Last week the dollar index and stocks rebounded, while Treasury yields topped out after digesting a $258 bln influx of supply. What market drivers do we expect this week? Examine these upcoming events from HotForex on the 26 February-2 March Weekly Forex Market Forecast.
26 February, HotForex – Yet both the fiscal and monetary outlook points towards risk of further increases in rates/yields, though the pace of change that direction could be key for sustained gains on the former. Volatility has cooled off in the meantime, though it looks likely to make an encore in 2018.
In Asia, the calendar heats up with the usual month-end flurry, along with China PMIs and a Bank of Korea meeting.
26 February-2 March Weekly Forex Market Forecast
United States Market Overview
Focus ahead is on Fed Chairman Powell’s testimony Tuesday before the House Financial Services Committee at 10 ET. The Monetary Policy Report (MPR) text Friday offered some insights, though whether the House Financial Services Committee members will ask pertinent questions is another matter. Of course, we’ll look to Powell’s tone for any nuances on the policy path, and whether he’ll be biased to the hawkish or dovish side of the spectrum, though his more than likely balanced comments will stress the policy posture is data-dependent.
In the U.S. the economic calendar will be highlighted by February ISM, January durable orders, and income and consumption, along with revised Q4 GDP are on tap this week. This full docket starts out with the Chicago Fed national activity index (Monday), along with new home sales forecast to sink 1.6% to a 615k pace in January and an update on the February Dallas Fed index expected to slip to 30.0 from 33.4.
Durable goods orders are on tap (Tuesday), seen sinking 2.5% in January from 2.8%, while advanced indicators goods trade gap may widen to -$73.4 bln in January from -$72.3 bln. Also on tap (Tuesday) is the FHFA home price index, seen rising 0.4% to 257.0, while Case-Shiller home prices may be flat in December. Consumer confidence should remain buoyant at 127.0 in February and the Richmond Fed index is sent to rise to 16.0 in February from 14.
MBA mortgage market indices are on tap (Wednesday), in addition to the second release of Q4 GDP. Chicago PMI may dip to 63.0 in February from 65.7, NAR pending home sales should ease to 109.0 in January from 110.1, and EIA energy inventories are due.
Personal income and spending are set to rise 0.2% in January, down from 0.4% (Thursday), while core PCE prices are forecast to hold at 1.5% y/y. Initial jobless claims expected to rebound 8k to 230k for the week ended February 24, along with Markit flash PMIs due and ISM may slip to 58.0 in February from 59.6.
Final Michigan sentiment for February may tick up to 100.0 from 99.9 prelim. None of the numbers should radically alter expectations for a 25 bp tightening which are entrenched for the March 20-21 FOMC.
Canada Market Overview
In Canada, the calendar starts out slow this week but finishes with a flourish. The industrial product price index (Wednesday) is expected to rise 0.5% in January (m/m, sa) after the 0.1% dip in December. The current account (Thursday) is projected to narrow to a -C$16.0 deficit in Q4 from the -C$19.3 bln shortfall in Q3.
December GDP (Friday) is seen flat (0.0%) after the 0.4% jump in November. The separate GDP report (Friday) is projected to reveal a 2.0% real growth pace (q/q, saar) following the 1.7% growth rate in Q3. An as-expected run of data, notably GDP, would add to the already strong case for no change from the Bank of Canada until July.
Europe Market Drivers
The March ECB meeting is coming into view and the big question will be whether Draghi will finally remove the possibility of further asset purchases. The final decision may actually be taken on the day when the March 4election in Italy is out of the way and one of the major political risks hanging over the Eurozone is being resolved one way or the other.
By then it will also be clear whether Germany will need another election, as SPD members have until March 2 to send in their vote in the membership vote on another grand coalition with Merkel’s CDU/CSU. ECB President Draghi will have a chance to clarify the central bank’s stance at his testimony to the European Parliament on Monday, and he is expected to repeat the central message that growth remains robust, and inflation slowly returning to target, but also thanks to the still very expansionary monetary policy.
Indeed, the ECB’s position is that policy will remain supportive even after the end of net asset purchases, as the central bank will continue to re-invest redemptions and won’t reduce its balance sheet anytime soon. Bundesbank President Weidmann will deliver the bank’s annual report on Tuesday.
Data releases this week are unlikely to change the overall picture and likely to give both hawks and doves something to argue with. Economic activity remained strong in Q4 last year and Spanish GDP (Tuesday) expected to be confirmed at 0.7%q/q, French (Wednesday) at 0.6% q/q.
The final Eurozone Manufacturing PMI (Thursday) should be confirmed at 58.5, still at levels consistent with vigorous growth. The Eurozone ESI Economic Confidence reading (Tuesday) rounds up the February confidence numbers and could dip to 114.3 from 114.7 after preliminary consumer confidence already dipped sharply.
PMI readings may have fallen back more than expected in February, but still reported ongoing job creation, while German jobless numbers (Wednesday) expected to dip -8K in February, leaving the jobless rate unchanged at just 5.4%. The Eurozone January unemployment rate (Thursday) meanwhile is seen falling back to 8.6% from 8.7%.
UK Fundamental Events
The data calendar is relatively busy this week, highlighted by the February CBI surveys on industry trends and the retail sales (Tuesday and Thursday, respectively), labor data coving December and January (Wednesday), and the second estimate of Q4 GDP (Thursday). Brexit negotiations, now very much at the sharp end, will continue this week.
The EU’s chief negotiator Barnier on Friday clarified that the UK’s red lines meant that a Swiss or Norway type model would be out of the question, affirming, once again, that the British government’s have-cake-eat-it approach (maintaining access to the single market without observing the EU’s four freedom of movement pillars for goods, services, capital and people) is simply out of touch with reality.
Japan Market Outlook
In Japan, the docket kicks off on Wednesday with January industrial production, which is seen down 3.0% y/y from the previous 2.9% increase. January retail sales are expected at up 0.3% y/y from up 3.6% for large retailers, and up 2.0% y/y from 3.6% overall.
The MoF Q4 CapEx survey (Thursday) is forecast to have risen 3.5% y/y from 4.2% previously. February manufacturing PMI (Thursday) should improve to 55.0 from 54.8. February consumer confidence (Thursday) is penciled in at 45.0 from 44.7. February auto sales are also due Thursday. Tokyo February CPI (Friday)is expected at 1.5% y/y from 1.3% overall, and up 0.9% y/y from 0.7% overall.
The January unemployment rate (Friday) is seen down a tenth to 2.7%. January personal income and PCE are both due Friday, with the latter seen down 0.5% from -0.1% in December.
Official CFLP manufacturing PMI (Wednesday) is anticipated to have slipped to 51.0 from 51.3. The Caixin/Markit manufacturing PMI (Thursday) is penciled in at 51.0 from 51.5. Taiwan January unemployment (Monday) should be steady at 3.7%. January export orders (Thursday) are forecast up 12.0% y/y from 17.5%. January leading indicators are due Friday.
Australia Market Drivers
The private capital expenditure report (Thursday) features, with a 1.5% gain in Q4 (q/q, sa) projected after a 1.0% rise in Q3. January private sector credit is due Wednesday. There is nothing from the Reserve Bank of Australia this week. However, next week has the policy meeting (March 6), where no change is expected to the current 1.50% rate setting.
This article about 26 February-2 March Weekly Forex Market Forecast was written by Andria Pichidi, Market Analyst at HotForex. The provided article is a general marketing communication for information purposes only. It does not constitute an independent investment research. Nothing in this communication contains an investment advice or an investment recommendation. It also does not contain a solicitation for the purpose of buying or selling of any financial instrument.
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