of this week for their annual summer symposium, there is no doubt that this will not be the most comfortable meeting they have ever had.
On the menu for talking points will be negative interest rates from Japan, near zero interest rate policies from the ECB and BoE, the ramifications of the Brexit, the U.S. election for President, the inability of Japan to crawl out of rampant stagnation and deflation, China’s economic condition, and the potential for more banking problems from Italy and a faltering Deutsche Bank (DE:DBKGn) in Germany. Alcohol may help ease some of the questions, but answers will be difficult to find.
Investors should not count on central bank officials and pundits to figure things out. Traders will be left to look over this week’s PMI statistics from Europe and the GDP reports on Friday from the U.K. and the States. Investors not on a holiday may see some of last week’s tranquility disappear.