Week Ahead
 | 25/02/2019

Weekly outlook: February 25th to March 1st | European and Canadian inflation rates along with US GDP rate to catch the trader’s eye.

Entering the new week in the fundamentals, we expect Brexit to be in the headlines once again, as the UK Parliament is to have another sitting for the issue. In the US fundamentals, we could see the market be influenced by the US-Sino trade negotiations, yet at the same time we could see the global economic outlook as well as the domestic US economic outlook, weigh on the USD’s direction. As for the planned Kim-Trump meeting, if there are no surprises, we could see it having a limited impact in USD’s direction. Other financial instruments such as gold or JPY pairs could also be affected. In the financial releases front, there are a number of financial data due, which stand out. The most prominent would be February’s preliminary inflation rates for the Eurozone, as well as Canada’s January inflation rates and the long awaited US GDP growth rate for Q4, yet a number of other financial releases could also influence currency pairs.

USD – US GDP growth rate and Powell’s testimony to be main points of reference.

The week begins on the backfoot for the USD once again, as US President Trump postponed any tariffs on Chinese imports, hence weakening the USD’s role as a safe haven. The US president cited substantial progress made and eyed a meeting with the Chinese president, should there be further progress in the negotiations. Despite further headlines on the US-Sino negotiations being possible, we expect the markets also to turn their attention towards the domestic macroeconomics and specifically the Fed’s outlook, as Fed Chair Jerome Powell will be testifying before the Senate. Please note also, the Trump-Kim meeting in Vietnam, mid week. Should there be no surprises, the meeting could provide for some headlines, though limited volatility for the USD as further normalisation seems to be in the cards for the relationships of the two countries. In the finacial releases front, the USD starts the week on Tuesday as the CB consumer sentiment indicator for February is due out (Forecast: 125.0 vs. Prior: 120.2) and could provide some support for the USD. On Wednesday the Durable goods orders growth rates for January are to be released. There could be some conflicting signals for the market there, as the headline rate is expected to slowdown (Forecast: +0.2% mom vs. Prior: +1.2% mom), while at the same time the core rate is expected to pick up (Forecast: +0.3% mom vs. Prior: +0.1% mom). Also on Wednesday the factory orders growth rate for December could provide some support as it is forecasted to accelerate substantially (Forecast: +0.6% mom vs. Prior: -0.6% mom). Eyes of the market seem to be fixed though, on the release of the preliminary US GDP growth rate for Q4 (annualised), which is forecasted to slowdown substantially (Forecast: +2.6%qoq vs. Prior: +3.4% qoq) and could weaken the USD in such a case. Last but not least on Friday, the ISM manufacturing PMI concentrates investor’s attetion and could weaken the USD as it is forecasted to drop (Forecast: 55.9 vs. Prior: 56.6).

GBP- Brexit and Manufacturing PMI to influence the pound.

For another week, Brexit will be in the forefront for the pound, as another sitting of the UK parliament about the issue, is scheduled. Theresa May, seems to have postponed the next Brexit vote for the 12th of March, just 17 days before the actual departure of the UK from the EU, hence increasing stakes considerably. We could see the UK parliament, taking over a more active role on Wednesday, however whether such a development will take place, as well as its form is to be seen. Anyway, any further developments could provide for higher volatility for the pound and we see the case for the sterling to remain under pressure as long as Brexit uncertainty is maintained. In the financial releases front little is expected, as no major financial release is expected until Friday from the UK, when the manufacturing PMI for February is released. UK’s manufacturing PMI for February, is forecasted to drop reaching 52.0, if compared to its prior reading of 52.8. Should the actual figure meet its forecast, we could see it weakening the pound as the drop could signal a weakening of economic activity in the UK manufacturing sector, which remains very sensitive after a number of recent announcements, especially Honda’s and Nissan’s.

EUR – CPI rates to draw attention, yet other releases are of interest as well.

A number of financial releases affecting the common currency are due out this week however the inflation rates could be the main point of interest for EUR traders. Starting with Germany’s preliminary HICP rate for February on Thursday, we could see some smiles in Brussels, should the rate tick up as forecasted (Forecast: +1.8% yoy vs. Prior: +1.7% yoy). The same could happen on Friday as Eurozone’s preliminary CPI rate for February, is also expected to tick up (Forecast: +1.5% yoy vs. Prior: +1.4% yoy). Allbeit the progress forecasted is quite small, it could raise some hopes at the ECB should the actual rates meet their forecasts, providing arguments for a stabilisation of Eurozone’s economy in the near term. On second base, Germany’s Gfk Consumer Sentiment for March, could also provide for some hopes, as it is forecasted to remain unchanged at rather high levels (Forecast: 10.8 vs. Prior: 10.8). Another positive signal for Germany could come from the release of the unemployment data for February, as the unemployment rate is expected to remain at 5.0% , which could be considered as rather low for German standards and the unemployment change is expected to dip a bit deeper into the negatives (Forecast: -5k vs. Prior: -2k).

CAD- Inflation and GDP rates to provide further direction.

Loonie traders usually are having one eye on the oil market and should oil prices continue to rise, we could see the CAD, strengthening with it. However on a darker shade, the financial releases this week are not expected to do any favours for the Loonie. Starting with the Canada’s inflation rates for January on Wednesday, the headline CPI rate is forecasted to slow down substantially reaching +1.4% yoy, if compared to prior reading of +2.0% yoy. Should the core rate also decelerate from its prior reading of +1.7% yoy, we could see the two inflation rates aligning pointing to a potential slowdown of inflationary pressures in the Canadian economy, which could have an adverse effect of BoC’s economic outlook. Such worries could be enhanced should also the GDP growth rate slowdown for Q4 on Friday, practically adding the pressure on Canada’s central bank and probably weakening the CAD.

JPY- Industrial production and retail sales could affect the Yen.

With BoJ’s making dovish statements, it’s only natural to worry about JPY’s direction. Especially as the global slowdown could also affect substantially the Japanese economy, besides China and the Eurozone. We tend to focus on two releases affecting the Yen this week, both on Wednesday and those would be the preliminary industrial production growth rate for January and the retail sales growth rate for January. The industrial production is forecasted to slowdown (Forecast:-2.4% mom vs. Prior: -0.1% mom) and dive far deeper into the negatives. On the other hand the retail sales growth rate is expected to tick up (Forecast: +1.4% yoy vs. Prior: +1.3% yoy), providing hopes for some inflationery pressures in the Japanese economy. So the release provide conflicting messages to the market, yet the slowdown of the industrial output is substantial and could steal investor’s attention.