Having observed last week's weaker than expected GDP & Durable Goods numbers from US, it becomes safe to say that reflation optimism, that has been driving US Dollar off-late, lost its charm due to recent protectionist measures by US President. The greenback gauge (I.USDX) flashed fifth consecutive weekly decline when Mr. Trump was progressing well in his "America First" dream-path. However, the same USD weakness helped commodity basket and commodity currencies, namely AUD, NZD and CAD, whereas GBP registered second back-to-back weekly gain series on upbeat GDP & active efforts by UK policymakers to offer strong Britain after Brexit negotiations in March. Further, the JPY witnessed profit-booking after BoJ increased Japanese Government Bond buying and the EUR remained sluggish even though PMIs portrayed optimistic picture of the region's economy. Additionally, Gold prices declined for the first time in five weeks as Chinese markets were closed due to New-Year holidays while Crude had to bear the burden of increased US stockpile and rig counts.
Unlike last week, when the economic calendar had fewer data-points to offer, the present week is full of economic details/events that could skyrocket market volatility. Amongst them, monetary policy meetings by the FOMC, BoE and BOJ, US & New-Zealand Job numbers and the UK PMIs become crucial to watch whereas EU Flash CPI & GDP, China's official & Caixin PMIs and US Factory Orders are some second-tier prints that shouldn't be missed. Let's briefly analyze each one of them.
FOMC And Employment Figures To Gain More Focus
It's that time when traders might like to shift their attention away from Trump politics towards some headline data-points/events which could offer clues relating the Fed's future rate-hikes. The first being FOMC statement and the second being 2017's first job report, together with details from housing, consumer confidence and manufacturing sectors, could offer enough clues for traders to forecast upcoming moves of the US central bank.
US Bureau of Labor Statistics is scheduled to release January month job figures on Friday but it's better to look at 2016 when job growth slowed to 2.2 million from an increase of 2.7 million in 2015. During its Friday release, the Non-Farm Payrolls (NFP) is expected to flash 170K, ahead of 156K prior and 165K three-month average while the Unemployment Rate may remain unchanged at 4.7% with a bit softer Average Earnings growth figure of 0.3% compared to 0.4% earlier. On the face of it, employment figures don't seem to create much noise unless being drastically up or down.
Moving towards the second best thing to look from US, actually the first one to come if we calculate on the basis of arrival, is monetary policy meeting of the Federal Reserve. The central bank will hold FOMC meeting on Wednesday, which isn't followed by Fed Chair's press conference, and is less likely to alter its present policy. However, FOMC statement will grab market attention as investors would be eager to know whether the recent slew of actions from US President is well in-line with Fed's previous expectations the required more interest rate-hike or not.
Further, Monday's Pending Home Sales, Tuesday's Chicago PMI & Consumer Confidence, Wednesday's ADP Non-Farm Employment Change & ISM Manufacturing PMI, followed by Thursday's Jobless Claims and Friday's Factory Orders, are some additional data-points that could entertain greenback traders. While Pending Home Sales might start the week with positives, due to its expected +1.6% mark against -2.5% prior, the CB Consumer Confidence couldn't let the Bulls' happiness prevail for long as the gauge is likely soften to 112.6 from 113.7. However, upbeat PMIs, namely Chicago PMI's expected print of 55.1 from 54.6 and ISM Manufacturing PMI's likely 55.0 mark versus 54.7 earlier, coupled with improvement in ADP Non-Farm Employment Change, to 165K from 153K, and rising Factory Orders, to +1.5% from -2.4% prior, might help rejuvenate USD longs.
Looking at upbeat forecasts for scheduled data-points, coupled with expected hawkish statement from the FOMC, chances of the US Dollar to recover some of its latest looses are higher. However, Trump's another wild-card favoring protectionism might curb the greenback's gains.
BoE And Top PMIs To Portray GBP Moves
Alike US, the UK economic calendar is also crucial to observe this week. One of the most important thing to look is the BoE's monetary policy meeting on Thursday, which would also carry a scheduled release of quarterly inflation report (QIR). Additionally, consecutive releases of Manufacturing, Construction & Services PMIs, up for Wednesday, Thursday and Friday respectively, also become important for Pound traders.
While BoE is also likely to follow the Fed in a way that it is also not expected to deviate from present monetary policy, the central bank's QIR may up-bring investor sentiment by discussing recent optimism fueled by Theresa May's Government and positive data-points. Further, the central bank's economic projection and BoE Governor's speech will become crucial to observe.
At the data-front, all three PMIs bear soft consensus as Manufacturing PMI might flash 55.9 against 56.1 and the Construction PMI could retrace to 53.9 from 54.2 whereas Services PMI seem weakening with 55.8 figure against 56.2 prior.
While BoE and data-points are indicating somewhat mixed picture and threaten GBPUSD's further upside towards 1.2800, Theresa May's progress towards achieving good informal trade deals with major economies might help the Pound achieve the same.
BoJ & EU Details Can Help Forecast JPY & EUR Moves Respectively
Tuesday will be a good-day for JPY traders as Bank of Japan (BoJ) is scheduled to hold its periodical monetary policy meeting. With its latest effort to increase the size of Japanese Government Bond (JGB) Buying, the central bank isn't expected to announce any new measures after the meeting. However, the quarterly outlook report and press conference by the BoJ Governor would be of much importance. Given the Kuroda administration keep flashing signs of improvement and maintain his hawkish tone during speech, the 112.50 & 111.30 can come-back on the chart while a close beyond 115.50 might fuel USDJPY to 117.00.
Flash reading of EU CPI & GDP, up for release on Tuesday as well, seems the only bunch for EUR traders to watch. Both these headline figures are expected to provide a boost to EURUSD Bulls as CPI bears the consensus to flash the highest reading since July 2013, with 1.5% v/s 1.1% prior, while GDP may please traders with 0.4% mark against 0.3% prior. Even if the scheduled EU readings favor sustained EURUSD up-move towards 100-day SMA figure of 1.0815 and then to 1.0855, the US calendar becomes active afterwards and might drag the pair again to 1.0580 support.
New-Zealand Job Numbers & Chinese PMIs Are At Last Stand
During late-Tuesday, or early Wednesday at some regions, Statistics New Zealand is scheduled to publish quarterly release of Employment Change & Unemployment Rate. Forecasts suggest a bit weaker Employment Change figure of 0.8% versus 1.4% earlier with a dip in Unemployment Rate to 4.8% from 4.9% prior. If quarterly stats portray upbeat picture of New-Zealand labor market, the NZDUSD can challenge 0.7330 and rise towards 0.7400 but a comparatively strong advance in USD, due to US fundamentals, might keep limiting the pair's moves between 0.7300 and 0.7220.
At the end, let's not forget mentioning Chinese official and Caixin PMIs which are up for release on Wednesday and Friday respectively. Both the official and Caixin Manufacturing PMI are expected to soften a bit from their 51.4 & 51.9 priors to 51.2 & 51.8 respectively. In case when the Chinese players comeback from long new-year holidays and find such disappointing data-points, coupled with strong USD, chances of the commodity price weakness, coupled with a dip in AUD, NZD and CAD, can't be denied.
Cheers and Safe Trading,
Anil Panchal