In terms of economic data, Friday is the most important day this week. Markit Economics will be releasing PMI numbers for Australia, the Eurozone, UK and the U.S. These are important reports because they measure the pace of growth in the service and manufacturing sectors and provide the most timely look at how these economies are doing. From these reports, we’ll get to see how much the rise in virus cases and tighter restrictions in the Eurozone and UK curtailed activity in the month of October. By the same token, we’ll also learn how relaxed restrictions in Australia supported the economy.
Yet, the real question forex traders should be asking is whether any of these economic reports matter because price action suggests that they don’t. Virus cases have been soaring in Europe for weeks now, with Germany and France reporting record highs as recently as Thursday. However, the euro and sterling traders seem to be completely unfazed, with both currencies hitting one-month highs. Theoretically, PMIs are important enough to change the trend in currencies and, with the European Central Bank meeting next week, tomorrow’s EZ PMI report may be hard for forex traders to ignore. The U.S. election is important, along with any progress on U.S. stimulus talks, but it’s 12 days to the big event, and there’s still little chance of a clear resolution. The election will come down to the wire and possibly beyond it if the results are contested or there’s not enough mail-in ballots received for a majority in key states. A winner may not be declared until Dec. 14, the day electors meet in all 50 states to cast their ballots for President. Stocks are up because House Speaker Nancy Pelosi said they are “just about there” on a stimulus deal but, according to many insiders, a deal before the election is highly unlikely.
While it’s true that it’s only a matter of time before more stimulus is provided to Americans, the prospect of major election uncertainty should be enough of a reason for investors to reduce market exposure. The tipping point could happen soon, and when it does, profit-taking in stocks combined with weaker data could lead to significant declines in currencies. In other words, the election and stimulus are important but so is data, particularly for countries where a major stimulus package is not on the way.