The economic downward release from Britain is indicating a possible rate cut in January. Meanwhile, the economic growth of the Eurozone is not solid yet. Can the Eurozone Economy rebound? Also, both BOJ and BOC will release the interest rate decisions. So get more insights for the new trading week with AtoZ Markets’ Forex Weekly Fundamental Forecast.
January 19, 2020, | AtoZ Markets – After trade tension of the Middle- East calmed down, the US consumer data rocked the Dollar. In the upcoming week, the rate decisions in the Eurozone, Canada, and Japan will be the main fundamentals to look out for. Also, the Economy of the Eurozone is about to rebound while Australia is suffering from the disastrous bushfire.
AtoZ Markets team has highlighted below the main drivers in our Forex Weekly Fundamental Forecast.
Forex Weekly Fundamental Outlook
There are several important releases from most of the major countries. The British pound struggled after UK GDP figures in November while the tension of BOE’s rate decision on January 30 is still hovering around. On the other hand, the Canadian economy has started to rebound along with the Eurozone.
The Bank of Japan will announce the interest rate early on Tuesday. It’s been several years BOJ is keeping the interest rate unchanged at -0.1% besides its vast bond-buying scheme. No action is expected from BOJ for the interest rate change this week. The economic data of Japan has improved slightly, but the main focus of investors is towards the inflation front. The spending package of the government is also expected to grow. Therefore, BOJ may preserve some firepower for a stormy day.
It wouldn’t be any surprise to see the USDJPY to react to the BOJ monetary policy decision. As a safe haven currency, Yen did not react to BOJ decisions for several years. However, in the present condition, there is less possibility of further tightening the monetary policy as there is a divergence between the economic data and the BOJ’s decision.
The Japanese currency is expected to trade as a function of risk appetite, so the near- term risk seems tilted to the downside. The impact of Trade deal and Brexit may put less impact on the Yen price. For the coming days, the main focus of investors will be towards the US presidential election. Investors may become cautious if one of the progressive candidates Sander or Warren secures the democratic nomination.
Last week, the USD domination waited until the December inflation figures failed to impress. Consumer prices rose by 0.2% where the forecast was a 0.3% rise. The annual core inflation was in line with forecasts at 2.3%. Additionally, the phase 1 trade agreement was signed on Wednesday, and the agreement was with some positive gain for the USD.
Due to less release from the USD front, the USDJPY is expected to show some correction this week unless any surprise from BOJ.
The Eurozone closed 2019 on a more positive note regarding the uncertainty that almost brought the economy to its knees. Therefore, most of the analysts believe that the Eurozone economy is about to rebound. However, the US-China trade deal and Brexit risks were central to this negative economy. Moreover, there were some early signs from the PMI survey pointing out that the economic growth was stabilizing.
However, this is not the right time to believe that the Eurozone economy will rebound. The growth is bottoming but at an alarmingly low level. The manufacturing reports are still remaining to the downside with the threat of US tariffs on European cars looming. The Brexit drama could resume again once UK- EU negotiations restart.
Therefore, the European Central Bank (ECB) is unlikely to say much at the meeting on Thursday. Any hawkish tone may push the EURUSD price up but cannot guarantee the rebound of the Eurozone economy. Any bigger direction may set from the preliminary PMIs for January which is due on Friday. As it an important data to set the monetary policy it may indicate paths of the European economy. Therefore, a weaker than expected result may indicate a possible upcoming recession.
The economic data of the UK has become very negative to indicate the possibility of a rate cut next month. Manufacturing and industrial output also suggested a further weakness in the economy. Additionally, the December inflation was also disappointed investors by a decline from 1.5% to 1.3%.
The tension of BOE’s decision on January 30 is still hovering around. The labor market figures may provide some clues about it. The unemployment rate was near the historic low at 3.8% in October. However, wage growth has increased a bit after the peak of July at 3.9%. However, without an increase in salaries, inflation is expected to rise.
Tuesday, the German ZEW economic sentiment is expected to increase from 10.7 to 15.2 following the increased result of December.
On Friday, Britain’s manufacturing PMI may to increase but remain below the 50 levels. However, the Flash Service PMI figure for December hit 50 points which is a perfect balance for expanding the activity. Although the good news from PMI, the negative GDP read is still indicating a disappointment for the British economy.
Based on the Forex Weekly Fundamental Analysis, GBPUSD is expected to extend the bearish pressure where any disappointment of the PMI data may drag the price towards 1.2800.
The Bank of Canada left interest rates unchanged throughout 2019. After several weaker employment data, the recent jobs report was encouraging with a change from -71.2K to 35.2K. The unemployment rate also declined from 5.9% to 5.6%.
In Canada, the Central bank indicated that they may keep the overnight rate unchanged. Overall, the Canadian economy is still in a positive zone, where inflation is running towards the 2% target. Moreover, the wages rates are in a healthy position along with the housing market and external trade risks subsiding.
However, among the warning signs, the consumption slowed significantly towards the end of 2019. In addition to that, the business investment was moderated, and consumer confidence fell markedly in the meantime. The latest business survey indicates a mixed result with an indication of this “soft spell”.
As the market is already priced in, there is less possibility of immediate market reaction to this week’s meeting. There is a mere ~30% chance of a rate cut by July. So any neutral tone may weaken the CAD but not much. However, if policymakers show a dovish tone and indicate a rate cut, the loonie could fall notable against the US Dollar.
According to the Forex Weekly Fundamental Forecast, the inflation figures for December are pending before the decision which is remained healthy while retail sales for November will follow on Friday.
On Thursday, Australia will release the unemployment data that may remain the same at 5.2%. Australia’s labor market rebounded in November adding 39.9k jobs after a decline in October. The jobless rate also improved from 5.3% to 5.2%. However, it is still above the Reserve Bank of Australia’s 5% target. Overall, a satisfactory report may influence the RBA to push back the next rate cut.
The probability of a rate cut in February has decreased due to the rally in iron ore prices and decreasing trade tensions. However, the recent bushfires weighed on employment in December, which may increase the possibility of rate-cut again and by extension.
However, the overall outlook of AUDUSD will remain bearish while weaker than expected employment data may create an impulsive downside pressure.
After the New Year holidays and the rocket salvos in Iraq, the consolidation of Gold has ended.
The latest data from the CME exchange indicates that an increase in the volume of new investment is entering the market. Therefore, the Open Interest of the gold futures contract has increased from 926k to 1197k contracts.
Moreover, speculators Managed Money supported to increase in the gold price, who has taken their long positions from December to January with 225 thousand to 300 thousand contracts. The managed money is a priory net Gold buyer. Therefore, there is a fundamental reason for continuing the current bullish trend of Gold.
According to this Forex weekly fundamental forecast, the increase in the Gold price is not by the development in the Middle East only. Therefore, there was a constant influx of new investments in December 2019 and Managed money in January.
WTI Crude Oil
U.S. West Texas Intermediate Crude oil price is edging upside on Friday, moving higher for a third day out of four.
China, the world’s biggest crude importer indicates concerns about fuel when its economic report suggested a sluggish growth. The Chinese economy has grown by 6.1% in 2019, which is the slowest expansion in 29 years. Therefore, it shows a high demand for oil for the coming periods.
In 2019, Chinese refineries processed more than 650 million tonnes of crude oil, which is 7.6% up from 2018.
Last week, the International Energy Agency (IEA) had forecasted a negative view of oil for 2020. According to their report, OPEC supply will exceed the demand for Crude Oil. However, things may not change if Russia and other producers join the OPEC+.
Therefore, Oil prices may cap by forecasts calling for supply to exceed demand.
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