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Forex Major Currencies Outlook (Dec 17 – Dec 21)

USD

CPI data for the month of November came in at 2.2% y/y as expected. Monthly figure came in unchanged as expected. The budget deficit for the month of November came in at $204.9bn vs $100.5bn the previous month.

Retail Sales came in at 0.2% m/m vs 0.1% m/m as expected but the really strong reading is in control group where monthly figure came in at 0.9% m/m vs 0.4% m/m as expected. Ex-autos component came in at 0.2% m/m as expected. Possible reasons for the beat are the Black Friday and Cyber Monday deals. Nevertheless FED will be happy with these numbers. Industrial production came in at 0.6% m/m vs 0.3% m/m as expected with prior reading being 0.1% m/m but revised to -0.2% m/m so that most of the gains were covered by revision. All three PMI numbers came in weaker than expected signalling diminished confidence in the US economy.

This week central stage will be taken by the FED Interest Rate Decision. The chance for 25bp rate hike is currently at 69.1% and it is widely believed that we will see a hike. The following press conference as well as dot-plot will provide valuable information regarding future rate hike plans. We will also have information on housing, current account, final reading of Q3 GDP, PCE as well as durable goods.

Important news for USD:

Tuesday:

  • Housing Starts
  • Building Permits

Wednesday:

  • Current Account
  • Existing Home Sales
  • FED Interest Rate Decision
  • FOMC Statement
  • FOMC Economic Projections
  • FOMC Press Conference

Friday:

  • GDP
  • Durable Goods Orders
  • PCE
  • Core PCE

EUR

ZEW Survey of current situation in Germany came in at 45.3 vs 55.8 as expected with prior reading showing 58.2. Evaluation of current situation is abysmal. Trade war, Brexit and Auto-Tariffs on German cars weigh in heavily on current economic situation. Expectations came in a bit better at -17.5 vs -25.0 as expected for Germany and -21 vs -22 as expected for Eurozone.

The saga of Italy’s budget continues as EU stays firm in its stance that Italy should reduce budget deficit of 2.4% to avoid economic sanctions. Italian press stated that Italy has managed to cut its budget deficit by 4b EUR which is around half of the amount that EU is asking for. Due to the power of “Yellow vest” (“Gilets Jaunes”) protests in France, President Macron has agreed to raise the minimal wage, to revoke a gasoline tax hike and urged companies to pay a year-end bonus without tax with removal of taxes on overtime work. These moves will put pressures on France’s budget which could lead to ballooning of budget deficit to 3.5%. Italy will ask that the deficit/GDP rules be the same for France as well as for Italy. Meanwhile the Italian government debt has grown to 2.334 trillion EUR in October

The ECB left key rates unchanged and ended QE programme as widely expected. ECB’s Draghi acknowledged that inflation is coming weaker than expected as a result of softer external demand. Inflation is projected at 1.6% for 2019, 1.7% for 2020 and 1.8% for 2021. It was also stated that monetary policy is very accommodative, business investment continues to grow and consumption continues to grow driven by increases in disposable income. Statement that balance of risks to the growth outlook is “moving to the downside” is the key change and has shifted EUR downwards.

Preliminary PMI numbers for France all came worse than expected and they were all below 50 signalling contraction. Some of those numbers were influences by Gilets Jaunes protests but since the numbers are very worrisome it weighs heavily on EUR. German PMI numbers also came worse than expected but they were all above 50. Outlook remains gloomy and risk of recession for Germany has increased. Composite PMI for Eurozone fell to 51.3 vs 52.7 the previous month for the lowest level in 49 months.

Industrial production for the month of October came in at 0.2% m/m vs 0.1 m/m as expected with the prior reading being revised to -0.6% m/m. Revision lower dampen the mood of the data but better than expected reading that will prop up Q4 GDP.

This week we will have data on inflation, trade balance and current account as well as more evaluations on business climate and expectations and final reading of France’s Q3 GDP.

Important news for EUR:

Monday:

  • CPI
  • Core CPI
  • Trade Balance

Tuesday:

  • Ifo Business Climate (Germany)
  • Ifo Business Expectations (Germany)

Thursday:

  • Current Account

Friday:

  • GDP (France)

GBP

PM May has pulled out the Brexit vote from the Parliament because the proposal was very unlikely to pass and now plans to meet with EU officials to renegotiate parts of the deal, however EU’s Tusk emphasized that he would “not be renegotiating the deal”. The new date for a vote deal is still not announced but UK PM spokesman said that it will be before January 21 2019. UK Parliament is in recess from December 20 to January 7 and date that UK is scheduled to leave EU is March 29 so they are working with a tight schedule. The no confidence vote was held and PM May won with 200-117. The fact that 117 PMs voted against her means that current Brexit deal will not pass the Parliament vote and that changes are needed. 

Average earnings data beat expectations coming in at 3.3% 3m/y vs 3% 3m/y as expected. The Unemployment rate stayed at 4.1% which is almost a four-decade low. Healthy beating on the earnings showing that British households will have funds to make a positive impact on consumption and therefore on inflation. Due to the overwhelming Brexit worries, this data will not have impact on GBP as it should but it is important to keep it in mind.

This week will be the final week that Parliament will be operating in current year so the last chance to put Brexit deal up for a vote. We will get data on inflation, consumption, current account as well as final reading of Q3 GDP. Additionally, we will have BOE interest rate decision, but no change is expected as all eyes are on Brexit.

Important news for GBP:

Wednesday:

  • CPI
  • Core CPI

Thursday:

  • BOE Interest Rate Decision
  • BOE MPC Meeting Minutes
  • Retail Sales

Friday:

  • Business Investment
  • Current Account
  • GDP

AUD

RBA’s Kent stated in his speech that progress is made on lowering unemployment and rising inflation, but it is gradual. Wage growth in Australia begins to pick up and he reiterated that the next rate move will be most likely up but he didn’t rule out a cut if its needed. Preliminary Markit PMIs came in lower than expected across the board (manufacturing, services and composite) showing signs of softer demand. China’s retail sales numbers came in weaker than expected to put additional pressure on Australian economy.

This week we will see meeting minutes for more information about last RBA meeting as well as employment data.

Important news for AUD:

Tuesday:

  • RBA Meeting Minutes

Thursday:

  • Employment Change
  • Unemployment Rate

NZD

Card spending data for the month of November, which accounts for about 70% of retail sales in New Zealand, came in at -0.4% m/m vs 0.3% m/m as expected. Weak data but it can be attributed to seasonality as December is where the real spending is due to the holidays. Fiscal update sees surplus in the coming years lower and also GDP projections have been lowered.

This week we will have data on GDT auction, current account and trade balance. The Q3 GDP reading will take the centre stage as Governor Orr previously said that he would consider a rate cut in the event GDP falls below expectations. The government has revised their GDP forecast a bit lower to a still healthy 2.9%.

Important news for NZD:

Tuesday:

  • GDT Price Index
  • Current Account

Wednesday:

  • Trade Balance
  • Exports
  • Imports
  • GDP

CAD

Housing starts in Canada for the month of November came in at 215.9k vs 198k as expected. Canadian housing starts to pick up. Building permits data for October came in at -0.2% vs -0.3% as expected. Better than expected, but still a troublesome reading.

This week we will have data on inflation, manufacturing and retail sales as well as GDP numbers and the BOC Business Outlook Survey.

Important news for CAD:

Tuesday:

  • Manufacturing Sales

Wednesday:

  • CPI
  • Core CPI

Thursday:

  • Wholesale Trade

Friday:

  • Retail Sales
  • GDP
  • BOC Business Outlook Survey

JPY

Final Q3 GDP data came in at -0.6% q/q vs preliminary reading of -0.3% q/q. The GDP Deflator (this is an inflation indicator) for Q3 came in at -0.3% y/y vs -0.1% y/y as expected. GDP Business Spending fell to -2.8% y/y for the biggest fall since Q3 of 2009. These are some abysmal numbers for the Japanese economy, regardless of the natural disasters that have struck Japan and slowing exports due to US – China trade war. Current account balance has declined in October, coming in at 1.3 trillion yen ($ 11.6 billion). The trade deficit has widened to 321.7 billion yen ($ -2.8 billion), the most in 5 months. According to the latest quarterly Tankan survey Capex plans were stronger, as large businesses anticipate a 14.3% increase up from 13.4%.

This week we will have the Interest Rate Decision with no expectations of changing the rate but the monetary policy statement and press conference which will be held later on will provide us with more information about BOJ planned actions especially after abysmal Q3 GDP numbers. We will also have data on trade balance as well as national inflation data.

Important news for JPY:

Wednesday:

  • Trade Balance
  • Export
  • Import

Thursday:

  • BOJ Interest Rate Decision
  • BOJ Monetary Policy Statement
  • BOJ Press Conference

Friday:

  • CPI
  • CPI excluding Food and Energy

CHF

The Unemployment rate for the month of November came in at 2.5% as expected. The seasonally adjusted number came in at 2.4% for the lowest reading since May 2002. Labour market conditions are tightening, however SNB would like to see more wage growth so it can push inflation up.

SNB has left sight deposit interest rate unchanged at -0.75% as expected. SNB reiterated that they will remain active in FX market if necessary and characterized conditions in it as fragile. They still see CHF as highly valued and they lowered their projections for inflation to 0.5% in 2019 and 1% in 2020.

This week we will have data on trade balance as well as quarterly bulletin containing data on Swiss economy as a whole.

Important news for CHF:

Wednesday:

  • SNB Quarterly Bulletin

Thursday:

  • Trade Balance
  • Export
  • Import

You can follow all economic events on the Economic Calendar page on our Website. MT4 server time is set to GMT + 2 and if you need assistance converting MT4 server time to your local time you can use some of the online time converters such as WorldTimeBuddy.

Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets.
Please remember that MT4.VAR. and MT4.ECN. accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.

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