This week, RBA is the only central bank that will meet along with other important economic data. Currently, RBA on hold but investors may see a dovish tone from it. 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.
February 3, 2020, | AtoZ Markets –The Reserve Bank of Australia (RBA) is the only major central bank that will meet this week. However, the calendar is not light, as there are many crucial economic data to keep things exciting. The US employment report will tell further about the recent ‘cracks’ in the labor market. Therefore, the NFP could determine how the ‘king dollar’ could dominate its reign over the Forex market. Moreover, risk sentiment regarding virus-related news may keep the overall market volatile.
Forex Weekly Outlook- RBA on Hold
In this Weeks meeting, RBA on hold but the dovish tone is expected. The Australian economy is struggling for the recent bushfire and the effect of Coronavirus. Therefore, the bearish rally of the Australian Dollar against all other major currencies is expected to continue.
The RBA on hold with a tough decision in its policy meeting on Tuesday. The recent data have been solid enough to confirm market expectations for a rate cut to support the economy. The current implied possibility for such action is currently resting at a lowly 15%. The unemployment rate has fallen down to 5.1% in December. However, the retail sales increased sharply in November and inflation picked up in Q4 despite remains below the RBA’s target range.
Besides the backward-looking data, there is more risk that is hovering in the market. The bushfire for several weeks across Australia enforces to dampen economic growth. Moreover, the deadly coronavirus decreasing downside risks for Australia’s economy following the biggest trading partner country, China.
Meanwhile, underlying inflation is still in low gear. On the other hand, the recent data is good enough to put the RBA’s to the rate-cut button. For now, the overall situation suggests that the RBA may indicate a future rate cut very much on the table.
In case, RBA does not cut rates, the outlook of AUD will remain bearish. The Bank is most probably going to maintain a dovish bias due to the effect of Bushfire and Coronavirus. However, the nation’s retail sales for December may indicate further about the Australian economy on Thursday.
On the USD front, all eyes will turn to the Nonfarm Payroll for January. Currently, NFP is expected to increase at 156k, slightly higher than the 145k in December. Moreover, the unemployment rate is forecasted to remain steady at 3.5%.
Therefore, the AUDUSD, one of the top 10 forex pairs to trade, may remain bearish as RBA on hold and any dovish tone from RBA may increase the possibility for AUDUSD to go more down.
Economic reports from the EU were not much better. The Q4 GDP missed the expectation by printing 1.0% YoY. On the other hand, the preliminary estimate of January inflation beat the expectation with 1.4%. Retail Sales of German were sharply lower in December, while the IFO survey indicated that the Business Climate was down to 95.9 in January.
In general, recent survey data from the EU have improved, particularly in the manufacturing sector and export orders. For January, the European Commission pointed an increase in economic sentiment for the European Union and the Eurozone. This improvement has come from positive developments in the industry and construction sectors. Moreover, the confidence among consumers and in the services was also stable during the time.
On the other hand, the upcoming US data releases might shape market expectations about how the Fed will indicate a rate cut. The week will start with the ISM manufacturing PMI on Monday, therefore, the non-manufacturing index on Wednesday.
Moreover, the US labor market has shown some signs of stress lately. The real wage growth cooled substantially with a decline in the JOLTS declining, indicating the slowdown of overall employment growth.
As for the Forex Weekly Fundamental Forecast for this week, the massive bullish momentum in the EURUSD price may continue despite the negative news from the BREXIT front. However, a strong rebound in the US labor market may reverse the current price structure.
The UK has left the European Union after over three years of turmoil. UK PM Boris Johnson addressed that the government’s job may bring the country together and takes it forward. “It’s not an end, it’s a beginning,” Johnson mentioned. Moreover, Johnson mentioned that they had taken plans to control immigration, free ports creation, and creating UK’s own laws and rules. Overall he was optimistic about the quality and the growth of the national renewal.
The GBPUSD pair moved higher with an impulsive momentum when the UK prepares to move out of the European Union. The exit pointed a mark of a victory for Boris Johnson and other Brexiteers. The country will discuss the trade deal with the EU like other countries.
Besides the USD employment news, investors will see the Final Services PMI for GBP, which is expected to remain unchanged at 52.9. Moreover, the bullish sentiment of GBPUSD is expected to continue until any disappointment from the US economic data.
In Canada, jobs data for January will hit on Friday. Following the dovish tone from the Bank of Canada, the chance for a rate cut by April now stands at 60%. Therefore, the incoming data will be important in shaping expectations.
The loonie has already taken a beat by the US Dollar so far this year. The main reason for this was the rising of BoC’s rate cut odds, the decline in oil prices, and the effect of coronavirus to global growth as Canada is an export-heavy economy.
Therefore, the loonie’s price direction may be tied to how the virus theme evolves along with the movement in oil prices. In that sense, virus fears may continue to plague markets for a longer period. Till now, there is no sign that the situation is under control. Hence, the situation may get even uglier from here.
As of the Forex Weekly Fundamental Forecast, the movement for USDCAD will mostly depend on the Data of the US. Additionally, any negative news from the coronavirus may push the USDCAD up.
Gold prices rallied above the fresh 7-year high as concerns about the coronavirus. Investors have found Gold as a continued to benefit safe-haven assets. For the year that followed the SARs virus, gold prices rallied almost 28%. The news from the WTO indicated that the virus was considered as a global emergency. Moreover, weaker than expected Chicago PMI data increased investors’ sentiment from US Dollar to Gold.
This week, the bullish sentiment of Gold is expected to continue due to the recent concern about the coronavirus along with the possibility of the global slowdown. Besides that, central banks around the world are keeping interest rates very low. Therefore, it makes sense that gold may continue to go further upside. The Federal Reserve, European Central Bank and Bank of England all pointed that the loose monetary policy may continue a way forward. Therefore, it is good for gold as it is a “race to the bottom” when it comes to Forex.
Oil prices were underpinned by reports from Saudi Arabia that has opened a discussion about the upcoming policy meeting from March February. The main discussing element for the meeting was set to the impact of coronavirus on crude demand.
The Chinese manufacturing data has come in line with expectations, which is a positive price indication for Gold. The Chinese PMI has fallen to 50.0 in January from 50.2 in December as reported by China’s National Bureau of Statistics (NBS). However, it wasn’t the actual report that capped the market as it did not reflect the current conditions of the country.
The virus is expected to set the direction of the Chinese economy. Moreover, there is a fear that China could use this as an excuse to opt-out of its commitment to purchase more goods from the U.S. farm as a part of ‘Phase One’ trade agreement. As we know, China is the world’s second-largest consumer of oil. Therefore, the disruption to China’s economy may push further pressure to the Oil prices in the coming days.
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