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Weekly Market Outlook: All Eyes On The ECB

Sep 9 2019, 04:13 PM (BDT) | Orbex.com

The week ahead will see investors shifting focus to the European Central Bank which will be stealing the limelight given the expectations.

However, there are other high-ticket events lined up over the week such as US inflation, producer prices data and retail sales numbers for August.

Meanwhile, the UK is heading into a rather busy and a volatile week. It includes the continued debate on Brexit as well as some important economic indicators.

Meanwhile, trade data and inflation figures from China will give us a glimpse into China’s performance. The data comes amid the US and China trade war escalating over the past few months. It is likely that China is feeling the heat of the trade tariffs

Here’s a quick preview of the key events to watch over the coming week.

Brexit Noise Kicks a Notch Higher

Last week saw a flurry of activity among UK lawmakers in regard to Brexit. PM Johnson’s plans for a no-deal Brexit fell apart last week as lawmakers scrambled to block them. Calls for a snap election were also met with resistance.

The Brexit drama is set to continue this week as UK lawmakers will be debating and even voting on whether to have a general election. Meanwhile, the British PM has remained firm on his commitment to leave the EU on October 31st regardless of a Brexit deal.

Boris Johnson’s Second Attempt at General Elections

On Monday, Prime minister, Johnson will be holding another debate on calling for snap elections. The British parliament will be voting on whether to hold a snap election ahead of the crucial October deadline.

However, much of this will depend on the Labor party’s decision to vote in favor of, or against the call for general elections.

So far, the pound sterling has been rallying on expectations that the UK will avoid a no-deal Brexit. But snap elections could once again see some selling pressure coming onto the currency.

UK GDP, Industrial and Manufacturing Data on Tap

On the economic front, the UK’s GDP report alongside industrial and manufacturing production reports are due this week.

Last month, the UK’s GDP contracted, raising concerns that the economy could be heading into a recession. A continued contraction could potentially confirm this view.

The UK economy has been in a steady decline, largely due to the Brexit uncertainty. Investment has stalled as businesses remain cautious on the outcome of the decision to leave the EU.

On a year over year basis, both industrial and manufacturing production could contract by 1.1% and 1.0% respectively.

ECB Set to Follow Through on Dovish Forward Guidance

The European central bank will be holding its monetary policy meeting this week on Thursday. After dovish comments from Draghi and some other members of the governing councils, investors brace for action.

The general consensus is for the ECB to cut the deposit rate by 10 basis points. This will bring the deposit rate from the current -0.40% to -0.50% as a result. We can expect no changes in the main refinancing rate.

Questions remain on whether the central bank will also be able to relaunch its QE program. There is a good support for the view that the central bank might not go all out in its effort to revive growth and inflation.

Eurozone Industrial Production and German HICP

On the economic front, the industrial production figures are due this week alongside the monthly HICP data from Germany. Industrial production in the eurozone will be looking at another month of decline.

Industrial production is forecast to fall 1.3% on the month ending July. This marks a somewhat moderate decline compared to June’s 2.6% decline on the year.

Germany’s inflation data is forecast to see the year over year inflation rate coming out at 1.4%. Meanwhile, the harmonized index of consumer prices is expected to remain steady at 1.0% on the year.

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