Weekly outlook: January 20th -24th

ECB, BoJ, BoC and financial releases in the forefront Leaving a week behind which included the signing of the US-Sino initial trade deal, we expect next week to provide further volatility as a number of central bank interest rate decisions and significant financial releases are due out. Also, next week we will be having the Davos meeting at the Swiss resort. Albeit a number of speakers may be of interest we tend to focus on US President Trump’s speech on Tuesday. Also be advised that many headlines could be generated by the side-lines of the meetings and personal interviews of world leaders to media. As for monetary policy events we tend to concentrate on the interest rate decisions from the Eurozone by the ECB, Canada by the BoC, Japan by the BoJ and from Norway Norgesbank. As for financial releases, albeit the week may be slow for US data, we get a number of releases from other countries which could increase volatility in the markets substantially. USD – In the aftermath of the US-Sino trade deal The current week ends with initial US-Sino trade deal signed as the two countries set a milestone in their lengthy negotiations. The deal evolves mostly around a number of Chinese commitments on further purchases from the US over the next two years, including agricultural products, energy, services and others. As per media reported, some US tariffs applying mainly to consumer products are to be rolled back and others are to stay as leverage for the coming phase two negotiations. However, we would not hold our breath for phase 2 negotiations to begin soon, as Chinese President Xi stated

that it may not be prudent to start such

negotiations right away. On the flip side we have to mention that worries seem to linger on as media and analysts note the deficiencies of the trade deal. For

example analysts noted

that the targets set may prove difficult to accomplish, yet we expect the two sides to show some commitment to the signed deal. Also, structural issues which may have provoked the trade war in the first place seem to be omitted and could continue to create frictions. Never the less, we tend to expect further developments on the issue, which could affect the direction of the USD. Please note that the EU seems to be preparing to set a legal challenge to the US-Sino deal at the WTO, however this scenario at the current stage still seems remote. On the other hand, we would not be surprised to see the US opening another trade front, this time with the EU. It should

be mentioned though that the EU trade commissioner stated recently that the issue of possible US tariffs on cars imported from EU, was not mentioned in recent talks in Washington. In the inner US political stage, the proceedings of the impeachment trial at the US Senate have started, creating lots of headlines, yet little market reaction. As the week is to progress, we may see headlines multiplying, however it may prove difficult to overturn the market’s discounting for Trump’s ultimate acquittal by the Republican controlled US Senate. As for financial releases, we expect a slow week, yet never the less we could see some interest gathering at the release of the Markit PMIs, especially the manufacturing PMI on Friday as well as the release of the existing home sales growth rate for December on Wednesday and the initial jobless claims figure on Thursday. Also please note that on Monday US markets are to be closed for Dr. Martin Luther King day. GBP – Employment data and PMIs in focus With the all this negativity surrounding the pound one would expect that the currency would weaken substantially, yet the sterling seems to be ending the week higher than on Monday’s opening. Fundamentals surrounding the pound this week was not so much Brexit as the intentions of the BoE for its January 30th meeting. Repetitive statements of BoE officials directly mentioning a possible rate cut or hinting towards

it, did not make it easy for the pound. Also the weak if not

negative financial data including GDP, inflation and retail sales this

week,

underperformed the market’s expectations and strengthened the chances for the bank to take action sooner than later. In the coming week, pound traders get an early start as on Monday during the European session we get the UK employment data for November. Should the readings show a tight UK labor market we could see the pound getting a lift. Also UK traders are expected to keep a close eye on the release of the preliminary Markit PMI’s for January, especially for the services sector, due out on Friday. On second base we would also like to mention the release of the January UK CBI trends for orders on Wednesday.

EUR – ECB interest rate decision front and center The main event on a fundamental side for the common currrency in the past week in our opinion may have been the release of ECB’s account of the December monetary policy meeting. The bank seemed to strike a slightly optimistic tone on the area’s economic outlook and sounded a bit content with the developments regarding inflation. Policymakers reiterated the need for a highly accommodative monetary policy stance for a prolonged period of time, as per the minutes released. Exactly that tone is now to be confirmed on Thursday’s meeting, when the bank is to release its new interest rate decision. The market currently seems to be expecting the bank to remain on hold at 0.0% for the refinancing rate and currently EUR OIS seem to imply a probability of 75.94% for the bank to remain on hold. We tend to be even more inclined towards the bank remaining on hold and would not be surprised to see the bank maintaining a more hawkish tone in its accompanying statement, especially after the recent upbeat financial data for the area. Please note that the release is to be followed by a press conference held by ECB president Christine Lagarde, which could extend volatility for EUR pairs. As for financial releases, the financial data expected in the coming week are to be the

preliminary Markit PMI’s for January on Friday, which could push the single currency a bit higher should they show further improvement in the economic activity for the area. Please note that the French PMI’s are the first out and could be

receiving the first market reaction, yet the market also tends to be closely watching Germany’s manufacturing PMI, as a gauge for the economic activity in Eurozone’s financial locomotive. Also, EUR traders are expected to be focusing on the release of Germany’s ZEW economic sentiment for January on Tuesday as well as the Germany’s producer prices growth rate for December on Monday.

JPY –BoJ interest rate decision to dominate JPY continued to weaken against the USD in the last days hitting an eight month low. One can only wonder how much lower JPY could get against the USD in the coming days. BoJ’s interest rate decision along with safe haven flows and financial releases are to confirm or reverse the japanese currency’s current direction. Starting with BoJ’s interest rate decision on Tuesday, the bank is widely expected to remain on hold at -0.10% and currently JPY OIS imply a probability for the bank to do so by 82.67%, mostly strengtheing arguments for the bank remaining on hold. We would not be surprised to see the bank reiterating that it will keep rates at current levels or even cut them in order to achieve the 2% inflation target. Also the bank is expected by a number of analysts to keep the guidance about the 10 year government bond yields remaining around 0%. As for international developments the bank may raise somewhat its economic growth forecast, given the signing of the US-Sino initial trade deal and easing middle east tensions, after the US-Persian crisis couple of weeks ago. JPY in the past week was weakened, at least partially also by safe haven outflows, as the Iranian crisis seems to have been avoided, while at the same time the signing of the US-Sino deal may have also provided some confidence in the market, intensifying such outflows for the JPY. As for Japanese financial releases JPY traders are expected to stay alert for Japan’s inflation rates for December as well as the preliminary Jibun manufacturing PMI for January, both to be released on Friday’s Asian session.

CAD – Awaiting for the BoC interest rate decision The Looney maintained a largely sideways movement maybe influenced by the muted oil prices lately, as well as the lack of financial releases related to Canada this week.

This week Looney

traders are expected to be waiting BoC’s interest rate decision on

Wednesday during the

American session. The bank is widely expected to remain on hold at +1.75%, and currently CAD

OIS imply a probability of the bank standing pat at 95.84%, practically rendering the interest rate level part of the decision as an open and shut case. We see BoC governor Poloz’s comments in the past couple of months that the monetary policy is about right, supporting such a move. In the accompanying statement we could see the bank maintaining a balanced tone, yet some optimistic hints are quite possible after the latest employment data showed a rather tight Canadian labor market and inflation seems to remain at rather high levels. The signing of the US-Sino trade deal could apease, at least to some degree the worries of the Canadian central bank for the global trade wars and their repurcassions on the growth outlook of the glogal economy and subsequently oil demand. Also Canada is to provide the markets with some very interesting financial releases the coming week. Starting on Wednesday with the Canadian inflation rates for December, the CAD trader could also be watching the release of Canada’s retail sales growth rate for November on Friday.