Forex Major Currencies Outlook (Dec 13 – Dec 17)

USD 

November inflation report came in line with expectations. Headline came in at 6.8% y/y, up from 6.2% y/y in October and core reading came in at 4.9% y/y, up from 4.6% y/y the previous month. Headline inflation is at the highest level since March of 1982 while core is at the highest level since October of 1984, going way back in time. Fed will not be detracted by the reading and will continue on their course with increased tapering. 

This week we will have consumption data as well as the final Fed meeting for the 2021. With inflation running red hot we can expect to see hawkish messages from the members. The speed of the taper should be increased so it finishes by the end of Q1 of 2022. The dot plot should point to at least two rate hikes in 2022. 

Important news for USD: 

Wednesday:

• Fed Interest Rate Decision
• Retail Sales 

EUR 

German ZEW survey for the month of December showed assessment of current situation plunge into negative territory with -7.4, down from 12.5 in November. The uncertainty relating to the omicron variant and its possible negative impact on the economy is breaking investors spirit. On the other hand, expectations category just slightly slipped to 29.9 from 31.7 the previous month indicating that investors still hold a positive outlook for the future. Eurozone expectations improved to 26.8 from 25.9 in November. Final Q3 GDP reading for the Eurozone came in unchanged at 2.2% q/q and slightly improved to 3.9% y/y vs 3.7% y/y as reported in the second reading. Olaf Scholtz has been officially elected as a Chancellor and thus succeeds Angela Merkel after her 16-year reign. 

This week we will have preliminary PMI readings for the month of December as well as the ECB meeting. Next round of macroeconomic projections will be put forward at the meeting. PEPP program will conclude in March of 2022 so the meeting can bring an increase, temporary most likely, in APP to ease the effects of removing PEPP. Additionally, this will be the last meeting for the outgoing Bundesbank president Jens Weidmann. 

Important news for EUR: 

Thursday:

• ECB Interest Rate Decision
• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France) 

GBP 

October GDP number came in at 0.1% m/m vs 0.4% m/m as expected. It shows that the economy is still expanding in Q4, however at a much slower pace. Prime Minister Boris Johnson stated that Omicron is growing at much higher rate than the previous variant and it is time to move to so-called “Plan B”. Reintroduction of stay and work from home guidance with facemask requirement further extended to most public venues. Health Minister Javid stated that main purpose of “Plan B” is to slow down spread of Omicron and help to avoid action later. 

This week we will have employment, inflation and consumption data along side the BOE meeting. The chances of a rate hike at the meeting are growing slimmer. MPC member Broadbent stated that he is still unsure about the way he will vote at the meeting. Omicron poses a big uncertainty while MPC member Saunders said he wants further information on the Omicron before deciding how to vote. We expect that first rate hike will come in Q1 of 2022, most likely at the February meeting. 

Important news for GBP: 

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Thursday:

• BOE Interest Rate Decision

Friday:

• Retail Sales 

AUD 

RBA has kept its cash rate at 0.10% as was widely expected. The statement shows concern regarding potential effect of omicron on the economy. They still expect economy to return to its pre-Delta path in H1 of 2022. The purchase of government securities will continue at the pace of AUD4bn/week until at least mid-February and will be evaluated at February meeting. Incoming data from leading indicators is very encouraging as it points to a strong recovery in the labor market. Bank members expect a further pickup in wage growth. The central forecast for underlying inflation is to reach 2.5% over 2023. Housing prices have increased strongly but the rate of increase has eased. They have reiterated their stance that there will be no increase in the cash rate until actual inflation is sustainably within 2-3% target range. 

PBOC has decided to cut the RRR (Reserve Requirement Ratio) by 50bp (0.5%). The decision will take effect from December 15. PBOC has stated that they will continue with prudent monetary policy and will keep liquidity at reasonable levels. With inflation stabili\ing and at low levels the bank has decided that pumping additional liquidity will support the economy as well as push short and long-term interest rates lower. Later during the week they have increased foreign reserve ratio from 7% to 9. This is the first increase in 15 years. November trade balance data showed first decline in surplus since March. The reading came in at $71.72bn, down from $84.5bn in October. Exports have risen 22% y/y while imports jumped 31.7% y/y vs 19.5% y/y as expected. The jump in imports may indicate strong domestic demand which is a positive sign for the global economy. Inflation data for the month of November show CPI at 2.3% y/y, up from 1.5% y/y in October but lower than 2.5% y/y as expected. PPI data came in at 12.9% y/y, still very elevated, but down from 13.5% y/y printed the previous month. 

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

Important news for AUD: 

Wednesday:

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

Thursday:

• Employment Change
• Unemployment Rate

NZD

NZD had a weak week, falling against all of the pairs but the drop was not great as RBNZ is still on the path of rate hikes which keeps the currency supported.

This week we will have Q3 GDP data.

Important news for NZD:

Wednesday:

• GDP

CAD

BOC has left rate unchanged at 0.25% as was widely expected. The statement showed that after strong GDP growth in Q3 it is now about 1.5% below the pre-pandemic level. Recent economic indicators suggest the economy had considerable momentum into the fourth quarter. Inflation will stay elevated but it should return to the 2% level in H2 of 2022. Bank members reiterated that slack in the economy should be absorbed “sometime in the middle quarters of 2022”. Finally, they have acknowledged that Omicron has introduced some uncertainty which could “weigh in on growth by compounding supply chain disruptions and reducing demand for some services”. Employment is back above the pre-pandemic level, incomes are rising and in combination with savings made during the pandemic it points to a strong demand and healthy economy. All of this should prompt BOC to start hiking rates in late Q1 or early Q2 of 2022.

This week we will have inflation data which is expected to continue rising.

Important news for CAD:

Wednesday:

• CPI

JPY

Final reading of Q3 GDP saw it reduced to -0.9% q/q from -0.8% q/q as preliminary reported. Household consumption came in at -1.4% vs -1.2% while business investment improved to -2.3% from -3.8% as preliminary reported. Net exports did not have any contribution with exports falling -0.9% and imports declining -1%. The country went through state of emergencies through the Q3 which negatively impacted household consumption, but data from the start of Q4 imply that rebound is in the making. Additionally, improvement in business investment bodes well for the future.

This week we will have BOJ meeting. No changes to rate or monetary policy are expected.

Important news for JPY:

Friday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposit for the week ending December 3 came in at CHF720.3bn vs CHF719.4bn the previous week. The bank has increased its activities in the markets, however with a strong risk off mood prevailing, leading to EURCHF falling below the 1.04 level, they have decided to act slowly, looking for a better opportunity to fight the Swissy strength. Tightness of the labor market in Switzerland continues to impress. Latest data show seasonally adjusted unemployment rate for November sliding to 2.5% from 2.7% in October.

This week we will have SNB meeting. No changes to rate are expected, however talks about recent Swissy strength are expected which could lead to more intervention in the market.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}