Week Ahead
 | 21/12/2018

Biweekly outlook: December 24th to January 4th| A slow market, with most events after New Year’s day

As the seasons holidays draw near, we could expect the market slowing down as a number of markets will be closing and most releases concentrating after New Year’s day. Hence we grab the opportunity to present a biweekly outlook, to cover the total length of the period, including the first days of 2019. The fundamentals of the period could prove slow however surprises cannot be ruled out completely. Do not forget that North Korea’s charm offensive towards the US began on the 1st of January 2018, with a speech by Kim Jong Un. Likewise, we wouldn’t be surprised to see any tweets by US president Trump catching the market by surprise, especially about the US-Sino trade war. Also, we could see some mobility in Brexit. Theresa May’s draft deal, seems to be unable to get UK parliament’s approval and a Plan B could be in the works, as a flat rejection of the existing deal, could increase uncertainty and threaten her own position. Leaving the fundamentals aside though for the time being, let’s have a closer look at the main financial releases over the next two weeks.

USD - Consumer Confidence, ISM Mfg PMI and NFP to define the week

Starting with the USD. With the engines of the market still in a slow gear probably, on Thursday the CB consumer confidence for December (forecast: 134.3 vs. prior: 135.7) could provide for some volatility and should it drop as forecasted we could see the USD weakening ahead of the year’s end. Moving on past New Year’s Day, on Thursday the 3rd of January, we get the ISM manufacturing PMI for December (forecast:58.4 vs. prior:59.3) and if its reading also drops, it could be sending another bearish signal. With the engines in full, on Friday the US employment report for December could rattle the markets. With the unemployment rate (forecast: 3.7% vs. prior: 3.7%) and the average earnings growth rate (forecast: +3.1% yoy vs. prior: +3.1% yoy) expected to remain unchanged, the market’s attention could be turned to the NFP figure (forecast: 175k vs. prior: 155k), which suffered a substantial drop in the last release. Overall, should the report show the picture of a rather tight labour market, we could see the USD getting some support. Please be advised that the market may start positioning itself ahead of the release and it may be advisable for traders zooming in on the release to open their positions earlier.

GBP - Construction, Manufacturing and Services PMI’s to set the mood

Across the Atlantic and should there be no surprise in the Brexit front and with the pound, feeling the pressure of the Brexit uncertainty, GBP traders will have to wait after New year’s Day, when the three UK PMIs for December are to be released from the 2nd of January till January 4th. Should the manufacturing PMI (forecast: 52.3 vs. prior: 53.1), the construction PMI (forecast: 52.7 vs. prior: 53.7) and especially the Services PMI (forecast: 50.7 vs. prior: 50.4) show lukewarm to lower readings, we could see the bearish sentiment for the pound strengthening.

EUR – CPI rates, PMI’s and German employment data to keep EUR traders busy

Across the Channel, in the European mainland and the Eurozone more specifically, action could be starting right after the Christmas holidays as the ECB economic bulletin is due out. On Friday the 28th of December, Germany’s preliminary HICP rate for December (forecast: +1.9% yoy vs. prior: +2.2% yoy) is due out and currently it is expected to decelerate substantially, in which case the common currency could suffering a blow. On January 2nd, the final release of Germany’s manufacturing PMI for December is due out and should it confirm the low preliminary reading, again could weaken the common currency. However the highlights for the EUR could be expected on Friday the 4th of January, as a number of final PMI’s for December affecting the EUR are due out, as well as Germany’s unemployment data for December and last but not least, Eurozone’s HICP rate for December (forecast: +1.8% yoy vs. prior: +1.9% yoy). Should the rate decelerate, we could see the common currency weakening again. Overall, as a number of indicators are expected to be more on the bearish side, we could see the common currency starting the year on the back foot.

JPY – A number of second-tier data to guide the Yen for the holidays

Financial releases affecting the Yen seem to concentrate on December the 28th. The releases seem to have weak to lukewarm forecasts and should they be realized could weaken the Yen. Starting with the Tokyo Core CPI rate for December (forecast: +0.9% yoy vs. prior:+1.0% yoy), a possible deceleration could weaken JPY as it is considered a forerunner for the nationwide core rate and the same could be applied for the headline rate. The unemployment rate is forecasted to remain at the very low (even for the Japanese economy) level of 2.4% in November, however the effect may be muted, as the market is used to such low unemployment rates from Japan. Both the preliminary industrial output growth rate (forecast:-1.9% mom vs. prior: +2.9% mom) and the retail sales growth rate (forecast:+2.2% yoy vs. prior:+3.5% yoy) for November, are expected to decelerate substantially and could imply less economic activity, increasing worries about Japan’s economy and hence weakening the Yen.

Overall, from all of us here at IronFX, we hope that the past year has been a profitable one, despite its ups and downs and would like to wish you the very best wishes for Merry Christmas and a Happy New Year.