Forex Market Outlook For The Week January 20 – 24, 2020

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Last week, the tensions in the Mid-East calmed down, but trade and the US consumer data rocked the greenback. The British pound came under pressure after the UK GDP data showed that the British economy contracted in November. Further, the officials for the Bank of England hinted at the possibility of an interest rate hike.

In the upcoming week, rate decisions from the Euro Area, Canada, and Japan stand out. Here is an outlook of some of the key releases:

#1: Japan BoJ Outlook Report (01/21/2020 Tuesday 03:00 GMT)

The last Outlook Report released by the Bank of Japan on 31 October 2019 showed that the economy in all probability will continue to maintain its expansion trend through fiscal 2021. This is because the impact of the slowdown being experienced by overseas economies on Japan’s domestic demand is likely to be limited. For the time being, however, the economy likely to be affected because of the slowdown in overseas markets. Exports are expected to remain weak but show a moderate rising trend as the overseas economies are growing moderately on the whole. Further, the domestic demand is expected to follow an uptrend because of the highly accommodative financial situation and government spending in spite of the impact of factors such as the hike in consumption tax.

In the meeting held in December last year, the members of the Monetary Policy Committee of the Bank of Japan decided to hold the key short-term interest rate at -0.1 percent. Policymakers also maintained the target yield for the 10-year bond issued by the Japanese Government at around 0.00 percent.

#2: Japan BoJ Monetary Policy Statement (01/21/2020 Tuesday 03:00 GMT)

The Bank of Japan uses the Monetary Policy Statement as a tool to communicate with investors as regards the monetary policy. It provides the outcome of the members’ decisions on setting rates and purchasing assets. It also includes commentary as regards the economic conditions that impacted their decision. More importantly, it provides a projection of the country’s economic outlook and offers clues on outcomes in the future.

#3: Canada CPI (01/22/2020 Wednesday 19:00 GMT)

In Canada, the Consumer Price Index declined 0.10 percent in the month of November of 2019 on a month-on-month basis.

#4: Canada BoC Monetary Policy Report (01/22/2020 Wednesday 20:30 GMT)

The Bank of Canada’s Monetary Policy Report provides valuable insights into the central bank’s view as regards economic conditions and inflation. These are the key factors that shape monetary policy decisions in the future.

#5: Canada BoC Rate Statement (01/22/2020 Wednesday 20:30 GMT)

The Bank of Canada uses the Rate Statement as a tool to communicate with investors as regards the monetary policy. It provides the outcome of the members’ decision on setting interest rates and commentary on the economic conditions that impacted their decision. More importantly, it discusses the nation’s economic outlook and provides clues on future decisions.

#6: Canada BoC Overnight Rate (01/22/2020 Wednesday 20:30 GMT)

In the meeting held in December last year, the Bank of Canada’s Monetary Policy Committee members decided to leave the benchmark interest rate unchanged at the 1.75 percent level as widely expected by the analysts. This has been the highest ever rate since December 2008. Policymakers noted that the degree of accommodation as far as monetary policy is concerned is appropriate. In addition, they said that the Bank’s assessment of the impact of trade conflicts and the resilience of the Canadian economy will guide future decisions. The Bank and deposit rates were also left steady at 2.0 percent and 1.50 percent, respectively.

Forecast for January 2020: 1.75 percent

#7: Canada BoC Press Conference (01/22/2020 Wednesday 21:45 GMT)

The Governor and Senior Deputy Governor of the Bank of Canada hold a press conference on a quarterly basis for discussing the contents of the Monetary Policy Report 75 minutes after the announcement of the Overnight Rate. There are two parts to the press conference. In the first part, they read out a prepared statement. In the second part, they answer press questions. As the questions can lead to unscripted answers, heavy market volatility can be expected.

#8: Australia Employment Change (01/23/2020 Thursday 06:00 GMT)

In the month of November last year, Australia added 39,900 jobs after the reading for the previous month was revised to a decline of 24,800 jobs. The reading for the month beat analysts’ expectations for an addition of 14,000 jobs.

Forecast for December 2019: Australia is expected to add 11,200 jobs

#9: Australia Unemployment Rate (01/23/2020 Thursday 06:00 GMT)

In Australia, the unemployment rate edged down to the 5.2 percent level on a seasonally adjusted basis in November last year from the 5.3 percent level in the prior month. The reading for the month came in slightly below analysts’ expectations of 5.3 percent. The number of unemployed people in the country dropped 16,800.

Forecast for December 2019: 5.2 percent

#10: Euro Area ECB Main Refinancing Rate (01/23/2020 Thursday 18:15 GMT)

In the meeting held in December, ECB officials noted that there were many signs of stabilization when it came to the Euro Area growth slowdown. They also said in their December meeting records that the downside risks to growth outlook had become a little bit less pronounced. In addition, policymakers said that the underlying inflation remained subdued, though there was some indication about a mild increase. Some members did voice concerns as regards the possible side effects of the monetary policy measures implemented in September. This included the impact caused by negative interest rates on consumption dynamics and household savings.

Forecast for January 2020: 0.00 percent

#11: Euro Area ECB Monetary Policy Statement (01/23/2020 Thursday 18:15 GMT)

forex market outlookThe European Central Bank releases the Monetary Policy Statement Scheduled 8 every year. The central bank often changes the statement a little bit at each release. Traders focus on these changes for understating the direction of interest rates in the future. The ECB also uses it as a tool for communicating with investors as regards the monetary policy. In addition to containing the outcome of the members’ decision as regards setting interest rates, it also provides a commentary on the economic conditions that impacted their decision. More importantly, it discusses the nation’s economic outlook.

#12: Euro Area ECB Press Conference (01/23/2020 Thursday 19:00 GMT)

Eight times in a year the President and Vice President of the European Central Bank hold a press conference 45 minutes after the announcement of the Minimum Bid Rate. The press conference lasts for an hour and has two parts. In the first part, they read out a prepared statement. In the second part, they answer questions from the press. As the questions can call for unscripted answers, heavy market volatility can be expected.

#13: New Zealand CPI (01/24/2020 Friday 03:15 GMT)

In New Zealand, the Consumer Price Index rose by 0.70 percent in September last year on a quarter-on-quarter basis.

Forecast for October 2019: 0.4 percent

#14: Euro Area France Flash Services PMI (01/24/2020 Friday 13:45 GMT)

In France, the Services PMI reported by IHS Markit edged up to the 52.4 level in December last year from the 52.2 level in the prior month. The final reading was the same as the preliminary figure. There was solid growth in both new orders and output. Additionally, export orders grew for the third month in a row. Further, employment continued to expand. With this expansion, the current run the increase in the workforce has been extended to three years.

Input prices showed a marked increase because of higher average wages. Further, the charge inflation rate accelerated marginally. This was attributed to firms opting to pass on a part of the higher costs to their customers. Looking ahead, firms expect an increase in business activity during this year, supported by higher demand. However, the degree of optimism was the weakest ever since August. Last month many unions including transportation struck work in protest against France’s pension system reform which required people to work for a longer period to receive the full pension.

Forecast for January 2020: 52.2

#15: Euro Area Germany Flash Manufacturing PMI (01/24/2020 Friday 14:00 GMT)

In Germany, the Manufacturing PMI reported by IHS Markit was revised higher to the 43.7 level in December last year from the preliminary estimated level of 43.4. However, the reading for the month was below the five-month high level of 44.1 for the previous month. With this, the manufacturing sector has contracted for 12 months in a row. The makers of investment goods reported the worst performance. They were followed by producers of intermediate goods.

Production decline accelerated for the very first time in as many as three months. The inflow of new business dropped for the 15th consecutive month amid uncertainties as regards trade and global economic outlook. Input buying dropped sharply and employment declined at one of the fastest rates in the decade. Input costs fell sharply and output charges dropped for the sixth month in a row. Business sentiment improved to the 15-month high level, driven by tentative stabilization signs with respect to new orders and improvement in economic conditions.

Forecast for January 2020: 44.6

#16: Euro Area Germany Flash Services PMI (01/24/2020 Friday 14:00 GMT)

In Germany, the Services PMI for December last year was revised higher to the 52.9 level from the preliminary level of 52.0 reported earlier. The index stood at the 51.7 level in November. The reading indicated the strongest expansion in the services sector in as many as four months. Overall new business increased for the first time since August last year. New business received from overseas continued to decline. The declining rate was the weakest in ten months.

Employment rose despite the fact that the rate of creation of jobs remained at the second-weakest level over the past nineteen months. Input cost inflation slowed and output inflation eased because of the strong competition for new work. Business confidence came in at the highest overall level ever since April and edged above the long-run average as a number of firms highlighted expectations of new projects and expansions in 2020.

Forecast for January 2020: 53.2

#17: Euro Area ECB President Lagarde Speaks (01/24/2020 Friday 15:00 GMT)

Christine Lagarde, President of the European Central Bank, is scheduled to participate in a panel discussion in Davos. The discussion is on the topic “Global Economic Outlook” held as part of the 2020 World Economic Forum. Markets often turn volatile during her speeches. This is because traders make an attempt to understand the direction of interest rates.

#18: United Kingdom Flash Manufacturing PMI (01/24/2020 Friday 15:00 GMT)

In the United Kingdom, the Manufacturing PMI reported by IHS Markit/CIPS was revised higher to the 47.5 level in December 2019 from the preliminary estimate of the 47.4 level. In the previous month, the index stood at the 48.9 level. Production dropped the most ever since July 2012, while incoming new work dropped for the eighth month in a row because of ongoing concerns related to the economic, political, and global trade outlooks.

In addition, employment declined for the ninth straight month, though at the weakest rate ever since August amid weaker productivity gains, demand, cost reduction initiatives, recruitment freezes, and ongoing uncertainties. Input costs increased slightly for the very first time in as many as three months. Output charge inflation touched a six-month high. Business sentiment remained positive, supported by a reduction in uncertainty, increased efficiency, improved client confidence, and new product launches.

Forecast for January 2020: 48.8

#19: United Kingdom Flash Services PMI (01/24/2020 Friday 15:00 GMT)

In the United Kingdom, the Services PMI reported by IHS Markit/CIPS was revised higher to the 50.0 level in December 2019 from the preliminary estimated level of 49.0. In November, the final reading of the index stood at the 49.3 level, signaling stabilization of overall activity in the service sector. There was a moderate increase in new work after three months of decrease. Export sales dropped for the fourth straight month because of the lack of clarity as regards the Brexit.

Employment rose by the most ever since July. However, backlogs of work declined for the fifteenth consecutive month. The average cost burden inflation rose from the 39-month low reported in November because of stronger wage pressures. Price charge inflation, however, slowed down to its weakest pace ever since February 2016. Business optimism remained at the highest level ever since September 2018. This is because firms predicted a boost to business activity in the shorter-term as Brexit’s first stage gets resolved.

Forecast for January 2020: 51.1

#20: Canada Core Retail Sales (01/24/2020 Friday 19:00 GMT)

In Canada, retail trade excluding Autos decreased 0.50 percent in the month of October 2019 after falling 0.10 percent in September last year.

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