EUR/USD

• Chinese growth concerns have obviously eased over the last couple of days. However, what remains, are questions about sustainability. Admittedly, many politicians and central bankers have already emphasized that lower Chinese economic growth would have a limited impact on regional economies. But, there are also critical remarks to consider, first and foremost from Fed members, for instance those made this past Wednesday by New York Fed president William Dudley, to whom a September rate hike seems less compelling than it was a few weeks ago, or that made a day earlier by Atlanta Fed president Dennis Lockhart, who retreated from his earlier conviction of a tightening step in September.
• On the other hand, Federal Reserve Vice Chairman Stanley Fischer left the door open Saturday for a Fed rate increase in September, saying the factors that have kept inflation below the central bank’s target level have likely begun to fade. Fischer said that before the recent turbulence in global financial markets, there was a pretty strong case for a rate hike at the September 16-17 meeting, though it was not conclusive. Now, the issue is hazier because the Fed needs to assess the economic impact of events in China and on Wall Street.
• We have been keeping our September hike forecast for months, but after recent market turmoil and dovish comments from Lockhart and Dudley it seems less likely now.The market expects now a hike not sooner than in December. But we say – do not forget the October meeting! Moreover, we still do not rule out a hike in September, but October seems more probable now. In other words, we are much more hawkish in our expectations than the market.
• Holidays are over and the macroeconomic calendar for this week is filled with important events. Eurozone flash inflation will be released on Monday. We expect a fall in inflation 0.1% from 0.2% in the previous month. Investors will be focused also on PMI readings for the Eurozone and ISM data for the US (Tuesday – manufacturing, Thursday – services).
• EUR/USD volatility is likely to remain high in the short term. Markets have started speculating as to how dovish the ECB’s remarks will be on 3 September, due not only to China but also to low oil  prices.
• The most important macroeconomic figures this week are non-farm payroll data on Friday. Forex market is likely to believe in a September Fed hike again in case of sound US employment report.
• We went long on the EUR/USD on Friday, but Saturday’s comments from Fischer may be a threat to our position. On the other hand, some corrective moves are likely on this pair after significant EUR sell-off in recent days. We plan to get short on the EUR/USD in the second half of the week, as Friday’s US data may totally change the market picture.

GBP

• Markets have pushed back expectations for the first BoE hike to August 2016 following the market turmoil. We think this is too far out.We see a BoE move by 25bp at the beginning of next year. We are much more hawkish in our BoE rate forecast than the market. In our opinion financial markets will likely adjust their assessment soon, which will be reflected in the GBP appreciation.
• Bank of England Governor Mark Carney said on Saturday that a slowdown in China’s economy could push down further on inflation but it did not change, for now, the central bank’s position on when and how it might increase interest rates. He eiterated his view that the recovery in Britain’s economy “will likely put the decision as to when to start the process of gradual monetary policy normalisation into sharper relief around the turn of this year.”
• GBP traders will be eyeing this-week British PMI data. We expect manufacturing PMI to go down as the sector struggles from the GBP appreciations against the EUR. But services PMI should remain robust.

CHF

• Swiss National Bank Chairman Thomas Jordan said that Swiss interest rates will stay negative for some time given many risks, including China, that could spark safe-haven buying of what is already a “clearly overvalued” CHF.
• Friday’s data showed the Swiss economy grew by 0.2% from the previous quarter. However, the structure of Swiss economic growth suggests rather gloomy outlook. Surprisingly, the main contribution to growth came from net exports, which added a whopping 1.3 percentage points to GDP. This was offset by a drag from inventories, valuables and the statistical discrepancy. Exports fell sharply (by 4.4%), as was widely expected since the Swiss National Bank’s abandonment of its currency ceiling in January caused a sharp appreciation which had only partially reversed in the second quarter. But the decline was more than offset by a 7.6% slump in imports. Such a strong fall in imports might have reflected exporters demanding fewer foreign inputs to production.
• It seems very unlikely that positive contributions from net trade can be sustained and we see activity contracting again soon.
• CHF traders will be focused on Swiss CPI data on Friday. We expect deflation to deepen to -1.5% yoy from -1.3% yoy in the previous month, on falls in the oil price.
• Gains in the CHF have been relatively limited despite the recent extreme turmoil. From a medium-term perspective, we expect the EUR/CHF to move above 1.10 at the end of the year, followed by further appreciation over the course of 2016.

AUD

• The worries surrounding China weighed heavily on the commodity currency bloc. We think the market may be overreacting from a medium-term perspective. Commodity currencies now trade considerably below levels suggested by long-term fundamentals. That is why we expect a corrective moves once commodity price stabilize.
• The Reserve Bank of Australia meets on September 1, but in our opinion the bank is unlikely to change its policy rate.
• Tuesday’s Chinese Caixin manufacturing PMI (1:45 GMT) and Wednesday’s Australian GDP data that are likely to show some slowdown (0:30 GMT) will be of key importance for the AUD/USD this week.