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Forex Major Currencies Outlook (Jan 25 – Jan 29)

The week ahead of us will have Fed meeting and preliminary Q4 GDP readings from the US, Germany and France as well as data on inflation and spending from the US.


Treasury Secretary nominee Janet Yellen characterized China as an important, serious competitor in her address to Senate. She stated that US needs to work in tandem with their allies to confront China on their unfair practices, such as stealing IP and subsidies. Regarding value of the dollar she stated that markets should determine exchange rates, thus abandoning “strong dollar” policy which lead to further drops in USD. She is opposed to foreign countries manipulating FX for gain and will work with Biden to oppose those who manipulate their currencies. Yellen was reiterating the need for fiscal stimulus while avoiding questions of financing of the debt and stating “doing what we need to do now to address the pandemic and the economic damage that its causing, would likely leave us in a worse place fiscally”. 

Inauguration of new president Biden went without obstructions. After getting into the office he has signed executive orders on $1.9 trillion relief package, rejoining Paris climate agreement as well as making mask-wearing mandatory on federal lands. President Biden also signed executive order that revoked pipeline permit for Keystone XL project thus admitting a blow to Canadian economy, especially the province of Alberta. 

This week we will have preliminary Q4 GDP reading as well as Fed’s preferred inflation measure PCE. Fed meeting will provide new assessment of the economy, however we do not expect any changes in the rate or monetary policy. 

Important news for USD: 


  • Fed Interest Rate Decision


  • GDP


  • PCE
  • Personal Spending 


ECB has left key rates unchanged as was widely expected. Rates are expected to stay at their present or lower levels until inflation gets to a level close to, but below, 2%. ECB President Lagarde stated that incoming data confirms their previous near-term assessment. Downward risks are to short-term outlook but are less pronounced than before. Inflation remains very low but upward pressure can be expected once pandemic fades. They will be monitoring EUR rate and its impact on inflation. The stronger the EUR gets the cheaper the imports will be which will lead to the drop in inflation. Reintroduction of German VAT will positively impact inflation. Vaccine rollout and Brexit deal have been cited as positives. 

Preliminary PMI data for January showed that services fared better than expected. This lead to rise in EURUSD toward the 1.22 level. The divergence between manufacturing and services sector becomes more pronounced raising concerns about K-shaped recovery, manufacturing going up while services continuing to drop. Germany will extend lockdown period until February 14. With Germany being the largest economy in the EU it will negatively reflect to Q1 GDP which may fall into negative territory again. 


Headline inflation in December rose 0.6% y/y vs 0.3% y/y in November. Core inflation also rose more than in November coming in at 1.4% y/y vs 1.3% y/y the previous month. According to the ONS clothing prices, transport costs as well as petrol prices rising contributed to the rise in inflation. Retail sales came in at 0.3% m/m vs 1.3% m/m. Ex autos, fuel category came in at 0.4% m/m vs 1% m/m as expected. Misses on the readings combined with the negative revision to November numbers make this a very weak report. 

Contrary to the EU reading UK had abysmal preliminary PMI data. Manufacturing held its ground at 52.9, down from 57.5 in December while services plunged to 38.8 from 49.4 in December. Expectations were for services PMI to drop to 45, however lockdown measures had much worse effect on the sector than anticipated. Composite PMI was dragged down to 40.6, back into contraction, from 50.4 in December. GBPUSD breached the 1.37 level during the week but was not able to sustain that level and dropped to mid 1.36 as the week was winding down. Fitch affirmed AA- sovereign UK rating with a negative outlook. 

This week we will have employment data. 

Important news for GBP: 


  • Claimant Count Change
  • Unemployment Rate 


Employment report for December came in on par with expectations of 50k. The unemployment rate has dropped to 6.6% from 6.8% in November while the participation rate increased to 66.2% adding to the overall strength of the report. Finally, majority of jobs gained was in full-time employment (35.2k) which puts another positive to the report. 

China is the first major country that published Q4 GDP data and it came in at 6.5% y/y vs 6.2% y/y as expected. The YTD GDP came in at 2.3%, thus making the China only major economy that did not contract in 2020. Industrial production in December came in at 7.3% y/y vs 6.9% y/y as expected, however retail sales again missed coming in at 4.6% y/y vs 5.5% y/y as expected. Chinese economy is heavily dependent on industrial production and exports while domestic demand (retail sales were down -3.9% YTD, due to the big drop in the first half of 2020) is rather weak which poses questions for a long-term sustainability. 

This week we will have Q4 inflation data from Australia and official PMI data for January from China. 

Important news for AUD: 


  • CPI


  • Manufacturing PMI (China)
  • Services PMI (China)
  • Composite PMI (China) 


Q4 inflation came in at 0.5% q/q vs 0.2% q/q as expected. It is down from 0.7% q/q in Q3. Another data beat from New Zealand. It will shatter any hopes of further rate cut by RBNZ. GDT price index came in at 4.8% for a second straight very strong auction. New 2021 has started on a bright note for dairy farmers in New Zealand. 


BOC has left the overnight rate at 0.25% as was expected. They have acknowledged that incoming data has been weaker than expected, however the combination of vaccine rollout and fiscal stimulus paints a brighter picture for the future. GDP forecasts have been improved to 4% in 2021 and almost 5% in 2022. They have reiterated their stance that BOC "will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved". According to this statement we expect no changes in the rates until 2023. Governor Macklem stated that "If the economy plays out in line or stronger with our outlook, then the economy is not going to need as much quantitative easing stimulus over time," indicating their willingness to reduce the QE program once conditions are met. December inflation came in at 0.7% y/y vs 1% y/y as expected. Core measures also came in weaker than expected, moving away further from the bank’s 2% inflation target. 


BOJ has kept the rate unchanged at -0.1% as was widely expected. They have downgraded current economic assessment but improved the outlook. GDP for 2021 is now seen at 3.9% with core CPI at 0.5%, while 2022 GDP is now seen at 1.8% vs 1.6% previously. Their quarterly report states “pandemic impact could subside earlier than expected if vaccines become widely available but pace of distribution and vaccines affects our uncertainties”. Governor Kuroda has reiterated bank’s stance to ease further if need arises. Downward pressures are seen in the services sector and have increased after state of emergency measures. 

National inflation data for December brings the pain of deflation. Headline number came in at -1.2% y/y while CPI excluding fresh food came in at -1% y/y. Both numbers came in better than expected but with them being so deep into negative there will be no reason to cheer from the BOJ. CPI excluding fresh food, energy came in at -0.4% y/y as expected. Preliminary PMI numbers for January dropped from December values due to state of emergency introduction in Tokyo area and surrounding prefectures. Manufacturing came in at 49.7, services at 45.7 while composite came in at 46.7. Not a pleasant start of the year and musings of possible cancellation of Olympic Games start to gain traction. 

This week we will have January inflation data for the Tokyo area. 

Important news for JPY: 


  • CPI 


SNB total sight deposits for the week ending January 15 came in at CHF703.8bn vs CHF702.4bn the previous week. A drop in EURCHF below 1.08 at the end of the week has prompted SNB to intervene and relieve some of the Swissy strength.

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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