Forex Major Currencies Outlook (Feb 18 – Feb 23)

CPI excluding food and energy came in at 2.2% y/y vs 2.1% y/y as expected and 0.2% m/m as expected. Average weekly and hourly earnings have beaten expectations coming in at 1.9% y/y vs 1.4% y/y as expected and 1.7% y/y vs 1.3% y/y as expected respectively. Rise in wages is very encouraging for the US economy, however it is not sufficient enough to cause FED to consider immediate rate hikes. CPI has ticked a bit higher but monthly figure stayed unchanged due to the energy prices.

The US budget or the month of December shows a higher than expected deficit of -$13.5bn vs -$11bn as expected. US fiscal 2019 year-to-date deficit is -$319bn versus comparable fiscal 2018 deficit of -$225bn. For the fiscal year to date, corporate income tax receipts are down -17.3%, individual tax receipts are down -3.5%. On the other hand, Social Security receipts are up 6.1% while customs duties are up a staggering 88.7%. Overall tax cuts introduced last year are dragging receipts lower and are not offset fully by receipts from the higher growth or cuts in spending. US national debt has risen to the record of $22 trillion.

Retail sales for the month of December came in at -1.2% m/m vs 0.1% m/m as expected for the worst monthly reading since 2009. Control group reading came in at -1.7% vs 0.4% as expected which is the worst reading since 2000. The reading was delayed due to the shutdown and it shows that holiday shopping has been done during Black Friday. The numbers are very bad and USD felt the pressure immediately losing its ground against all majors. GDP projections for Q4 have been lowered due to the abysmal retail sales numbers. Atlanta FED sees it now at 1.5% vs 2.7% estimate on February 6. Industrial production came in at -0.6% m/m vs 0.1% m/m as expected. Bad releases keep on piling up. After a few more bad releases questions about health of US economy will be raised.

Compromise seems to have been reached to avoid another government shutdown. President Trump stated that he will sign the funding bill to keep the government open and then he would use executive action to declare a national emergency which will get him $8bn for a border wall. Chinese president Xi confirmed that trade negotiations will continue in Washington this coming week.

This week we will have FOMC minutes from the latest FOMC meeting where FED opted for patience, durable goods orders for the month of December, due to the shutdown that data was delayed, preliminary PMIs for the month of February and housing data.

Important news for USD:

Wednesday:

• FOMC Minutes

Thursday:

• Durable Goods Orders
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI
• Existing Home Sales

EUR

Industrial production in EU continues to weaken coming in at -0.9% m/m vs -0.4% m/m as expected and -4.2% y/y vs -3% as expected. Year on year reading us the worst since 2009 bringing the Eurozone back to the dark times.

Germany’s preliminary Q4 GDP came in at 0% q/q vs 0.1% q/q as expected. Technical recession of two consecutive quarters with negative GDP has been barely avoided with Q4 GDP staying flat but growth remains very weak which is not encouraging for the EUR. Eurozone second reading of Q4 GDP came in at 0.2% q/q and 1.2% y/y as expected.

This week we will have surveys on economic sentiment, consumer confidence and business climate as well as preliminary PMIs for the month of February along with final Q4 GDP data for Germany.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment Indicator (Germany and EU)

Wednesday:

• Consumer Confidence Index

Thursday:

• Markit Manufacturing PMI (France, Germany and EU)
• Markit Services PMI (France, Germany and EU)
• Markit Composite PMI (France, Germany and EU)
• Monetary Policy Meeting Accounts

Friday:

• GDP (Germany)
• Ifo Business Climate (Germany)
• CPI

GBP

Preliminary Q4 GDP figures came in at 0.2% q/q vs 0.3% q/q as expected. The main drag on the number was the total business investment category which came in at -1.4% q/q vs -1% q/q as expected showing the reluctance of UK business to invest while uncertainties around Brexit hover in the air. This is the fourth straight quarter of falling business investments. Car production was another drag on GDP as it fell 4.9% q/q which is the worse result since Q1 2009. Industrial and manufacturing production as well as construction output all came in worse than expected and in the negatives adding more to the mounting Brexit pressures. Exports in the last quarter have risen 0.9% q/q vs 1/% q/q as expected and imports rose to 1.3% q/q vs 1% q/q as expected showing that domestic demand is still robust. Household spending kept the economy on the right path.

CPI for the month of January came in at -0.8% m/m vs -0.7% m/m as expected and 1.8% y/y vs 1.9% y/y as expected. This figure is the lowest for two years and the Office for National Statistics attributed the drop to cheaper gas, electricity and petrol prices, partly offset by cheaper ferry tickets and air fares. Core CPI held steadily at 1.9% y/y. Retail sales came in at 1% m/m vs 0.2% m/m as expected and 4.2% y/y vs 3.4% y/y as expected. Positive beating was spurred by strong clothing store sales.

Britain and Switzerland have a signed trade continuity agreement which allows them to trade freely without any new tariffs. Meaningful vote on Brexit in the Parliament has been postponed by PM May and it is expected that it will be held on February 27.

This week we will have data on employment and wages as well as continuation of Brexit negotiations.

Important news for GBP:

Tuesday:

• Average Hourly Earnings
• Unemployment Rate

AUD

The Australian housing sector continues to worsen. Data on home loan approvals came in at -6.1% m/m vs -2% m/m as expected. This represents the fourth straight month of falling home loan approvals and adds fuel to the speculations of rate cut toward the end of the year.

Chinese trade balance data for the month of January came in at $39.16bn vs $34.3bn as expected. Exports rose 9.1% y/y vs -3.3% y/y as expected for a huge beat while imports came in at -1.5% y/y vs -10.2% y/y as expected. Due to the lunar new year holidays there is some distortion in the figures. When the data for the February comes out, we will have a better picture. That being said, exports coming in from China are very encouraging while imports although better than expected pose a bit of concern. Trade surplus with USA has dropped to $27.3bn vs $29.87bn the previous month with exports falling -2.4% y/y and imports collapsing staggering -41.2% y/y. Chinese CPI came in at 1.7% y/y vs 1.9% y/y as expected. Slowdown in food inflation was the main drag on inflation.

This week we will have RBA meeting minutes from the last RBA meeting along with wage and employment data.

Important news for AUD:

Tuesday:

• RBA Meeting Minutes

Wednesday:

• Wage Price Index

Thursday:

• Employment Change
• Participation Rate
• Unemployment Rate

NZD

RBNZ has left OCR unchanged at 1.75% as widely expected. With their new projections they see the rate rising to 1.84% in December of 2020 and 2.36% in March of 2022. Annual CPI will be at 1.7% by March of 2020. Core CPI is expected to gradually rise to 2%. Continued supportive monetary policy is needed to raise CPI to 2% level. Next cash rate move could be up or down. Markets were prepared for dovish RBNZ and when they acknowledged that next rate move could be also up NZD was sent upwards. Manufacturing PMI for the month of January came in at 53.1 vs 55.1 the previous month. New orders sub index came in at 52.2 for a third consecutive falling month and lowest reading in past 13 months.

This week we will have GDT auction and data on consumption at the end of the week.

Important news for NZD:

Tuesday:

• GDT Price Index

Sunday:

• Retail Sales

CAD

Manufacturing sales for the month of December came in at -1.3% m/m vs 0.4% m/m. Unexpected drop in factory sales for the last month of 2018. This is the second month in a row of negative reading and it sent CAD falling against majors including USD who had bad retail sales data published at the same time. Housing price index came in at 0% m/m as expected for another lacklustre data from Canada. Five consecutive months of flat readings for the index. Existing home sales came in at 3.6% m/m vs -0.6% m/m as expected.

This week we will have data on wholesale, speech by governor Poloz and data on consumption.

Important news for CAD:

Thursday:

• Wholesale Trade
• BOC Governor Poloz Speech

Friday:

• Retail Sales

JPY

GDP data for the Q4 came in at 0.3% q/q vs 0.4% q/q as expected and 1.4% y/y as expected. GDP deflator which is an inflation measure came in at -0.3% y/y vs -0.4% y/y. Consumer spending was 0.6% q/q vs 0.7% q/q as expected and business spending was 2.4% q/q vs 1.8% q/q. Headline number is weaker than expected but it shows that Japan’s economy managed to recover after GDP being negative in Q3 due to natural disasters. Business spending was the main input in the GDP figure with a healthy beat of the expectations. Exports didn’t show expected recovery, mainly due to lower imports from China.

This week we will have trade balance data, preliminary PMI for the month of February and national inflation data.

Important news for JPY:

Wednesday:

• Trade Balance
• Exports
• Imports

Thursday:

• Nikkei Manufacturing PMI

Friday:

• CPI

CHF

January CPI came in at -0.3% m/m vs – 0.2% m/m as expected, however the core CPI jumped to 0.5% y/y vs 0.3% as expected which is a five-month high and it shows that core inflationary pressures are rising. However, with global slowdown it is interesting to see how long will those pressures maintain.

This week we will have data on trade balance as well as on industrial production.

Important news for CHF:

Tuesday:

• Trade Balance
• Exports
• Imports

Friday:

• Industrial Production

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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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