The Forex Week Ahead

The Forex Week Ahead: January 3rd – 6th

Tue: USD – ISM Manufacturing, EUR – CPI,  GBP – PMI
Wed: USD – FOMC Minutes, EUR – Services PMI, GBP – Construction PMI, Consumer Credit
Thu: EUR – PPI, GBP – Services PMI, USD – ISM Non Manufacturing
Fri: EUR – GER – Factory Orders, FRA – Trade Balance, USD – Trade Balance, NFP’s, Factory Orders, AUD – Trade Balance

USD The start of 2017 is likely to bring a batch of healthy economic data, in part justifying the Fed’s December hike. ISM factory index may have inched up further in December, while the ISM non manufacturing may have slipped slightly but likely remained solid. Meanwhile, markets expect that Non Farm Payroll’s probably advanced by 185k. Lastly, the FOMC minutes could reveal some officials’ thinking with respect to the potential impact of fiscal policy.

EUR Data this week should continue to point to a resilient recovery in the euro area. Inflation data is expected to show oil prices having a more decisive impact on inflation, with headline inflation expected to have risen to 1.1% yoy in December, a 39-month high. Core inflation should however remain stable at 0.8%. Final December PMIs expected broadly stable, at a high level consistent with GDP growth of nearly 0.5% qoq in 4Q16. Unemployment data in Germany and Spain should improve further, while factory orders in Germany could have dropped in November, following a strong rise in October.

GBP 2017 will start with the first glimpse of business conditions in the final month of last year. The December PMIs are likely in aggregate to indicate that economic momentum was little changed from November but with minor hints of cooling.

JPY With the BoJ on hold no notable data from Japan this week, likely the JPY trades in line with broader risk sentiment and takes its strongest cue from Friday’s US Nonfarm payrolls release

AUD Trade balance the focal point of the week. Although reality defied market predictions of a sharp narrowing in the trade deficit in October it actually widened by AUD269m. The main argument on the export side remains the steep increase in commodity prices in recent months, especially of iron ore and coal in its various forms, which will continue to feed through to export prices that will take time to adjust. But then the larger-than-expected October trade deficit was not really driven by disappointing export performance at 1.4% mom but rather by unexpectedly strong imports which rose 2.3%.

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