Forex Market Weekly Outlook - Jan. 29 - Feb. 2 2018

The US dollar continued falling, also struck by the US Treasury Secretary. Will it stabilize? The upcoming week features the last Fed decision by Yellen, consumer confidence, and the Non-Farm Payrolls.  Here are the highlights for the upcoming week.

US Treasury Secretary Steven Mnuchin said that “a weak dollar is good for the US“, departing from years of a “strong dollar policy”. While he tried to water down the comments, the downtrend is clear. His boss, President Trump, had much more bullish comments on the currency that helped the dollar recover, but that was somewhat short-lived as well. Alongside fears of a trade war also related to tariffs and NAFTA and despite a quick end to the government shutdown, the dollar found it hard to find its feet. A slightly disappointing GDP did not help. One of the big winners was the pound, that soared amid a mixed jobs report and an upbeat GDP number. EUR/USD also gained despite attempts to talk it down by the ECB. The BOJ did not change its dovish policy but that didn’t help the yen recover. The loonie finally took advantage of rising oil prices and the Aussie extended its march higher. What’s next?

Updates:

1. Core PCE Price Index: Monday, 13:30. This measure of inflation is released after the CPI, but is targeted by the Federal Reserve, giving it additional importance. Year over year, the core PCE was up 1.5% in November, higher than 1.4% in October. The recent CPI read for December showed a small uptick: from 1.7% to 1.8%. Will core CPI advance to 1.6%? This could help the Fed in moving forward with three rates in 2018. Otherwise, uncertainty will continue. A monthly rise of 0.2% is forecast.
2. Euro-zone GDP: Tuesday, 10:00. The euro-zone has been growing at a robust pace and now we will get a first look at the fourth quarter of 2017 and the yearly figures as well. The EZ grew by 0.6% q/q in Q3.A repeat of 0.6% q/q is expected for Q4.
3. CB Consumer Confidence: Tuesday, 15:00. The Conference Board’s measure of consumer confidence stood at a healthy 122.1 score in December, off the highs but still showing high confidence. The initial release of the same measure by the University of Michigan came out below expectations. The CB’s measure may drop as well. A small rise to 123.2 is on the cards.
4. Australian CPI: Wednesday, 00:30. Australia publishes its inflation report only once per quarter, making the publication have a stronger impact. This time, it is released ahead of the RBA meeting in early February, the first one for 2018 as the Bank takes a break in January. In Q3, headline CPI was up 0.6% q/q while the Trimmed Mean CPI lagged behind with 0.4% q/q. Despite a disappointing report from New Zealand, Australia’s neighbor, expectations are upbeat: 0.7% on the headline and 0.5% on Trimmed Mean CPI.
5. Trump gives State of the Union Address: Wednesday, 2:00. The annual SOTU address covers a wide array of topics. For currency markets, it will be interesting to hear if Trump suggest an ambitious infrastructure investment program. This was one of his campaign promises that were pushed back. After the failure to change the health bill and the success in cutting taxes, a big announcement about infrastructure could boost the dollar. Further spending could push inflation higher and with it the interest rates that would attract funds.
6. Euro-zone inflation report: Wednesday, 10:00. After the ECB continued expressing concern about inflation, we will get fresh data for January. Back in December, prices rose by 1.4% y/y and core CPI remained under 1% at 0.9%, causing worries that higher inflation is still soft.
7. Canadian GDP: Wednesday, 13:30. The Canadian economy remained flat in October, but expectations for November are already much higher, thanks to an excellent growth in jobs that month. The report should confirm the renewed upswing in the economy.
8. Fed decision: Wednesday, 19:00. This is the last rate decision chaired by Janet Yellen, just before Jay Powell succeeds her. This rate decision is not accompanied by a press conference nor by new forecasts and the Fed is unlikely to raise interest rates this time. The big event is in March when Powell will make his inaugural decision and will also hold a press conference. The statement of this January meeting is still important: updates views about growth and inflation after we have received the latest figures will be eyed. This is also the first decision with the new voting composition of the Fed. Two members dissented in December and voted against raising rates.
9. ADP Non-Farm Payrolls: Thursday, 13:15. ADP’s report about the change in private sector jobs isn’t always well-correlated with the official BLS numbers but always moves the markets. For December, the firm reported a jump of 250K jobs but the NFP came out below expectations. We could see a revision to that data now yet markets will focus on the fresh figures for January. A more moderate rise of 191K private sector positions is on the cards.
10. ISM Manufacturing PMI: Thursday, 15:00. The second hint for the NFP comes ISM’s forward-looking purchasing managers’ index for the manufacturing sector. In December, the headline number came out at 59.7 points, above expectations and reflecting robust growth. A score of 59 is expected now.
11. US Non-Farm Payrolls: Friday, 13:30. The American economy gained only 148K jobs in December, below the ~200K average, and below expectations. Nevertheless, this is still a healthy rise in positions. The bigger disappointment came from wages, which are stubbornly stuck at 2.5% y/y despite rising 0.3% in December. The unemployment rate remained at 4.1%. Headline NFP is expected to show a gain of 184K jobs, the unemployment rate to remain at 4.1% and the average hourly earnings to rise by 0.3% once again.