With all the drama started on Chinese weakness and gradually running over Brexit, surprise Trump victory and Fed rate-hike, the year 2016 portrayed most noticeable moves of global financial markets. However, one thing was sure that the US Dollar again registered a positive yearly closing, this time it was fourth consecutive with nearly 3.0% gain. The EUR, however, had to dip with more than 3.0% loss and the GBP proved to be weakest currency among G10 with Brexit and Italian referendum, coupled with broader economic weakness at EU, dragging both these currencies, namely Euro and Pound, towards south. Further, Gold and JPY prices also summed the year up at positive side, even after losing heavily during second half, while Crude rallied the most since early 2000. Additionally, AUD, NZD and CAD remained sluggish due to commodity prices movement.
Looking at last week, a sudden spike in EUR prices, mainly due to Algo triggers, helped the regional currency to close the week on a positive side but the US Dollar couldn't enjoy optimistic Consumer Confidence and had to bear the burden of weaker housing and Chicago PMI prints. The GBP, JPY, AUD and NZD could also recover a bit while CAD followed Crude price advances.
Following nearly two weeks of inactivity, global financial markets are likely to welcome the year 2017 with various top-tier economics that could actually call back previous volatile sessions. Among them, US job details and FOMC minutes, coupled with UK PMIs and EU Flash CPI, are likely to take the lead while Canadian labor market figures and US Factory Orders may offer intermediate trade opportunities. Let's quickly analyze them.
FOMC Minutes And NFP To Be In Limelight
Being the first week of month, headline job figures, like NFP and Unemployment rate, can keep entertaining market players after they comeback from year-end holidays while presence of FOMC minutes can provide additional fuel to momentum.
Even if recent rate-hike did ease USD Bulls' strain, greenback traders aren't as sure of further upside by the currency as Trump Presidency seems threatening US trade-ties with some of the biggest global economies. Furthermore, US Inflation isn't at the expected level while housing details and Manufacturing may also lose their strength if Trump turns out to be anti-trade leader. Hence, upcoming headline economics, like Friday's Job figures, can keep gaining their importance and any disappointments may have harsh adverse impacts on the USD.
Forecasts suggest a small increase in Unemployment rate from 4.6% to 4.7% while Non-Farm Payrolls and Earnings indicate mixed figures as NFP is likely printing 175K against 178K prior where as Average Earnings may advance with 0.3% rise compared to -0.1% contraction registered in previous month.
Moving on to Wednesday's FOMC minutes, on which the Fed announced first rate-hike of 2016, policymakers have already conveyed hawkish remarks and the same is likely to be repeated. However, traders would be more interested to see on what basis the central banker predicted nearly three such rate-hikes in 2017 and whether the underlying concern is strong enough to let that happen.
In addition to job details and FOMC minutes, Tuesday's ISM Manufacturing PMI, Thursday's ADP Non-Farm Employment Change and ISM Non-Manufacturing PMI, followed by Friday's Factory Orders m/m, are some second-tier figures to please greenback traders.
While ISM Manufacturing PMI indicates strong print since early 2015, with 53.7 versus 53.2, the Non-Manufacturing gauge may remain soft by flashing 56.6 figure against 57.2 prior. Further, ADP Non-Farm Employment Change is also likely to weaken from 216K to 171K and the Factory Orders bear the consensus of first in five month contraction figure of -2.1% against +2.7% prior.
Considering mixed forecasts for headline job figures, FOMC minutes are likely to gain more weight in directing near-term USD moves. Given the Fed policymakers' hawkish comments, the greenback is more likely to extend its upward trajectory while neutral outcome of minutes, which is less likely, coupled with disappointing data-points, can start the 2017 with a loss on the face of US currency.
UK PMIs & EU CPI May Direct GBP & EUR Moves Respectively
After a holiday on Monday, UK markets will reopen on Tuesday with scheduled Manufacturing PMI release, which will be followed by Construction PMI and Services PMI during Wednesday and Thursday respectively.
All the PMI forecasts show weakness in British economy as the Manufacturing PMI is likely posting 53.3 mark against 53.4 prior while Construction PMI may also soften to 52.6 from 52.8. Further, Services PMI, core to the GDP, is also expected to flash 54.8 figure compared to its previous 55.2.
Hence, weaker UK fundamentals, coupled with uncertainty surrounding Article 50 discussion with EU, could keep dragging the GBPUSD towards south to 1.2100 – 1.2080 region; however, any downside below the same could please Bears with 1.1800 mark, which requires a major setback from Britain. On the contrary, 1.2400 and the 1.2550-60 can keep limiting the pair's near-term advances.
For EUR traders, Wednesday's EU Flash CPI and Friday's German Factory Orders are the only data-points to observe. While CPI signals a much welcome growth figure for EUR Bulls, the 1.0% mark against 0.6% prior, contraction in Germany's Factory Orders, by -2.5% from +4.9%, may curb additional gains of the regional currency.
Given the Inflation figure provide much needed push to the EURUSD, the pair can challenge its 1.0800 mark and may rise towards 1.0850-60 region. Though, strong US fundamentals, coupled with downbeat German prints, may refrain the quote's further advances and can keep indicating its trading between 1.0700 – 1.0370.
At Last: Chinese Caixin Manufacturing PMI, Canadian Jobs And AU Trade Balance
Although official figures of the Chinese Manufacturing PMI printed soft numbers Caixin Manufacturing PMI, scheduled for Tuesday, indicate lesser signs of weakness with no change consensus of its 50.9 forecast & prior. However, given the manufacturing gauge surpasses the consensus with good margin, chances of a good year for China can't be denied. The same applies to Friday's AU Trade Balance which shows a drop down in deficit to -0.55B against -1.54B prior. However, Canadian Job details, up for Friday as well, are off different kind as the Employment Change signals five month low figure of -5.1K versus 10.7K prior while Unemployment Rate also indicate a rise from 6.8% to 6.9%.
As Chinese Manufacturing strength may become a reason for commodity currencies, like AUD, NZD and CAD to extend their recent upside, surprise advances in AU Trade Balance and a bit less cut in Canadian Job figure, coupled with sustained up-move of Crude prices, can offer additional strength to these currencies.
Technically, AUDUSD is near to 0.7140-30 strong support with 0.7300 being immediate resistance while NZDUSD may keep fluctuating between 0.6850-40 and the 0.7000 round figure. Further, USDCAD is less likely to dip below 1.3300 but a sustained break above 1.3600 can quickly duel it to 1.3700 mark.
Cheers and Safe Trading,
Anil Panchal