Forex Market Outlook for the Week January 15 – 19, 2018

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In the second week of New Year also the U.S. dollar continued to struggle against most major currencies around the world. How long will this situation continue and when will it end? This is the question that needs to be answered as the consumer confidence index and housing data are released from the U.S. along with the Chinese GDP, and a few other market-moving data from elsewhere in the world during the upcoming week.

The U.S. dollar came under pressure after a report said that China will likely slow/halt buying U.S. Treasuries. A half-denial enabled the greenback to gain some ground, but the damage was already done, especially with respect to the Japanese yen. The USD/JPY pair experienced what is known as the “mini taper tantrum” from the Bank of Japan. The unimpressive inflation data didn’t provide any kind of support.

Meanwhile, the euro gained because of the upbeat minutes of the meeting report released by the European Central Bank. The pound continued to remain stable in spite of worrying U.K. economic data. On the other hand, the Aussie trended higher, but the Canadian dollar failed to capitalize on the oil price increases. Oil touched the highest price levels in more than three years.

Having said that, here is an outlook on some of the major events for the coming week:

forex market outlook#1: U.K. CPI (01/16/2018 Tuesday 09:30 GMT)

In the U.K., the consumer prices increased 3.1 percent on a year-on-year basis in the month of November last year, following the 3.0 percent rise in the prior month. The reading for November beat analysts’ expectation for a 3.0 percent gain. This is the highest inflation rate ever since March 2012. The CPI was mainly driven by rising prices in the transport, leisure activities, housing and food, and restaurants and hotels sectors. Forecast for December 2017: 3.0 percent increase

#2: Swiss National Bank Chairman Thomas Jordan Speaks (01/16/2018 Tuesday 17:00 GMT)

Thomas Jordan, the Chairman of the Swiss National Bank Governing Board, is scheduled to deliver a speech on “How Money is Created by the Central Bank and the Banking System” at the University of Zurich. Markets turn volatile at times during his speeches. This is because traders make an attempt to the direction of interest rate in the future.

#3: Bank of Canada Monetary Policy Report and Press Conference (01/17/2018 Wednesday 15:00 GMT and 16:15 GMT)

The Bank of Canada releases the monetary policy report on a quarterly basis. It provides insight into inflation and the economic conditions in the view of the Bank. These are the key factors that would shape the monetary policy in the future and influence their decisions on interest rates.

The Governor of the Bank of Canada generally holds a press conference for discussing the contents of the report approximately 45 minutes after the report is released. There are two parts to the press conference. In the first part, the Governor reads out a prepared statement. The second part is answering press questions. As the questions can lead to answers that are not scripted, heavy market volatility can be expected.
#4: Bank of Canada Rate Statement (01/17/2018 Wednesday 15:00 GMT)

The Bank of Canada releases the rate statement eight times in a year. The central bank uses it as a tool for communicating with investors as regards the monetary policy. In addition to containing the outcome of the members’ decision on interest rates, it also provides a commentary on the economic conditions that led to the decision. More importantly, the statement discusses the country’s economic outlook and provides clues on future outcomes.

#5: Bank of Canada Overnight Rate (01/17/2018 Wednesday 15:00 GMT)

It is widely expected that the Bank of Canada will raise the overnight rate for the third time – from 1.0 percent to 1.25 percent in this cycle. In the previous meeting, it seemed as though the Governor of the Bank of Canada and his team members were planning for a long pause after the rates were normalized back to the 1.0 percent range during the middle of last year. However, the recent economic releases have been very impressive as the economy adding about 79,000 jobs in November and December. Further, the recent Bank of Canada Business survey was bullish and pointed to rapid expansion. Moreover, the oil prices have risen significantly. As such, the time is now ripe for a little bit of tightening. If the rate is not changed, it will hurt the Canadian dollar. The rate hike has basically been priced in by the market. Therefore, the response in the event of a rate hike will be based on the prospects of future moves.

#6: Australia Employment Change and Unemployment Rate (01/18/2018 Thursday 00:30 GMT)

Australia’s jobs report for November smashed all expectations once again. The report published by the Australian Bureau of Statistics revealed that the employment rose by 61,600 to 12.4 million on a seasonally adjusted basis. Analysts had forecast an increase of 19,000 jobs. This is the biggest monthly increase ever since October 2015. The jobs gain for October was originally reported as 3,700. It was revised upward to represent an increase of 7,800.

However, the jump in the employment numbers in November did not have much of an impact on the unemployment rate as it held steady at the 5.4 level because of a massive increase in labor force participation. Labor force participation jumped 0.3 percentage points to 65.5 percent, the highest level ever since September 2011.

#7: China GDP (01/18/2018 Thursday 07:00 GMT)

In the third quarter of 2017, China’s economy grew 6.8 percent on a year-on-year basis, following the 6.9 percent growth recorded in the previous two quarters. The reading for the third quarter matched the analysts’ expectation. This is the weakest rate of expansion ever since 2016 fourth quarter. Fixed-asset investment increased the least in as many as 18 years, but retail sales and industrial output increased further. Forecast for the next quarter: 6.7 percent growth

#8: China Industrial Production (01/18/2018 Thursday 07:00 GMT)

In China, industrial production increased 6.1 percent on year-on-year basis in November last year, following the 6.2 percent gain recorded for the prior month. Analysts’ had expected industrial production to grow by 6.2 percent. This is the weakest increase in industrial output ever since August last year. Production increased at a lower rate in the electricity and water and gas production sectors, while production in the mining sector fell further. In the meantime, manufacturing output grew 6.8 percent compared to the 6.7 percent growth recorded in the previous month. On a month-on-month basis, industrial production increased 0.48 percent. Forecast for the next period: 6.1 percent

#9: U.S. Building Permits (01/18/2018 Thursday 13:30 GMT)

The number of building permits issued in the U.S. dropped 1.4 percent from the prior month on a seasonally adjusted basis to the annual rate of 1,298,000 in November last year after the 7.4 percent increase recorded in October. Analysts had expected the number of building permits issued to decline by as much as 3.1 percent drop. Forecast for December 2017: 1,290,000

#10: U.S. Unemployment Claims (01/18/2018 Thursday 13:30 GMT)

The number of American people filing for jobless benefits rose by 9,000 to 261,000 in the first week of the New Year, well above analysts’ expectation of 246,000 claims. This is the highest reading ever since the week that ended on September 23, 2017. A higher number of claims was attributed to the harsh winter conditions that prevailed during the first week of this year. Forecast for the next period: 251,000

#11: U.S. Crude Oil Inventories (01/18/2018 Thursday 16:00 GMT)

In the U.S., crude oil stocks dropped 4.948 million barrels during the week that ended on January 5, 2018, after registering a 7.419 million barrels decline in the prior period. The reading for the week was higher than analysts’ expectation for a decline of 3.89 million barrels. With this, the crude oil stocks have fallen for eight weeks in a row. In the meantime, gasoline stocks rose by 4.135 million barrels, following the 4.813 million barrels increase in the prior week. Analysts had expected the stocks to increase by 2.625 million barrels.

#12: U.K. Retail Sales (01/19/2018 Friday 09:30 GMT)

In the U.K., retail sales rose by 1.1 percent on a month-over-month basis in November last year after the reading for the prior month was revised upward to represent an increase of 0.5 percent. The reading for the month beat analysts’ expectation for 0.4 percent gain. This is the highest increase in retail sales ever since April last year. Retail sales were mainly driven by higher sales at textile, clothing and footwear stores; household goods stores; other stores; and food stores. Excluding automotive fuel, the increase in retail trade was 1.2 percent. This was also above analysts’ expectation of 0.5 percent.

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