Forex Market Outlook For The Week December 10 – 14, 2018

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Last week, the U.S. dollar traded weak amid successful Trump-Xi Summit and a great deal of turbulence. Trump and Xi agreed upon a trade ceasefire for a period of 90 days. New tariffs and intense negotiations will not happen during this period. Markets rallied in spite of ambiguity as regards the details related to the agreement. As the U.S. yields have dropped and inversions are at the lower end of the curve, there is some amount of fear that an economic slowdown is underway.

Meanwhile, the Brexit debate in the British Parliament has started. The pro-remain camp got a boost from the opinion of the ECJ that Britain can revoke Article 50 unilaterally. Italy continued to climb down from the high level of budget deficit. Meanwhile, talks with Brussels are progressing.

In the upcoming week, the UK goes for a vote on Brexit and the ECB is scheduled to announce the monetary policy decision. Here is an outlook on some of the key releases:

#1: U.K. GDP (12/10/2018 Monday 09:30 GMT)

forex market outlookIn the U.K., the monthly GDP growth continued to remain flat in September after remaining unchanged in the previous month. On a month-on-month basis, the British economy’s GDP growth was revised downward to 0.3 percent for the month of July.

The monthly GDP growth rate is volatile. Therefore, the figure should be considered with caution when looking for longer-term trend indications. However, it highlights one-off changes that are often masked by quarterly readings.

Forecast for October 2018: GDP is expected to expand by 0.1 percent

#2: U.K. Manufacturing Production (12/10/2018 Monday 09:30 GMT)

In the U.K., manufacturing production rose by 0.2 percent in September after the reading for the prior month was revised downward to represent a decline of 0.1 percent. Analysts had expected the factory output to increase by 0.1 percent. Forecast for October 2018: manufacturing production is expected to remain flat

#3: U.K. Average Earnings Index (12/11/2018 Tuesday 09:30 GMT)

In the U.K., total earnings of workers, including bonuses, rose by 3.0 percent annually to £524 per week during the three-month period to September after the reading for the previous period was revised upward to an increase of 2.8 percent. The reading for the month matched with analysts’ estimates. Workers’ earnings rose at the fastest rate ever since September 2015. Pay increased in the public and private sectors, services sector (finance), and wholesaling, retailing, hotels, and restaurants. Wages also rose at the same rate in the manufacturing sector but slowed down in the construction sector.

Excluding bonuses, earnings rose 3.2 percent to £493 per week, the highest ever since December 2008, following on the 3.1 percent increase in the prior period. Analysts had expected the earnings to grow at the same rate of 3.1 percent.

In real terms, workers’ earnings including bonuses rose 0.8 percent, while and excluding bonuses climbed 0.9 percent. The increases were the highest ever since December 2016.

Forecast for the three-month period to October: 3.0 percent

#4: U.S. PPI (12/11/2018 Tuesday 09:30 GMT)

In the U.S., the producer prices of final demand goods increased by 0.6 percent in the month of October, following on the 0.2 percent gain in September. The reading for October beat analysts’ expectations for a 0.2 percent gain. This is the largest monthly increase in producer prices ever since September 2012. The gain in producer prices was driven by an increase in energy costs and trade services prices. Food prices and the cost of transportation and warehousing services also increased. The core PPI, excluding food and energy, rose by 0.5 percent after increasing 0.2 percent in the previous month. Analysts had expected an increase of 0.2 percent.

Forecast for November 2018: PPI and Core PPI are expected to come in at 0.0 percent and 0.1 percent, respectively

#5: U.K. Parliament Brexit Vote (12/11/2018 Tuesday)

On this day the House of Commons vote on Britain’s withdrawal treaty and future relations declaration agreed upon with the European Union. This is considered as the biggest obstacle to PM May’s hopes of obtaining an approval for the deal. As many as 100 Conservative Party members have already criticized the deal along with the 10 MPs belonging to the Democratic Unionist party. They provide PM May with the majority required to remain in power. The vote in the Parliament is a legal requirement under the 2018 EU Withdrawal Act of UK.

#6: U.S. CPI and Core CPI (12/12/2018 Wednesday 13:30 GMT)

In the U.S., the consumer prices rose by 0.3 percent on a month-over-month basis in October after edging up 0.1 percent in the month of September. The reading for October was in line with analysts’ expectations. The increase was driven by the gasoline index. Advances in the shelter, used trucks and cars, and electricity indexes also contributed. The food index, on the other hand, declined a little in October.

The core consumer prices, which exclude energy and food, rose by 0.2 percent after gaining 0.1 percent in the prior month. The reading for the month matched with analysts’ expectations.

CPI and Core CPI forecasts for November 2018: While the CPI is expected to remain flat, the Core CPI is expected to increase by 0.2 percent

#7: Switzerland SNB Monetary Policy Assessment (12/13/2018 Thursday 08:30 GMT)

Released on a quarterly basis, the Monetary Policy Assessment report is considered as the primary tool of the SNB Governing Board in communicating with investors as regards monetary policy. It provides the outcome of the members’ decision on interest rates and a commentary on the economic situation that impacted their decision. More importantly, the report projects the country’s economic outlook and provides clues on future decisions.

#8: Switzerland SNB Press Conference (12/13/2018 Thursday 09:00 GMT)

The Swiss National Bank holds a press conference in June and December 30 minutes after the announcement of the interest rate. The press conference lasts for about an hour and has two parts. In the first part, the SNB Chairman and Governing Board members read out a prepared statement. In the second part, they answer questions by the press. As the questions can lead to the Chairman and members providing unscripted answers, markets may remain volatile during the period of the conference.

#9: Euro Area ECB Main Refinancing Rate (12/13/2018 Thursday 12:45 GMT)

In the meeting held in October, the European Central Bank decided to hold the main refinancing rate at the current level of 0.0 percent. Policymakers said that net asset purchases under the purchase program will be continued at the new monthly rate of €15 billion until the end of this month. They expect the key interest rates to continue to remain at the record low levels through the 2019 summer. Mario Draghi, the ECB president, also noted during the press conference that there had not been a lot of discussions about Italy as an agreement will be reached between the government of the country and the European Commission. Forecast for December 2018: 0.0 percent

#10: Euro Area ECB Press Conference (12/13/2018 Thursday 13:30 GMT)

The President and Vice President of the European Central Bank attend a press conference about 45 minutes after the announcement of the Minimum Bid Rate. The press conference lasts for about an hour and has two parts. The first part involves the reading of a prepared statement. Then the press conference is opened up for the press to ask questions. As the questions can lead to them providing unscripted answers, heavy market volatility can be expected.

#11: U.S. Retail Sales and Core Retail Sales (12/14/2018 Friday 13:30 GMT)

In the U.S., the retail trade increased by 0.8 percent on a month-on-month basis in October 2018 after the reading for the prior month was revised to represent a decline of 0.1 percent. The reading for October beat analysts’ expectations for an increase of 0.5 percent. This is the largest increase in retail sales ever since May. The retail trade was boosted mainly by building materials and motor vehicles purchases amid efforts in rebuilding areas impacted by Hurricane Florence. Higher gasoline prices also contributed.

Excluding autos, retail trade rose by 0.7 percent on a month-over-month basis in October, recovering from the 0.1 percent decline in September. The reading for the month beat analysts’ expectations for an increase of 0.5 percent.

Forecast for November 2018: retail sales and core retail sales are expected to increase by 0.1 percent and 0.2 percent, respectively.

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