As the coronavirus outbreak continues to spread, the economic disaster across the globe has been increased. Moreover, central banks may struggle to provide more stimulus due to the fast deteriorating outlook. Therefore, there is much pressure on the Fed and BoJ regarding the policy rate decision this week. What other important events and releases will affect the market this week? Get more insights for the new trading week with AtoZ Markets ‘Forex Weekly Fundamental Forecast’.
15 March, 2020, | AtoZ Markets – There is a lot of pressure on the Fed and BoJ as the US Federal Reserve has made emergency rate cuts and may follow it up with another cut this week. On the other hand, the Bank of Japan will be an interesting one.
Forex Weekly Fundamental Outlook Pressure on the Fed and BoJ
Both BoJ and the Fed may decide to make a further rate cut this week. However, one central bank that is less likely to change its policy is the Swiss National Bank due to the Swissie’s recent appreciation.
Let’s start the forex weekly fundamental forecast with EURUSD
Despite the current crisis regarding the coronavirus outbreak, Eurozone will move with a muted week. However, the only highlight will be the ZEW business survey out of Germany on Tuesday and the Eurozone’s final CPI readings for February on Wednesday. Currently, the ECB failed to gain investors’ satisfaction as it did not cut rates last week following the FED, BoC, and RBA. Furthermore, Donald Trump decided to halt European flights towards the US that put further pressure on EURUSD buyers.
The ZEW economic sentiment index may plunge from 8.7 to -23.4 in March as the business morale has suffered a lot from the disruptions caused by the coronavirus outbreak. A weaker than expected number may create bearish sentiment in the EURUSD price following the decision of ECB regarding the interest rate decision.
On the other hand, US politicians lack the urgency to draw up a fiscal stimulus plan to fight the pandemic. Therefore, investors have increased their expectations of a rate cut at nearly 100 bps as the virus outbreak seems to be worsening. Policymakers may prefer a moderate rate reduction to provide liquidity to businesses. There is pressure on the Fed, and it is possible that the Fed might launch a new round of QE to overcome liquidity shortages in the money markets.
Moreover, the retail sales figure will be published this week for the US, and there is a possibility that the result will be weaker than expected for the current situation. Overall, the movement of EURUSD may depend on how the Fed is reacting to its rate decision this week.
Announcements of fiscal stimulus in the United Kingdom have failed to bolster the pound. Currently, the GBPUSD is maintaining a downward bias. There is less possibility that this week’s job numbers will do much to ease the selling pressure on GBPUSD. Investors’ are the sole concern right now regarding what the economic costs of the coronavirus will affect the UK’s economy.
However, The UK employment report for January will be released on Tuesday. Currently, the Labor market in the UK pointed to an economic slowdown in 2019. However, any weakness in the economic data could further weigh on the GBPUSD sellers.
On the other hand, a rate cut by Fed on Wednesday may help the GBPUSD buyers to come into action. Moreover, a large monetary stimulus package may push the price up again.
However, as the virus outbreak continues to dominate the US market, economic indicators will struggle to attract investors’ attention. Besides the retail sales, the US will release the industrial output numbers on Tuesday, building permits and housing starts on Wednesday and existing home sales on Friday.
The Reserve Bank of New Zealand will respond to the current effect of coronavirus on ints economy this week. Moreover, GDP growth numbers are due, and that could influence the size of a potential rate cut. Although the GDP report will be released in the final quarter of 2019, the overall economy did not perform well as per expectation. Therefore, the RBNZ may go for 50 basis points cut on March 25 instead of cutting only 25 bps.
Therefore, if New Zealand missed the GDP forecast on Thursday, there will be a downside risk for the NZDUSD. The price of NZDUSD has already touched the fresh 11-year lows this week and any worse result may. On the other hand, a better-than-expected result may do little in halting the kiwi’s slide as the current uncertainty regarding the coronavirus is flying in the air.
Overall, as per the forex weekly fundamental forecast, the outlook of NZDUSD may remain bearish until any surprise comes from the Fed.
In Canada, the local currency may not receive much of a lift from upcoming data. However, the upcoming data includes manufacturing sales for January on Tuesday, February inflation on Wednesday as well as the retail sales figure for January on Friday.
The Canadian economy lost some strength in January and February even before the virus fallout that has come in front of us. Therefore, there is a good chance that BoC will disappoint investor sentiment this week. There is a possibility that the Bank of Canada will cut rates again despite worrying where the economy is. Therefore a rate cut or dovish tone may push the USDCAD price above the 4 year high of 1.40.
On the other hand, the USDCAD is facing a positive correlation with Oil prices. The recent uncertainty of Saudi Arabia and Russia may put further pressure on the USDCAD price. Overall, the outlook of USDCAD is bullish for the week.
The Bank of Japan is going to announce its interest rate decision on Thursday, a day after the Fed. Therefore, it looks set to join its global peers to announce additional stimulus. However, while speculation indicates that the BoJ may not sit on the sidelines this week. Therefore, policymakers may surprise the markets with strong measures that are not so certain. The most anticipated scenario is that the BoJ will increase its purchases of exchange-traded funds (ETF) to halt the recent decline in Japanese stocks.
Despite the decision of BoJ, a rate cut does not appear to be effective, and so it is difficult to see any positive price development for Japanese Yen. For the same reasons, traders may ignore the data that may be released this week. However, the data includes January machinery orders on Monday, then trade figures on Wednesday and inflation on Thursday.
In the forex weekly fundamental forecast, we may see the USDJPY to remain volatile as there is pressure on the Fed and Boj. Currently, the JPY is struggling even if it acts like a safe-haven currency. On the other hand, the Fed is struggling to stimulate the economy for the same reason.
The Swiss National Bank will meet on Thursday. However, it is the least likely of the three central banks to make changes in interest rates. The SNB already has the lowest interest rate in -0.75 the world. Moreover, the country has been hit hard by the coronavirus. Therefore, the SNB has another reason at its disposal as an FX intervention. The SNB’s foreign currency reserves were increased slightly in February, which indicates that it was intervening to keep the safe-haven Swiss franc down, particularly against the euro. The decision was taken as a risk sentiment soured due to the coronavirus outbreak.
As the ECB kept its interest rates unchanged last week, there is less of a need for the SNB to further lower rates.
Crude oil prices may face further selling pressure ahead of the Fed interest rate decision where policymakers may cut borrowing costs by 75 basis points.
On the other hand, OPEC+ shocked the global stage after Saudi Arabia as the biggest producer of oil failed to reach a consensus with Russia on production cuts. Riyadh stressed that they need to constrain supply to boost crude oil prices. However, it was halted by trade wars and slower global growth and now the coronavirus. Furthermore, Russia refused to join.
In response, Saudi Arabia said it would pump more than 10 million barrels per day to slash its prices to undercut competitors. Later on, officials said that they would increase supply to 12.3 million BPD within April. This would increase the supply by 25%, which will be the highest in history.
In the meantime, small scale producers are struggling to cope up with the situation, and there is no sign to say that the uncertainty is over. Therefore, the oil price may move with further uncertainty this week. However, the price may set after calming the situation.
Gold prices dropped sharply with a sign of liquidation. Moreover, the dollar surged, and yields moved higher. The reason behind the fall in the Gold price was with the hope that the US political officials would calm the market. Last week, gold prices had one of the worst weeks in history with more than 9% fall with a weekly reversal pattern.
President Trump demanded on Friday that the Federal Reserve lower a key interest rate in response to the coronavirus crisis. Earlier, the Fed announced that it would make a massive $1.5 trillion worth of short-term loans to support credit markets. Unfortunately, lower rates might not encourage investors to make financial market stability. The thing that can stabilize the market is nothing but a decline in coronavirus infections.
However, as there is pressure on the Fed regarding the coronavirus outbreak, a further rate cut this week may increase volatility on the Gold prices.
Overal the forex weekly fundamental forecast contains a lot of market-moving events. As there is pressure on the Fed and BoJ regarding the virus outbreak, a rate cut will increase market volatility. Moreover, the price movement on most of the currency pairs will depend on the news regarding the virus outbreak.