Republican candidate Donald Trump hit the headlines last week, with an emphatic victory in the Iowa caucuses which turned out to be great news for the US$.
(Think back to the Trump Presidency and a period of low-interest rates and run-way markets). The Dow, S&P 500 and Nasdaq all closed on Friday at record highs! Elsewhere inflation numbers in Germany, the Eurozone, Canada and the UK all remained on the high side, Australian employment numbers were shocking (especially full-time employment), as were UK retail sales. Michigan Preliminary Consumer Sentiment for January was very positive printing 78.8 vs forecasts of 70.
This week we have interest rate decisions for Japan, Canada, Norway and the Eurozone as well as US GDP estimates and US PCE indexes (The Fed’s preferred measure of inflation). Other important data yields from Germany, with measures of manufacturing PMI, business and consumer confidence. New Zealand 4th quarter inflation figures are also eagerly awaited.
It’s likely that Japan, Canada and the Eurozone will leave their interest rates at negative 0.1, 5.0% and 4.5% respectively. These announcements are due on Tuesday, Wednesday and Thursday. As ever, the statements after the meetings may shed light as to the immediate and medium-term trajectory of future decisions. Norway is one to keep an eye on. Last month the Norwegian Central bank hiked by 0.25% to 4.5%. (Announcement on Thursday).
New Zealand 4th quarter inflation numbers (Y.o.Y) are released on Tuesday evening and forecasts are 4.7%, still very much on the high side. NZDJPY is a favoured carry trade and with New Zealand interest rates at 5.5% I see little to knock this trade unless inflation surprises to the down side.
German Manufacturing PMI is expected to print slightly higher at 43.7 (January) vs 43.3 for December. German business confidence is also expected higher at 86.7 (Jan) vs 86.4 (Dec) but is somewhat contradictory to German consumer confidence which is likely to be generally less sanguine (-24.3 for Feb vs -25.1 for Jan).
US advanced Q4 GDP (out Thursday pm) is forecast at 2%, markedly down from the previous quarter. December’s Core PCE and Headline PCE (out on Friday) are both expected to drop to 3% and 2.6% respectively which will give Fed Chair Powell something to perhaps be excited about when the Fed announces its interest rate decision on 31st January.
Good Luck and Good trading!
Ben Robson is Head of Institutional E-FX at Swiss Finance Corporation. He is also the Amazon Best Selling Author of Currency Kings – How Billion traders Made their Fortune Trading Forex. McGraw Hill 2017
