Forex Major Currencies Outlook (Feb 3 – Feb 7)

USD 

Preliminary durable goods in December came in at 2.4% m/m vs 0.4% m/m as expected. It is a great beating on the estimates but the number is very volatile and susceptible to revisions. Prior month’s reading was revised to -3.1% m/m from -2.1% m/m. The more concerning sign is that core durable orders, characterized often as core CAPEX, came in at -0.9% m/m vs 0.2% m/m as expected indicating that businesses are reluctant to invest. Consumer confidence climbed to 131.6 vs 128 as expected showing that consumer will continue to drive growth and will not allow for slowdown at the beginning of 2020. 

Fed has left the interest rate unchanged as was expected. The whole meeting was an uneventful one with chairman Powell stressing their insistence on reaching the 2% inflation target. They have also reaffirmed their commitment to support the repo market. Reserves of 1.5 trillion will be the bottom end of the range. Powell also stated the importance of the Coronavirus outbreak and the uncertainties it brings. The labour market is continuing to perform well with wages rising, particularly for the lowest paying jobs. The view on household consumption has softened. 

First reading of Q4 GDP came in at 2.1% q/q, same as the previous quarter. Personal spending came in at 1.8% vs 2% as expected contributing 1.2 pp to the final number. Inflation numbers were also down. Business investment overall was -1.5% and it was a drag of -1.08 pp. Inventories reduced GDP by 1.09 pp while trade balance added 1.48 pp to GDP mostly due to falling imports. GDP of 2.3% y/y was the lower than 2.9% y/y for the previous year. 

The World Health Organisation has declared coronavirus a public health emergency. They have applauded China’s attempts to contain the virus and fear that the biggest threat will be for the countries with weak health systems. They did not recommend curbing of trade and travel between the countries. Number of victims in China rose tot least 213. On the earnings front, many companies have beaten earnings forecasts but Amazon topped them all. The tech giant smashed the earnings by 60% over the expectations. 

This week we will have ISM PMI data for January and trade balance for December. The central stage will be taken by the NFP report. The headline number is expected around 140k, an uptick in the unemployment rate to 3.6% is expected as well as rise in wages to 3%. 

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• Trade Balance
• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Ifo business climate index and expectations readings fell while current situation reading improved. Ifo economist stated that there is a reason to be cautiously optimistic about the German economy and that the industrial sector is slowly emerging from crisis. Uncertainty has been decreased thanks to the Phase 1 deal between US and China and clarity on the Brexit front. Consumer confidence came in unchanged while economic sentiment continued to improve for the Eurozone. Industrial confidence and business climate recorded a nice rebound while services sentiment stumbled. The unemployment rate ticked down to 7.4% showing a continuation of tight labour market conditions.

Preliminary Q4 GDP came in at 0.1% q/q vs 0.2% q/q as expected on the back of unexpected negative Q4 GDP from France and Italy. Preliminary CPI for January came in at 1.4% y/y vs 1.3% y/y the previous month while core CPI dropped to 1.1% y/y from 1.3% y/y the previous month.

This week we will have final PMI data as well as consumption data.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)

Wednesday:

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

GBP

At his final meeting as the head of BOE governor Carney did not cause any disturbances in the market. The BOE has left the rate unchanged at 0.75%. The vote came in at 7-2, 7 votes for no change and 2 votes for a rate cut; the same as the previous month while the consensus was for 6-3 vote. Inflation has been given the top priority and if there is a drop in inflation over the coming months BOE will be ready to act. The statement showed “if the economy recovers broadly in line with the MPC's latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target”. Carney stated that, according to the survey data, economic activity has improved after the election and the UK recovery appears to be on track. The overall tone of the statement and Carney’s press conference was hawkish sending GBP higher across the markets. Andrew Baily will be the Governor at the next meeting on March 26.

This week we will have final PMI data.

Important news for GBP:

Monday:

• Markit Manufacturing PMI

Wednesday:

• Markit Services PMI
• Markit Composite PMI

AUD

CPI for Q4 came in at 0.7% q/q vs 0.6% q/q as expected and 1.8% y/y vs 1.7% y/y as expected. Core measure trimmed mean came in at 0.4% q/q and 1.6% y/y as was expected. The drought and devastating fires caused the price of food to go up. In combination with a falling unemployment rate published the previous week, this small rise in headline inflation will put RBA on hold regarding interest rates. Markets are pricing around 15% chance of a rate cut.

Official manufacturing PMI from China for January came in at 50 as expected while services came in at 54.1 vs 53 as expected. Composite was dragged down on manufacturing PMI to 53 vs 53.4 the previous month. Next month’s figures will not be this good as the coronavirus takes its toll on the economy. Beijing asked companies to resume work on February 10 instead of February 3 as previously planned.

This week we will have trade balance and consumption data along with RBA rate decision. In the light of improving data RBA will not cut, however the statement will be of great interest. The coronavirus outbreak in China will have consequences on the Australian economy so RBA’s thoughts on that will be scrutinized. We will have Caixin PMI and trade balance data from China.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision

Wednesday:

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

Thursday:

• Trade Balance
• Retail Sales

Friday:

• RBA Monetary Policy Statement
• Trade Balance (China)

NZD

Trade balance for December came in at NZD547m vs NZD100m as expected. Better than expected reading was achieved on the back of rising exports, rose less than expected and falling imports, fell more than expected. Dairy exports hit a new high thanks to raising dairy prices and China took 28% of New Zealand’s exports in this fiscal year. Although a positive data point it did not change the fortune of Kiwi as it was hammered the entire week due to risk off sentiment caused by the Coronavirus outbreak.

This week we will have bi-monthly GDT price index and Q4 employment data.

Important news for NZD:

Tuesday:

• GDT Price Index
• Employment Change
• Unemployment Rate

CAD

GDP for November came in 0.1% m/m vs flat as expected and up from -0.1% m/m the previous month. There was a rise in 15 out of 20 sectors and yearly figure came in at 1.5% y/y vs 1.4% y/y as expected. Utilities, construction and retail sales were the main contributors while mining, oil and gas and transportation were the laggards. Markets took notice of this data but CAD continued to decline as it has done the whole week on the back of rising worries for commodity currencies due to a potential global slowdown caused by outbreak of coronavirus.

This week we will have trade balance and employment data.

Important news for CAD:

Wednesday:

• Trade Balance

Friday:

• Employment Change
• Unemployment Rate

JPY

Tokyo CPI for January came in at 0.6% y/y vs 0.7% y/y as expected. Inflation is again heading in the wrong direction despite the sales hike tax. Ex food category came in at 0.7% y/y vs 0.8% y/y as expected while Ex food and energy came in line with expectations at 0.9% y/y. The unemployment rate in December came in at 2.2%, same as the previous month, while expectations were for a rise to 2.3%. Retail sales continued their decline and came in at 0.2% m/m vs 4.5% m/m the previous month and -2.6% y/y vs -2.1% y/y the previous month. Preliminary industrial production data were the bright spot coming in at 1.3% m/m vs 0.7% m/m as expected and -3% y/y vs -3.6% y/y as expected.

This week we will have final PMI data, as well as wages and spending data.

Important news for JPY:

Monday:

• Markit Manufacturing PMI

Wednesday:

• Markit Services PMI
• Markit Composite PMI

Friday:

• Household Spending
• Labour Cash Earnings

CHF

Trade balance in December more than halved to CHF1.96bn from CHF3.95bn the previous month. Exports showed a drop of -3.4% m/m while imports rose 0.2% m/m. Retail sales came in at 0.1% m/m vs being flat the previous month but with previous month being revised to 0.5% m/m it gives more strength to the reading.

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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 MT4.VAR. and MT4.ECN. accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}