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Forex Major Currencies Outlook (Jan 10 – Jan 14)

We are up for a quiet week from the economic data standpoint. US and China inflation data and US retail sales will be the highlights of the week.

USD 

ISM manufacturing PMI came in at 58.7 vs 60 as expected and down from 61.1 in November. Still, when we go down into the details of the report there are many positives. Employment index improved from the last month, backlog of orders increased to almost 63 while prices paid component dropped to 68.2 from 82.4 the previous month. A drop in prices paid component indicates that fewer companies are reporting rises in input costs. Additionally, there was a drop in supplier delivery times index indicating that supply bottlenecks are easing. New orders and production component declined slightly but are still at a very healthy levers, above 60 or close to it. 

Similarly to the manufacturing reading, ISM services PMI fell more than expected. It came in at 62 vs 66.9 as expected. The drop was caused by the Omicron disruptions, but still there is a lot to like in the reading. Employment index improved, new export orders jumped and supplier deliveries eased. Prices paid component rose at the slower pace while new orders are still holding above the 60 level. 

NFP report for December provided us with another miss on the headline number which came in at 199k vs 410k as expected. USD weakened on the release, but when we dig deeper into the report we find some encouraging signs. The unemployment rate dropped to 3.9% from 4.2% in November with participation rate staying unchanged at 61.9%. The most impressive reading was a rise in the average hourly figures which came in at 0.6% m/m vs 0.4% m/m the previous month. Fed will take a look at this data and may come to conclusion that wage inflation is picking up thus spurring them to act faster and raise interest rates sooner. USD has gained strength on that assumption after the initial drop on the headline number. 

FOMC minutes from the December meeting were loaded with hawkish sentiment. They were leaning toward a faster normalization path that will lead to a reduction in the Fed’s balance sheet after the first rate hike. Fed funds futures are now pricing around 80% chance for a rate hike in March. Voting member Bullard stated that he sees three rate hikes this year with first one probably coming at the March meeting. 

This week we will have inflation and consumption data. Headline inflation is expected to rise above 7% while core should cross the 5% threshold. 

Important news for USD: 

Wednesday:

  • CPI

Friday:

  • Retail Sales 

EUR 

Final manufacturing PMI reading for the month of December was unchanged at 58, down from 58.4 the previous month. French reading improved compared to the preliminary reading, however German reading was downgraded, thus ensuring that Eurozone reading stayed the same. Markit noted that supply chain disruptions seem to ease a bit which also led to input prices rising at the slowest rate since April of 2021. Services reading, on the other hand, declined to 53.1 from 53.4 as preliminary reported. The decline was caused by the rising number of Omicron cases and restrictions along the continent which hit particularly hard Germany whose reading fell to 48.7. On the composite front, December reading came in at 53.3 while German reading fell into contraction territory, coming in at 49.9. 

Preliminary CPI data for the Eurozone in the month of December saw headline reading coming in at 5% y/y, up from 4.9% y/y in November while core reading came in unchanged at 2.6% y/y. Energy prices rose astonishing 26% y/y while food, alcohol and tobacco rose 3.2% y/y. If we exclude energy prices inflation would be 2.8% y/y. Retail sales for November came in at 1% m/m vs 0.5% m/m as expected and 7.8% y/y showing that demand was improving prior to the Omicron outbreak. Alternatively, high reading may be caused by the front-running of the holiday season shopping.

GBP 

A small improvement to the December manufacturing PMI (57.9 vs 57.6 as preliminary reported). Markit notes that production rose at the quickest pace in the previous four months and that there appear to be signs that supply chains are stabilizing “with vendor delivery times lengthening to the weakest extent for a year in December.” Services reading improved to 53.6 from 53.2 as preliminary reported and recorded a smaller decline from 58.5 in November. The reading was heavily impacted by the virus-curbing restrictions, however Markit sees brighter future noting that: “Around 55% of the survey panel anticipate a rise in output during 2022 as a whole, while only 10% expect a decline.” Composite reading also came in at 53.6. BOE has conducted a survey and its results show that firms are planning to raise prices in the next 12 months to the tune of around 5%. The companies justify their intention by saying that it is necessary in order to cover rising costs. This is a classical example of costs being transferred from producers to consumers and it will attribute to the inflation pressures. 

AUD 

Caixin manufacturing PMI returned into expansion territory in December by coming in at 50.9 vs 50 as expected. It printed 49.9 in November. Government measures, mainly a cut of 5bp in 1 year Loan Prime Rate, managed to assist SME companies and the reading reflects it. The report shows that supply was strong and that demand rebounded. Input costs rose at a slower pace while employment index was still in the negative territory as firms remain cautious about hiring amid uncertainties relating to the virus. Services followed suit and improved to 53.1 from 52.1 in November despite concerns regarding Omicron. Composite was thus increased to 53 from 51.2 the previous month. 

This week we will have inflation data from China, expected to show a modest tick up. 

Important news for AUD: 

Wednesday:

  • CPI (China) 

NZD 

First dairy auction of the year showed GDT index rise 0.3% after falling -1.5% at the mid-December auction. This puts it at 9 auctions with rising prices out of the last 10 auctions. A rise in prices of New Zealand’s biggest export is a great boost to the economy. 

CAD 

December employment report provided us with another strong data point for the Canadian economy. Headline number saw 54.7k jobs added vs 24.5 as expected. The unemployment rate ticked down to 5.9% while participation rate remained at 65.3%. All of the jobs added were full-time jobs (123k) while part-time jobs declined (-68k). A small dent to the stellar report was brought by the average hourly earnings which rose at a pace of 2.7% y/y compared to 3% y/y rise in November. BOC will happily stay on its course for the Q2 rate hike after the report showed tight labor market conditions. 

JPY 

Final manufacturing PMI for December was slightly improved to 54.3 from 54.2 as preliminary reported. Markit notes that "firms continued to note moderate growth in both production and new orders" while "Delivery delays and material shortages remained a dampener on production and sales." Services reading was upgraded to 52.1 from 51.1 as preliminary reported which lifted composite reading to 52.5 from 51.8 as preliminary reported. Tokyo headline CPI for the month of December came in at 0.8% y/y thus making it the highest reading in almost two years. Rising energy prices were the main culprit for the rise in the reading as ex-fresh food, energy category stayed at -0.3% y/y. 

CHF 

SNB total sight deposits for the week ending December 31 came in at CHF722.8bn vs CHF722.3bn the previous week. EURCHF has spent almost the entire week below the 1.04 level, however SNB concluded that time to fight Swissy strength is not now. They are saving their ammo and biding their time so that when they do make a bigger intervention in the market it will yield desired results. Inflation for December stayed unchanged at 1.5% y/y while core CPI ticked up to 0.8% y/y from 0.7% y/y the previous month. SNB will stay firmly on its course after the latest inflation reading.

You can follow all economic events on the Economic Calendar page on our Website. MT server time is set to GMT+2 and if you need assistance converting MT 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 our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.

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