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Talking Points:

- The Federal Reserve will raises rates by 25-bps rates on Wednesday, while the Reserve Bank of New Zealand won’t change policy whatsoever.

- The September Eurozone CPI and the July Canadian GDP reports on Friday should inject volatility into the Euro and Canadian Dollar, respectively, at the end of the week.

- Retail trader sentiment are mostly net-long the US Dollar, which portends to more weakness in the coming days.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

09/26 Wednesday | 18:00 GMT | USD Federal Reserve Rate Decision and Press Conference

The Federal Reserve will raise rates when it meets on Wednesday, with Fed funds futures pricing in a 100% chance of a 25-bps rate hike. The glide path of interest rates have steepened in recent weeks, with investors now pricing in a 77% chance of a fourth and final hike this year in December. The already high expectations for further tightening mean that a rate hike alone won’t be enough to help the US Dollar. Accordingly, attention will be on the updated Summary of Economic Projections, which are due to include 2021 forecasts for the first time. For the US Dollar to rally, the new projections will need to show that the Fed intends on continuing to gradually raise rates through 2019; currently, Fed funds futures are pricing the pace of hikes to slow down to just two in 2019 (June and December).

Pairs to Watch: DXY Index, EUR/USD, GBP/USD, USD/JPY, Gold

09/26 Wednesday | 21:00 GMT | NZD Reserve Bank of New Zealand Rate Decision

As has been the case for the past several months, with overnight index swaps pricing in less than a 5% chance of a move at another policy meeting, the way the Reserve Bank of New Zealand policymakershave the potential to hit the Kiwi is via commentary on the exchange rate. Furthermore, overnight index swaps are not pricing in any rate move within the next six months; there is a slight bias towards a 25-bps cut over the period, but nothing significant at present time. The Q2’18 inflation report showed that price pressures remain below the RBNZ’s +2% target, having come in at +1.5% y/y. For now, the RBNZ is seemingly relegated to the sidelines; but verbal rhetoric remains their most likely tool to be used in the near-term, if at all.

Pairs to Watch: AUD/NZD, NZD/JPY, NZD/USD

09/27 Thursday | 12:30 GMT | USD Durable Goods Orders (AUG P)

Durable Goods Orders are an important barometer for US consumption, which constitutes roughly 70% of GDP. Typically, consumers hold off on buying durable goods during poor economy conditions; thus, improved orders suggest confidence among American consumers with respect to their future financial security. The preliminary August print is expected to show a gain of +1.5% over the prior month after the -1.7% decrease in July. The data should help keep US growth expectations elevated for Q3’18, have remained strong following the +4.1% pace seen in Q2’18.

FX Week Ahead: FOMC & RBNZ Rate Decisions, EZ CPI, Canadian GDP

Based on the data received thus far about Q3’18, the Atlanta Fed GDPNow forecast is looking for growth at +4.4%. The next update to the Q3’18 forecast will be released after Thursday’s US economic data.

Pairs to Watch: DXY Index, EUR/USD, GBP/USD, USD/JPY, Gold

09/28 Friday | 09:00 GMT | EUR Eurozone Consumer Price Index (SEP A)

The initial September Eurozone Core CPI is due in at +2.1% (y/y), a +0.1% increase relative to the annual pace observed in August. The core reading for Septemberis a slight increase over its Augustreading as well, due in at +1.1% from +1.0%(y/y). The Euro, on a trade-weighted basis, is essentially unchanged over the past year (after being up by over +9% y/y back in April 2018), it stands to reason that inflation has a natural cushion underneath it for the foreseeable future. Nevertheless, with the ECB’s policy on a preset course – ending QE in December 2018 and raising rates in “summer 2019” – the impact the initial September Eurozone CPI report leaves on markets will be limited unless there is a significant deviation from expectations.

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

09/28 Friday | 12:30 GMT | CAD Gross Domestic Product (JUL)

July Canadian GDP is due in at +2.2% from +2.4% in June (y/y) (no annualized quarterly reading is due). Canadian data was strong throughout July, with the Citi Economic Surprise for Canada rising from -77.1 on July 1 to -10.6 on July 31; that trend has continued through present day, where the gauge has climbed to +57.7. Even though the NAFTA renegotiations and trade tensions with the United States remain in the foreground, that won’t necessarily be reflected in the GDP figures. Overall, with inflation near the middle of the Bank of Canada’s range and growth humming along at a steady pace, odds for another 25-bps rate hike have risen to 89% for the October policy meeting. The Canadian Dollar should remain supported around the print.

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

Read more: Central Bank Weekly: US Dollar has Next Week’s Fed Hike Priced In

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com.

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.