Forex Major Currencies Outlook (Jan 20 – Jan 24)

USD

CPI in December came in at 2.3% y/y up from 2.1% y/y the previous month. Core CPI remained 2.3% y/y as expected. Real average weekly earnings were flat vs 0.8% y/y the previous month with real average hourly earnings coming in at 0.6% y/y vs 1.1% y/y the previous month. The rise in headline inflation is attributed to rising energy prices. Fed chairman Powell stated that rate hikes will be considered only if inflation overshoots the target for a prolonged period of time. The drop in wages is cause for concern as it would stifle consumption. December retail sales came in at 0.3% m/m as expected with previous month’s reading being revised up to 0.3% m/m which pushed the USD higher. Control group, “core”, which is included in GDP, came in at 0.5% m/m vs 0.4% m/m but previous month’s reading was revised down to -0.1% m/m.

The "Phase 1" trade deal has been signed. The agreement will be effective 30 days after signing. Details of the deal show that China is to import no less than $12.5bn above 2017 baseline for agricultural goods in 2020 and $19.5bn in 2021, $12.8bn more in services this year, $25.1bn in second year, $18.5bn more in energy this year, $33.9bn in the second year and $12.5bn more in manufactured goods this year and $44.8bn in the second year. Overall China has agreed to increase imports from the US in the amount of $200bn. US will cut by half the tariff rate it imposed on September 1 on a $120bn of Chinese goods, to 7.5% while tariffs of 25% on $250 billion worth of Chinese goods put in place earlier will remain unchanged and could be rolled back as part of a Phase 2 trade negotiation. Treasury secretary Mnuchin stated that certain tech and cybersecurity issues will be in Phase 2 of the trade deal and that there could be multiple steps in Phase Two such as 2A, 2B, 2C, etc. which potentially can drag the matter for years. Although the deal will narrow the deficit with China there is a decent probability that it will widen the deficit with the rest of the world.

This week we will have housing data.

Important news for USD:

Wednesday:

• Existing Home Sales

EUR

Industrial production data for November came in at 0.2% m/m vs 0.3% m/m as expected but up from the previous month which was revised down to -0.9% m/m thus almost negating the mild improvement in the industrial activity. The narrative of soft conditions continues. Trade balance surplus shrunk in November to EUR19.2bn from EUR24bn the previous month on the back of both falling exports (-2.8%) and falling imports (-0.5%).

This week we will have economic sentiment data and preliminary January PMIs with consumer confidence. The highlight of the week will be ECB interest rate decision accompanied by press conference. New strategic review focusing on measuring and implement price stability target will be published.

Important news for EUR:

Tuesday:

• ZEW Economic Sentiment (EU and Germany)

Thursday:

• ECB Interest Rate Decision
• ECB Monetary Policy Press Conference
• Consumer Confidence Index

Friday:

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

GBP

November GDP data continue to show deteriorating conditions in the UK economy coming in at -0.3% m/m vs 0.1% m/m the previous month. The reading adds more to the belief that Q4 GDP will be negative. Industrial and manufacturing production continued their decline while construction output showed an improvement. Trade balance deficit was lowered to -£5.3bn vs -£10.9bn the previous month on the back of rising exports (2.2%) and plunging imports (-11.6%). Imports have plummeted due to previous stockpiling, mostly done in October, caused by the fear of no-deal Brexit.

CPI for December came in at 1.3% y/y vs 1.5% y/y as expected with core reading also dropping to 1.4% y/y vs 1.7% y/y the previous month thus adding another nail in the GBP data coffin. Headline inflation number is lowest in three year. BOE member Vlieghe stated that if upcoming data does not improve, he will vote for a rate cut.

The final nail in the coffin for the UK data came in the form of retail sales for December which slumped to -0.6% m/m vs 0.6% m/m as expected. December reading includes Black Friday and Cyber Monday sales and previous reading was revised down so that makes the reading even more frightening. Retail sales have not shown growth in five months. Q4 retail sales were down -1% and that will have negative impact on Q4 GDP. OIS are showing that a rate cut by May is fully priced in and bond markets are pricing about 73% chance of a rate cut at the January meeting.

This week we will have employment data and preliminary January PMI, first post-election data. Given that recent data have disappointed and increased chances for a rate cut every release from UK will have more profound impact on the markets.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate
• Average Weekly Earnings

Friday:

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

AUD

Chinese trade balance in December beat the expectations and came in at 329.27bn vs 274.21bn. Exports were up 9% y/y vs 1.3% y/y the previous month while imports were up whooping 17.7% y/y vs 2.5% y/y the previous month. These are data in Yuan. Data in USD show trade surplus widen to $46.79bn vs $37.93bn the previous month. Exports were up 7.6% y/y vs -1.3% y/y the previous month while imports were up huge 16.3% y/y vs 0.5% y/y the previous month. Beats on expectations all around and huge increases in imports indicate that domestic demand for foreign goods is picking up which is a great sign for all export-oriented countries. Trade between US and China was reduced by 10.7% y/y in 2019.

China Q4 GDP came in at 1.5% q/q as expected which put yearly GDP figure at 6% thus reaching the lower bound of the growth set by Chinese government. Retail sales in December came in at 8% y/y vs 7.8% y/y as expected for a nice beat but the highlight were industrial production numbers which came in at 6.9% y/y vs 5.9% y/y. Such a solid beat will keep AUD well supported.

This week we will have employment data. Australia has been dealing with horrendous fires and we will see how much of effect they had on the employment rate.

Important news for AUD: 

Thursday:

• Employment Change
• Unemployment Rate

NZD

Card spending in December came in at -0.8% m/m vs 0.1% m/m as expected for a big miss and down from 2.6% m/m the previous month. Since card spending amounts to about 70% of core retail sales, we can expect a weak December retail sales reading.

This week we will have Q4 inflation data and bi-monthly GDT auction.

Important news for NZD:

Tuesday:

• GDT Price Index

Thursday:

• CPI

CAD

In the absence of important economic releases USDCAD has been confined to a 50 pip range.

This week we will have inflation and consumption data with BOC interest rate decision as the most important event. No change in rate is expected, however possible changes in the tone of BOC are possible.

Important news for CAD:

Tuesday:

• Manufacturing Sales

Wednesday:

• CPI
• BOC Interest Rate Decision
• BOC Rate Statement

Friday:

• Retail Sales

JPY

BOJ regional economic report showed that Japan's economy continues to either expand or recover in all its nine regions as domestic demand, such as capital investment and private consumption, continue rising. Slowdown in overseas economies and natural disasters were affecting exports, production and business sentiment, but the impact was limited. Three of the nine regions cut their assessment from the previous quarter, with the remaining six regions keeping their view unchanged. Preliminary machinery tool orders in December showed a bit of improvement while core machinery orders showed a huge beat coming in at 18% m/m vs 2.9% m/m as expected and up from -6% m/m the previous month and now showing 5.3% y/y vs -6.1% y/y the previous month.

This week we will have final industrial production data, trade balance and national inflation data, preliminary January PMIs and BOJ interest rate decision. No change in interest rate is expected but BOJ will offer new forecasts.

Important news for JPY:

Monday:

• Industrial Production

Tuesday:

• BOJ Interest Rate Decision
• BOJ Monetary Policy Statement

Thursday:

• Trade Balance

Friday:

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

CHF

US has included CHF on its FX manipulation watchlist and SNB responded by saying that they do not manipulate currency for gaining export advantages, their interventions are a part of monetary policy to prevent effects of CHF getting too strong.

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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.}