Week Ahead
 | 11/03/2019

Weekly outlook: March 11th to 15th| Brexit and BoJ interest rate decision eyed

Entering the new week in the fundamentals, we expect Brexit to be front and center, as the UK Parliament is expected to have its next sitting for Brexit on the 12th of March and also have possible subsequent sittings on the 13th and the 14th as well. Despite Brexit being the main issue for the pound, we could also see the pound being influenced by some financial releases this week, with the UK GPD growth rate being the main release, among others. In the US fundamentals, we could see the market be influenced by the release of the retail sales growth rates as well as the CPI rates. On second base for the USD, we would also like to mention the release of the industrial output growth rate and the university of Michigan consumer sentiment indicator. For the Eurozone the release of Eurozone’s industrial output growth rate could be the main event. Yen traders are expected to concentrate on BoJ’s interest rate decision on Friday, yet prior to that, on Wednesday the release of Japan’s corporate goods prices growth rate along with the machinery orders growth rate could catch their eye as well. As for commodity currencies not many financial releases are expected, but China’s industrial production growth rate could move the markets somewhat for Aussie and the Kiwi, while the Loonie could be eyeing the release of the manufacturing sales.

USD – Inflation and retail sales to be the key points of interest.

After a disappointing NFP figure being released on Friday in the US for Febraury, we could see the market’s attention turning on Monday on the retail sales growth rates for January. The headline rate is forecasted to accelerate (forecast: -0.1% mom vs. Prior: -1.2% mom) practically stalling, while at the same time the core rate is expected to accelerate substantially (forecast: 0.2% mom vs. Prior: -1.8% mom). Should the actual rates accelerate as forecasted, we could see the USD getting some support as the two rates align and could imply that the average US consumer is willing and able to spend more in the US economy. Please be advised that Fed Chair Jerome Powell had stated on Friday that he expects a rebound in retail sales, hence we could see risks surrounding the particular release being tilted to the upside. On Tuesday we get the US CPI rates for February. Both the headline (forecast: +2.2% yoy vs. Prior: +2.2% yoy) and core rates are expected to remain unchanged if compared to January’s respective readings. Should the two rates stabilise as forecasted, we could see the USD getting some support, as the core rate remains in rather high levels and the deceleration of the headline rate stops. On Wednesday, we get the US durable goods orders growth rates for January. The headline rate (forecast: -0.7% mom vs. Prior: +1.2% mom) is expected to slowdown substantially while the core rate (forecast: +0.2% mom vs. Prior: +0.1% mom) is expected to accelerate slightly. Should the actual rates meet their forecasts and if the headline rate’s slowdown overshadows the release of the core rate, we could seet the USD weakening as the slowdown is substantial and the rate gets a negative sign in front. On Friday, from the US we get the industrial output growth rate for February. The rate is expected to accelerate substantially (forecast: +0.4% mom vs. Prior: -0.6% mom) and could provide some support for the USD. Also the University of Michigan consumer sentiment preliminary reading for March is due out (forecast: 95.5 vs. Prior: 93.8). Should the actual reading rise as forecasted, we could see the USD getting some support as it would be an early indication of the US consumer’s optimism. It should be noted that the USD could also strengthen in case we get more weak data from China, as its role as a safe haven could be enhanced by fears of a further global economic slowdown.

GBP- Brexit front and center, UK GDP eyed as well.

Brexit seems to be in a front row this week for the pound, as the UK parliament is to vote on Brexit once again. The first vote is scheduled to take place on Tuesday and is to decide on whether the UK parliament accepts Theresa May’s Brexit deal or not. Should the deal be accepted, we could see pound strengthening, as it would mean that the UK is proceeding with an orderly manner and the deal would be ratified on the March 21st-22nd in an EU summit. Should the deal be rejected, there will be a second vote (on the 13th of March, which would decide on whether the UK Parliament wants a hard Brexit or not. Should a hard Brexit be rejected, then we move on to the final vote on the 14th of March, where the UK Parliament is to vote on a possible extension of the Brexit date which is currently set for the 29th of March. As a general idea we retain our past analysis that any news favoring an orderly Brexit tend to strengthen the pound and vice versa. Hence, in case Theresa May’s deal is approved (yet that is not our base scenario) the pound could strengthen substantially, while if a no deal is voted the pound is expected to sink. In the case that the UK parliament rejects the prior two options and votes for an extension of Article 50, we could see the pound strengthening, albeit at a more modest pace. On the financial releases front, we tend to focus on two financial releases from the UK, both due out on Tuesday. The first would be UK’s GDP growth rate for January. The rate is expected to accelerate (forecast: +1.2% yoy vs. Prior: +1.0% yoy) and could strengthen the pound, as it could provide some hopes for the UK economy amidst the Brexit turmoil. Also please note that should the actual rate meet its forecast, it would be marking a turning point for the GDSP growth rate from December’s reading, which was the lowest level for over a year. The same applies for the release of UK’s manufacturing output for January (forecast: +0.0% mom vs. Prior: -0.7% mom), as it is forecasted to accelerate reaching 0% mom, yet get out of the negative area.

JPY – BoJ’s interest rate decision in focus

It’s going to be an interesting week for Yen traders, as the BoJ interest rate decision is due out. The bank is widely expected to remain on hold and currently JPY OIS imply a probability of 94.61% for the bank to do so. Should the bank remain on hold as expected we could see the market’s attention turning to the accompanying statement. We do not expect there to be substantial changes in policy, albeit the recent acceleration of the GDP growth rate and the low unemployment, could provide for sopme hopes about inflationery pressures in the Japanese economy. We could see the bank’s Governor Kuroda reiterating recent statements of determination to do whatever it takes to hit price target, yet a possible further easing of BoJ’s ultra loose monetary policy could be immature. Also it would be interesting to see if there will be any comments about the proposed new sales tax and its possible effects on inflation. However the interest of JPY traders could awaken from Wednesday, as the Corporate Goods Prices growth rate for February and the Machinery orders growth rate for January are due out and could provide some volatility for JPY. It should be noted though that the JPY could also be sensitive this week, to any safehaven related flows, due to its dual role, as was evident past week.

EUR- Light Calendar with Eurozone’s industrial output in focus.

With the common currency still on the defensive, after last week’s clear dovish message from the ECB, trader’s focus tends to be on the release of Eurozone’s industrial output growth rate for January, for any indication of growth. The rate is forecasted to accelerate substantially (forecast: +1.0% mom vs. Prior: -0.9% mom) and get out of the negative area, providing some support for the EUR. Should also the Germany’s industrial output growth rate accelerate, we could see the EUR starting to strengthen, as the two rates would be aligning once again, indicating growth for the sensitive industrial sector of Eurozone’s economy.

AUD,NZD, CAD- Slow week watching Chinese data.

Commodity curencies are expected to have a rather slow week as there are no major financial releases. Yet the release of China’s industrial production for January could provide some volatility for the Aussie and the Kiwi as their respective economies have substantial exposure to the chinese one. The rate is expected to slowdown (forecast: +5.5% yoy vs. Prior: +5.7% yoy), which in turn could imply lower exports of raw materials from Australia and New Zealand. Should the rate slowdown as forecasted, we could see the AUD and NZD weakening, as it would be another siganl of China’s slowing economy. Also it should be mentioned that the slowdown is not have been affected by the Chinese new Lunar year celebrations, which took place beginning of February. The Loonie on the other hand may also be looking at the release of Canda’s Manufacturing sales for January. The rate is forecasted to accelerate (forecast: +0.4% mom vs. Prior: -1.3% mom) and could be providing positive messages for future retail demand in the Canadian economy. Also please be advised that the Loonie is quoite sensitive to any fluctuations of oil prices, so it would be advisable that CAD traders keep an eye out for any news regarding the oil market.