The Forex Week Ahead

The Forex Week Ahead: January 29th – February 3rd

The Forex Week Ahead USD The Federal Reserve Open Market Committee meeting on Tuesday and Wednesday should be largely a placeholder at this point until further information on Washington’s broader fiscal, regulatory and trade policies becomes clearer. The main risk is a deeper discussion on balance sheet management with the emphasis upon the criteria and potential timing for reduced reinvestment of maturing Treasuries and principal payments on agency and MBS holdings. Data risk will also figure prominently in next week’s market risks and perhaps more so than the FOMC statement. The print of the week could well be wage growth on Friday with the release of Nonfarm payrolls for January. Incomes, consumer spending and the Fed’s preferred inflation measure will be released on Monday and cover the final month of 2016. The Conference Board’s consumer confidence yardstick (Tuesday) and vehicle sales for January (Wednesday) will inform consumer sentiment especially regarding big-ticket purchases. ISM manufacturing: Will Wednesday’s print for January follow measures like the Philly Fed higher after it unexpectedly rose to the highest reading since a brief spike back in November 2014. ISM services: Friday’s January release is expected to hold in around the highest reading since October 2015. Factory orders: December’s estimate on Friday will probably just follow the 2.6% rise in durable goods orders higher with the new information being what happened to nondurable goods orders.
EUR the week will start with a bang when GDP figures from across the Eurozone are released on Monday. Most estimates for Eurozone GDP growth run between 0.3-0.5% q/q in seasonally adjusted but non-annualized terms. That would be comparable to the 0.4% growth that was registered in Q3. Expectations for Q1 also cut through a similar range of forecasts. Eurozone and German retail sales plus French consumer spending growth all for the month of December will all be watched for evidence they can maintain prior upsides.
GBP Bank of England meeting Thursday and the accompanying Quarterly Inflation Report will be mildly more hawkish or less dovish in nature than the prior forecasts in November. BoE likely to revise growth higher, the unemployment rate lower and perhaps adjust inflation forecasts a smidge higher while tamping down any talk of tightened monetary policy any time soon in the face of slowly evolving Brexit uncertainties. January PMIs are the main releases of note. The manufacturing and services indices rose to 30 and 17-month highs, respectively, in December, pointing to on-going impressive growth in the UK. They are anticipated to have softened slightly in the month, while remaining at very encouraging levels.
JPY The Bank of Japan issues a policy statement Tuesday evening eastern time. It’s likely highly premature to do so, but a debate has emerged over whether the BoJ may prepare markets for raising its yield target. Recall that on September 21st last year, the BoJ announced it would target a yield on 10 year JGBs of around 0% while leaving its short-term policy rate at -0.1%. It dubbed this new phase for Japanese monetary policy the “Yield Curve Control” program and, in the process, copied Federal Reserve efforts to target yields over the 1942-51 period when the 10 year Treasury yield was capped at 2½%
AUD a risk-on mood in global markets supported AUD. On Friday, Australia’s producer price data will likely be in focus as the main data event of the week for antipodean forex traders.
CAD Backward-looking albeit solid growth and forward-looking monetary policy risks will offer a pair of factors for markets to consider in what will otherwise be a week primarily driven by external developments. It wouldn’t take a whole lot to get Q4 GDP growth in line with the Bank of Canada’s revised projection for 1.6% growth, and Tuesday’s November GDP print will further inform such risks.

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