Forex Weekly Outlook Jan. 28 – Feb. 1 – Fed and NFP promise explosive week

Concerns about global growth supported the USD, but the moves were limited as the Fed may be on its way to halt the balance sheet reduction program. What’s next? The Fed decision and the US Non-Farm Payrolls stand out as a turbulent January draws to an end. Here the highlights for the next week.

The Chinese economy slowed down, as expected. However, the headlines about 2018 being the slowest expansion rate since 1990 did not help improve the mood. Trade talks between China and the US did not make a lot of progress as the warnings about the global economy grow. There has been no substantial breakthrough on Brexit, but hopes for a second referendum increased and pushed GBP/USD above 1.3000. The US government shutdown continues with a temporary closure of New York’s La Guardia airport emphasizing the economic damage. The arrest of former Trump aid Roger Stone was also in the limelight and prospects of the Fed cutting short its balance sheet reduction scheme probably had the biggest negative impact on the USD.

1. ECB’s Draghi talks, Monday, 14:00. European Central Bank President Mario Draghi will testify in the European Parliament in Brussels. He may add more insights into the current economic situation after the rate decision. Draghi may be asked about the risks of a recession and about wages. Any hints about changes to the rate prospects will move the euro.
2. US CB Consumer Confidence: Tuesday, 15:00. The Conference Board’s gauge of consumer confidence stood at 128.1 points in December, off the peak levels, but still reflecting an upbeat mood among American shoppers. After the preliminary gauge by the University of Michigan dropped, we can expect the CB indicator to fall as well. A score of 125 is on the cards.
3. Australian inflation: Wednesday, 00:30. Australia publishes its Consumer Price Indicator report only once per quarter, making each publication significant. In Q3, both headline inflation and rose by 0.4%, a moderate pace. A repeat of these numbers is expected.
4. US ADP Non-Farm Payrolls: Wednesday, 13:15. The private sector report by Automated Data Processing (ADP) beat all expectations with an increase of 271K jobs in December, setting the stage for a blockbuster official Non-Farm Payrolls report. The report for January may be somewhat more moderate. An increase of 170K is on the cards.
5. Fed decision: Wednesday: decision at 19:00, press conference at 19:30. In the final decision for 2018, the Federal Reserve raised interest rates but lowered its projections for 2019: two rate cuts against three that had been forecast. Also, Fed Chair Jerome Powell said that the scheme to reduce the balance sheet would continue “auto-pilot.” His words sent stocks lower. The decision was considered hawkish. Since then, the tunes have changed. Powell and some of his colleagues suggested a change to Quantitative Tightening. They also acknowledged the slowdown and called for patience in raising interest rates. Raphael Bostic of the Atlanta Fed took one step further and said prices could also go down. No policy changes are expected in this rate decision in January. However, it will be an opportunity for the Fed and Powell to officially clarify their new way of thinking and perhaps also explicitly rule out an increase in March when the Fed publishes new forecasts.
6. Euro-zone GDP: Thursday, 10:00. The euro-zone economies slowed down in 2018, with a meager expansion of 0.2% in the third quarter. Figures for the last quarter of the year are unlikely to be better. Italy may have entered an outright recession while Germany probably only escaped it narrowly. The data impacts the ECB. A repeat of the 0.2% growth rate is on the cards.
7. Canadian GDP: Thursday, 13:30. The Canadian economy expanded by a satisfactory 0.3% in October, the first month of Q4. The fresh publication is for November and could be a tad lower.
8. US Core PCE Price Index: Thursday, 13:30. The Fed targets Core Price Expenditure Index, making the figure significant for markets despite the lagging publication. With stable Core CPI figures, no significant changes are projected to the y/y numbers. On a monthly basis, prices rose by 0.1% in November and may have risen by 0.2% in December. Note that this release may be canceled.
9. Chinese Caixin Manufacturing PMI: Friday, 1:45. The independent, forward-looking survey by Caixin dropped below 50 in December, indicating contraction in the manufacturing sector of the world’s second-largest economy. Another deterioration is likely in January from 49.7 reported in December. The same score is forecast for January.
10. US Non-Farm Payrolls: Friday, 13:30. The US labor market enjoyed an excellent December with 312K jobs gained, blowing expectations. Wages also beat expectations with an increase of 0.4% m/m and 3.2% y/y. And while the unemployment rate rose to 3.9%, it came on top of a rise in the participation rate, an encouraging improvement. The report for January may be upbeat on the salaries front, but the government shutdown could impact the headline change in jobs. In any case, an increase of 300K positions is highly unlikely. Expectations stand at 165K jobs gained and salaries rising by 0.3% m/m.
11. ISM Manufacturing PMI: Friday, 15:00. This forward-looking indicator is almost always published before the NFP and serves as a hint towards the publication.   The figure for December badly disappointed with a plunge to 54.1, substantially below expectations. However, it still reflects growth. The Prices Paid measure is also of importance as it serves as another gauge of inflation for the Fed. A small drop to 54.3 is on the cards.

*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 – the outlook for dollar/yen
• AUD/USD forecast – projections for the Aussie dollar.
• USD/CAD forecast – Canadian dollar predictions

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