Last week, UK GDP beat expectations while Eurozone GDP fell. Chinese Inflation grew while US inflation remained steady. New Zealand kept interest rates on hold, US retail sales remained steady, and according to the University of Michigan, US consumer sentiment improved.
This week, we look forward to inflation data from the UK, Canada, Japan and the Eurozone. The US Federal Reserve and European Central Bank will release interest rate policy minutes, and we await Australia employment figures.
Early on Monday, Japan reported a significant decline in its Gross Domestic Product, with the annualized number falling to 6.3% for the 4th quarter. The Japanese Yen weakened on the back of this data and brings attention to the fact that while the US economy appears to be prospering from a strong employment, GDP and markets perspective, this is not necessarily true in Asia. Reports last week show that Singapore is bracing itself for a recession, following in the footsteps of Hong Kong. New Zealand has downgraded its GDP expectations too.
The relative performance of the US versus the rest of the World is apparent in the strong dollar, with little to detract it from its current trajectory.
The FOMC minutes are released on Wednesday, but my feeling, Coronavirus aside, is that there will be fears of US inflation and if anything, the Fed will be more hawkish. US President Trump persists in undermining his current Fed Chair, Jerome Powell, by arguing for lower interest rates in the US. In his vernacular, I think that would be “not good” for the US.
We will get strong evidence of how trade tariffs and low-interest rates are affecting inflation this week. On Wednesday UK (Y/Y) CPI for January is expected to rise to 1.6% vs 1.3% for December. Canadian CPI out later in the day is expected to tick up to 2.3% (Y/Y) for January. On Friday Japan CPI is expected to fall to 0.7% (Y/Y) January and Eurozone CPI is expected to stay flat at 1.4% Jan.
Australian employment numbers on Thursday precede Eurozone monetary policy minutes. Australian unemployment is expected to rise to 5.2% with only 10,000 new jobs created.
I shall be focusing my attention on USDJPY and GBPJPY this week. Today’s dismal Japanese GDP reading coupled with a rampaging dollar may test USDJPY and GBPJPY resistance levels to the upside. If the UK’s CPI reading on Wednesday is strong, US Fed minutes are hawkish and Friday’s Japanese CPI is a shocker then perhaps we can expect some more JPY weakness.
Good Luck and Good Trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
