The jury is out, more rate hikes are coming

Forex Weekly Outlook, Jan 7- 11: Major Economic Events to Trade this Week

Posted Sunday, January 6, 2019 by
Arslan Butt • 3 min read
  1. On Friday, the Greenback fell against the Euro, giving up all the winnings recorded after strong US labor market figures.
  2. The US economy added 312K jobs in December, far more than the 177K that was expected. It’s the largest surge in payrolls since February 2018.
  3. The first full week of 2019 is likely to bring some action with the FOMC Meeting Minutes, US inflation, BOC Rate Decision and the UK GDP.
  • Here are the highlights for the coming week.

    Key Economic Figures this WeekMonday, Jan 7Today, the Asian markets are most likely to price in the US labor market figures. In the case of US employment data, the dollar typically prices in Nonfarm payroll data at its earliest while the later movement depends upon the Unemployment rate.

    The US economy added 312,000 jobs in December, far more than the 177,000 that was expected and the largest increase in payrolls since February 2018. The unemployment rate rose to 3.9 percent, from 3.7 percent

    In the current scenario, it seems like the NFP was already priced in on Friday and now dollar will trade on the worse than the expected unemployment rate.

    USD – ISM Non-Manufacturing PMI

    The Institute for Supply Management is due to release services PMI figures at 15:00 (GMT) with a forecast of 59.6 vs. 60.7. Typically, the figure is released ahead of the NFP data but it’s late this month due to Christmas and New Year holidays.

    Tuesday, Jan 08CAD – Trade Balance
    The Statistics Canada is due to release the data at 13:30 (GMT) with a forecast of -1.9B vs. -1.2B. Canada is recognized as a resource-based country, which essentially implies that most of the economic growth it experienced early on came from the utilization and export of its own natural resources. That’s why the trade balance figure carries significant value in the determination of Canadain dollar prices.

    Wednesday, Jan 09Today, the investor focus will stay on the FOMC statement and Canadian monetary policy decision. Let’s look at these.

    CAD – Bank of Canada & Monetary Policy Decision
    At 15:00 (GMT), the Bank of Canada will be releasing the Overnight Rate along with BOC Rate Statement. It’s widely expected to hike the rate from 1.75%% to 2%.

    There’s a sort of herding behavior in the market. Central banks are following the footsteps of the Federal Reserve. Bank of Japan, People Bank of China, European Central Bank, Bank of England and now the Bank of Canada is also shifting its monetary policy from dovish to hawkish. The Canadian dollar is likely to trade with a bullish sentiment due to interest
    rate hike forecast.

    USD – FOMC Meeting Minutes
    At 19:00 (GMT), the US Federal Reserve is due to release the monetary policy statement. Fellas, the Fed boosted interest rates in its last decision of 2018 but lowered its forecasts for 2019 from three to two hikes.

    Was it a dovish hike?

    Fed Chair Jerome Powell said the Fed will continue contracting its balance sheet. Quantitative Tightening remains on “auto-pilot.” These current meeting minutes will shed some light on the thinking of the central bank ahead of its meeting later this month.

    Thursday, Jan 10USD – Fed Chair Powell Speaks
    On Thursday, the Federal Reserve Chair Jerome Powell is due to speak at the Economic Club Luncheon, in Washington DC at 17:00 (GMT). This speech may not drive volatility in the market unless we get any further clues on the rate hikes in 2019 and economic growth. The odds of a muted reaction remains high.

    EUR – ECB Monetary Policy Meeting Accounts
    The ECB is due to release the policy meeting minutes at 12:30 (GMT). The European Central Bank ended 2018 by concluding the QE program, as expected. ECB President Mario Draghi was somewhat cautious in his comments about the economy, revealing worries about protectionism but keeping the expectations for a rate hike in 2019. The minutes will provide further detail.

    Friday, Jan 11GBP – GDP m/m
    The UK’s Office for National Statistics will announce monthly GDP data next week. Despite the worries over Brexit and the gridlock in Parliament on the withdrawal deal, the UK economy does not seem to have slowed down. The GDP grew at the rate of 0.1% in November, while December’s figure is also expected to grow at the same pace. The data is coming out at 9:30 GMT.

    USD – CPI m/m
    The US headline inflation is due at 13:30 (GMT).In November 2018, the Consumer Price Index remained flat, as expected. The Core CPI advanced by 0.2% vs. 0.2% forecast.

    We will now get the numbers for December and thus for the full year. But the thing is, the recent drop in crude oil prices, the US-China trade war and consistent hikes in the interest rate may have a negative influence on the inflation rate. Economists are expecting a 0.1% drop in CPI figures while the core CPI is expected to grow at the same pace of 0.2% in December.

    Traders, enjoy your weekend and brace yourself for the next week as it’s going to be very exciting and full of price action over the series of hot news releases.

  • Good luck!

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