Forex Major Currencies Outlook (Feb 1 – Feb 5)

USD 

Fed has left both interest rate and bond buying program unchanged as was widely expected. They acknowledged that the pace of economic activity and employment has moderated in the recent months. In his opening statement chairman Powell stated that several developments indicate better outcome in H2. He mentioned the progress on vaccines as a positive and added that the economy proved more resilient than expected. In the Q&A section Powell stated that fiscal response had been strong and sustained adding that they are willing to err on removing accommodation too slowly rather than too quickly. 

Advance reading of Q4 GDP shows a figure of 4% vs 4.2% as expected. Personal consumption was softer than expected, due to the reimposed lockdowns in certain states, coming in at 2.5% and it lead to GDP missing expectations. PCE measure of inflation in December came in at 1.3% y/y vs 1.1% y/y the previous month while core PCE came in at 1.5% y/y vs 1.4% y/y as expected. An increase is mostly due to the rise in energy prices. Personal spending continued to decline coming in at -0.2% vs -0.4% in November. 

This week we will have ISM PMI data for January as well as NFP numbers on Friday. Headline number is expected to come around 80k while the unemployment rate is set to remain at 6.7%. 

Important news for USD: 

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate 

EUR 

Germany’s leading indicator, Ifo business climate, has dropped in January to 90.1 from 92.2 in December. Current assessment and expectations category have also declined showing that investors are fearful regarding current lockdowns and vaccine rollouts. Ifo economist Klaus Wohlrabe stated that while industry continues to be well positioned retail has crumbled and service providers have been seriously impacted by the lockdown. They expect Q1 GDP to be stagnant. ECB officials have started talking down the euro stating that markets are underestimating rate cut odds while they believe it to be a “viable option”. EURUSD has dropped below the 1.21 level on the statements. 

This week we will have preliminary Q4 GDP data as well as preliminary inflation data for January. Germany, France and Spain have published Q4 GDP data that were better than expected so we expect less negative reading. German CPI in January showed the big m/m jump on the back of VAT reintroduction, higher energy prices as well as new carbon tax and that will be translated to the EU reading. 

Important news for EUR: 

Tuesday:

• GDP

Wednesday:

• CPI 

GBP 

Claimant count in December dropped to 7k from 38.1k in November. The claimant rate is at 7.4%, however it is distorted by the furlough scheme. ILO unemployment rate rose to 5% in the three-month period up to November as employment change dropped -88k. There was a rise in wages but it was achieved on the back of lower work force and majority of lower paying workers being laid off. Labor situation depends heavily on furlough scheme that is set to expire in April. If it expires before all sectors are allowed to reopen we can see the unemployment rate jumping toward the 7% level. 

This week we will have BOE meeting. No changes to the rate and policy are expected, but their assessment of the economy will be monitored closely. Additionally, investors are expecting results of negative interest rates review. 

Important news for GBP: 

Thursday:

• BOE Interest Rate Decision 

AUD 

Headline Q4 inflation came in at 0.9% q/q vs 0.7% q/q as expected on the back of the rise in tobacco and alcohol category. During the lockdown period government has raised taxes on alcohol and tobacco and it lead to the rise in their prices. Home furnishings and household equipment sector was additional contributor to the rise. Core reading remained the same at 0.4% q/q and 1.2% y/y. The small beat on headline inflation was not the result of market forces and will not prompt a reaction from RBA at their incoming meeting. 

This week we will have RBA meeting. No changes to the rate and policy are expected. From China we will have Caixin PMI numbers. 

Important news for AUD: 

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision

Wednesday:

• Caixin Services PMI (China)
• Caixin Composite PMI (China) 

NZD 

Trade balance data for December showed a big miss as the surplus was only NZD17m vs NZD800m as expected. Exports came weaker than expected but imports made a big beat. The beat in imports indicates a strong domestic demand which in turn signals the health of the economy. 

This week we will have Q4 employment data. 

Important news for NZD: 

Tuesday:

• Employment Change
• Unemployment Rate 

CAD 

The rise in virus infections in Canada has dragged the CAD down as new measures, the most stringent restrictions since March are employed. GDP for November came in at 0.7% m/m vs 0.4% m/m as expected. This is the seventh consecutive positive monthly GDP reading and although November is pretty far away from now, it points to the positive reading for Q4 GDP. Preliminary December reading is expected to be at 0.3% m/m. 

This week we will have employment data. 

Important news for CAD: 

Friday:

• Employment Change
• Unemployment Rate 

JPY 

Retail sales in December continued to decline coming in at -0.8% m/m and -0.3% y/y. The numbers were weak even before the state of emergency was introduced so we can expect a further big drop in the reading in January and February. Headline inflation for Tokyo area in January came in at -0.5% y/y. Ex fresh food category came in at -0.4% y/y while ex fresh food, energy category surprised by returning to positive and came in at 0.2% y/y. 

CHF 

SNB total sight deposits for the week ending January 22 came in at CHF704.4bn vs CHF703.8bn the previous week. This is a rather small increase meant to show the SNB is always ready to react and adjust the course of Swissy according to their liking.

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