Daily Market Outlook by Kate Curtis from Trader's Way

[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.