Talking Points:

• Trade tensions are back in the spotlight after Friday’s announcement that US President Trump was ordering tariffs on $200 billion of Chinese imports.
• Inflation figures due out over the coming week may not carry the potency that they usually do – but the Canadian CPI report seems like it has the greatest potential to leave an impact.
• Retail trader sentiment is starting to turn back in the US Dollar’s favor after a disappointing week of trading.

09/17 Monday | 09:00 GMT | EUR Eurozone Consumer Price Index (AUG F)

The final August Eurozone Core CPI is due in at +2.0% (y/y), a slight drop from the initial reading reported in at +2.1%. The final core reading for August is set to be confirmed at +1.0% (y/y), down from +1.1% in July. The Euro, on a trade-weighted basis, is down over the past year, so it stands to reason that inflation has a natural cushion underneath it for the foreseeable future. As was confirmed at the September ECB rate decision, policyremains on a preset course – ending QE in December 2018 and raising rates in “summer 2019” – as the Governing Council has greater confidence in the path that inflation will take moving forward. Accordingly, there is only limited scope for a significant move in the Euro around the release.

Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD

09/19 Wednesday | --:-- GMT | JPY Bank of Japan Rate Decision

Bank of Japan policymakers are highly unlikely to change policy when they meeting in the coming week, for several reasons. On the data front, inflation remains well-below its price stability target of +2% over the medium-term, a fact that will be confirmed later in the week when the August CPI report is due. On the policy front, not enough time has passed since the July meeting, where tweaks were made to allow the BOJ to keep rates lower for longer via new yield control measures. Another change in such close proximity to the last one would only serve to erode confidence in the BOJ. Finally, the external trade environment continues to weaken, now that US President Trump has set the US trade deficit with Japan in his sights.

Pairs to Watch: AUD/JPY, EUR/JPY, GBP/JPY, USD/JPY

09/19 Wednesday | 08:30 GMT | GBP Consumer Price Index (AUG)

According to Bloomberg News, economists are forecasting for inflation to have increased month-over-month in August by +0.5% after holding flat in July. But price pressures are down over the past year, dipping to +2.4% from +2.5% (y/y). The data should only have a limited impact on price action, given what was revealed by the Bank of England at its September policy meeting. With policymakers still focusing on scenario planning for various Brexit outcomes, BOE officials have made clear that no shift in monetary policy is to be expected before the March 2019 exit deadline. Given that the BOE has a penchant for changing policy only at meetings when it has new economic forecasts – much like the Fed or the ECB – the first meeting that produces a new Quarterly Inflation Report after the Brexit deadline is in May. Until the Brexit path is decided (which should be in the coming weeks), UK economic data will likely have a limited impact on GBP-crosses.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

09/20 Thursday | 23:30 GMT | JPY National Consumer Price Index (AUG)

Japanese inflation figures are expected to edge higher again, due in at +1.1% in August from +0.9% in July (which itself was an uptick from +0.7% in June (y/y)). But price pressures have been muted for most of 2018, ever since the February reading peaked at the fastest rate of price pressures since April 2015 – when Shinzo Abe government enacted the (unpopular) sales tax reform. Considering that the target for price stability sits at +2% over the medium-term, headline inflation at nearly half that rate means the BOJ won’t be shifting policy anytime soon.

Pairs to Watch: EUR/JPY, GBP/JPY, USD/JPY

09/21 Friday | 12:30 GMT | CAD Consumer Price Index (AUG)

Following a rebound in the Canadian Dollar over the summer, Canadian inflation rates are expected to have regressed in August. The surge in price pressures seen in July (+3.0% versus +2.5% expected (y/y)) should cool off, with the August reading due in at +2.8% (y/y). But this marks the seventh month in a row where inflation has been in the upper half of the Bank of Canada’s inflation target range. Despite recent improvements in the labor market, figures from Statistics Canada showed that overall wage growth is barely off of its lowest levels since 1990. With both inflation and labor market data trending in the right direction, odds have turned higher for the Bank of Canada to raise rates again at least once more this year: overnight index swaps are pricing in a 86% chance of a 25-bps rate hike by October.

Pairs to Watch: CAD/JPY, EUR/CAD, USD/CAD

Read more: DXY Index at Critical Juncture Following BOE, ECB Meetings