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FX Week Ahead - Top 5 Events: Mexico GDP; US Durable Goods Orders; ECB Meeting Minutes; US Michigan Confidence; Powell’s Jackson Hole Speech

FX Week Ahead - Top 5 Events: Mexico GDP; US Durable Goods Orders; ECB Meeting Minutes; US Michigan Confidence; Powell’s Jackson Hole Speech

Christopher Vecchio, CFA, Senior Strategist

FX Week Ahead Overview:

  • The final week of August has a relatively thin economic calendar, but the US docket is still saturated with six ‘high’ rated events, including Fed Chair Jerome Powell’s speech at the Jackson Hole Economic Policy Symposium.
  • The July ECB meeting minutes bring promise for volatility in EUR-crosses after comments last week by ECB Chief Economist Philip Lane.
  • Overall, recent changes in retail trader positioning suggest that the US Dollar has a mixed bias.
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08/25 WEDNESDAY | 11:00 GMT | MXN GDP Growth Rate (Final) (2Q)

The Mexican economy is highly reliant on its North American trading partners, and the combination of relatively low Mexican vaccination rates and elevated delta variant in Canada and the United States may be weighing on 3Q’21 growth. Given the fact that the Mexican GDP report is backwards looking and won’t capture the shifting economic reality around the recent delta variant wave, it’s likely that the 2Q’21 Mexican GDP report only has a muted impact on the Mexican Peso, even if liquidity in financial markets remains thin as summer comes to a close.

08/27 WEDNESDAY | 12:30 GMT | USD Durable Goods Orders (JUL)

The US economy revolves around consumption trends, given that approximately 70% of GDP is accounted for by the spending habits of businesses and consumers. As such, the durable goods orders reportmake for an important barometer of the US economy. Durable goods are items with lifespans of three-years or longer – from refrigerators and washing machines to cars and airplanes. These items typically require greater capital investment or financing to secure, meaning that traders can use the report as a proxy for business’ and consumers’ financial confidence and health.

In line with consumer sentiment surveys suggesting Americans becoming more concerned about the immediate future due to delta variant infection rates rising, the preliminary July print is expected to show a loss of -0.3% after the +0.8% gain in June (m/m).

08/28 THURSDAY | 11:30 GMT | EUR Monetary Policy Meeting Accounts (JUL)

Last month, the ECB announced the results of its 18-month policy review, with the central bank shifting its inflation mandate from seeking “below but close to +2%” to “+2%.” Today, ECB Chief Economist Philip Lane added color to the conversation in a blog post. “The revision to rate forward guidance constitutes just the first step in implementing our new strategy.”

What this means is that the ECB is likely to make further tweaks to how it goes about implementing stimulus measures. If anything, Mr. Lane’s hint at additional steps suggests that the ECB will be permanently using asset purchases as part of its toolkit once lowering its main rates are no longer deemed effective. ‘Lower for longer’ remains the mantra for the ECB.

08/27 FRIDAY | 14:00 GMT | USD Michigan Consumer Sentiment (Final) (AUG)

While the final reading of the US Michigan consumer sentiment survey may not bring much deviation from its preliminary release on August 13, it is worth noting that the preliminary release provoked a sharp move in financial markets. The unexpected plunge in consumer confidence sparked a significant rally in US Treasuries, with the 10-year yield dropping by -8-bps around the release. Confirmation that Americans are less confident about their near-term economic and financial prospects could help set the stage for heightened volatility around Fed Chair Jerome Powell’s speech at Jackson Hole, set to begin shortly thereafter.

08/27 FRIDAY | 14:00 GMT | USD Fed Chair Powell Speech at Jackson Hole

If only to highlight how far delta variant concerns have come in recent weeks, the Jackson Hole Economic Policy Symposium has shifted from in-person to a virtual event this coming week. The event, titled “Macroeconomic Policy in an Uneven Economy,” is likely to stir volatility in financial markets at the end of the week and the start of the next.

Fed Chair Jerome Powell’s speech at Jackson Hole is vaguely titled “The Economic Outlook.” The mysterious title will only incentivize Fed watchers to look for more clues that a Fed taper is nearing, insofar as the reaction to the July FOMC minutes has proved consistent with the historical precedent establish around the 2013/2014 taper timeline.

Indeed, while Fed rate hike odds were largely unmoved after the July FOMC minutes – which clearly stated the delineating between tapering and rate hikes – we can see that the US yield curve is moving in a manner that suggests a more hawkish Fed is here. While there are 87-bps of rate hikes discounted through the end of 2023, the 2s5s10s butterfly increased to its highest rate since the Fed taper talk began in June.

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.