The US dollar, Japanese yen, and the pound remained on the back foot, while the euro surged to new highs. Will we see the pattern of quick consolidation and a strong continuation? Rate decisions in Australia the UK and the Euro-zone, as well as US ISM Non-Manufacturing PMI and trade balane, are the leading events this week. Here is an outlook on the main market-movers coming our way.
US Non-farm Payrolls came broadly in line with market predictions gaining 157K jobs in January, while the unemployment rate climbed to 7.9% – a small disappointment. On a yearly average, the US economy added 181,000 jobs a month, better than the 153,000 pace originally reported but not fast enough to dent the unemployment rate to the 6.5% threshold set by the Federal Reserve. The Fed, made no change in policy and left QE4 to run at the same pace without any future hints. It did acknowledge that the economy had “paused” – the contraction in the US economy in Q4 was largely discarded by analysts. The recovery has yet to accelerate.
- Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia dropped the key interest rates by 25 basis points to 3%, the lowest level since April 2009, amid global slowdown and sluggish pace of consumer spending. The major risks continue to worsen especially in Europe, while US and China resume moderate growth. Inflation is in line with the medium-term target, with underlying measures at around 2.5 %. No change is expected now.
- US ISM Non-Manufacturing PMI: Tuesday, 15:00. The vast U.S. services sector expanded at its fastest pace in 10 months, reaching 56.1 in December, following 54.7 in November, boosted by a rise in new orders. The reading was well above economists’ forecasts of 54.2 indicating a growth trend in the US economy. A small decline to 55.2 is expected this time, but the manufacturing figure is certainly encouraging.
- Australian employment data: Thursday, 0:30. Australian job market contracted by 5,500 net jobs in December, lifting unemployment rate to 5.4% from 5.3% in November. All the losses occurred in full-time employment which dropped 13,800 in December. Economists expected a 2,300 rise in the number of jobs. A job addition of 6,100 is expected with higher unemployment rate of 5.5%
- UK rate decision: Thursday, 12:00. The Bank of England maintained its monetary policy unchanged in its last meeting deciding to keep rates at 0.5% and QE at 375 billion pounds. .Recent data has been very disappointing in the UK, with a drop in GDP and without any sector that could pull the economy forward. The recent drop in the pound reflects this weakness, but isn’t enough to allow exporters to benefit in a significant manner. On the other hand, the weaker pound could push prices of imported goods higher, while inflation is still too high. All in all, the BOE is stuck between a rock and a hard place. There is a small chance that the BOE will announce more QE. Mervyn King and his colleagues might want to wait another month in order to assess the complex implications. If QE is announced, a sharp but temporary drop in GBP/USD can be expected. Previous announcements didn’t turn into a long-lasting move.
- Eurozone: Rate decision: Thursday, 12:45, press conference at 13:30. The European Central Bank is not expected to make any change in policy. The previous meeting saw a significant shift from hinting about an upcoming rate cut to a unanimous decision against it. Making another big shift in either direction now could hurt the ECB’s credibility. Draghi is expected to reiterate the improving situation in the financial markets, now accompanied with better business sentiment in Germany, while expressing worries about the situation in the real economies, which is still deep in the woods. Draghi could be pleased with some unwinding of the LTRO seen recently and repeat the forecasts for a recovery in H2 2013. The overall atmosphere is likely to be hopeful, yet cautious. The euro could rise a bit at the end of Draghi’s presser. Hints of rate hikes are still far in the future..
- US Unemployment Claims: Thursday, 13:30. The number of Americans seeking initial unemployment benefits edged up last week to 368,000 from 330,000 in the preceding week however remained at a level consistent with moderate hiring. Job cuts usually appear in the second week in January as retailers dismiss temporary employees hired for the winter holidays. The four-week average, ticked up to 352,000, just above a four-year low. A small decline to 361,000 is expected this time.
- Canadian employment data: Friday, 13:30. Canada’s jobless rate declined to 7.1% in December, in light of a 40,000 job addition, occurred almost exclusively in Ontario. The huge leap in the job market was a total surprise to economists expecting a modest rise of 4,000 jobs. Ontario gained 33,000 net new jobs. Nearly all jobs were full-time positions. A job addition of 4,200 is forecasted with higher unemployment rate of 7.2%.
- US Trade Balance: Friday, 13:30. The U.S. trade deficit unexpectedly widened in November to $48.7 billion from $42.1 billion in October, amid a boost in imports, indicating to a sharp decline in economic growth during the last quarter of 2012. Analysts expected the deficit to contract to $41.1 billion. Nevertheless, the increase in imports also suggests the U.S. economy is buying imports. Deficit is expected to narrow to 45.8 billion.
*All times are GMT.
That’s it for the major events this week. Stay tuned for coverage on specific currencies
Further reading:
- For EUR/USD, check out the Euro to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar
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