Forex Major Currencies Outlook (Dec 14 – Dec 18)

USD

November CPI came in unchanged at 1.2% y/y with core at 1.6% y/y. The main culprit stopping inflation from falling, as was expected, was the rise in energy index. Increases in indexes for natural gas and electricity more than offset a decline in the index for gasoline. FDA recommended approval of the Pfizer/BioNTech vaccine which should lead to increase in travel, lifting demand for oil and thus putting some upward pressure to the inflation.

Chances of possible fiscal stimulus in “lame duck session”, period between the elections and the official date when president-elect becomes the president, have been increasing which in turn lead the equities higher and USD lower. There are still issues between parties regarding the deal but latest NFP report is pushing them to reconsider loosening their stances and agreeing on the package.  The last proposed package, Treasury Secretary Mnuchin is also on it, is for $916bn. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer rejected the offer for a $916 billion stimulus, thus leaving the question of stimulus lingering.

This week we will have consumption data as well as FOMC meeting. No changes to the rate are expected at the meeting. More dovish tone could be struck due to the increase in COVID-19 cases and further plea for fiscal support should come.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision
• Retail Sales

EUR

ECB left key interest rates unchanged as was widely expected. PEPP program has been enlarged by €500bn to a total of €1.85 trillion and extended until March of 2022, longer than expected. Asset Purchase Programme was left unchanged at €20bn per month. ECB comment on EUR exchange rate “We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.“EURUSD has climbed almost to the 1.22 level and strong EUR has detrimental impact on inflation, a core mission of ECB. It will be interesting to see for how much longer will they tolerate the appreciation of EUR. President Lagarde stated that the economy will shrink in Q4 by around -2.2% and that increase in PEPP was due to fallout in economic activity caused by the virus. She added that PEPP can be further recalibrated if needed. ECB now sees 2020 GDP at -7.3% from -8% in September and 3.9% in 2021 from 5% in September. Risks to growth remain to the downside, but have become less pronounced.

This week we will have preliminary December PMI data.

Important news for EUR:

Wednesday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

GDP in October came in at 0.4% m/m vs flat as expected. Q4 has started with a positive number, however increase in restrictions that occurred in November will quickly sap out that optimism and drag Q4 GDP down, most likely into the negative territory. November GDP is seen falling by 7% m/m. ONS noted that loss of momentum across all of the main sectors since July can clearly be seen.

Brexit negotiations started the week on a rough note with Prime Minister Johnson threatening to abandon talks which sent GBPUSD down over 150 pips. The three issues that remain are fisheries, level-playing field and governance. EU has lowered its demand regarding level-playing field or competition rules. EU chief negotiator Barnier has notified MEPs that negotiations could continue until Wednesday but no further than that. UK Government has dropped controversial clauses from the Internal Markets Bill, thus increasing chances for a deal. Prime Minister Johnson met on Wednesday with Ursula von der Leyen however their meeting did not yield any progress with latter stating that they are still far apart. Deadline has been moved until “the end of the weekend” with both sides increasingly preparing for no deal outcome.

This week we will have employment data, inflation data, preliminary December PMI data, consumption data and BOE meeting. No change in rate is expected however we could see ramping up of no-deal Brexit rhetoric as negotiations are going nowhere. Additionally, if BOE will make some changes to monetary policy we expect it to be in the QE department.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Thursday:

• BOE Interest Rate Decision

Friday:

• Retail Sales

AUD

China’s trade balance in November showed surplus increasing to CNY507.1bn from CNY401.75bn in October. Exports almost doubled to 14.9% y/y from 7.6% y/y in October while imports slumped into negative territory coming in at -0.8% y/y from 0.9% y/y the previous month. In USD surplus was $75.4bn with exports rising very impressive 21.1% y/y vs 12% y/y as expected but imports rising 4.5% y/y vs 7% y/y as expected. Booming exports bode well for the global demand, however weak imports indicate slowing of demand from China which will hurt other exporting countries. Imports from Australia showed the highest decline due to the brewing political tensions between the countries.

Inflation in November negatively surprised the markets by coming in at -0.5% y/y. This is the first time in eleven years that inflation in China was negative. A drop in pork prices lead the way but even without their influence CPI would still be around -0.1% y/y. Belief in global reflation, that everybody expects to come in 2021, is rather shaken by this number. Hope may be restored by the fact that core CPI came in unchanged at 0.5% y/y while deflation in PPI was reduced to -1.5% y/y vs -2.1% y/y in October.

This week we will have employment data from Australia as well as consumption and industrial production data from China.

Important news for AUD:

Tuesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales in November came in at 0.1% m/m and 1.4% y/y. This is the third consecutive month of increases and it bodes well for the Q4 GDP reading. Electronic card retail sales amount to almost 70% of total retail sales. NZDUSD started a weak on the back foot but improved as the week went along, crossing the 0.71 level for a bit, before returning below it and finishing the week on higher level than it started. RBNZ will, on a request from the finance minister, include house prices in its mandate. The move intends to keep asset prices from over inflating due to the loose monetary policy.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday:

• GDP

CAD

BOC has left the rate unchanged at 0.25% as widely expected. QE program remains at CAD4bn per week. They have reiterated their stances to keep the rates low until the 2% inflation target is “sustainably achieved” which according to their forecasts will not occur before 2023. Increase in numbers of virus cases will take a toll on 2021 Q1 GDP and will cause problems for the economy until vaccine is widely available. Prime Minister Trudeau stated that Canada should receive up to 249k vaccine doses before year end from Pfizer.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Labour cash earnings for October came in at -0.8% y/y vs -0.9% y/y in September. It is a continuation of wage rise but at a minuscule pace. Household spending came in at 1.9% y/y vs 2.8% y/y as expected. Miss on the estimates, however it is a first positive reading in 13 months. Final Q3 GDP reading showed improvement to 22.9% q/q annualised from 21.4% q/q annualised as preliminary reported. Private consumption improved 5.1% q/q while business spending fell by a smaller amount of -2.4% vs -3.1% as preliminary reported.

Prime Minister Suga unveiled a new fiscal package totalling JPY73.6 trillion that includes JPY40 trillion of new fiscal measures. There will be funds for a new furlough program, health care expenditures, cash handouts, and funds for single-parent families. The already present Go-To Travel, which represent incentives for domestic tourism and which negatively affects CPI, will be extended.

This week we will have preliminary December PMI data, national inflation data and BOJ meeting.

Important news for JPY:

Wednesday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

Friday:

• BOJ Interest Rate Decision
• CPI

CHF

SNB total sight deposits for the week ending December 4 came in at CHF705.3bn vs CHF706.5bn the previous week. This is the third straight week of dropping deposits indicating that SNB feels comfortable with EURCHF hovering over the 1.08 level. They are not concerned with fighting the USD weakness as USDCHF seems anchored below the 0.90 level.

This week we will have SNB meeting.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

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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. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}