Forex Major Currencies Outlook (Mar 1 – Mar 5)

USD 

In his testimony in front of the Congress, Fed Chairman Powell took a dovish stance. He reiterated that the economy is long way from desired levels of employment and inflation and that current monetary policy will be maintained until “substantial further progress has been made” toward achievement of employment and inflation goals. He brushed off recent rise in inflation expectations and added that “when we say maximum employment, we don’t just mean the unemployment rate, we mean the employment rate”. His remarks led to rally in stocks and small decline in USD as low rates and QE are here to stay for at least a year. On Thursday we had a beginning of a bond sell-off, particularly in 5-years which led to rise in yields and contributed to a rise in USD pushing the GBPUSD pair below the 1.39 level from highs of over 1.423 during the week. Talks surrounding a possible Fed hike before previously planned are starting to appear in the markets. Investors are anticipating a strong economic recovery in the US which will prompt Fed to tighten monetary conditions. 

Second reading of Q4 GDP saw an improvement to 4.1% from 4% as preliminary reported on the back of rising business and home investment. Preliminary durable goods for January smashed expectations coming in at 3.4% m/m vs 1.1% m/m as expected. December reading was revised up to 1.2% m/m. Capital goods came in at 0.5% m/m with December reading being revised up to 1.5% m/m. Strong readings combined with upward revisions will add to Q1 GDP growth and reinforce the narrative of economic recovery in the US. The effect of the $600 stimulus check can be seen as personal income in January rose 10% m/m while spending rose 2.4% m/m. 

This week we will have ISM PMI data and NFP on Friday. With Fed paying more attention to the employment data NFP returns into the spotlight. Headline number is expected to show the rise of around 110k while the unemployment rate is expected to tick up to 6.4%. 

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

German Ifo numbers for February showed improvement in all categories. Expectations category jumped to 94.2 from 91.7 indicating overwhelming optimism among investors regarding the vaccine developments and their impact on the economic outlook in H2 2021. Final EU inflation numbers for January showed a healthy rebound. Headline reading came in at 0.9% y/y while core reading came in at 1.4% y/y, both as preliminary reported. Higher energy prices contributed mostly to the rise in inflation. These numbers still do not portray a healthy economic environment.

This week we will have preliminary inflation data for February.

Important news for EUR:

Tuesday:

• CPI

GBP

Jobless claims in January came in at -20k which pushed claimant count rate down to 7.2% from 7.3% in December. ILO unemployment rate in December, on the other hand, ticked up to 5.1%. Employment report shows a continued drop in employment change which in turn leads to the rise in average earnings as the majority of the lost jobs are low-paying ones. Furlough scheme, lasting until the end of April, is distorting these numbers and it is possible that once it ends we could see a jump of up to 2% in the ILO unemployment rate. Looking at the report Chancellor of the Exchequer Sunak will be forced to extend the furlough scheme. BOE Governor Bailey stated that they expect a negative Q1 GDP reading.

Positive developments surrounding vaccination in the UK has lead to a plan set forward by the Prime Minister Johnson for reopening of the country. The plan will consist of four phases. In the first phase, by the end of March, all schools will open with outdoor after-school sports and activities allowed, as well as organized adult and children’s sports. Step two, by the mid-April, will see reopening of non-essential retail and hospitality outdoors. Step three, by the mid-May, will see reopening of indoor hospitality and most social contact rules lifted for the outdoors. Finally, step four, by the end of June, will see removal of all limits on social contacts.

AUD

Fitch has kept Australia’s AAA credit rating with negative outlook citing that “The Negative Outlook reflects uncertainty around the medium-term debt trajectory following the significant rise in public debt/GDP caused by the response to the pandemic.” Private CAPEX for Q4 smashed expectations coming in at 3% q/q vs 1% q/q as expected. AUDUSD has briefly crossed the 0.80 level. That is the first time in over three years that the pair has traded at that level. An impressive upward going trendline on W1 chart is still in play indicating that further gains are possible, however RBA may have something to say about that at their upcoming meeting and could potentially drive the pair down.

This week we will have Q4 GDP data as well as an RBA meeting. No changes in policy and rate are expected, the tone will be scrutinized as always. From China we will have Caixin PMI and trade balance data.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision

Wednesday:

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

Sunday:

• Trade Balance (China)

NZD

RBNZ has left the cash rate and monetary policy unchanged as was widely expected adding that prolonged monetary stimulus remains necessary. Asset purchase program (LASP) remains at NZD100bn. Risks to the economic outlook are balanced but the uncertainty remains high. RBNZ committee members stated that NZD would be much higher valued if it was not for their policy actions. Governor Orr left the door open for negative rates as stimulus if the need arises and added that employment and inflation outcomes are primary concerns. A streak of positive Q4 data was shattered by the retail sales which came in at -2.7% q/q vs -0.3% q/q as expected.

CAD

BOC governor Macklem stated in his speech that monetary stimulus will be needed for a considerable period. Complete recovery is still a long way off but sustained growth should appear through Q2 and 2022 adding that majority of Canadians will continue working from home. On the housing he noted that BOC starts to see some early signs of excess housing enthusiasm, which has been fueled by the low interest rates. Inflation expectations have moved back to 'more normal' levels.

This week we will have Q4 GDP data.

Important news for CAD:

Tuesday:

• GDP

JPY

Japan’s struggle with the lack of inflation, we have come to the point of struggle with deflation, continues. Small improvements can be seen as headline and excluding fresh food numbers for Tokyo are in February came in at -0.3% y/y vs -0.5% y/y in January. Ex fresh food, energy category remained at 0.2% y/y. Consumption activity was impeded by the enacted state of emergency and it lead to retail sales in January coming in at -0.5% m/m and -2.4% y/y.

CHF

SNB total sight deposits for the week ending February 19 came in at CHF704.4bn vs CHF704.3bn the previous week. Almost no change as SNB is happy that the market is doing its job with EURCHF breaching the 1.09 level and going all the way up to the 1.1050 level. Q4 GDP surprised to the upside by coming in at 0.3% q/q. Adding to the strength of the reading Q3 GDP was revised up to 7.6% q/q.

_{You can follow all economic events on the Economic Calendar page on our Website. MT server time is set to GMT+2 and if you need assistance converting MT server time to your local time you can use some of the online time converters such as WorldTimeBuddy.}

_{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 our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}