Forex Weekly Outlook – Dec. 18-22 2017

The US dollar was on the back foot but managed to climb back in a busy week. As we enter the last week before the holidays, how will currencies make their last-minute  adjustments? GDP data from the US, the UK, and Canada stand out. Here are the highlights for the upcoming week.

The Fed decided to raise rates and leave the dot-plot unchanged. However, the additional dissent of Charles Evans weighed on the dollar. The greenback was also hit by lower inflation and the narrowing majority that Republicans have in the Senate. But as the week progressed, the dollar recovered also thanks to hopes that the tax bill will pass and an upbeat read on retail sales. The SNB and the BOE left their policies unchanged without rocking the boat. For the pound, the official EU approval that Brexit talks will now enter the second phase was marred by worries about the stability of the government and a not-so-great trade deal. The ECB left its policy unchanged and sounded upbeat about growth. This was not enough to change the direction regarding inflation and the general tone. The euro could not rally. The Aussie enjoyed a great jobs  report and recovered nicely.

1. US housing data: Tuesday, 13:30. US building permits jumped to an annualized level of 1.32 million in October, but this level is not expected to hold: 1.28 is forecast now. Housing starts also looked good with 1.29 million and a level of 1.25 is on the cards for November. Note that for a meaningful effect, both figures need to go in the same direction. In some cases, one surprises to the upside and the other to the downside, offsetting each other.
2. US Existing Home Sales: Wednesday, 15:00. Most transactions in the real estate market are of existing homes. The annualized level of sales jumped to 5.48 million in October. Another advance is on the cards now: 5.54 million.
3. New Zealand GDP: Wednesday, 21:45. New Zealand publishes its GDP data late, but only once, making it a bigger deal than in countries where there are revisions. The economy grew by a robust 0.8% q/q in Q2. A slightly slower rate is on the cards now: 0.6%.
4. Japanese rate decision: Thursday, early in the morning. The Bank of Japan seems to be the only central bank in the developed world not to take a hawkish turn. They keep on buying bonds in full-force. No change is expected now, as we reach the end of the year.
5. US final GDP: Thursday, 13:30. The second read of US GDP was quite positive: an upgrade to 3.3% annualized growth, better than expected. The third and final read is expected to confirm this growth rate, the second consecutive quarter of over 3% GDP growth.
6. US durable goods orders: Friday, 13:30. Sales of durable goods feed into GDP and the Fed also watches them carefully to understand the potential for future growth. Headline orders slipped by 0.8% in the final read for October and are expected to rise by 2% now. Core orders carry expectations for a rise of 0.5% after 0.9% beforehand. The data impacts Q4 growth projections.
7. US Core PCE: Friday, 13:30. The Fed’s favourite measure of inflation ticked up to 1.4% y/y in October. However, given the most recent Core CPI number, we can predict a slide back to 1.3%, too far below the 2% target that the Fed has.
8. Canadian GDP: Friday, 13:30. Canada enjoyed an excellent first half to the year but the economy wobbled afterwards. The country is unique in publishing GDP data every month. In September, they reported a growth rate of 0.2% m/m. A similar figure is on the cards now.
9. US new home sales: Friday, 15:00. Sales of new homes jumped to 685K in October, much better than expected. This time, a slide to 652K is on the cards. While sales of new homes consist only a small part of the market, the construction of new homes triggers elevated economic activity.

*All times are GMT

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Further reading:

• EUR/USD forecast – for everything related to the euro.
• GBP/USD forecast – Pound/dollar analysis
• USD/JPY forecast – outlook for dollar/yen
• AUD/USD forecast – projections for the Aussie dollar.
• USD/CAD forecast – Canadian dollar predictions

Safe trading!