Forex Major Currencies Outlook (Apr 1 – Apr 5)

The 10-year yield was lower than the 3m yield. After yield curve inverts it can take substantial time, usually more than 11 months, for the recession to occur. Boston FED President Eric Rosengren suggested a change in the Fed's reinvestment policy in order to fight the yield curve. In his opinion FED should be buying the short end of the curve in order to push short-term borrowing lower and long-term financing higher.Consumer confidence dropped in March to 124.1 vs 132.5 as expected, rather big drop and widely unexpected. Present situation came in at 160.6 vs 173.5 and expectations slid down to 99.8 vs 103.4 as expected. This is the largest one month drop since 2008. One of the leading indicators painting not so bright picture which can trigger risk off mode in the markets.

Trade balance for the month of January came in at -$51.5bn vs -$57bn as expected. Exports were up 0.9% m/m while imports were down -2.6% m/m. Goods deficit was $73.29bn while services surplus came in at $22.14 bn. Trade balance deficit with China came in at $34.47bn vs $36.83bn the previous month. Slowing imports are not that satisfying but lowering of deficit overall and with China in particular is positive for USD. Services surplus has smashed expectations.

Final reading of Q4 GDP for 2018 came in at 2.2% q/q vs 2.3% q/q as expected and 3% y/y vs 3.1% y/y as expected. Growth was mainly fuelled by president Trump’s tax cuts which resulted in corporate profits after tax of 16.2%. Core PCE number came in at 1.8% y/y vs 1.9% y/y as expected. The FED pays special attention to core PCE so miss is worrying. Personal income and personal spending also came in lower as expected.

This week we will have data on consumption, durable goods, business inventories, final PMI data and on Friday the big event, NFP. This time headline number will be monitored closely due to very low number from the previous month. Expected number is 170k.

Important news for USD:

Monday:

• Retail Sales
• ISM Manufacturing PMI
• Business Inventories

Tuesday:

• Durable Goods

Wednesday:

• ADP Nonfarm Employment Change
• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Germany IFO business climate index for the month of March came in at 99.6 vs 98.5 as expected. Both expectations and current assessment beat the expectations coming in at 95.6 and 103.8 respectively. This is a breath of fresh air for the data coming in from Europe after abysmal PMI data last week. These figures support German GDP growth forecast of 0.6% for 2019. Although numbers indicate that the worst is behind Germany and forward-looking picture looks brighter than expected weak GDP forecast still looms. Germany inflation data for the month of March came in at 1.5% y/y vs 1.6% y/y as expected. Lower than expected inflation can drag down the inflation of the EU as a whole. Retail Sales in the month of February for Germany came in at 0.9% m/m vs -1% m/m as expected adding further support to Q1 GDP from consumption. German unemployment rate dropped to 4.9% from 5% the previous month indicating tighter labour market conditions.

This week we will have final PMI data, preliminary inflation data for the month of March, employment and consumption data as well as factory and industrial production data from Germany and accounts from the latest monetary policy meeting.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)
• CPI
• Unemployment Rate

Wednesday:

• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)
• Retail Sales

Thursday:

• Factory Orders (Germany)
• ECB Monetary Policy Meeting Accounts

Friday:

• Industrial Production (Germany)

GBP

Brexit happenings dominated the week. Parliament and the government battle for control of Brexit and several indicative votes have been organized although none of them are binding. None of the amendments got a clear majority in the Parliament so PM May continued to push for the third meaningful vote on her proposal, but Speaker John Bercow insists it must be meaningfully different from previously defeated versions. PM May offered her resignation after her deal passes. In order to get her deal to pass for voting PM May has split it in half. First half is a withdrawal agreement and second half is the political declaration. If Parliament approves of her withdrawal agreement Brexit date will be moved to May 22 giving her more time to find satisfying solution. The deal has been defeated with 286-344 and GBPUSD fell below 1.30. This is the third time that PM’s deal did not pass in the Parliament.

This week we will have final PMI data as well as continuation of Brexit saga.

Important news for GBP:

Monday:

• Second Round of Indicative Votes
• Markit Manufacturing PMI

Tuesday:

• Markit Construction PMI

Wednesday:

• Markit Services PMI

AUD

Industrial profits in China for the months of January-February (they are combined in order to smooth the out distortions caused by China’s Lunar New Year) came in -14% y/y. This is the biggest fall since 2011 and cause of great concern not only for Australia due to its proximity to China but to whole World as it adds more to the ongoing global slowdown. The situation can improve in Q2 thanks to monetary easing and stimulus, but it is yet to be seen if it will.

This week we will have Caixin PMIs from China, housing data, consumption and trade balance data. Main event will be RBA’s rate decision and given the RBNZ’s dovish decision markets will expect for RBA to follow the suit. Global slowdown, declining consumption and falling housing market may spur RBA to react by announcing that next move will likely be lower.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision
• RBA Rate Statement
• Building Approvals

Wednesday:

• Trade Balance
• Exports
• Imports
• Retail Sales
• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

Trade balance data for the month of February came in at NZD12m vs -NZD200m as expected. Modest surplus but better than expected deficit. Exports rose to NZD4.82bn vs NZD4.7bn for always good news keeping NZD supported ahead of RBNZ rate decision.

RBNZ has kept the cash rate at 1.75% as widely expected however they said that next rate move is likely down. This change from previously neutral stance has caused NZD to plunge across the markets. Inflation and outlook risks have shifted to the downside according to RBNZ and it is necessary to keep low interest rates in order to support economic growth in 2019. Increased government spending and investment will work along with low interest rates in attaining that goal. The next RBNZ meeting is in May and markets start to price in rate hike for November’s meeting and some banks predict first cut in August. Business confidence and activity outlook data put additional pressure on kiwi coming in respectively at -38 vs -30.9 the previous month and 6.3 vs 10.5 the previous month.

This week we will have bi-weekly GDT auction.

Important news for NZD:

Tuesday:

• GDT Price Index

CAD

Trade balance for the month of January came in at -CAD4.25bn vs -CAD3.55bn as expected. Trade deficit shrank from the previous month but still came worse than expected. Exports rose 2.9% m/m and imports rose 1.5% m/m. The largest positive contributor to exports was the energy sector that came in at 14% m/m. Exports are up 3.1% y/y while imports are up 8.3% y/y.

January GDP came in at 0.3% m/m vs 0% m/m as expected and 1.6% y/y vs 1.3% y/y as expected. Goods producing sectors contributed with 0.6% and services producing sectors contributed with 0.2%. Manufacturing came in at 1.5% offsetting losses in previous months and construction rose 1.9% for largest expansion since July 2013. The reading beat the markets expectations and CAD has strengthened against all majors.

This week we will have final PMI readings as well as employment data on Friday. Please note that Canadian employment data will be released at same time as US employment data which can cause increased volatility on USDCAD pair.

Important news for CAD:

Monday:

• Markit Manufacturing PMI
• BOC Governor Poloz Speech

Thursday:

• Ivey PMI

Friday

• Employment Change
• Unemployment Rate

JPY

Tokyo area inflation for the month of March came in line with expectations at 0.9% y/y. CPI excluding fresh food came in at 1.1% y/y as expected. The unemployment rate dropped down to 2.3% from 2.5%. Retail sales missed coming in at 0.2% m/m vs 1% m/m as expected and 0.4% y/y vs 1% y/y as expected. With this kind of low consumption chances of inflation rising are very slim. Industrial production for the month of February came in at 1.4% m/m as expected.

This week we will have Tankan indices, manufacturing and services PMI and household spending data.

Important news for JPY:

Monday:

• BOJ Tankan Large Manufacturing Index
• BOJ Tankan Large Non-Manufacturing Index
• Nikkei Manufacturing PMI

Wednesday:

• Nikkei Services PMI

Friday

• Household Spending
• Labour Cash Earnings

CHF

Investor sentiment for the month of March, which measures expectations on the Swiss economy and other economic expectations over the next 6 months, fell to -26.9 vs -16.6 the previous month.

This week we will have consumption and inflation data.

Important news for CHF:

Monday:

• Retail Sales

Tuesday:

• CPI

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets.
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