Forex Major Currencies Outlook (Dec 6 – Dec 10)

USD 

Fed Chairman Powell dropped a bomb onto the markets in his testimony in front of the Congress. He stated that it is time to retire “transitory” for inflation and added that it is appropriate to speed up the pace of tapering at the incoming meeting. USD reacted positively to his hawkish remarks and gained more than 100 pips against most currencies during Powell’s testimony. Markets have interpreted that inflation will stay for a longer period of time and that faster taper adds more to the credibility of two rate hikes in 2022 and even open up a possibility of a rate hike in May. Regarding the impact of Omicron variant Powell stated that there is not enough information at the moment and that they will know more in 5-10 days. 

ISM manufacturing PMI for the month of November continued to improve and came in at 61.1, up from 60.8 the previous month. Production and new orders indexes are above the 60-level indicating a very healthy and strong sector. Backlog of orders is also above the 60-level while customer inventories continue to drop suggesting pricing power for producers and that demand will keep the sector strong well into 2022 and will give a big push to Q4 GDP. 

Headline NFP number in November printed just 210k when it was expected to show 550k. The unemployment rate dropped to 4.2% from 4.6% in October while participation rate rose to 61.8% from 61.6% the previous month. Wages, on the other hand, slipped to 0.3% m/m and 4.8% y/y from 0.4% m/m and 4.9% y/y in October. It was a mixed report that had something for everyone. More people returned to the work force, however wages slid and that is deflationary. Fed should continue to speed up taper as planned at their December meeting. 

This week we will have inflation data. The readings are expected to continue their rise. 

Important news for USD: 

Friday:

• CPI 

EUR 

Preliminary November CPI data shows prices spiralling upwards with headline number coming in at 4.9% y/y vs 4.5% y/y as expected and up from 4.1% y/y in October. Core CPI also jumped, it came in at 2.6% y/y vs 2.3% y/y and up from 2% y/y the previous month indicating that price pressures are increasing across different categories. Headline number is now at a 30-year high while core reading posted a new record high! Energy prices are the main culprit, rising 27% y/y with goods prices also adding pressures to inflation. EUR was bid on the hopes that high inflation reading will push ECB to raise rates faster than expected. ECB stance is that inflation is transitory and that it will slow down going into 2022, German VAT will step out of the calculation in January, and return to their 2% target in H2 of 2022. 

GBP 

Final PMI reports saw a downside revisions to preliminary reading, however manufacturing PMI still managed to improve from October reading and came in at 58.1 vs 57.8 the previous month. Services slipped to 58.5 while composite was at 57.6. The readings show a healthy economy in the Q4 with mounting price pressures posing a cause for concern. BOE policymaker Michael Saunders stated that they will look at economic impact of omicron, making it a key consideration at the December meeting. He added that omicron could significantly impact the economic outlook, however a delay of rate hikes could be very costly in the future. 

This week we will have October GDP data giving us another data point for Q4. 

Important news for GBP: 

Friday:

• GDP 

AUD 

Q3 GDP data surprised to the upside and showed that Australian economy posted a -1.9% q/q decline vs -2.7% q/q as was expected. The country spent great majority of third quarter under strict lockdowns and it reflected on household consumption which fell -4.8% q/q. Net exports were a positive contributor with exports rising 1.2% q/q while imports fell -4% q/q. Government consumption was also a positive input, rising 3.6% q/q. 

Official PMI data from China for the month of November showed manufacturing returning to expansion territory after two months of sub-50 readings. The number came in at 50.1 vs 49.6, matching the previous August reading. Services PMI slipped to 52.3 from 52.4 in October which was enough to keep the composite reading at 52.2, up from 50.8 the previous month. Caixin manufacturing reading, on the other hand, fell to 49.9 from 50.6 in October. Services PMI also declined and came in at 52.1, down from 53.8 the previous month which dragged composite reading to 51.2 from 51.5 in October. 

This week we will have RBA meeting from Australia as well as trade balance and inflation data from China. RBA may announce it plans to finish the bond-buying program in February. Omicron is uncertainty that will be addressed in the statement. 

Important news for AUD: 

Tuesday:

• RBA Interest Rate Decision
• Trade Balance (China)

Thursday:

• CPI (China) 

NZD 

Final business confidence data for November showed improvement from preliminary reading (-16.4 vs -18.1), however it was down from -13.4 in October. ANZ notes that “Business confidence, export intentions, and investment intentions were all a little higher, but own activity, and capacity utilisation dipped. Overall, the theme continues to be gradually easing activity indicators but cost and inflation pressures remain extreme.” 

CAD 

Q3 GDP data blew up expectations and came in at 5.4% q/q vs 2.5% q/q as expected and up from downwardly revised -3.2% q/q in the second quarter of 2021. Household consumption was the biggest contributor with exports following in the second place. Gross fixed capital formation and inventories were the biggest drag on the reading. 

November employment report was stellar. Employment change came in at 153.7k vs 35k as expected. The unemployment rate fell to 6% from 6.7% in October while the participation rate stayed unchanged at 65.3%. Wages rose 3% y/y vs 2.1% y/y the previous month indicating signs of wage pull inflation. Jobs were evenly distributed with full-time jobs gaining 79.9k and part-time jobs adding 73.8k. The strength and tightness of labor market in Canada is impressive. 

This week we will have a BOC meeting. The drop in oil prices has negatively impacted CAD, but we expect them to stay on their tightening course, especially after magnificent employment report. Omicron is uncertainty that will be addressed in the statement. 

Important news for CAD: 

Wednesday:

• BOC Interest Rate Decision 

JPY 

Retail sales for the month of October came in at 1.1% m/m and 0.9% y/y. After state of emergency was lifted consumers returned to spending with clothing and food leading the way with a surge of 9.2%. Out of all the categories measured auto sales was the only category that showed a decline. Final manufacturing PMI improved to 54.5 and now represents a four-year high. Services PMI also improved to 53 and pushed composite to 53.3 indicating a much healthier economy in Q4 than the one of Q3. 

This week we will have a final Q3 GDP reading. 

Important news for JPY: 

Wednesday:

• GDP 

CHF 

SNB total sight deposits for the week ending November 26 came in at CHF719.4bn vs CHF719.3bn the previous week. The EURCHF pair spent the whole week below the 1.05 level and even going below the 1.045 level but SNB has not intervened. They are most likely waiting for the right opportunity to strike in order to achieve the most with as little intervention as possible. Headline inflation for the month of November came in at 1.5% y/y, up from 1.2% y/y in October while core reading rose to 0.7% y/y from 0.6% y/y the previous month. Small increases in inflation, particularly in core reading, will not pose any concerns for the SNB, especially when it is compared to the rest of the world, excluding Japan.

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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.}