Forex Major Currencies Outlook (Jan 18 – Jan 22)

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.

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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.}