Forex Major Currencies Outlook (Feb 25 – Mar 1)

Policymakers are increasingly pointing to risks abroad as a justification to wait. That means that even months of positive US economic data may not be enough to put the Fed back on a hiking path. FOMC minutes showed that almost all FED officials were in favour of ending the balance sheet reduction before the year ends. Positive domestic outlook was emphasized along with concerns regarding soft European and Chinese growth.

Durable goods for the month of December came in at 1.2% vs 1.7% as expected. Main drag was the non-defence ex-air component which came in at -0.7% vs 0.2% as expected. Philadelphia FED business index came in at -4.1 vs 14 as expected with new orders index and shipments plummeting to -2.4 vs 21.3 the previous month and -5.3 vs 12.3 the previous month respectively.

This week’s main data will be the first reading of Q4 GDP. Atlanta FED lowered forecast from 1.5% to 1.4% due to weak durable goods and retail sales data. If the number surprises to the downside it could lead to USD weakness. Additionally, we will get data on housing, trade balance, PCE and final manufacturing PMI.

Important news for USD:

Tuesday:

• Housing Starts
• Building Permits
• Consumer Confidence Index

Wednesday:

• Goods Trade Balance
• Factory Orders
• Pending Home Sales

Thursday:

• GDP

Friday:

• Final day of US – China trade war treat
• PCE
• Personal Spending
• Personal Income
• Markit Manufacturing PMI
• ISM Manufacturing PMI

EUR

ZEW current situation survey for Germany came in at 15 vs 20 as expected with prior reading showing 27.6. This is the lowest reading since December of 2014 and it shows continued deterioration of the German economy. ZEW does not see chances for “rapid recovery” of slumping German economy. Economic sentiment showing expectations about the future of the economy improved slightly to -13.4 vs -15 the previous month for Germany and -16.6 vs -20.9 for the entire Eurozone, however those numbers are still in the negatives.

Preliminary PMI reading for the Eurozone showed manufacturing PMI at 49.2 vs 50.3 as expected. Manufacturing dropped into contraction pushed by huge drop in German manufacturing PMI that came in at 47.6 with export orders component falling to lowest levels in over six years. Brexit, China slowdown and potential tariffs from US on German car makers all pushed the number down. Services PMI and composite PMI beat expectations coming in at 52.3 and 51.4 respectively. ECB minutes showed that EU growth could be below potential for several quarters and that although possibility of recession is low, levels of uncertainties are high. Market pricing for rate hike is accurate meaning that ECB is still on the path to raise rates this year.

This week we will have data on sentiment and climate in EU, inflation, unemployment and final reading of manufacturing PMI.

Important news for EUR:

Wednesday:

• Business Climate Indicator
• Economic Sentiment Indicator
• Consumer Confidence Index

Thursday:

• CPI (Germany and France)

Friday:

• Markit Manufacturing PMI (Germany, France, Spain, Italy and EU)
• CPI
• Unemployment Rate

GBP

Average weekly earnings for the month of December came in at 3.4% 3m/y vs 3.5% 3m/y as expected. The unemployment rate stayed at 4% as expected and employment change came in at 167k vs 151k as expected. An additional strong labour report coming from UK shows tight labour market conditions. Wage growth ticked a bit to the downside but it is not of a great concern. Due to the current circumstances this report falls second to the ongoing Brexit situation.

Deadline for PM May to convince parliament members of her plan is February 26. Brexit debate continues on February 27. Reuters reported, citing EU diplomats, that Brexit formal text may be agreed in mid-March.

This week we will have continuation of Brexit debate in the Parliament as well as manufacturing PMI data.

Important news for GBP:

Tuesday:

• PM May presents her plan in the Parliament

Wednesday:

• Brexit debate continues

Friday:

• Markit Manufacturing PMI

AUD

RBA meeting minutes showed that significant uncertainties were seen by the board members and that the next rate move can be either up or down. There is no need for a near-term move in rates as current policy should allow for progress on unemployment and inflation. Outlook for consumption was characterized as “key uncertainty” for policy. Labour market data are stronger than other economic data and they noted that downside risks to global economy had increased with China growth slowing more than GDP figures show. With this statement RBA is taking more of “data dependent” approach, waiting for further clear signs before taking a firmer stance.

Employment change for the month of January came in at 39.1k vs 15k as expected for a huge beat. Full time employment change came in at 65.4k which is a massive result. The unemployment rate stayed the same at 5% and participation rate ticked higher to 65.7%. Wage price index for Q4 2018 came in at 0.5% q/q vs 0.6% q/q as expected. RBA stated consumption as “key uncertainty” and this reading will not help. They want to see faster wage growth than this and see it spilling into consumption so it can spur economic growth. AUD was sent higher on the great jobs report and then Westpac came out with changes to its forecasts regarding the Australian economy and stated that they see two rate cuts in 2019. This immediately put a lot of pressure on AUD which was then pressured even more when Chinese port Dailan limited import of Australian coal as a response to Australia’s ban on Huawei.

This week we will have PMIs from both China and Australia.

Important news for AUD:

Thursday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• AIG Manufacturing Index

Friday:

• Caixin Manufacturing PMI (China)

NZD

Services PMI for the month of January comes in at 56.3 vs 53.2 the previous month. A healthy jump in the reading was provided by new orders and activity as well as drop in inventory. GDT price index rose 0.9% at the latest auction. This is the sixth consecutive auction with rising prices but rise was weaker than on any previous rising auctions.

This week we will have trade balance data along with housing and business confidence data.

Important news for NZD:

Tuesday:

• Trade Balance
• Export
• Import

Thursday:

• Business Confidence
• Building Permits

CAD

Canadian retail sales for the month of December came in at -0.1% m/m vs -0.3% m/m as expected. Ex autos category came in at -0.5% m/m vs -0.3% m/m as expected. Better than expected reading but still in the negative. Lower oil prices are responsible for a large part of the decrease. Weaker sales at gasoline stations were largely to blame. Holiday season in Canada was weak and didn’t manage to propel retail sales into positive territory, thus confirming weakening contribution to GDP from households. Wholesale sales came in at 0.3% m/m vs -0.2% m/m as expected.

This week we will have data on inflation and GDP along with manufacturing PMI.

Important news for CAD:

Wednesday:

• CPI

Friday:

• GDP
• Markit Manufacturing PMI

JPY

Governor Kuroda stated in his speech that they will react if JPY appreciation hurts the economy. They can react by buying more assets or lowering the rates. This more dovish approach pushed JPY lower across the markets.

Trade balance for the month of January came in at -JPY1415.2bn vs -JPY1029.1 bn as expected. Exports plummeted -8.4% y/y vs -5.7% y/y as expected. Exports to China and Asia contributed most to the decline. Exports to China fell -17.4% y/y and will continue to decline in February due to the holiday period. Imports came in at -0.6% y/y vs -3.5% y/y as expected. Preliminary manufacturing PMI for the month of February came in at 48.5 vs 50.3 the prior month. This is the first time that data fell into contraction since August 2016. Output expectations turned negative for the first time in over six years. Slowdown in China presents itself as a main drag on the Japanese economy with both new orders and new export orders continuing to decrease.

National CPI data for the month of January came in line with the expectation. Headline figure came in at 0.2% y/y and ex food, energy came in at 0.4% y/y. Inflation ex food, which is how Japan measures its core rate came in at 0.8% y/y vs 0.7% the previous month. Still a long way from targeted 2% and with recent global slowdown it doesn’t look like it will pick up any time soon.

This week we will have data on consumption, industrial production, inflation from Tokyo area and unemployment.

Important news for JPY:

Thursday:

• Retail Sales
• Industrial Production

Friday:

• Tokyo CPI
• Unemployment Rate
• Jobs to Applicants Ratio
• Nikkei Manufacturing PMI
• Consumer Confidence

CHF

January trade balance figures came in at CHF3.04bn vs CHF1.9bn the prior month. Exports rose 0.6% m/m showing demand for Swiss goods outside Switzerland. Imports rose 4.8% m/m showing that domestic demand is still robust.

This week we will have data on employment, GDP and consumption.

Important news for CHF:

Monday:

• Employment level

Thursday:

• GDP

Friday:

• Retail Sales

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets.
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