Forex Major Currencies Outlook (Jan 11 – Jan 15)

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.

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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.}