After closing the February with massive movements in most of the currency pairs, the focus of investors has turned towards the policy meeting of Central banks in Australia and Canada. RBA and BOC will meet in the new week, whilst the US Non-Farm Payroll is in focus. 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’.
1 March, 2020, | AtoZ Markets – The effect of COVIT-19 has escalated into a global crisis. During the last week, the virus has spread to several countries besides China. Therefore, policymakers may provide a wait-and-see approach until a clearer picture of the impact of the virus. Despite the RBA and BOC will meet this week, investors may wait anxiously for the latest non-farm payroll report of the US as it may put the impact on the FED’s interest rate decision. In addition to that, the OPEC+ will come to the spotlight as it meets to make a decision about the additional output cut.
Forex Weekly Fundamental Outlook: RBA and BOC Will Meet
The overall financial market is going through uncertainty. Gold price fell more than 3% a day while Asian currency pair AUDUSD spiked below over 2% to 0.6334. The volatility and uncertainty in the forex market may extend this week as RBA and BOC will meet. Moreover, the US Dollar may find a direction about the next interest rate decision after the release of NFP.
Let’s start the forex weekly fundamental forecast with EURUSD.
The Euro is dominating over the US Dollar as the Fed rate hike reduces expectancies and unwinding of increasing trades bolster on the single currency. Still, this short-covering in EURUSD does not suggest that traders have changed their gloomy outlook for the euro area.
The developing data of the Eurozone is not anticipated to change the narrative economic system. Therefore, any disappointing readings can temporarily position the brakes at the Euro’s ascent. The week will start with the releases of German export numbers for January on Monday along with the final IHS Markit production PMI. Moreover, the flash inflation of the Eurozone for February is out on Tuesday with the final offerings PMI on Wednesday. German business orders for January will be released on Friday.
On the US front, the first on the radar is the ISM production PMI on Monday. The index is currently expected to decline to 50.5 in February to preserve simply above satisfactory territory. More crucially, the ISM’s non-production gauge includes the giant services quarter that may stay unchanged at 55.5 when launched on Wednesday. January manufacturing orders are out on Thursday before the all-essential nonfarm payroll reports on Friday.
After a solid increase of 225k jobs in January, the US economic system may release 178k jobs in February. This may constitute an extremely good slowdown about the labor market. Average hourly income may with the aid of 3.2% year-on-year, at the same time, the jobless report is expected to hold at 3.6%.
Therefore, the EURUSD price may show some correction after the massive movement during the monthly closing until the release of NFP.
The British pound was unable to dominate over the dollar as ‘Hard Brexit’ fears have pushed investors down. Both the UK and the EU will set out a tough negotiation for future trade talks. UK Prime Minister Boris Johnson took a step and warned that he could walk away from the talks in June if the outline of the deal does not settle. After that, the pound faced a bearish pressure to move below the $1.29 level.
The formal negotiation will start on March 3. Therefore, the Brexit headlines are expected to be the main driver for cable over the coming days. On the other hand, the overall week is extremely quiet except for the final UK PMI readings.
If the US indicators fail to meet the forecast, there will be a risk of Fed rate cut expectations. Currently, the sentiment was high over the last week as traders have expected a high risk of a global recession. Market sentiment is now expecting that the Fed may lower rates at least three times this year due to the virus outbreak.
The US Dollar index fell by 1.37% last week after reaching the yearly highs. Therefore, any positive indication about the US recession may push the US Dollar to come back this week. Overall, the GBPUSD price may move through uncertainty due to Brexit over the week. Therefore, we may see both sellers' and buyers' activity in the price.
The Japanese economy has faced massive volatility due to the sales tax hike, a typhoon, and the latest trade war. These cause the Japanese GDP to shrink by 1.6% on a quarterly basis. However, the higher sales tax may be the main culprit to keep Japanese investments at home.
Household spending and wage growth data for January are due on Friday. Any upside data may provide hopes to policymakers that the economy is not struggling enough due to the virus outbreak. Despite Friday’s numbers, Q4 capital expenditure data will be monitored for possible revisions to the GDP readings.
Any positives figures in this week's data may help further to the yen to restore its safe-haven status. Overall, the risk sentiment of the Japanese yen might be the main driver for the USDJPY this week.
It will be an important week for the AUDUSD as RBA and BOC will meet this week. The rate statement by the Reserve Bank of Australia will assist buyers in gauging the chance of a rate cut. Australia’s economy had misplaced steam even before the virus outbreak and judging via the business spending numbers last week.
The complete Q4 GDP estimate will be released on Wednesday. In addition to that, the commercial enterprise inventories and International export contribution for the quarter will attract investors' sentiment on Monday and Tuesday. Moreover, January trade and retail sales facts will attract some additional attention.
However, traders might be keen to understand the latest tendencies of change in rate statement by RBA. Currently, the RBA is not anticipated to make a change to its cash rate at the March assembly. However, any signal that it is tilting closer to a more dovish viewpoint could push a pressure in the Aussie.
The AUDUSD price has plummeted to a11-year low. Therefore, the oversold Aussie could reverse higher if RBA assists the market sentiment by providing a hawkish tone.
A day after the RBA meeting, the Bank of Canada will set its interest rates. BoC rate cut expectations increased since the coronavirus started spreading uncontrollably. However, it seems like the Canadian economy is not doing bad as the inflation is running above the 2% target.
Under the surface, there are several troubles to face like exports are struggling, consumer spending is weakening and disruptions on railway route by anti-pipeline protests during February. Moreover, the impact of the virus may indicate that the growth has slowed in the second half of 2019. Therefore, Stephen Poloz & Co may decide to wait rather than slashing rates immediately.
However, if Poloz feels that the economy is in good condition, the odds are very high that BOC would cut in April. Moreover, the decision on Wednesday might not put greater weight on Friday’s employment report for February.
Overall, it will be difficult for the CAD to stem over the US dollar unless the BoC support by an unexpected upbeat.
OPEC along with OPEC+ will hold a meeting on Thursday and Friday to agree to additional output cuts to the Crude oil. Currently, the oil demand continues to deteriorate a long-term impact on the global economy from the effect of coronavirus. However, there are some doubts that the alliance will be able to agree to lower production caps and Russia does not appear to the idea even as oil prices moved down to more than one-year lows.
Russia had rebuffed attempts to hold a meeting in February. Therefore, its refusal to a new output reduction could force Saudi Arabia to head it alone. Along with Saudi Arabia, some different Arab nations are likely to become a member of it. The lack of unity between some major manufacturers does not bode well for oil.
Therefore, anything less than the anticipated reduction of 600,000 BPD may not boost oil prices.
Despite the turmoil of the financial market and the worst week in the equity market, gold has joined the selling party.
The gold price has crashed on Friday with a massive decline of 3.5% in a single day. There is a massive break of correlation between US stock markets and the Gold price recently. The gold price has fallen by 4% over the week while the S&P 500 has declined by almost 10%.
The global commodity market is a decentralized market, and no one can dominate it. However, it is hard to believe that last week’s price action on Gold was natural. There were several forces in play with most of them out of our control. Many analysts believe that the selling pressure in gold was due to extremely stretched positioning. The number of long positions and the number of traders was at record levels in Gold. Therefore, it increases the risk of a meaningful pullback from the highs.
Overall, investors need to wait for a surprise rate cut by FED to stabilize gold prices from this unjustified liquidation.
Overall, RBA and BOC will meet this week while most of the major currency pairs may show a corrective movement during the week. After releasing the US Non-Farm Payroll, the market may find a stable direction.