Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Nov 9 – Nov 13)

After a very eventful week we will have a rather quiet week ahead of us with RBNZ meeting leading the way.​

USD

ISM manufacturing PMI for October came in much stronger, 59.3, than it was expected at 56. This makes it the strongest reading in more than 2 years showing an impressive rebound in manufacturing sector. New orders component rose to an astonishing 67.9 from 60.2 in September while production went up to the 63 level. The employment component returned to expansion coming in at 53.2 vs 49.6 in September. ISM services PMI showed a different picture. It came in at 56.6 vs 57.5 as expected. Although the reading is well in the expansion territory, drops in new orders and particularly in employment are causing concerns.

October NFP was a very strong report that was largely overlooked by the market because of the election. Headline number came in at 638k vs 580k as expected. More impressively the unemployment rate fell a full percentage point to 6.9% from 7.9% in September. Even more impressively this was achieved with the participation rate rising to 61.7% from 61.4% in September. A drop in the unemployment rate will reduce the need for a big fiscal stimulus package.

The Senate race in Georgia has been postponed until January 5 which keeps chances of “blue wave” (Democratic party having majority in both The House and The Senate) alive. Markets are speculating that “blue wave” will bring a higher fiscal stimulus leading to rise in gold and stocks and a fall in USD. If Republicans retain the Senate, fiscal stimulus will be much lower and there are fears that they will undermine Biden’s presidency.

This week we will have inflation data.

Important news for USD:

Thursday:

• CPI

EUR

Final manufacturing PMI for October improved to 54.8 from 54.4 as preliminarily reported. Improvements were seen in all major countries with output and new orders growing rapidly. Final services PMI came in at 46.9 vs 46.2 as preliminary reported on the back of improvement in German reading. Composite was thus brought to the 50 level. With restrictions being implemented around Europe we can expect November service reading to show further decline. Concerns about “double dip” in Q4 GDP are mounting. European Commission came out and downgraded their forecast for 2021 GDP from 6.1% to 4.2%. Expectations are for Q4 GDP to come in at -0.1% q/q. Forecast is based on no-deal Brexit on December 31.

This week we will have a second estimate of the Q3 GDP.

Important news for EUR:

Friday:

• GDP

GBP

BOE has left the bank rate unchanged at 0.10% but they upped the QE program by £150bn to a total of £875bn. They have assessed the economic outlook as uncertain due to the downside skewed risks and are willing to increase their QE commitment in order to meet inflation target in medium-term. They also do not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target. Q4 GDP is now seen falling into contraction and rising in Q1 of 2021. There was no talk about negative interest rates.

With Covid-19 cases rapidly rising prime minister Johnson did not see an alternative but to announce a new lockdown. The new lockdown will be in place until December 2. Pubs and restaurants will be closed, takeaway and delivery will be available. Non-essential retail will also close while schools and universities will remain open. UK extended its wage furlough scheme for the workers until the end of March that will be affected by the lockdown. Workers will receive 80% of their regular pay. Preliminary expectations are that newly imposed lockdowns could decrease November GDP by 6-7%. Impact on Q4 GDP could be even bigger if lockdown is prolonged.

This week we will have employment data and preliminary Q3 GDP reading.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Thursday:

• GDP

AUD

Expectations for RBA easing have been widely spread and RBA delivered. They have cut the cash rate to 0.1% from 0.25% and will cap 3-year yields at 0.1%. They will enlarge their bond buying program by AUD100bn and use it to buy government bonds of 5 to 10-year maturity over the next six months. Additionally, they have clarified that they do not expect to raise the cash rate for at least three years. The measures are intended to spur economic recovery and provide job creation. The unemployment rate is expected to peak just below 8% before decreasing. Bank members see their actions leading to a lower exchange rate for AUD. The bank is prepared to do more if they deem it necessary but governor Lowe stated that introduction of negative rates is “extraordinarily unlikely”.

Official PMI data from China showed a small drop in manufacturing (51.4 from 51.5 in September) while services rose to 56.2 from 55.9 from September thus pushing composite to 55.3 from 55.1 the previous month. All three readings show expansion in China with services picking up in Q3 and following through in Q4. Inland travel promoted by the government had a huge impact on the services industry. Chinese tourists travelled across the China instead of going abroad which lead to increases in jobs as well as money staying within the country. Caixin manufacturing improved to 53.6 from 53 in September due to a strong rise in output indicating strong domestic demand. Caixin services rose to 56.8 from 54.8 in September which pushed composite to 55.7 from 54.5.

This week we will have inflation data from China.

Important news for AUD:

Tuesday:

• CPI (China)

NZD

Q3 employment change came in at -0.8% q/q while the unemployment rate climbed to 5.3% as was expected. Participation rate ticked up to 70.1% from 69.9% in Q2 and private wages rose 0.4% q/q vs 0.2% as expected and as was in Q2. Maintaining the unemployment rate this low will be the main challenge for the government and RBNZ. Latest GDT price auction came in at -2% making it the first auction with falling prices since early September. Preliminary business confidence for November improved slightly to -15.6 from -15.7 in October.

This week we will have RBNZ meeting. There are no expectations for a rate cut, however the tone of the statement will be scrutinized.

Important news for NZD:

Wednesday:

• RBNZ Interest Rate Decision

CAD

Trade balance in September saw widening of trade deficit to -CAD3.25bn from -CAD3.21bn in August. Exports rose by 1.5% lead by lumber and aircraft while imports rose also by 1.5% thanks to rise in crude oil imports. Exports to countries other than the United States rose 10.9% with exports to the United Kingdom (gold and aircraft), Norway (aircraft and nickel) and Germany (copper and various other products) contributing the most to the growth. Imports from countries other than the United States rose by 2.1%. This makes both exports and imports to countries other than the US surpassing pre-COVID levels (February). Exports to the United States decreased to 1.6% while imports were up 1.2% making total exports CAD2.8bn short of pre-virus levels with imports around CAD1.2bn lower than in February.

October employment report showed a change in employment of 83.6k vs 75k as estimated. The unemployment rate has ticked down to 8.9% while the participation rate jumped to 65.2% from 64.8% in September. Another encouraging sign was that great majority of new jobs (69.1k) were full-time jobs. Labour situation is improving with participation rate almost reaching pre-pandemic levels.

JPY

Final manufacturing PMI for October improved to 48.7 from 48 as preliminary reported moving closer to the 50 level. This is the highest reading since January with new exports orders category growing for the first time in two years. Services reading improved to 47.7 continuing its rise toward expansion and it pushed composite reading to 48. The two readings are also highest since January indicating that economy is gradually moving in the right direction. Wages in Japan are also moving in the right direction but the pace is much slower than desired. September wages came in at -0.9% y/y vs -1.3% y/y in August. Household spending is not following that trend as it plunged -10.2% y/y. Although, we should be mindful that sales tax hike was introduced last October so in previous September there was a high amount of spending in order to circumvent the tax increase, that could explain a bit of the weak reading.

CHF

SNB total sight deposits for the week ending October 30 rose to CHF707.6bn from CHF706.9bn the previous week. CPI in October came in at -0.6% y/y, an improvement from -0.8% y/y in September, Core CPI came in at -0.1% y/y vs -0.3% y/y in September. SNB has already stated that they see deflation in 2021 so these results just reaffirm their view.

 

[katetrades]

Forex Major Currencies Outlook (Nov 16 – Nov 20)

Consumption data from US and China coupled with preliminary Q3 GDP reading from Japan will be the highlights of the week.​

USD

October inflation data showed a drop from September’s levels. Headline inflation came in at 1.2% y/y vs 1.4% y/y in September, while core inflation came in at 1.6% y/y vs 1.7% y/y in September. Readings will not immediately spur the Fed into action. It is concerning however, that after introduction of ATI (Average Targeted Inflation) and their commitment to let inflation run amok it went into opposite direction. Republican senate leader McConnell repeated that he is in favor of a limited stimulus before year-end. Upbeat labor data and news surrounding potential vaccine all speak in favor of lower stimulus package. The White House has withdrawn from the stimulus talks thus removing all hope of the package being delivered in 2020.

This week we will have consumption data.

Important news for USD:

Tuesday:

• Retail Sales

EUR

German ZEW survey of the current situations in November dropped to -64.3 from -59.5 in October indicating increasing worry about the impact of lockdown on the economy. Expectations component plunged to 39 from 56.1 in October raising concerns about the recession in Germany that may lead to “double dip” drop in Q4 GDP for the EU. Analysts see Q4 GDP dropping by 2% due to the lockdown restrictions.

ECB president Christine Lagarde stated that PEPP and TLTRO will likely remain main ECB tools because they can be dynamically adjusted to react to the pandemic. She added that developments in FX may negatively impact inflation, alluding to the recent EUR strength which lead to the drop in inflation below zero. Second reading of Q3 GDP showed a slight revision to the downside with 12.6% q/q and -4.4% y/y.

This week we will have final inflation data for the month of October.

Important news for EUR:

Wednesday:

• CPI

GBP

Claimant count change in October came in at -29.8k. With September’s reading having a huge revision from 28.1k to -40.2k this marks the second consecutive month of declining claims. September employment change continued to decline coming in at -164k which lead to the unemployment rate climbing to 4.8% from 4.5% in August. There was a jump in wages caused by more people coming back to work. Readings are still heavily skewed by the ongoing furlough scheme.

Preliminary Q3 GDP showed a rebound of 15.5% q/q, easily the biggest quarterly growth since the series inception back in 1955. Private consumption lead the way with 18.3% q/q followed by total business investment with 8.8% and government consumption with 7.8% q/q. Business investment came in much weaker than expected showing the uncertainty business are facing due to unresolved Brexit issues. September GDP slowed down to 1,1% m/m from 2.2% in August and in combination with renewed lockdown restrictions, the UK is heading for a negative Q4 GDP reading. Additionally, A3 GDP is down -9.6% compared to the same quarter in 2019.

Phase 3 clinical trials showed that Pfizer and BioNTech developed vaccine has a 90% success rate in protecting people from COVID-19. The announcement quickly pushed risk assets higher and biggest beneficiary of it in the FX market was GBP. Prime Minister Johnson’s chief advisor Dominic Cummings will resign by Christmas. He was the leading figure in organizing the Brexit campaign and referendum. This move was perceived as GBP positive since it may suggest a softer UK stance in trade negotiations with EU which in turn can lead to a successful deal.

This week we will have inflation and consumption data.

Important news for GBP:

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Trade balance data in October showed a surplus of CNY401.75bn vs CNY320.4bn as expected. Exports surged 7.6% y/y on the back of rising headsets exports while imports slowed their rise and came in at 0.9% y/y. Previous month’s imports came in at 11.6% y/y due to stockpiling caused by fear of potential sanctions. In dollar amounts, the surplus rose to $58.44bn while export rose at the fastest pace of the year coming in at 11.4% y/y. Imports, on the other hand, rose 4.7% y/y. Inflation for the same period slowed down to 0.5% y/y from 1.7% y/y which is the lowest reading in over a decade. Falling pork and oil prices were the main culprits. PPI remained unchanged at -2.1% y/y.

This week we will have employment data from Australia as well as industrial production and consumption data from China.

Important news for AUD:

Monday:

• Industrial Production (China)
• Retail Sales (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

RBNZ has left the official cash rate unchanged at 0.25% as expected and made no changes to their LASP program, it stands at NZD100bn. They will provide more stimulus by launching Funding for the Lending Program (FLP) in December. The program will allow for low-cost lending to banks and they hope it will be transferred to customers, borrowers. The size of FLP is rumored to be around NZD28bn. RBNZ stands ready to increase the easing in order to achieve their inflation and employment targets. Committee members were satisfied with incoming data stating that the risks to their baseline scenarios were less skewed to the downside than they had appeared earlier in the year. They stated that they are prepared to lower the OCR to provide additional stimulus if required. Markets are not pricing in negative rates, due to the new stimulus program, which lead to NZD surge.

CAD

Combination of vaccine induced risk on mode, which lead to rise in oil prices, coupled with lower QE commitment from BOC helped CAD gain strength in the first part of the week. As the week went on oil was dropping which helped propel USDCAD over the 1.31 level.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

September core machinery orders, indicator of capex 6-9 months down the road, declined on month coming in at -4.4% m/m but improved on yearly basis coming in at -11.5% y/y. Tertiary index, services, continued to improve and came in at 1.8% m/m vs 0.8% m/m. Government actions have helped the services sector and the readings start to show it. Rating agency Moody’s projects that Japan’s debt to GDP will rise to 230% due to the increased government spending to fight off coronavirus.

This week we will have preliminary Q3 GDP reading, national inflation data as well as preliminary November PMI data.

Important news for JPY:

Monday:

• GDP

Friday:

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

CHF

SNB total sight deposits for the week ending November 6 came in unchanged from the previous week at CHF707.6bn. SNB was happy with the EURCHF level so did not see reasons for a larger intervention. Additionally, vaccine-induced risk on mode in the markets did SNB a huge favour by weakening the Swissy. The unemployment rate in October ticked down to 3.3%.

 

[iamsam]

As always your analysis posted here is absolute fire.
Do you happen to do any TA as well Kate?
Be curious to see how you pair this fundamental analysis to charts etc.

 

[katetrades]

Forex Major Currencies Outlook (Nov 23 – Nov 27)

In the shortened week ahead of us preliminary PMI data from EU and UK as well as Fed’s preferred inflation measure PCE will be the highlights. Due to the Thanksgiving holiday markets in the US will be closed so liquidity will be lower. We advise you to exercise caution in trading.​

USD

Retail sales in October missed expectations all around coming in at 0.3% m/m vs 0.5% m/m. Control group came in at 0.1% m/m vs 0.5% m/m. September report was revised down thus adding the salt to the wound of US consumer. No prospect of fiscal stimulus combined with expiring unemployment benefits lead to tightening in consumption. Nonstore retailers, online (primarily Amazon) were the biggest contributors while clothing, sporting goods and book stores were the biggest drag. Retail sales account for around 40% of total consumption which in turn makes almost 70% of GDP. Industrial production on the other hand met expectations by coming in at 1.1% m/m.

Covid vaccine developed by Massachusetts based company Moderna showed a 94.5% efficacy in phase 3 study. None among the participants included in the study developed sever coronavirus symptoms. Vaccine can be stable for 30 days at refrigerator temperature thus giving it an advantage with transportation over Pfizer vaccine that needs to be stored at much lower temperatures.

This week we will have second estimate of Q3 GDP, durable goods orders and Fed’s preferred inflation measure PCE.

Important news for USD:

Wednesday:

• GDP
• Durable Goods Orders
• PCE
• Personal Spending

EUR

Final inflation numbers for October came unchanged from preliminary reading. That is -0.3% y/y for headline inflation and 0.2% y/y for core inflation. ECB president Lagarde stated that key challenge will now be how to bridge the gap that virus created until vaccination is well on the way. She added that Euro area activity has lost momentum in Q4 and that virus is hitting services particularly hard. Her expectations are for inflation to stay in the negative territory until early months of 2021. EURUSD had 2 pushes toward the 1.19 level during the week but both were unsuccessful and brought the pair closer to the 1.18 level.

This week we will have preliminary November PMI data.

Important news for EUR:

Monday:

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

GBP

Inflation in October showed a positive development with headline coming in at 0.7% y/y vs 0.5% y/y in September and core coming in at 1.5% y/y vs 1.3% y/y the previous month. Clothing and food were the biggest contributors while recreation, culture and transport groups were the biggest drag. This is a very welcoming surprise for BOE indicating stabilisation in prices as we enter Q4. Retail sales posted a rise of 1.2% m/m vs -0.3% m/m as expected with 5.8% y/y vs 4.1% y/y as expected. Retail sales ex fuel came in at 1.3% m/m vs flat as expected and rose 7.8% y/y vs 5.9% y/y as expected. Non-store retail was the biggest contributor as it rose by 6.4% while sales from household goods grew by 3.2%. Early Christmas discounts caused people to spend funds and thus keep the consumption growing in terms of volume for the sixth straight month.

This week we will have preliminary November PMI data. Brexit negotiations were going strong throughout the week. Agreement has been characterized as being “very close” but we expect that talks will continue into the December.

Important news for GBP:

Monday:

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

AUD

RBA meeting minutes showed bank’s readiness to take more action if needed. Their policy is primarily focused on bond buying with further rate cuts being dismissed. Negative rates are seen as extraordinarily unlikely. Board members do not see rate hikes for at least 3 years and until inflation is sustainably within 2-3% range. Near-term outlook has improved a bit but it is still highly dependent on coronavirus developments.

October employment report blew away expectations influenced by the lifting of the lockdown restrictions in the state of Victoria. Employment change came in at 178.8k vs -27.5k while the participation rate jumped almost a full percentage point to 65.8% from 64.9% in September. The jump in participation rate is particularly encouraging signalling that people have faith in the economy and think it will not be difficult to find a job. On the other hand, the rise may be due to the difficulty for households to make ends meet. We will have to wait for more data in the coming months to make a conclusion on that. The unemployment rate ticked up to 7% but better than 7.1% as expected while underemployment rate plunged to 1% from 10.9% the previous month. Of 178.8k newly employed 97k are full-time employed.

Industrial production in China for the month of October was unchanged from September coming in at 6.9% y/y vs 6.7% y/y as expected. Retail sales improved to 4.3% y/y from 3.3% y/y in September but at a slower pace than expected (5% y/y). Domestic demand is continually improving this year as more and more China citizens spend their income in the country.

NZD

GDT price index came in at 1.8% for the first rise after four consecutive drops in auction. NZDUSD had a particularly strong week, surpassing highs from 2019 and coming to highs from 2018. There is little on the way for its rise toward the 0.70 level.

CAD

Inflation in October, similarly as in UK, surprised to the upside by coming in at 0.7% y/y vs 0.4% y/y as expected. Main contributor were food prices with vegetable prices rising 9.5% y/y. Median core and trimmed core measures were unchanged at 1.9% y/y and 1.8% y/y respectively while common core inflation ticked up to 1.6% y/y from 1.5% y/y in September. Retail sales for September showed an increase of 1.1% m/m thus continuing the streak of five consecutive increases. Retail sales ex auto came in at 1% m/m vs flat as expected. Sales have risen in 9 out of 11 sub sectors. Sales at food and beverage stores were the main contributor followed by vehicle sales. Preliminary data for October suggests that retail sales will come in flat at the start of Q4.

JPY

Preliminary Q3 GDP saw Japan post a first positive quarterly reading in four quarters. The reading came in at 5% q/q and 21.4% annualised. Private consumption came in at 4.7% q/q while business investment stayed in negative with -3.4% q/q but improved from -4.5% q/q in Q2. Net exports were positive contributor to GDP with exports rising 7% q/q while imports plunging -9.8% q/q. Final industrial production in September came in at 3.9% m/m for the fourth consecutive month of increase. The biggest contributor was the auto sector.

October national inflation plunged below zero coming in at -0.4% y/y, the weakest inflation reading four years. Now that sales tax hike from last October has dropped from calculation we can expect negative readings to dominate inflation. Ex fresh food category came in at -0.7% y/y, the weakest reading in nine years, while ex fresh food, energy came in at -0.2% y/y. Preliminary November PMI data showed a decline in all three categories. Manufacturing came in at 48.3 vs 48.7 in October, thus breaking the streak of five consecutive monthly rising figures. Services were 46.7 vs 47.7 which pulled composite down to 47 from 48 the previous month. Covid cases are rising in Japan which lead to slowdown in business activity.

This week we will have inflation data for Tokyo area.

Important news for JPY:

Friday:

• CPI

CHF

SNB total sight deposits for the week ending November 13 came in at CHF707.9bn vs CHF707.6bn the previous week. This is a negligible rise as vaccine-induced optimism brought risk on mode in the markets which consequently lead to the weaker Swissy.

 

[katetrades]

As always your analysis posted here is absolute fire.
Do you happen to do any TA as well Kate?
Be curious to see how you pair this fundamental analysis to charts etc.

Thank you again for your kind words.

Our colleague Mr McDonell holds excellent webinars where he puts a lot of emphasis on technical analysis.

You can check his analysis and follow his webinars posted on our Website.

 

[katetrades]

Forex Major Currencies Outlook (Nov 30 – Dec 4)

NFP will highlight the first week of the last month in 2020. It will be followed by preliminary November inflation from EU, Chinese PMI data and Q3 GDP from Australia, Canada and Switzerland.​

USD

Preliminary durable goods orders for October came in at 1.3% m/m vs 0.9% m/m as expected. Core capital goods have also beaten expectations coming in at 0.7% m/m vs 0.5% m/m as expected. These data will help upgrade Q4 GDP projections. The Second Estimate for Q3 GDP came in unchanged at 33.1%. Headline PCE came in at 1.2% y/y as expected but down from 1.4% y/y in September while core PCE came in at 1.4% y/y as expected vs 1.5% y/y in September. Inflation moving in the wrong direction even after Fed announced that they will let it stay above 2% for prolonged period of time (AIT). Personal spending came in at 0.5% vs 0.4% as expected but personal income plunged to -0.7% vs 0.4% as expected. We can yet again see the drop when the unemployment benefits dried out.

FOMC meeting minutes showed talks about future direction of QE program. It should be noted that November meeting was held before the vaccine announcement which should put breaks on Fed’s QE action. Former Chair of the Fed, Janet Yellen, is set to be the first female Treasury Secretary. She will likely push for more fiscal stimulus and she is a proponent of free trade which gave markets reason to cheer and go into risk on mode.

This week we will have ISM PMI data as well as NFP. Forecasts are for a headline number of around 550k while the unemployment rate should tick down to 6.8%.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• NFP
• Unemployment Rate

EUR

Preliminary November PMI data showed a pain in services sector inflicted by the lockdown. Eurozone services came in at 41.3 vs 42 as expected dragged down by French reading of 38. German services fared much better but sill fell to 46.2 from 49.5 in October. Manufacturing continued to show resilience coming in at 53.6 for the Eurozone. The reading was helped by still strong German reading of 57.9 while French reading slipped into contraction with 49.1. Composite was dragged down by services to the 45.1 level. Data here shows predicts return to negative GDP in Q4, however due to the manufacturing sector strength we do not expect it to be a double-digit dip.

This week we will have preliminary November inflation figures.

Important news for EUR:

Tuesday:

• CPI

GBP

UK preliminary November PMI numbers showed a surprising jump in the manufacturing sector, coming in at 55.2 vs 50.5 as expected and up from 53.7 in October. Services, on the other hand, plunged to 45.8 from 51.4 in October, but also beat expectations of 42.8. Composite was 47.4 vs 42.5 as expected. Markit notes that hospitality business have suffered the hardest hit while rise in manufacturing was propped by “inventory building and a surge in exports ahead of the UK's departure from the EU at the end of the year.”

AstraZeneca clinical trail showed the efficacy of its vaccine at 70%. However, they state that smaller dose of its vaccine is needed. Only 1.5 shots instead of 2 are 90% efficient. Additionally, the material can be stored in regular fridge temperature and the firm says it can produce three billion doses next year. Both smaller dosage and smaller storing temperature give it edge over Pfizer/BioNTech and Moderna vaccines. UK government has an agreement to purchase 100 million doses, which theoretically should be sufficient for vaccination of 66 million people.

Brexit deal is still not finalised, question about fisheries remain, but investors are calculating that a great majority of the matters is agreed upon. BOE stated that exit without a deal would inflict more long-term damage to the economy than the virus. Office for Budget Responsibility projects a contraction of -11.3% GDP in 2020 from -12.4% and smaller rebound in 2021 (5.5% vs 8.7% projected in July).

AUD

RBA deputy governor Debelle stated that they do not expect rate cut for at least 3 years as they have to be careful not to remove the stimulus too early since economy is still fragile. He added that low interest rates are underpinning asset prices and that he is not convinced that negative rates would work. Finally, he sees a lot of uncertainty surrounding the economy and it will take time to bring it to the pre-pandemic levels.

This week we will have Q3 GDP and RBA meeting from Australia. There are no expectations for further action by RBA after they altered the rate and QE program at the last meeting. China will publish official and Caixin PMI data.

Important news for AUD:

Monday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Tuesday:

• RBA Interest Rate Decision
• Caixin Manufacturing PMI (China)

Wednesday:

• GDP

Thursday:

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

NZD

Q3 retail sales were published over the weekend and we got quite a beat. The reading came in at 28% q/q vs 19% q/q as expected. Economic data from New Zealand continues to improve at a faster rate than expected and diminished dovish rhetoric from RBNZ should add more wind to the free rise in NZDUSD and push it over the 0.70 level. New Zealand government suggested that housing prices should be included in RBNZ mandate. Since housing market benefited most from low rates, which lead to rises in housing prices, this move could lead to rate hikes to fight off the overheating price. Kiwi reacted positively to the news and shoot toward the 0.70 level crossing it briefly before returning below it. During the week it hovered around the 0.70 level. RBNZ Governor Orr stated that they are paying close attention to asset prices but that low interest rates are currently essential as they promote spending and investment.

CAD

Average weekly earnings in September came in at 6.9% y/y vs 7.91% y/y in August. Governor Macklem confirmed that rates will stay low for a very long time. Inflation is projected to stay under 2% until 2023. He added that negative rates would not be very helpful in today’s conditions and that BOC will stop QE program once the recovery is well under way. Canadian Dollar enjoyed the risk on mood in the markets with USDCAD pushing the 1.30 level and falling beneath it on several occasions. The level proved to be a strong support from further drops.

This week we will have September GDP and Q3 GDP data as well as employment data.

Important news for CAD:

Tuesday:

• GDP

Friday:

• Employment Change
• Unemployment Rate

JPY

Deflation is deepening in Japan. Headline inflation number for Tokyo area for November came in at -0.7% y/y vs -0.3% y/y in October. Ex fresh food also dropped to -0.7% y/y from -0.5% y/y the previous month while ex fresh food, energy measure kept steady at -0.2% y/y. Yen was battered during the week due to the risk on mood and managed to claw back some of the losses against most majors as the week progressed.

This week will have consumption data, preliminary October industrial production and employment data as well as data on CAPEX for Q3.

Important news for JPY:

Monday:

• Retail Sales
• Industrial Production

Tuesday:

• Unemployment Rate
• Capital Spending

CHF

SNB total sight deposits for the week ending November 20 came in at CHF707.3bn vs CHF707.9bn the previous week. Vaccine induced risk on mode in the markets from the past week helped SNB fight off the Swissy strength so there was no need for them to intervene in the open market.

This week we will have consumption, inflation and Q3 GDP data.

Important news for CHF:

Monday:

• Retail Sales

Tuesday:

• GDP

Wednesday:

• CPI

 

[katetrades]

Forex Major Currencies Outlook (Dec 7 – Dec 11)

ECB meeting with expected “recalibration” of programs will have the most impact on the markets followed by news regarding the Brexit deal. Additionally, we will have a BOC meeting as well as inflation data from US and China.​

USD

ISM manufacturing PMI for November eased to 57.5 from 59.5 in October. New orders and production component also eased but are holding above the 60 level while new export orders increased. One worrying sign in an overall strong report is the employment category which fell to 48.4 from 53.2 the previous month, thus dropping into contraction territory. Services PMI came in at 55.9, down from 56.6 in October. In contrast to the manufacturing report, the employment component improved to 51.5 thus going deeper into contraction ahead of the NFP report.

NFP headline number for November came in at 245k vs 460k as expected. The unemployment rate dropped to 6.7% from 6.9% in October on the back of drop in the participation rate to 61.5% from 61.7% in October. The report was weaker than expected which may prompt lawmakers to make haste and agree upon a new stimulus. A new relief package totalling $908bn was unveiled by the bipartisan group of Senators and House Democrats have accepted it.

This week we will have inflation data.

Important news for USD:

Thursday:

• CPI

EUR

Final November manufacturing PMI came in at 53.8 vs 53.6 as preliminary reported. German manufacturing is holding strong at 57.8 and French reading improved to 49.6, knocking on the door of return to expansion. Services PMI came in at 41.7 thanks to improvement in the French reading which pushed the composite to 45.3 from 45.1 as preliminary reported. Markit noted that the fall in services was not as severe as in Spring and that it was helped by spill-over demand from the manufacturing sector. Extension of lockdown in Germany and Italy passed the Christmas and into the 2021 will cause further damage to the services sector.

Preliminary inflation in November came in unchanged at -0.3% y/y with core showing 0.2% y/y. Although removal of VAT in Germany and prolonged sales periods are to be blamed for the low inflation the problems of missing growth are much more systemic in nature. Additionally, a strong EUR contributes to low inflation and during the week EURUSD smashed through the 1.20 and then the 1.21 level. October retail sales came in at 1.5% m/m vs 0.7% m/m as expected. Although we are in December now it is worth noting that the reading shows retail sales being 3.1% higher than in February thus making consumption showing a V-shaped recovery.

This week we will have ECB meeting. Expectations are for no change in rates but an increase in the PEPP programme by €500bn euro and its extension until the end of 2021.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

GBP

Final manufacturing PMI came in at 56.6 vs 56.2 as preliminary reported. The growth was achieved thanks to so-called “Brexit-buying”, meaning customers stockpiling ahead of the Brexit deadline. Final services PMI came in at 47.6 vs 45.8 as preliminary reported, thus pushing composite all the way up to 49 from 47.4 as preliminary reported. Full survey shows that the decline in services caused by lockdown was not as severe as reported at the beginning of November.

Cable went over 1.34 pushed by USD weakness, however due to contradictory signals from politicians involved in Brexit negotiations, the pair could not stay above that level for long. Fisheries still remain the sticking point. Later in the week due to the prolonged USD weakness the pair shoot over the 1.35 level. Pfizer-BioNTech vaccine has been approved for use in UK and 800 000 doses should be applied this week. Vaccine will first be distributed to the most vulnerable patients as stated by health secretary Matt Hancock. Care home residents and workers are top priority followed by people older than 80 years and finally healthcare workers.

This week we will have October GDP data.

Important news for GBP:

Thursday:

• GDP

AUD

RBA left the cash rate unchanged at 0.10% as widely expected. Their monetary policy is aimed at the cash rate and targeting 0.10% yield on 3-year government bonds. The board is not expecting to raise cash rates for at least 3 years and they are prepared to do more if necessary. They have labelled high unemployment as national priority as further rise in unemployment is still expected. Q3 GDP bounced back with 3.3% vs -7% in Q2.

Official PMI numbers from China continued to improve. Manufacturing came in at 52.1 vs 51.5 as expected, the highest reading in over three years on the back of strengthening business sentiment, new orders and export sales. Non-manufacturing came in at 56.4 vs 56 as expected for the highest reading since 2012. Composite was pushed to 55.7 from 55.3 in October. Caixin manufacturing PMI came in at 54.9 vs 53.5 as expected. Markit noted that both output and new orders increased at the fastest rates in ten years. Caixin services rose to 57.8 due to increase in business activity and employment categories. Composite was thus pushed to impressive 57.8 level.

This week we will have trade balance and inflation data from China.

Important news for AUD:

Monday:

• Trade Balance (China)

Wednesday:

• CPI (China)

NZD

Final business confidence in November came in at -6.9 vs -15.6 as preliminary reported. This is the highest reading of the year and details show that construction is the most optimistic sector while agriculture is the least optimistic. RBNZ governor Orr reiterated importance for fiscal and monetary policy to work together adding that they are focused on being operationally ready to implement negative rates if necessary.

CAD

Employment change in November surprised positively to the upside by coming in at 62.1k vs 20k as expected. Even more satisfying was the fact that all of it was due to full-time employment coming in at almost 100k (99.4k) while part-time employment dropped -37.4k. The unemployment rate dropped to 8.5% from 9% in October. The minor dent in a very strong employment report was a slip in the participation rate to 65.1% thus breaking the streak of six consecutive rising months. Q3 GDP came in at 40.5% q/q.

This week we will have BOC meeting with no changes expected.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Retail sales in October improved at a weak pace coming in at 0.4% m/m vs -0.1% m/m in September, however on a yearly basis they came in at 6.4% y/y vs -8.7% y/y the previous month. This is the first positive reading since February of this year and it was achieved on the back of motor vehicles, machinery and equipment as well as medicine and toiletry stores. Preliminary reading of industrial production for the same month came in at 3.8% m/m vs 2.2% m/m as expected for a fifth straight monthly rise thanks to a rise in business-oriented machinery and motor vehicles.

Capex in Q3 improved a bit to -10.6% y/y from -11.3% y/y in Q2 but if we exclude software it actually showed a bigger decline of -11.6% y/y from -10.4% y/y in Q2. There will be no meaningful rebound in the economy with these Capex numbers. Final manufacturing PMI improved to 49 thus making it the highest reading in 15 months and the sixth straight rising month. Manufacturing continues to slowly crawl toward expansion. Services rose to 47.8 and composite to 48.1 thus making all reading move closer to the expansion territory compared to the previous month.

This week we will have final Q3 GDP reading as well as spending and earnings data.

Important news for JPY:

Tuesday:

• GDP
• Household Spending
• Labour Cash Earnings

CHF

SNB total sight deposits for the week ending November 27 came in at CHF706.5bn vs CHF707.3bn the previous week. This is a second straight week of falling sight deposits due to the risk on appetite in the markets which lead to lower Swissy. However, this is far from being a trend and with headline inflation in November coming in at -0.7% y/y and core inflation at -0.2% y/y we expect SNB to ramp up its efforts to fight Swissy’s strength. Retail sales in October came in at 3.1% y/y vs 0.4% y/y. It is a very big jump, however it was led by a very volatile food, beverages and tobacco category. Q3 GDP came in at 7.2% q/q vs 6% q/q as expected for a well desired bounce back after -7% q/q in Q2.

 

[katetrades]

Forex Major Currencies Outlook (Dec 14 – Dec 18)​

Big week ahead of us will have no less than four central bank meetings (Fed, BOE, BOJ and SNB) as well as preliminary PMI data from EU, consumption data from US and China along with Brexit and US stimulus news.

USD

November CPI came in unchanged at 1.2% y/y with core at 1.6% y/y. The main culprit stopping inflation from falling, as was expected, was the rise in energy index. Increases in indexes for natural gas and electricity more than offset a decline in the index for gasoline. FDA recommended approval of the Pfizer/BioNTech vaccine which should lead to increase in travel, lifting demand for oil and thus putting some upward pressure to the inflation.

Chances of possible fiscal stimulus in “lame duck session”, period between the elections and the official date when president-elect becomes the president, have been increasing which in turn lead the equities higher and USD lower. There are still issues between parties regarding the deal but latest NFP report is pushing them to reconsider loosening their stances and agreeing on the package. The last proposed package, Treasury Secretary Mnuchin is also on it, is for $916bn. House Speaker Nancy Pelosi and Senate Minority Leader Chuck Schumer rejected the offer for a $916 billion stimulus, thus leaving the question of stimulus lingering.

This week we will have consumption data as well as FOMC meeting. No changes to the rate are expected at the meeting. More dovish tone could be struck due to the increase in COVID-19 cases and further plea for fiscal support should come.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision
• Retail Sales

EUR

ECB left key interest rates unchanged as was widely expected. PEPP program has been enlarged by €500bn to a total of €1.85 trillion and extended until March of 2022, longer than expected. Asset Purchase Programme was left unchanged at €20bn per month. ECB comment on EUR exchange rate “We will also continue to monitor developments in the exchange rate with regard to their possible implications for the medium-term inflation outlook.“EURUSD has climbed almost to the 1.22 level and strong EUR has detrimental impact on inflation, a core mission of ECB. It will be interesting to see for how much longer will they tolerate the appreciation of EUR. President Lagarde stated that the economy will shrink in Q4 by around -2.2% and that increase in PEPP was due to fallout in economic activity caused by the virus. She added that PEPP can be further recalibrated if needed. ECB now sees 2020 GDP at -7.3% from -8% in September and 3.9% in 2021 from 5% in September. Risks to growth remain to the downside, but have become less pronounced.

This week we will have preliminary December PMI data.

Important news for EUR:

Wednesday:

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

GBP

GDP in October came in at 0.4% m/m vs flat as expected. Q4 has started with a positive number, however increase in restrictions that occurred in November will quickly sap out that optimism and drag Q4 GDP down, most likely into the negative territory. November GDP is seen falling by 7% m/m. ONS noted that loss of momentum across all of the main sectors since July can clearly be seen.

Brexit negotiations started the week on a rough note with Prime Minister Johnson threatening to abandon talks which sent GBPUSD down over 150 pips. The three issues that remain are fisheries, level-playing field and governance. EU has lowered its demand regarding level-playing field or competition rules. EU chief negotiator Barnier has notified MEPs that negotiations could continue until Wednesday but no further than that. UK Government has dropped controversial clauses from the Internal Markets Bill, thus increasing chances for a deal. Prime Minister Johnson met on Wednesday with Ursula von der Leyen however their meeting did not yield any progress with latter stating that they are still far apart. Deadline has been moved until “the end of the weekend” with both sides increasingly preparing for no deal outcome.

This week we will have employment data, inflation data, preliminary December PMI data, consumption data and BOE meeting. No change in rate is expected however we could see ramping up of no-deal Brexit rhetoric as negotiations are going nowhere. Additionally, if BOE will make some changes to monetary policy we expect it to be in the QE department.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

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

Thursday:

• BOE Interest Rate Decision

Friday:

• Retail Sales

AUD

China’s trade balance in November showed surplus increasing to CNY507.1bn from CNY401.75bn in October. Exports almost doubled to 14.9% y/y from 7.6% y/y in October while imports slumped into negative territory coming in at -0.8% y/y from 0.9% y/y the previous month. In USD surplus was $75.4bn with exports rising very impressive 21.1% y/y vs 12% y/y as expected but imports rising 4.5% y/y vs 7% y/y as expected. Booming exports bode well for the global demand, however weak imports indicate slowing of demand from China which will hurt other exporting countries. Imports from Australia showed the highest decline due to the brewing political tensions between the countries.

Inflation in November negatively surprised the markets by coming in at -0.5% y/y. This is the first time in eleven years that inflation in China was negative. A drop in pork prices lead the way but even without their influence CPI would still be around -0.1% y/y. Belief in global reflation, that everybody expects to come in 2021, is rather shaken by this number. Hope may be restored by the fact that core CPI came in unchanged at 0.5% y/y while deflation in PPI was reduced to -1.5% y/y vs -2.1% y/y in October.

This week we will have employment data from Australia as well as consumption and industrial production data from China.

Important news for AUD:

Tuesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales in November came in at 0.1% m/m and 1.4% y/y. This is the third consecutive month of increases and it bodes well for the Q4 GDP reading. Electronic card retail sales amount to almost 70% of total retail sales. NZDUSD started a weak on the back foot but improved as the week went along, crossing the 0.71 level for a bit, before returning below it and finishing the week on higher level than it started. RBNZ will, on a request from the finance minister, include house prices in its mandate. The move intends to keep asset prices from over inflating due to the loose monetary policy.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday:

• GDP

CAD

BOC has left the rate unchanged at 0.25% as widely expected. QE program remains at CAD4bn per week. They have reiterated their stances to keep the rates low until the 2% inflation target is “sustainably achieved” which according to their forecasts will not occur before 2023. Increase in numbers of virus cases will take a toll on 2021 Q1 GDP and will cause problems for the economy until vaccine is widely available. Prime Minister Trudeau stated that Canada should receive up to 249k vaccine doses before year end from Pfizer.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Labour cash earnings for October came in at -0.8% y/y vs -0.9% y/y in September. It is a continuation of wage rise but at a minuscule pace. Household spending came in at 1.9% y/y vs 2.8% y/y as expected. Miss on the estimates, however it is a first positive reading in 13 months. Final Q3 GDP reading showed improvement to 22.9% q/q annualised from 21.4% q/q annualised as preliminary reported. Private consumption improved 5.1% q/q while business spending fell by a smaller amount of -2.4% vs -3.1% as preliminary reported.

Prime Minister Suga unveiled a new fiscal package totalling JPY73.6 trillion that includes JPY40 trillion of new fiscal measures. There will be funds for a new furlough program, health care expenditures, cash handouts, and funds for single-parent families. The already present Go-To Travel, which represent incentives for domestic tourism and which negatively affects CPI, will be extended.

This week we will have preliminary December PMI data, national inflation data and BOJ meeting.

Important news for JPY:

Wednesday:

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

Friday:

• BOJ Interest Rate Decision
• CPI

CHF

SNB total sight deposits for the week ending December 4 came in at CHF705.3bn vs CHF706.5bn the previous week. This is the third straight week of dropping deposits indicating that SNB feels comfortable with EURCHF hovering over the 1.08 level. They are not concerned with fighting the USD weakness as USDCHF seems anchored below the 0.90 level.

This week we will have SNB meeting.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

 

[katetrades]

Currency outlook for the 2021

New Year is expected to be much better than the previous one. Admittedly 2020 set the bar very low but economies will still face tough hurdles in Q1 of 2021 due to the ongoing lockdowns.

We base our expectations on a premise of successful reflation, output growth, spending stimulation and reversal of the deflation pressures. Economies have undertaken a combination of QE programs, fiscal stimulus and low interest rates in order to create growth based on sustainable inflationary environment. Additionally, vaccine rollout and positive effects from it will be very important to confirm our views.

President-elect Biden should peacefully take over the presidency in January. His milder temperament combined with many years of experience in politics will lead to improvement in relationships with EU. He appointed former Fed Chairman Janet Yellen as new Treasury Secretary. She is a big proponent of free trade and fiscal stimulus, all positive for the markets. Fed announced that they are not planning on raising rates until 2023, possibly 2024 and with Yellen at Treasury they can afford to stick to the current monetary policy and expect support from the fiscal side. Runoff for 2 Senate seats in Georgia on January 5 will influence the size of the stimulus.

We expect that USA will be at the forefront of the reflation recovery. It will lead to widening of spread between yields on 10y treasuries compared to 10y bunds (German bonds) as USA pulls global recovery. Due to the expected rise in inflation we will see yields on treasuries rise as 10y treasuries reach 1% and move toward 1.25%. Increase in inflation will lead to negative real interest rates forcing investors out of the treasuries, thus lowering demand for them and USD in general. All of this will accentuate USD decline as investors search for return elsewhere, possibly in the emerging markets.

Q1 will be rough due to the lockdown measures, however as the vaccine rollout picks up and life starts returning to normal condition we can see a recovery starting in Q2 and booming in H2 of 2021 due to the pent up demand.

Governments have fought the virus induced crisis with fiscal programs and easing of monetary policies thus increasing debt to GDP ratio over 100% in many large economies. Trade volumes are expected to rebound which will positively impact export oriented countries such as Germany and Netherlands. Due to the prolonging of lockdown restrictions in those countries into the January of 2021 Eurozone Q1 GDP will be impaired with rebound starting from Q2. EURUSD will breach the 1.25 level, with potential to shoot close to the 1.30 level. ECB will have no means of bringing it down. The rise will be achieved on the back of USD weakness, not EUR strength.

Virus has wrecked havoc in the UK economy, so the economy will benefit greatl from the Brexit deal. There will most likely be a soft deal which will be positive for future relationship with EU, with EURGBP dropping toward the 0.88 level. We could see GBPUSD hovering over the 1.40 level with pressures to the upside based on the general USD weakness. If the UK leaves without a deal and reverts to WTO rules it will leave the country isolated from both EU and US and give wind to the sails of the Scottish independence claim in 2021, after the Scottish Parliamentary elections. EURGBP could rise toward the 0.95 level.

Chinese authorities announced a move toward achieving a high quality growth in their fourteenth five year plan. Technology war will be the biggest threat in 2021 as many countries apart from US become reluctant to use Chinese technology which will have negative impact on CNY. On the other hand, China GDP growth should be at around 7% due to the weak GDP base in 2020 which will positively impact CNY. Improved trade relationships between US and China, although lifting of all the previously implemented tariffs will not likely happen soon as well as the fact that monetary policy is not likely to continue with easing will add positives for CNY. USDCNY should fall toward the 6.20 level as we get closer to the end of 2021.

Negative real yields in USD could push USDJPY toward the 100 level, with potential to break it and put the pair into double digits. Our expectations are for USDJPY to hover at around 102 throughout the year.

SNB has been labeled currency manipulator, but at their December meeting board members did not seem concerned with that and reiterated their willingness to continue fighting Swissy’s strength in order to support the economy. Combination of global reflation trade and CHF unwinding should push EURCHF over the 1.10 level with potential of reaching the 1.15 level by the year end.

Reflaitonary policies will help commodity prices rise and in turn lead to the appreciation of the so-called “commodity currencies”. Bounce back in oil prices toward the $60 level by the end of the year and low chance for further monetary easing should push USDCAD down to the 1.24 level.

With 40% of exports going to China, most of it being the iron ore, AUD will be sensitive to Australia – China trade tensions as well as potential drop in iron ore prices. If US-China relationship improves we can see the tensions ease between Australia and China which will positively affect AUD. Demand from China for iron ore seems to be waning, leading to lower iron ore prices and consequently lower profits from export for Australia, negative for AUD. We see no further monetary easing from RBA and global reflation trade should push AUDUSD toward the 0.80 by the year end.

We do not see RBNZ pushing for negative interest rates and if they desire to fight strong NZD they will most likely use QE with yield curve control as the second measure. With RBNZ introducing housing prices in their mandate we expect NZDUSD to push toward the 0.75 level by the year end.

TradersWay team wishes you Merry Christmas and a Happy New Year.​

 

[katetrades]

Forex Major Currencies Outlook (Jan 11 – Jan 15)

This will be a quiet week from the economic data perspective, inflation and consumption from the US will be the highlights, more attention will be given to Fed Chairman Powell’s speech as well as virus and vaccine related developments.​

USD

ISM manufacturing for December came in at very strong 60.7 vs 56.7 as expected. Although the number is inflated by negative indexes, such as prices paid and supplier deliveries, there are a lot of positives in the report. New orders have continued their jump toward the 70 level and low levels in customer inventories indicate that new orders will continue to rise in the future. The employment index rose to 51.5 thus giving hope that employment in manufacturing sector could ease the pain brought by layoffs in the services sector due to the virus outbreak. ISM services came in at 57.2 vs 54.5 as expected. Business activity and new orders improved, with a huge jump in new export orders, while employment dipped below 50 at 48.2. The reading is inflated by jump in supply deliveries and that is not a good sign.

December NFP number came in at -140k vs -37.5k as expected - a very weak reading for sure, but a small solace can be found in the positive revision to previous month’s reading to 336k. The unemployment rate and the participation rate remained unchanged at 6.7% and 61.5% respectively. The Democrats managed to win both seats in Georgia and now have majority both in the Senate and the House, - the so-called blue wave. The situation in Senate is 50-50, however in case of tie in the voting tie-breaking vote is cast by Vice President Harris. Democratic Senate leader Schumer stated that Senate’s priority will be on $2000 stimulus cheques.

This week we will have inflation and consumption data.

Important news for USD:

Wednesday:

• CPI

Friday:

• Retail Sales

EUR

Final manufacturing PMI for December came in a bit weaker at 55.2 vs 55.5 as preliminarily reported due to the slide in the German reading from 58.6 to 58.3. Still German manufacturing posts impressive numbers and is holding up the EU reading. Expected drop in Q4 GDP due to the re-imposed lockdowns will be mitigated by strong manufacturing sector. Services PMI eased to 46.4 from 47.3 as preliminary reported also due to the drop in German reading. Composite was 49.1 vs 49.8 as preliminarily reported. Preliminary inflation data remain unchanged for the second straight month with headline number coming in at -0.3% y/y and core number coming in at 0.2% y/y. With the reintroduction of VAT in Germany as well as rise in energy prices we can expect that the January reading will be stronger.

GBP

Final manufacturing PMI for December improved a bit to 57.5 from 57.3 as preliminarily reported thus reaching the highest level in the last three years. New orders category showed a jump due to the possible stockpiling ahead of the Brexit deadline date. Services slipped to 49.6 from 49.9 as preliminary reported which dragged composite to 50.4 from 50.7 as preliminary reported.

Prime Minister Johnson announced new, the third, national lockdown starting on Tuesday January 5. The lockdown will be reviewed on February 15. During that time vaccine administration should continue unobstructed. GBPUSD fell around 150 pips on the news. Chancellor of the Exchequer Sunak announced additional support to businesses totaling around £4.6bn.

This week we will have GDP data for November.

Important news for GBP:

Friday:

• GDP

AUD

Trade balance data for November showed a surplus of AUD5.022bn vs AUD6.45bn as expected. Exports were up a healthy 3% m/m while imports smashed expectations and were up an astonishing 10% m/m. The rise in imports could indicate positive signs in the economy on the back of the rise in domestic demand.

Caixin manufacturing PMI eased to 53 from 54.9 in November. It is a decent drop, but the reading is still well in the expansion territory which is very encouraging. Caixin services also declined to 56.3 from 57.8 the previous month thus dragging the composite down to 55.8 from 57.5 in November. Although the numbers eased, they are well into the expansion territory so there is no need for immediate concern.

NZD

GDT price index rose 3.9% on the back of rising whole milk powder prices. This positive reading will assist Kiwi to maintain its upward trend which encompasses the amazing ten-week rise in NZDUSD. Since the start of November the pair has gained over 700 pips.

CAD

Employment report in December showed a change in employment, dropping by -62.6k vs -37.5k as expected. The unemployment rate ticked up to 8.6% while the participation rate ticked down to 64.9%. The combination of the two is a warning sign. This is the first decline in the employment report since April 2020. One positive is that full-time employment increased by 36.5k while the losses were in the part-time employment 99k.

JPY

Final manufacturing PMI for December rose to the 50 level from 49.7 as preliminarily reported thus returning to the 50 level for the first time in almost three years. Services improved to 47.7 thus pushing the composite to 48.5. This is the eight month in a row of a rising composite reading as it fights to climb into the expansion. Wages in November reversed their trend and fell -2.2% y/y. It is the eighth straight month of declining wages which will have a negative impact on future consumption and consequently inflation. A state of emergency has been officially declared for Tokyo and three surrounding prefectures from January 8 until February 7.

CHF

SNB total sight deposits for the week ending January 1 came in at CHF702.7bn vs CHF703.9bn the previous week. Risk appetite in the markets is pushing Swissy lower thus effectively doing SNB’s business, so they continue to slow down their intervention in the markets. Inflation in December continued to drop further into deflation with headline reading coming in at -0.8% y/y vs -0.7% y/y as expected and core reading dropping to -0.4% y/y vs -0.2% y/y as expected. Retail sales in November continued to rise and came in at 1.7% y/y. This was weaker than expected but October’s reading was revised up to 4.3% y/y from 3.1% y/y thus giving more shine to the November reading.

 

[katetrades]

Forex Major Currencies Outlook (Jan 18 – Jan 22)

Three central bank meetings (ECB, BOC and BOJ) as well as preliminary PMI data for January and China’s Q4 GDP will be the main economic events of the week. They may be overshadowed by the happenings at the Capitol for President-elect Biden’s inauguration on Wednesday January 20.​

USD

December inflation numbers show headline CPI rising to 1.4% y/y from 1.2% y/y in November while core CPI remained at 1.6% y/y. The steady rise in energy prices were the biggest contributor to the rise in headline number followed by the rise in food prices. Retail sales completely disappointed coming in at -0.7% m/m vs flat as expected with previous month’s reading being revised down to -1.4% m/m. Online retailers showed a decline of -5.8% m/m.

Expectations of a stimulus are driving funds out of treasuries into the stocks which in turn leads to a rise in treasury yields thus making USD more attractive in the short-run. The latest 10y and 30y treasury auctions showed that demand for these instruments is still big. President-elect has unveiled a new stimulus package, called the “American Rescue Plan”, in the amount of $1.9 trillion. The plan will have cheques to individuals earning less than $75 000 per year, following the $600 cheques recently distributed. The plan will also include funding for state and local authorities, funds for directly tackling crisis as well as for school re-openings. With Democrats having a very slim majority in the Senate it is questionable how much of their plan they will be able to implement. It is very likely that the plan will not be used in its entirety, particularly the part that refers to higher taxation on companies.

EUR

ECB president Lagarde stated that economic projections are still on track as they were based on lockdown measures until the end of Q1. She assessed the start of 2021 as more positive than some would argue. A lot of uncertainties have been removed, Brexit, US election, start of vaccine rollout. She added that they are monitoring very closely the exchange rate, but they are not targeting it. That should leave possibility of EURUSD climbing toward 1.25 in the future. Estimations are that German GDP contracted by 5% in 2020.

This week we will have preliminary PMI data for January as well as ECB meeting. No changes to policy are expected and we can see just a reiteration of this week’s stances.

Important news for EUR:

Thursday:

• ECB Interest Rate Decision

Friday:

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

GBP

GDP in November came in at -2.6% m/m vs -4.6% m/m as expected. Due to increased lockdown restrictions analysts were expecting a drop of -6% so the reading is a welcomed positive for Q4 GDP. BOE governor Bailey stated that there are a lot of issues with negative rates, branding them as “controversial” and that they are still investigating whether negative rates are practical. Markets took this as a sign that BOE is not close to implementing them and GBPUSD was pushed higher around 50 pips on the announcement and continued up almost 150 pips.

This week we will have inflation, consumption and preliminary PMI data for January.

Important news for GBP:

Wednesday:

• CPI

Friday:

• Retail Sales
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

Inflation data from China for December showed an improvement. CPI has returned from negative to positive with 0.2% y/y vs flat as expected, while PPI continued its gradual rise and came in at -0.4% y/y vs -0.7% y/y as expected. This is the seventh straight month of rising PPI. Trade surplus rose to $78.17bn from $75.4bn in November on the back of huge rise in exports of 18.1% y/y while imports also rose, by 6.5% y/y. Trade figures for the entire 2020 show exports rising 3.5% while imports dropping -1.1%. Covid-related exports, such as medical appliances, textiles and household appliances, lead the way. Imports from the phase-one of the trade deal, meat and soybeans, experienced a strong growth which was also seen in the imports of cosmetics.

This week we will have employment data from Australia as well as Q4 GDP, consumption and production from China.

Important news for AUD:

Monday:

• GDP (China)
• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Fitch has confirmed New Zealand’s AA+ rating with a stable outlook. NZDUSD has traded in a tight range during the week and was pushed down by the initial USD strength. It finished the week at a lower level than at the start of the week carving a strong triple top resistance at 0.72318 level.

This week we will have Q4 inflation data.

Important news for NZD:

Thursday:

• CPI

CAD

USDCAD has started to climb as the week started on the back of the broad USD strength. As the week progressed CAD was supported by the rise in the oil prices influenced by Saudi plans for oil production cut and USDCAD fell for the week only to regain ground as the week was coming to an end. It finished the week at the higher level than it started.

This week we will have inflation and consumption data as well as BOC meeting. There are musings about a surprise rate cut or increase in the QE, however we do not see such actions being taken at this meeting.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision
• CPI

Friday:

• Retail Sales

JPY

State of emergency has been announced in additional 7 prefectures. This is the follow up to the last week’s proclamation for the Tokyo area. Areas that produce close to 50% of Japan’s GDP have been put under a state of emergency until February 7 which will lead to a significant drop in Q1 reading.

This week we will have inflation and preliminary PMI data for January as well as BOJ meeting. No changes in policy at the meeting are expected, their assessment of effects of the new lockdown measures will be of interest.

Important news for JPY:

Thursday:

• BOJ Interest Rate Decision

Friday:

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

CHF

SNB total sight deposits for the week ending January 8 came in at CHF702.4bn vs CHF702.7bn the previous week. Markets are doing proper job in valuing Swissy, therefore SNB sees little reason to intervene.

 

[katetrades]

Forex Major Currencies Outlook (Jan 25 – Jan 29)

The week ahead of us will have Fed meeting and preliminary Q4 GDP readings from the US, Germany and France as well as data on inflation and spending from the US.​

USD

Treasury Secretary nominee Janet Yellen characterized China as an important, serious competitor in her address to Senate. She stated that US needs to work in tandem with their allies to confront China on their unfair practices, such as stealing IP and subsidies. Regarding value of the dollar she stated that markets should determine exchange rates, thus abandoning “strong dollar” policy which lead to further drops in USD. She is opposed to foreign countries manipulating FX for gain and will work with Biden to oppose those who manipulate their currencies. Yellen was reiterating the need for fiscal stimulus while avoiding questions of financing of the debt and stating “doing what we need to do now to address the pandemic and the economic damage that its causing, would likely leave us in a worse place fiscally”.

Inauguration of new president Biden went without obstructions. After getting into the office he has signed executive orders on $1.9 trillion relief package, rejoining Paris climate agreement as well as making mask-wearing mandatory on federal lands. President Biden also signed executive order that revoked pipeline permit for Keystone XL project thus admitting a blow to Canadian economy, especially the province of Alberta.

This week we will have preliminary Q4 GDP reading as well as Fed’s preferred inflation measure PCE. Fed meeting will provide new assessment of the economy, however we do not expect any changes in the rate or monetary policy.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision

Thursday:

• GDP

Friday:

• PCE
• Personal Spending

EUR

ECB has left key rates unchanged as was widely expected. Rates are expected to stay at their present or lower levels until inflation gets to a level close to, but below, 2%. ECB President Lagarde stated that incoming data confirms their previous near-term assessment. Downward risks are to short-term outlook but are less pronounced than before. Inflation remains very low but upward pressure can be expected once pandemic fades. They will be monitoring EUR rate and its impact on inflation. The stronger the EUR gets the cheaper the imports will be which will lead to the drop in inflation. Reintroduction of German VAT will positively impact inflation. Vaccine rollout and Brexit deal have been cited as positives.

Preliminary PMI data for January showed that services fared better than expected. This lead to rise in EURUSD toward the 1.22 level. The divergence between manufacturing and services sector becomes more pronounced raising concerns about K-shaped recovery, manufacturing going up while services continuing to drop. Germany will extend lockdown period until February 14. With Germany being the largest economy in the EU it will negatively reflect to Q1 GDP which may fall into negative territory again.

GBP

Headline inflation in December rose 0.6% y/y vs 0.3% y/y in November. Core inflation also rose more than in November coming in at 1.4% y/y vs 1.3% y/y the previous month. According to the ONS clothing prices, transport costs as well as petrol prices rising contributed to the rise in inflation. Retail sales came in at 0.3% m/m vs 1.3% m/m. Ex autos, fuel category came in at 0.4% m/m vs 1% m/m as expected. Misses on the readings combined with the negative revision to November numbers make this a very weak report.

Contrary to the EU reading UK had abysmal preliminary PMI data. Manufacturing held its ground at 52.9, down from 57.5 in December while services plunged to 38.8 from 49.4 in December. Expectations were for services PMI to drop to 45, however lockdown measures had much worse effect on the sector than anticipated. Composite PMI was dragged down to 40.6, back into contraction, from 50.4 in December. GBPUSD breached the 1.37 level during the week but was not able to sustain that level and dropped to mid 1.36 as the week was winding down. Fitch affirmed AA- sovereign UK rating with a negative outlook.

This week we will have employment data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

AUD

Employment report for December came in on par with expectations of 50k. The unemployment rate has dropped to 6.6% from 6.8% in November while the participation rate increased to 66.2% adding to the overall strength of the report. Finally, majority of jobs gained was in full-time employment (35.2k) which puts another positive to the report.

China is the first major country that published Q4 GDP data and it came in at 6.5% y/y vs 6.2% y/y as expected. The YTD GDP came in at 2.3%, thus making the China only major economy that did not contract in 2020. Industrial production in December came in at 7.3% y/y vs 6.9% y/y as expected, however retail sales again missed coming in at 4.6% y/y vs 5.5% y/y as expected. Chinese economy is heavily dependent on industrial production and exports while domestic demand (retail sales were down -3.9% YTD, due to the big drop in the first half of 2020) is rather weak which poses questions for a long-term sustainability.

This week we will have Q4 inflation data from Australia and official PMI data for January from China.

Important news for AUD:

Wednesday:

• CPI

Sunday:

• Manufacturing PMI (China)
• Services PMI (China)
• Composite PMI (China)

NZD

Q4 inflation came in at 0.5% q/q vs 0.2% q/q as expected. It is down from 0.7% q/q in Q3. Another data beat from New Zealand. It will shatter any hopes of further rate cut by RBNZ. GDT price index came in at 4.8% for a second straight very strong auction. New 2021 has started on a bright note for dairy farmers in New Zealand.

CAD

BOC has left the overnight rate at 0.25% as was expected. They have acknowledged that incoming data has been weaker than expected, however the combination of vaccine rollout and fiscal stimulus paints a brighter picture for the future. GDP forecasts have been improved to 4% in 2021 and almost 5% in 2022. They have reiterated their stance that BOC "will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved". According to this statement we expect no changes in the rates until 2023. Governor Macklem stated that "If the economy plays out in line or stronger with our outlook, then the economy is not going to need as much quantitative easing stimulus over time," indicating their willingness to reduce the QE program once conditions are met. December inflation came in at 0.7% y/y vs 1% y/y as expected. Core measures also came in weaker than expected, moving away further from the bank’s 2% inflation target.

JPY

BOJ has kept the rate unchanged at -0.1% as was widely expected. They have downgraded current economic assessment but improved the outlook. GDP for 2021 is now seen at 3.9% with core CPI at 0.5%, while 2022 GDP is now seen at 1.8% vs 1.6% previously. Their quarterly report states “pandemic impact could subside earlier than expected if vaccines become widely available but pace of distribution and vaccines affects our uncertainties”. Governor Kuroda has reiterated bank’s stance to ease further if need arises. Downward pressures are seen in the services sector and have increased after state of emergency measures.

National inflation data for December brings the pain of deflation. Headline number came in at -1.2% y/y while CPI excluding fresh food came in at -1% y/y. Both numbers came in better than expected but with them being so deep into negative there will be no reason to cheer from the BOJ. CPI excluding fresh food, energy came in at -0.4% y/y as expected. Preliminary PMI numbers for January dropped from December values due to state of emergency introduction in Tokyo area and surrounding prefectures. Manufacturing came in at 49.7, services at 45.7 while composite came in at 46.7. Not a pleasant start of the year and musings of possible cancellation of Olympic Games start to gain traction.

This week we will have January inflation data for the Tokyo area.

Important news for JPY:

Friday:

• CPI

CHF

SNB total sight deposits for the week ending January 15 came in at CHF703.8bn vs CHF702.4bn the previous week. A drop in EURCHF below 1.08 at the end of the week has prompted SNB to intervene and relieve some of the Swissy strength.

 

[katetrades]

Forex Major Currencies Outlook (Feb 1 – Feb 5)

Two central banks, BOE and RBA, meet this week but markets will focus more on NFP numbers on Friday as well as preliminary Q4 GDP data from EU and virus and vaccine related news.​

USD

Fed has left both interest rate and bond buying program unchanged as was widely expected. They acknowledged that the pace of economic activity and employment has moderated in the recent months. In his opening statement chairman Powell stated that several developments indicate better outcome in H2. He mentioned the progress on vaccines as a positive and added that the economy proved more resilient than expected. In the Q&A section Powell stated that fiscal response had been strong and sustained adding that they are willing to err on removing accommodation too slowly rather than too quickly.

Advance reading of Q4 GDP shows a figure of 4% vs 4.2% as expected. Personal consumption was softer than expected, due to the reimposed lockdowns in certain states, coming in at 2.5% and it lead to GDP missing expectations. PCE measure of inflation in December came in at 1.3% y/y vs 1.1% y/y the previous month while core PCE came in at 1.5% y/y vs 1.4% y/y as expected. An increase is mostly due to the rise in energy prices. Personal spending continued to decline coming in at -0.2% vs -0.4% in November.

This week we will have ISM PMI data for January as well as NFP numbers on Friday. Headline number is expected to come around 80k while the unemployment rate is set to remain at 6.7%.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Germany’s leading indicator, Ifo business climate, has dropped in January to 90.1 from 92.2 in December. Current assessment and expectations category have also declined showing that investors are fearful regarding current lockdowns and vaccine rollouts. Ifo economist Klaus Wohlrabe stated that while industry continues to be well positioned retail has crumbled and service providers have been seriously impacted by the lockdown. They expect Q1 GDP to be stagnant. ECB officials have started talking down the euro stating that markets are underestimating rate cut odds while they believe it to be a “viable option”. EURUSD has dropped below the 1.21 level on the statements.

This week we will have preliminary Q4 GDP data as well as preliminary inflation data for January. Germany, France and Spain have published Q4 GDP data that were better than expected so we expect less negative reading. German CPI in January showed the big m/m jump on the back of VAT reintroduction, higher energy prices as well as new carbon tax and that will be translated to the EU reading.

Important news for EUR:

Tuesday:

• GDP

Wednesday:

• CPI

GBP

Claimant count in December dropped to 7k from 38.1k in November. The claimant rate is at 7.4%, however it is distorted by the furlough scheme. ILO unemployment rate rose to 5% in the three-month period up to November as employment change dropped -88k. There was a rise in wages but it was achieved on the back of lower work force and majority of lower paying workers being laid off. Labor situation depends heavily on furlough scheme that is set to expire in April. If it expires before all sectors are allowed to reopen we can see the unemployment rate jumping toward the 7% level.

This week we will have BOE meeting. No changes to the rate and policy are expected, but their assessment of the economy will be monitored closely. Additionally, investors are expecting results of negative interest rates review.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Headline Q4 inflation came in at 0.9% q/q vs 0.7% q/q as expected on the back of the rise in tobacco and alcohol category. During the lockdown period government has raised taxes on alcohol and tobacco and it lead to the rise in their prices. Home furnishings and household equipment sector was additional contributor to the rise. Core reading remained the same at 0.4% q/q and 1.2% y/y. The small beat on headline inflation was not the result of market forces and will not prompt a reaction from RBA at their incoming meeting.

This week we will have RBA meeting. No changes to the rate and policy are expected. From China we will have Caixin PMI numbers.

Important news for AUD:

Monday:

• Caixin Manufacturing PMI (China)

Tuesday:

• RBA Interest Rate Decision

Wednesday:

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

NZD

Trade balance data for December showed a big miss as the surplus was only NZD17m vs NZD800m as expected. Exports came weaker than expected but imports made a big beat. The beat in imports indicates a strong domestic demand which in turn signals the health of the economy.

This week we will have Q4 employment data.

Important news for NZD:

Tuesday:

• Employment Change
• Unemployment Rate

CAD

The rise in virus infections in Canada has dragged the CAD down as new measures, the most stringent restrictions since March are employed. GDP for November came in at 0.7% m/m vs 0.4% m/m as expected. This is the seventh consecutive positive monthly GDP reading and although November is pretty far away from now, it points to the positive reading for Q4 GDP. Preliminary December reading is expected to be at 0.3% m/m.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

Retail sales in December continued to decline coming in at -0.8% m/m and -0.3% y/y. The numbers were weak even before the state of emergency was introduced so we can expect a further big drop in the reading in January and February. Headline inflation for Tokyo area in January came in at -0.5% y/y. Ex fresh food category came in at -0.4% y/y while ex fresh food, energy category surprised by returning to positive and came in at 0.2% y/y.

CHF

SNB total sight deposits for the week ending January 22 came in at CHF704.4bn vs CHF703.8bn the previous week. This is a rather small increase meant to show the SNB is always ready to react and adjust the course of Swissy according to their liking.

 

[katetrades]

Forex Major Currencies Outlook (Feb 22 – Feb 26)

Second reading of US Q4 GDP along with PCE inflation data and RBNZ meeting will be the highlight news of the week while investors will be focused more on the US stimulus package. Stimulus is to be voted on in the House.
​

USD

January retail sales came in at 5.3% m/m vs 1.1% m/m as was expected for a huge beat. Control group, the reading that is used for GDP calculation, came in at 6% m/m vs 1% m/m as expected. Electronics, home furniture stores and non-store retailers were the biggest contributors. The reading shows that stimulus cheques of $600 are producing results and have led to increases in consumption. The questions that arise now are the potential effect of the new $1400 stimulus cheques on inflation and if Congress will see the need to approve such a big stimulus.

USD had a strong week as expectations surrounding the incoming inflation led to sell-off in Treasuries, which in turn propped the yield on 10Y US Treasury up to 1.30%. The yield is now close to the pre-pandemic yield. Rise in yields and consequently strong dollar lead to USDJPY over the 106 level and pushed gold below $1800. Commodity currencies, AUD, CAD and NZD, also suffered from the higher USD while EURUSD was pushed below the 1.21 level. As the week progressed the yields came down from the highs and the USD lost its gains.

This week we will have second reading of Q4 GDP and PCE inflation data combined with spending data.

Important news for USD:

Thursday:

• GDP

Friday:

• PCE
• Personal Spending

EUR

Second reading of EU Q4 GDP showed a slight improvement to -0.6% q/q and -5% y/y indicating that lockdowns in Q4 were not as detrimental to economic growth as the analysts and investors feared. February ZEW survey showed a negligent drop in current conditions but a huge jump in the expectations category for both Germany and EU (71.2 from 61.8 and 59.6 from 58.3 respectively). Expectations show overwhelming optimism about the future of the respective economies.

Preliminary PMI data for February showed growing spread between the manufacturing and services sector. While manufacturing rose to three year high levels of 57.7, boosted by the strong export-driven demand and with German posting 60.6 reading, services continued to decline and came in at 44.7. Composite moved higher to 48.1 from 47.8 in January. After taking into the consideration both January and February PMIs we see Q1 GDP contracting. Markit noted that supply shortages are posing a concern as they lead to increase in raw material prices and consequently produce inflation pressures.

GBP

Inflation in January rose by 0.7% y/y vs 0.6% y/y as expected on the back of rising energy prices. Core inflation remained the same at 1.4% y/y but it was expected to slide toward 1.3% y/y. Retail sales report for the same period was abysmal. Retail sales plunged -8.2% m/m and -5.9% y/y. Stricter lockdown and seasonal factors, such as usual drop after Christmas and New Year contributed to big declines. However, GBP was not phased by the reading as investors are pushing the GBP up on the back of no expectations for negative rates combined with vaccine optimism as PMI data rebounded. Services PMI came in at 49.7 from 39.5 in January. GBPUSD has breached the 1.40 level.

This week we will have employment data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

AUD

Employment report for Australia in January showed employment change of 29.1k vs 30k as expected. The unemployment rate has slid to 6.4% from 6.6% in December but the participation rate slipped also to 66.1% from 66.2% the previous month. The big positive from the report is that full-time employment rose 59k indicating potential for a stronger rise in income. The part-time employment fell -29.8k.

This week we will have CAPEX data for Q4 from Australia and official PMI data for February from China.

Important news for AUD:

Thursday:

• CAPEX

Sunday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

Weekly economic update posted on February 19 by the New Zealand Treasury shows that New Zealand Activity Index continues to show modest growth. Activity was up 0.8% y/y in January. However, there are signs of recovery starting to plateau.

This week we will have consumption data for Q4 as well as the RBNZ meeting. No changes in interest rate are expected.

Important news for NZD:

Monday:

• Retail Sales

Wednesday:

• RBNZ Interest Rate Decision

CAD

Headline CPI in January rose to 1% y/y from 0.7% y/y in December of 2020. Rising gasoline prices had the biggest impact on the rise in inflation. Core measures paint a mixed picture with median dropping to 1.4% y/y from 1.8% y/y in December while trim rose to 1.8% y/y vs 1.6% y/y the previous month.

JPY

Q4 GDP data surpassed expectations by coming at 3% q/q vs 2.4% q/q as expected. Private consumption came in at 2.2% q/q while business investment pleasantly surprised with a rise of 4.5% q/q after both Q2 and Q3 readings were negative. However, this is old news as we are already in the second half of Q1 for 2021. Additionally, GDP for 2020 contracted by -4.8%.

Preliminary PMI data for February showed manufacturing improving to expansion level of 50.6 on the back of the strong external demand. Services slid to 45.8 due to the state of emergency being imposed across the country and composite improved to 47.6 from 47.1 in January. Inflation continues to go nowhere and give headache to the BOJ officials. Headline inflation came in at -0.6% y/y, same as ex fresh food, while ex fresh food and energy category climbed into positive with 0.1% y/y reading.

This week we will have data regarding inflation for Tokyo area in February as well as consumption data.

Important news for JPY:

Friday:

• CPI
• Retail Sales

CHF

SNB total sight deposits for the week ending February 12 came in at CHF704.3bn, unchanged from the previous week. The SNB is standing on the sidelines, observing Swissy’s movements and ready to amp up deposits if the need arises.

 

[katetrades]

Forex Major Currencies Outlook (Mar 1 – Mar 5)

RBA meeting followed by NFP data on Friday will highlight the first week of March. Eyes will be on bond market developments as well.​

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.

 

[katetrades]

Forex Major Currencies Outlook (Mar 8 – Mar 12)

ECB and BOC meetings coupled with inflation data from the US will mark the week ahead us.​

USD

ISM manufacturing PMI for February came in at 60.8 which is a new 3-year high. New orders, output and employment components all rose giving momentum to the manufacturing sector. On the other hand, great concern poses prices paid sub index. It rose to an astonishing 86(!) which is the highest since June of 2008. Prices paid reflects input costs, particularly commodity and energy and in combination with supplier delivery times disruptions it indicates mounting price pressures that can possibly transferred to consumers, thus raising inflation concerns. ISM services PMI came in at 55.3, down from the previous high in January of 58.7. New orders plunged but new export orders rose almost the same amount thus cancelling each other effects. Prices paid continued their rise and came in at 71.8 while employment sub index, although still in expansion, dropped from January (52.7 from 55.2).

February NFP numbers doubled the expectations by coming in at 379k and added to USD strength. The unemployment rate ticked down to 6.2% while the participation rate stayed at 61.4%. The underemployment rate stayed unchanged at 11.1%. Fed Chairman Powell stated in the interview with Wall Street Journal that improvements in the unemployment rate alone are not enough for them to reach a state of full employment. Both Powell and Treasury Secretary Yellen have suggested that the real unemployment rate is closer to 10%. Participation rate will be given heightened importance as it is down almost 1.5% before the pandemic. Regarding the rising yields he added that the move has caught his eye but it does not warrant reaction.

This week we will have inflation data.

Important news for USD:

Wednesday:

• CPI

EUR

Final manufacturing PMI for February was revised higher to 57.7 on the back of small improvement in German reading and big improvement in French reading (56.1 from 55 as preliminary reported). Services and composite readings improved to 45.7 and 48.8 respectively also based on the improvement in the French reading. Preliminary inflation data for February came in in-line with expectations. Headline inflation was at 0.9% y/y while core came in at 1.1% y/y, down from 1.4% y/y in January. A drop in core reading was led by goods and services prices. Due to reopening, base effects, rising energy prices and reintroduction of German VAT we can see inflation crossing the 2% in the following months.

This week we will have final reading of Q4 GDP as well as ECB meeting. Near-term growth forecasts may be lowered due to the prolonged lockdowns with Germany extending it until March 28.

Important news for EUR:

Tuesday:

• GDP

Thursday:

• ECB Interest Rate Decision

GBP

UK manufacturing PMI for February was revised higher to 55.1 from 54.9 as preliminary reported. Services and composite readings were revised down to 49.5 and 49.6 respectively, but well up from January readings and very close to the expansionary 50 level. Chancellor of the Exchequer Rishi Sunak extend the furlough scheme until the end of September. Employers will pay 10% of furlough scheme costs in July and 20% in August and September. Reduced VAT rate for hospitality will be extended until end of September and corporate tax rate will increase to 25% from 19% in 2023.

This week we will have GDP data for January.

Important news for GBP:

Friday:

• GDP

AUD

RBA has left the cash rate and monetary policy unchanged as expected. Cash rate is at 0.10% while yield curve control is implemented on the 3-year government bonds. Board members have noticed that recovery is well underway and is stronger than expected. The labour market remains a priority and wage growth has to be higher than it is currently. There will be no increase in the cash rate until inflation is sustainably within their 2-3% target range. Currently they think that full employment and inflation targets will not be achieved before 2024. RBA has doubled the size of its bond-buying on Monday with potential to resume that trend thus impacting yields and pushing them down to the desired levels. The decision was made to assist the smooth functioning of the market and the effect it had was to lower the AUD and helped by the raising US treasury yield it lead to the breaking of W1 trendline that was in place for almost a year.

Official PMI data in February slowed down from January levels but they are still above the 50 level. Manufacturing came in at 50.6 vs 51.3 in January. It was helped by domestic demand as new orders category remained above the 50 level while new export orders dropped below the 50 level. Non-Manufacturing came in at 51.4 vs 52.1 as expected while composite reading printed 51.6 vs 52.8 in January. Big caveat to the reading is that Chinese New Year was in February and disruptions caused by it affected the reading. Caixin manufacturing PMI came in at 50.9, better than the official number, but still lowest reading since May of 2020. Caixin services and composite came in as expected at 51.5 and 51.7 respectively, down from January reading. It is interesting that both official and Caixin composite readings came above manufacturing and services readings. Chinese authorities surprised everyone when they set the GDP for 2021 at “above 6%” level. GDP target was not set for 2020 and many analysts are expecting China to grow north of 8% in 2021.

NZD

Auckland, capitol of New Zealand, has entered the 7-day lockdown. This could lead to the flattening of the yield curve and overall NZD weakness. Markets are now pricing a 10bp rate hike by the end of the year. GDT auction showed GDT price index skyrocket 15% making it eighth consecutive auction of rising prices. The reading adds another concern about rising commodity prices and their impact on inflation.

CAD

Q4 GDP came in at 9.6% q/q vs 7.3% q/q as expected thus making Canadian Q4 GDP reading the best in the G7 group of countries. December GDP reading came in at 0.1% m/m while January reading is projected to be at 0.5% m/m thus painting a bright picture for Q1 GDP. Trade balance in January came in at CAD1.41bn thus making it the first trade surplus since May 2019. Exports were up 8.1% m/m with increases in all products sectors while imports rose 0.9% m/m.

This week we will have BOC meeting followed by employment data on Friday. No changes in rate and policy are expected at the BOC meeting, however we may see an upbeat tone from the institution.

Important news for CAD

Wednesday:

• BOC Interest Rate Decision

Friday:

• Employment Change
• Unemployment Rate

JPY

Final manufacturing reading for February improved to 51.4 from 50.6 as preliminary reported making it the first reading over the 50 level in over 2 years. New orders and new export orders increased while employment continued to decrease. Services and composite also improved posting 46.3 and 48.2 respectively. Q4 CAPEX data missed expectations coming in at -4.8% y/y vs -2% y/y as expected, however they showed improvement from Q3 which was at -10.6% y/y. State of emergency has been extended until March 21 which will push Q1 GDP deeper into negative territory, first after two successive quarters of positive growth.

This week we will have final Q4 GDP reading.

Important news for JPY:

Tuesday:

• GDP

CHF

SNB total sight deposits for the week ending February26 came in at CHF704.1bn vs CHF704.4bn the previous week. SNB has put the brakes on intervention as market forces are pushing Swissy in desired direction. Retail sales in January posted -0.5% y/y vs 5.4% y/y in December. Non-food sales were the main culprit declining -11.6% m/m indicating concerns about consumption activity. Headline inflation in February came in unchanged at -0.5% y/y while core inflation dropped to -0.3% y/y from being flat in January.

 

[katetrades]

Forex Major Currencies Outlook (Mar 15 – Mar 19)

Fed, BOE and BOJ meetings, accompanied by consumption data from US will steer the markets in the week to come.​

USD

CPI for February came in at 1.7% y/y as expected on the back of the rising oil prices. The rise in food prices also contributed to the jump in headline number. Core CPI surprised to the downside and came in at 1.3% y/y vs 1.4% as expected and as was in January. The rise in headline inflation can be attributed to one-off factors and still does not represent sustainable inflationary conditions.

Senate has passed the $1.9 trillion stimulus package. The bill will go to the House for approval on Tuesday before being sent to President Biden for signing. The long-anticipated fiscal stimulus is likely to bolster consumer spending, therefore leading to higher inflation expectations. On the back of the stimulus OECD has more than doubled its forecast for US 2021 GDP to 6.5% from 3.2% in December.

This week we will have consumption data as well as Fed meeting. No changes in rate and policy are expected. The rise in inflation that is coming in the following months will be characterized as transitory and will not warrant any moves. A dot plot containing economic projections will be published at the meeting.

Important news for USD:

Tuesday:

• Retail Sales

Wednesday:

• Fed Interest Rate Decision

EUR

Final Q4 GDP reading came in at -0.7% q/q, same as preliminary reading and -4.9% y/y vs -5.1% y/y as preliminary reported. Household consumption fell by -3% q/q while government spending rose 0.4% q/q. Due to strict lockdowns across the continent Q1 GDP will dance on the edge of a double-dip, however OECD has raised its 2021 GDP forecast for the Eurozone to 3.9% from 3.6% in December.

ECB has left key rates unchanged as widely expected. They are now committed to make PEPP purchases at a significantly higher rate over the next quarter. Reports state that purchases will be between €60 and €100bn This is their response to the unwelcome rise in bond yields. They are also prepared to look through the rise in inflation as they see it as only temporary and expect it to drop back next year. ECB President Lagarde stated that risks have become balanced but in the near-term downside risks are higher. GDP for 2021 has been revised up to 4% from 3.9% in December with inflation also being revised up to 1.5% from 1% in December.

GBP

January GDP came in at -2.9% m/m vs -4.9% m/m as expected. A drop not big as expected which will keep the pound underpinned, however yearly industrial and manufacturing production numbers that were improving every month since May 2020 turned the other way and showed a bigger decline compared to December reading. The economy is now around 9% lower than pre-pandemic. BOE Governor Bailey stated that they are looking into negative interest rates as a monetary policy tool, however they are not inclined to implement them. He added that the bank needs more proof that current rise in inflation can be sustained for a longer period of time. Schools and colleges have reopened in the UK as a part of the first phase in country’s reopening.

This week we will have BOE meeting. No changes in rate or policy are expected, however assessment of economic situation will be closely scrutinized. With government spending rising there may be talks of putting the cap on the government bond yields.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Chinese trade balance data for the period of January-February came in at $103.25bn with exports coming in at 60.6% and imports 22.2%. Main export products were electric appliances, vehicles and computers. Inflation data came in at -0.2% y/y, a tick up from -0.3% y/y. Pork prices keep declining and last year’s high base caused inflation to be in the negative for the second consecutive month. PPI prices, on the other hand, jumped 1.7% y/y due to the rise in commodity prices pushing it to the highest level in two years.

This week we will have employment data from Australia as well as consumption and industrial production data from China.

Important news for AUD:

Monday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Preliminary business confidence in March dropped to 0 from 7 in February. Activity outlook also showed a decline to 17.4 from 21.3 the previous month. NZDUSD started the week on the back foot due to the USD strength caused by rising yields. The pair turned upwards mid-week and recuperated losses only to finish the week lower than were it started.

This week we will have Q4 GDP reading.

Important news for NZD:

Wednesday:

• GDP

CAD

BOC has left overnight rate unchanged at 0.25% as widely expected. There were no talks about adjusting the monetary policy so the current QE pace of “at least” CAD4bn per week remains. QE will continue “until the recovery is well underway”. BOC members stated that "economy is proving to be more resilient than anticipated" with improved foreign and commodity demand brightening the picture. Labour market is still “a long way from recovery”. Additionally, members argue that although inflation will rise in the coming months it is not likely that the level of 2% sustainable inflation will be reached any time before 2023. We may expect greater clarification at April’s meeting.

Employment report in February smashed expectations by coming in at 259.2k vs 75k as expected. As a reminder Canada lost 212.8k jobs in January. The unemployment rate fell astonishingly to 8.2% from 9.4% in January. This was all achieved with no change in the participation rate, which came in at 64.7%, which adds to the overall strength of the report. Full-time employment came in at 88.2k while part-time employment came in at 171k. Another strong reading from Canada that may push BOC to lower their QE purchases at April’s meeting.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Final Q4 GDP reading was lowered to 2.8% q/q from 3% q/q as preliminary reported due to a drop in business investment. Wages in January fell -0.8% m/m and although expectations were for a bigger drop this is now tenth consecutive month of dropping wages. Household spending has plunged -6.1% m/m influenced by a deadly combination of falling wages and state of emergency. BOJ officials want to see freer fluctuations in 10y JGB yields within their set range of 20bp on either side. BOJ has set yields on 10y JGBs at 0%. The impact of their decision could be JPY positive.

This week we will have national inflation data for February as well as BOJ meeting. No changes in rate are expected, however talks about JGB and ETF purchases will draw a lot of attention.

Important news for JPY:

Friday:

• BOJ Interest Rate Decision
• CPI

CHF

SNB total sight deposits for the week ending March 5 came in at CHF703.1bn vs CHF704.1bn the previous week. SNB can sit back and relax as market is doing their job with EURCHF hovering around the 1.11 level. The seasonally adjusted unemployment rate for February ticked up to 3.6% from 3.5% in January while the headline unemployment rate dropped to 3.6% from 3.7% in January leaving this a mixed reading.

 

[katetrades]

Forex Major Currencies Outlook (Mar 22 – Mar 26)

Preliminary March PMI data will highlight the week followed by inflation and spending data from the US.​

USD

Headline retail sales in February came in at -3% m/m vs -0.5% m/m as expected. January reading was revised higher to 7.6% m/m from 5.3% m/m as previously reported which makes headline number come almost along the expectations. Other categories had the similar faith with control group coming in at -3.5% m/m vs -0.6% m/m as expected with January upward revision to 8.7% m/m from 6% m/m. Sales in February were up 6.3% y/y. Extreme weather in February is the main culprit for the drop. Auto sales category showed the biggest drop while gas station sales rose 3.6%, thus making it the only category that rose. Additional stimulus cheques, combined with normal weather should propel this number higher in March reading.

Fed has left rates and monetary policy unchanged as was widely expected reiterating that asset purchases will continue until “substantial further progress” is made. They have come up with new macroeconomic projections showing improvements in all measures. GDP is now seen between 5.8% and 6.6% for 2021. The unemployment rate is seen between 4.2% and 5.7% while PCE is seen between 2.2% and 2.4% for 2021. Dot-plot shows that several members now see rate hike in 2023. Fed Chairman Powell stated that the economy is still far away from recovery as indicated by almost 9.5 million unemployed more than before the pandemic. He reiterated that full employment and price stability should be shown in data, not in expectations. Additionally, Fed looks at a broad number of employment measures, with the unemployment rate being just one of them. Overall, there seems to be no rush for rate hikes. The markets understood the dovishness of Fed and pushed USD lower. During the week USD managed to recover due to the rise in yields since Fed did not mention anything about possible new “Operation Twist” (Selling near-end Treasuries to buying long-end in order to reduce yields on long-end Treasuries). The rise in yields was characterized as a good sign of a recovering economy. When asked about SLR Chairman Powell declined to comment stating that an announcement will be made in the coming days and on Friday it was announced that there will be no extension. Current SLR is ending on March 31 and should lead to the drop in banks liquidity which could lead to lower lending and lower acceptance of deposits.

This week we will have final Q4 GDP reading as well as Fed’s preferred inflation measure PCE.

Important news for USD:

Thursday:

• GDP

Friday:

• PCE

EUR

We got first March data in the form of German ZEW survey. Current situation improved to -61 from -67.2 in February while expectations rose to 76.6 from 71.2 the previous month. The rise in expectations shows the optimism regarding vaccine developments with ZEW noting that anticipations are for around 70% of the population to be vaccinated by the autumn. Caveat is that survey was done prior to the AstraZeneca issue. Germany has stopped administering AstraZeneca vaccine due to the research showing it caused blood clot problems with number of patients. After the investigation into the issue has been done by EMA it has been concluded that there is no connection between vaccine and blood clots. Countries will continue to administer AstraZeneca vaccines and ZEW survey data stands.

This week we will have preliminary March PMI data.

Important news for EUR:

Wednesday:

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

GBP

BOE has left bank rate and asset purchases unchanged as was widely expected. Members have acknowledged some positives in financial conditions that occurred since February, but overall, there were no hawkish moments in the statement. They have reiterated their resolve to take additional measures if inflation outlook weakens adding that they do not intend on tightening monetary policy conditions until there is enough evidence regarding achieving the inflation target. There was no talk about recent rise in 10y yields. GBP was sent down on their message as markets were hoping for more upbeat statement.

This week we will have plethora of economic data including employment, inflation, preliminary March PMI and consumption data.

Important news for GBP:

Tuesday:

• Employment Change
• Unemployment Rate

Wednesday:

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

Friday:

• Retail Sales

AUD

RBA minutes from the March meeting show that wage growth needs to reach 3% for bank members to raise interest rate and the rise is not expected until 2024. February employment report went in RBA’s desired direction. Employment change came in at 88.7k vs 30k as expected. The unemployment rate fell to 5.8% from 6.3% in January with participation rate staying the same at 66.1%. All of the jobs were full-time as full-time employment came in at 89.1k. A tremendously strong report and if it now pushes wage growth we may see a rate hike before 2024 target.

Chinese data for the two-month period of January-February showed huge boost impacted by the base effect, that is comparing the data with period of January-February 2020 when country was fighting with the coronavirus induced lockdowns. Industrial production came in at 35.1% y/y while retail sales came in at 33.8% y/y. Both readings beat expectations. Jewellery, automobiles and catering were the biggest contributors to the growth of retail sales while automobiles and micro-processors lead the way in industrial production growth.

NZD

Q4 GDP data surprised to the downside by coming in at -1% q/q vs 0.2% q/q as expected. We are now in the middle of March so this data is ancient history, however given the data concerning Q1 we may see New Zealand getting back into recession as measured by two consecutive quarters of negative GDP growth. GDT price index came in at -3.8% thus making the first decline after eight consecutive auctions with rising prices.

CAD

February headline inflation ticked higher to 1.1% y/y from 1% y/y in January. Analysts were expecting a 1.3% y/y reading. Median and common core measures came in unchanged from the previous month at 2% y/y and 1.3% y/y respectively while trim slipped to 1.9% y/y from 2% y/y in January. Appliance prices were the biggest contributor to the rise in inflation followed closely by gasoline prices while clothing prices were the main drag. March reading will be far more interesting as it will be impacted by the base effect from first lockdown. Retail sales in January fell -1.1% m/m vs -3% m/m as expected. Second straight month of drops but much less than expected. Around 1 in 7 retailers was impacted by lockdown in January. Advanced February reading shows a jump of 4% m/m breaking the two month of drops and painting brighter picture of Canadian consumers.

JPY

BOJ has left short-term interest rate unchanged and modified its monetary policy. Yields on 10y JGB will remain at 0% but range in which they can fluctuate has been widened to 25bp from 20bp previously. This is the most hawkish move from BOJ so far. There will be no upper limit on JGB purchases. The other change refers to ETF purchases. The bank has abandoned their JPY6 trillion annual target. Upper limit of JPY12 trillion is still in place. Governor Kuroda stated that their ETF purchases are not undermining stock market purchases and that they are prepared to ease further if the need arises. Inflation on the national level for February showed some improvements with both headline and ex fresh food categories coming in at -0.4% y/y as expected vs -0.6% y/y in January. Still deflation is ruling Japan and it will stay there for a while.

This week we will have preliminary March PMI data as well as inflation data for March for Tokyo area.

Important news for JPY:

Wednesday:

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

Friday:

• CPI

CHF

SNB total sight deposits for the week ending March 12 came in at CHF702.8bn, down from CHF703.1bn as markets keep EURCHF hovering around the 1.11 level.

This week we will have SNB meeting. No changes in rate and policy are expected.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

 

[katetrades]

Forex Major Currencies Outlook (Mar 29 – Apr 2)

NFP and preliminary inflation data from Europe will be the highlights of the week. US president Biden will deliver speech on Wednesday regarding the economy during which the new infrastructure stimulus worth around $3 trillion should be presented. This will be a shortened trading week as we will have Good Friday which, coupled with quarter-end rebalancing, will lower liquidity in the markets.​

USD

Existing home sales and new home sales missed expectations and fell sharply from January reading coming in at 6.22 million and 775k respectively. Cold weather in Mid-West can be blamed as the main culprit for the decline in housing. It is still left to see if this is the one-off drop or a beginning of the trend as lumber prices are rising leaving less profit for investors. Final Q4 GDP reading was revised higher to 4.3% from 4.1% as reported by the second reading. February headline PCE rose to 1.6% y/y from 1.5% y/y in January while core PCE slipped to 1.4% y/y from 1.5% y/y the previous month. Inflation will start to rise next month when base effect takes center stage coupled with stimulus checks which will increase incomes and should push spending growth to almost double digits.

This week we will have ISM manufacturing PMI and NFP data. Headline number is projected between 410 and 620k while the unemployment rate should drop toward 6%.

Important news for USD:

Thursday:

• ISM Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Preliminary March PMI data surprised to the upside with manufacturing coming in at 62.4, services at 48.8 and composite at 52.5. Manufacturing was propped by amazing reading of 66.6 from Germany, more than a 3-year high, achieved on the back of rising output, new orders and new export orders. Supply chain constraints also contributed to the rise through prices paid and supply deliveries categories which will prompt producers to transfer those costs to consumers thus leading to a rise in inflation. Services are still affected by the ongoing lockdowns but are faring much better than analysts expected. The reading is highest since August of last year and is moving closer to the 50-expansion level.

Germany has announced an extension to lockdown until April 18. Q1 GDP is expected to be negative due to harsh lockdown measures and now with extension of it until mid-April there are growing concerns that Q2 GDP can also be negative. Potential for recovery is from H2 but with slow progress on vaccination it is highly questionable from this stand point. If the manufacturing sector keeps up producing at the current rate it can act as a savior and prevent a drop in Q2 GDP.

This week we will have preliminary March inflation data. Due to the base effect, comparing the reading with the pandemic influenced reading from March 2020, we can expect a significant jump in inflation.

Important news for EUR:

Wednesday:

• CPI

GBP

Employment report for February showed that claimant count jumped to 86.5k from -20.8k the previous month and pushed the claimant count rate to 7.5% from 7.2%. The unemployment rate for January ticked down to 5% while employment change in the three-month period dropped -147k. This is a very mixed report which is heavily impacted by the underlying furlough scheme. Inflation reading showed a slowdown and came in much weaker than expected with headline CPI reading 0.4% y/y and core CPI 0.9% y/y. Discounts on clothing were the main contributor of weaker reading. After the inflation reading, chances of BOE hiking rates any time soon have dropped.

Preliminary March PMI data showed big improvements. Manufacturing rose to 57.9 from 55.1, while services jumped to 56.8 from 49.5 in February. Even the gradual lifting of restrictions had a huge positive impact on the services reading. Composite was propelled to 56.6 from 49.6 the previous month. Supply deliveries still play a big role in the readings due to supply chains being impaired, but still the readings show that demand for UK services and manufacturing goods is present both domestically and abroad.

AUD

China will introduce the anti-dumping tariffs on March 28 and will go on for five years. Imports of Australian wine will be hit by duties of between 116.2% and 218.4%. This will have a negative impact on already weak relationships between China and Australia. PBOC has announced that potential growth for China in the next five years should be between 5 and 5.7%.

This week we will have official PMI data from China.

Important news for AUD:

Wednesday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

The New Zealand government announced a set of new measures to fight the rise in housing prices that is occurring to the low rates policy. Housing prices has been added to the central bank's mandate. The government removed a tax incentive that encouraged speculation and will make more land available to boost supply. Assistance will continue to be provided for first-time buyers and low-income households. The announcement led to the huge drop in NZDUSD and the pair has not managed to recover during the week finishing it down 150+ pips.

CAD

BOC announced that they would start unwinding its emergency liquidity measures. The short-term financing facility will end in May, while the commercial paper and the provincial and corporate bond programs will expire shortly and not be renewed.

JPY

Preliminary March PMI data showed a minor improvement across the measures. Manufacturing rose to 52 in February, which is the highest reading in over 18 months, while services ticked up to 46.5 from 46.3 the previous month which pushed composite to 48.3 from 48.2 in February. The reading shows a growing divide between the manufacturing and services sectors caused by the state of emergency. March inflation for the Tokyo area continued to improve but at the snail pace. Headline CPI came in at -0.2% y/y vs -0.3% y/y in February and ex fresh food came in at -0.1% y/y vs -0.3% y/y the previous month. Ex fresh food and energy component is the only positive reading with 0.3% y/y, up from 0.2% y/y in February.

CHF

SNB has left the policy rate unchanged at -0.75% as was widely expected. Swissy is highly valued according to their assessment and they remain willing to act in the FOREX market if necessary. Inflation expectations have risen to 0.2% in 2021 and 0.4% in 2022 vs flat in 2021 and 0.2% in 2022 as previously expected. GDP should be in the range of 2.5-3% for 2021 while the pick-up in activity to pre-pandemic levels is expected in H2 of 2021. Total sight deposits for the week ending March 19 came in at CHF702.9bn vs CHF702.8bn the previous week. This is a negligent change as markets are pushing Swissy down on their own with EURCHF hovering above the 1.10 level.

 

[katetrades]

Forex Major Currencies Outlook (Apr 5 – Apr 9)

A calm week ahead of us with thin liquidity on Easter Monday will bring RBA meeting, ISM Non-Manufacturing PMI and employment data from Canada. Vaccine roll-out developments and covid related news will be on the minds of investors.​

USD

President Biden announced new infrastructure plan worth $2.25 trillion which will be funded fully by tax hikes. Infrastructure building will be done solely by the US corporations. Tax rate on corporations is proposed to rise to 28% from 21% currently. This will lead to lower issuance of government bonds, treasuries, and assuming demand for bonds stays the same, it should lead to rise in treasury prices, drop in treasury yields and consequently lower USD.

ISM Manufacturing PMI for March beat expectations and came in at 64.7 for the highest reading since 1983! New orders rose to astonishing 68 from 64.8 in February thus making the highest reading since 2004. Employment sub index rose to 59.6 from 54.4 in February. A small dent in otherwise great reading is that prices paid sub index dropped less than expected. It came in at 85.6 from 86 in February. The report shows booming demand for manufacturing products.

Headline NFP number for March came in at 916k vs 660k as expected. The unemployment rate was pushed down to 6% as was expected from 6.2% in February while participation rate ticked up to 61.5%. The underemployment rate continued to drop and now came in at 10.7%. The drop in average wages is a result of lower paying workers returning to work as the leisure and hospitality sector led the way. Overall, a very strong reading that leaves potential for equally strong readings in the months to come.

This week we will have ISM Non-Manufacturing PMI and data from the latest Fed meeting.

Important news for USD:

Monday:

• ISM Non-Manufacturing PMI

Wednesday:

• FOMC Minutes

EUR

Sentiment data in March surpassed expectations. Economic sentiment rose to 101 from 93.4 in February while industrial sentiment went into positive after more than 14 months. It came in at 2 vs -3.1 the previous month. Optimism is prevailing as economic rebound should pick up from Q2 and especially from H2.

After higher-than-expected jumps in German and Spanish inflation preliminary March Eurozone inflation came in at 1.3% y/y vs 1.4% y/y as expected. The rise is mostly due to the rising energy prices compared with March of 2020. When we take away energy, we see that core reading came in at 0.9% y/y vs 1.1% y/y as expected due to a drop in goods inflation. Considering constraints on supply chains we can see this drop in goods inflation only as transitory and we expect it to pick up in Q2. ECB is prepared to look-through overshooting inflation and this weak reading will be easily dismissed by them.

German authorities have banned the use of AstraZeneca's vaccine for people under 60 due to new cases of blood clots.

GBP

Final reading of Q4 GDP showed an improvement to 1.3% q/q vs 1% q/q as preliminary reported. The increase was due to the strong rise in business investment (5.9% q/q vs 1.3% q/q in the first reading) and modest rise in government spending (6.7% q/q vs 6.4% q/q in the first reading). Private consumption, on the other hand, dropped -1.7% q/q vs -0.2% as preliminary reported.

AUD

JobKeeper, an employment subsidy introduced to help mitigate effects of pandemic, ended on March 28. Westpac estimates that it puts 100k people at the risk of losing jobs. They expect that these loses will be spread over the coming months pushing the unemployment rate up. Retail sales in February dropped -0.8% m/m but came in at 9.1% y/y.

Official PMI numbers from China easily beat expectations with manufacturing coming in at 51.9 and services jumping to 56.3 from 51.4 in February. Those numbers pushed composite reading to the very healthy 55.3 level. Within manufacturing reading both new orders and new export orders rebounded. New orders category posted a stronger reading indicating that domestic demand is leading the recovery. Within services, construction measure hit 62.3 level, it shows infrastructure investment that was announced in the Two Sessions. Caixin manufacturing reading showed a different picture as it fell to 50.6 while rise to 51.4 was expected. Rising input costs have impeded manufacturing activity. Although it is in the expansion for almost a year it is getting dangerously close to dropping below the 50 level.

This week we will have RBA meeting. No changes to cash rate and monetary policy are expected

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

NZD

ANZ survey of the business confidence in March show the reading drop to -4.1 from being flat the previous month. ANZ noted that “All forward-looking activity indicators were lower in the second half of the month. The preliminary results would not have captured the full lockdown impact”. They also added that “as the demand overshoot wanes and the tourists are missed more and more, the economy will go largely sideways this year”.

CAD

GDP for the first month of 2021 came in at 0.7% m/m vs 0.5% m/m as expected. Healthy beat indicating that Canada will post a positive Q1 GDP reading. Wholesale and manufacturing led the way and were the biggest contributors while retail was a drag, dropping for the third time in last 4 months.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

February employment report showed that the unemployment rate remained at 2.9% while expectations were for it to tick up to 3%. Retail sales for the same period crushed expectations and came in at 3.1% m/m vs 0.8% m/m as expected. BOJ Tankan survey showed improvement for both large and small manufacturing and non-manufacturing business. Capex is now seen rising 3% instead of -1.4% as was expected. Businesses reported that they see USDJPY at 106.71 in 2021 and EURJPY at 123.1. These are average values for 2021 fiscal year, from April 2021 to March 2022. CPI is seen at 0.4% for 2021, 0.8% in 3 years’ time and 1% in 5 years’ time. Nowhere close to BOJ’s 2% target level.

CHF

SNB total sight deposits for the week ending March 26 came in at CHF702.7bn vs CHF702.9bn the previous week. SNB is on the cruise control as markets keep Swissy subdued. Inflation in March missed expectations. Headline CPI came in at -0.2% y/y while core CPI plunged deeper into deflation with -0.4% y/y. Retail sales in February showed a big drop of -6.3% y/y vs -0.7% y/y in January. Both inflation and consumption affirm the need for SNB’s accommodative monetary policy.