Forex Major Currencies Outlook (Feb 4 – Feb 8)

FED has left rates unchanged at 2.25-2.50% as expected. Vote on keeping the rates on hold was unanimous. They stated they will be “patient” on future moves and that they are prepared to adjust any details for completing balance sheet normalization in light of economic and financial developments. Economic activity rising at “solid” rate (previously it was “strong” rate, downgrade from previous statement). Dovish statement sent USD quickly 50 pips down against the majors. FED moved from hawkish to neutral stance effectively halting any talks of raising rates.

FED Chairman Powell stated in press conference that growth has slowed in foreign economies and noted the effects of the shutdown. He explained that FED has seen crosscurrents and conflicting signals so they decided for the “patient, wait and see approach”. He is satisfied with progress in balance sheet discussions but no exact number was stated since according to him FED is not at that point yet. FED thinks that the outlook is favourable in general. Continuation of the dovish statement sent stocks to the new highs.

ADP employment change came in at 213k vs 175k as expected with 145k in services and 68k in the goods-producing sector. Job growth was seen in almost every industry with manufacturing adding the most jobs in more than four years. NFP headline number came in at 304k vs 165k as expected for a 100^th consecutive month of job gains. Average hourly earnings came in at 3.2% y/y as expected and this is where the good news end since they came 0.1% m/m vs 0.3% m/m as expected. Previous NFP number was revised to the downside from 312k to 220k for a full 90k jobs.The unemployment rate rose to 4% due to the increase in participation rate to 63.2% vs 63% as expected. Underemployment rate rose to 8.1% vs 7.6% the previous month. Overall it is a mixed report that will send USD lower in the first few hours after its announcement.

This week we will have PMI numbers and due to shutdown delayed factory orders data as well as trade balance data.

Important news for USD:

Monday:

• Factory Orders

Tuesday:

• Trade Balance
• Exports
• Imports
• Markit Services PMI
• Markit Composite PMI
• ISM Non-Manufacturing PMI

EUR

Consumer confidence for the month of January came in at -7.9 as expected while Economic, Industrial and Service confidence data have all decreased showing the declining confidence in Eurozone economy as a whole. German economy ministry has cut German 2019 growth forecast to 1% from 1.8% citing external risks, Brexit, trade conflicts and external tax environment, as main reasons for lower number. German retail sales for the month of December were abysmal coming in at -4.3% m/m vs 0.6% m/m as expected.

Eurozone preliminary Q4 GDP came in at 0.2% q/q and 1.2% y/y as expected with the unemployment rate coming at 7.9% also as expected. Troubling sign is that preliminary Q4 GDP from Italy came in at -0.2% q/q vs -0.1% q/q thus showing negative GDP for the second consecutive quarter indicating that Italy slips into recession. Italy’s DiMaio has said that this contraction shows failure of previous governments. PM Conte said that recession is only temporary due to US-China trade war and that economy will recover in 2019.

Final manufacturing PMI for the Eurozone came in at 50.5 as expected. Italy’s PMI came in at 47.8 vs 48.8 preliminary showing deeper plunge of Italian economy. Preliminary CPI for the month of January came in at 1.4% as expected with prior reading of 1.6% y/y. Core CPI came in at 1.1% vs 1% as expected. Rise in the core reading is encouraging, showing that inflationary pressures are still present.

This week we will have final PMI data as well as consumption data from the EU along with industrial and trade balance data from Germany.

Important news for EUR:

Tuesday:

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

Wednesday:

• Factory Orders (Germany)

Thursday:

• Industrial Production (Germany)

Friday:

• Trade Balance (Germany)
• Exports (Germany)
• Imports (Germany)

GBP

Voting in Parliament ended with a mandate for PM May to return to Brussels to renegotiate the so-called “backstop” that aims to prevent a hard border between Northern Ireland and the independent Irish Republic. The EU was strict that it will not change the deal currently on the table. Manufacturing PMI came in at 52.8 vs 53.5 as expected. Purchase of stock volumes has reached record high of 56.3 signalling stockpiling ahead of Brexit number and without it the PMI number would be even weaker.

This week we will have BOE interest rate decision followed by minutes from the MPC meeting and speech by governor Carney. It is expected that rate will stay unchanged so greater importance will be given to minutes and speech, that is where markets will look for more guidance. Additionally, every news regarding Brexit will be closely monitored.

Important news for GBP:

Monday:

• Markit/CIPS Construction PMI

Tuesday:

• Markit/CIPS Services PMI

Thursday:

• BOE Interest Rate Decision
• BOE MPC Meeting Minutes
• BOE Governor Carney Speech

AUD

China’s industrial profits for the month of December came in at -1.9% y/y vs -1.8% y/y the previous month. Another data pointing to the slowdown in Chinese economy that will impact broader markets. Non-manufacturing PMI for the month of January came in at 54.7 vs 53.8 as expected. Composite PMI came in at 53.2 vs 52.6 as expected. Manufacturing PMI came in at 49.5 vs 49.3 as expected for the second consecutive month in contraction. Caixin Manufacturing PMI came in at 48.3 vs 49.6 as expected. Falling deeper into contraction territory with dropping output subindex signalling softer demand. New orders fell for the second consecutive month at a faster pace.

Headline inflation numbers came in at 0.5% q/q vs 0.4% q/q as expected and 1.8% y/y vs 1.7% y/y as expected with prior reading showing 1.9% y/y. Trimmed mean, which is a core measure came in at 0.4% q/q and 1.8% y/y in line with the expectations. AUD was sent higher immediately on better than expected headline number and rise in iron ore prices.

This week centre stage will be taken by RBA and their interest rate decision followed by rate statement. Rate is expected to stay the same so all eyes will be on the accompanying statement. Additionally, we will have data on housing, trade balance and consumption. We will also get monetary policy statement.

Important news for AUD:

Monday:

• Building Approvals

Tuesday:

• RBA Interest Rate Decision
• RBA Rate Statement
• Trade Balance
• Exports
• Imports
• Retail Sales

Wednesday:

• RBA Governor Lowe Speech

Friday:

• RBA Monetary Policy Statement

NZD

Trade balance data for the month of December came in at NZD264m vs NZD150m as expected with previous month showing deficit of NZD861m. Exports rose NZD5.4bn for a beat vs NZD5bn as expected. Imports came in lower than expected at NZD5.22bn. Exports have been growing for 5 consecutive months and this is the strongest reading since December 2017. However, although markets have embraced these numbers and pushed NZD higher annual trade deficit for 2018 is deficit of NZD5.9bn. S&P leaves NZ rating unchanged at AA but raises outlook to positive.

This week we will have GDT auction as well as employment data.

Important news for NZD:

Wednesday:

• GDT Price Index
• Employment Change
• Unemployment Rate
• Participation Rate

CAD

November GDP figures came in at -0.1% m/m as expected and 1.7% y/y vs 1.6% y/y as expected. Raw materials price index came in at 3.8% m/m. Construction activity was down for the sixth consecutive month and came in at -0.3%. Along with the weaker retail sales it represents the biggest concern for Canadian economy. Manufacturing PMI came in at 53.0 vs 53.6 as expected. Wrong direction for the manufacturing but at least it is in the positives unlike with some European countries.

This week we will have data on trade balance and employment as well as Ivey PMI.

Important news for CAD:

Tuesday:

• Trade Balance
• Exports
• Imports

Wednesday:

• Ivey PMI

Friday:

• Employment Change
• Unemployment Rate
• Participation Rate

JPY

Meeting minutes for the December BOJ meeting saw members stating that it is appropriate to continue easing persistently and that CPI will likely gradually increase toward the target of 2%. Overall assessment was that "The Japanese economy is recovering at a moderate pace." Japan’s Cabinet Office has cut its evaluation of exports for the month of January citing the trade war between US and China as a main culprit.

Retail sales for the month of December came in at 0.9% m/m vs 0.4% m/m as expected and 1.3% y/y vs 1% y/y as expected. Much needed beats on retail sales data. If the effects spill over to the inflation it can push it up in the right direction, towards the magical 2% level. Preliminary Industrial production reading for the month of January came in at -0.1% m/m vs -0.5% m/m as expected. Outlook is for it to rise to 2.6% m/m in February. Unemployment rate came in at 2.4% vs 2.5% as expected with Job-to-applicant ratio coming in at 1.63 as expected.

This week we will have data on household spending, earnings as well as goods trade balance.

Important news for JPY:

Tuesday:

• Nikkei Services PMI

Friday:

• Household Spending
• Goods Trade Balance
• Labour Cash Earnings

CHF

Trade balance data for the month of December came in at CHF1.9bn vs CHF4.74bn the prior month. Large drop in the main figure was caused by exports which fell 5% m/m. Imports rose 3.7% m/m. Drop in exports is worrying and indicates far fetching reach of global slowdown. Rise of imports is a positive thing indicating that domestic demand holds steadily.

This week we will have employment data.

Important news for CHF:

Friday:

• Unemployment Rate

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