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Forex Weekly Outlook Jan. 7-11 – The See-Saw Is Set To Continue

Summary

Powell sent markets up, the USD down.

US inflation and the FOMC minutes stand out.

Trading volume is on the rise.

After the Non-Farm Payrolls and Powell caused some commotion, the first full week of 2019 also promises action with the FOMC Meeting Minutes, US inflation, and more. Here the highlights for the next week.

The mood remained damp at the wake of the new year as the Chinese slowdown looks more real, trade talks have not concluded, and Brexit still looms. The safe-haven USD and JPY gained quite a bit of ground. Things got more complicated with the downbeat ISM Manufacturing PMI and Apple’s revenue warning related to China. The greenback then rose on the superb NFP report showing 312K jobs gained before falling as Fed Chair Jerome Powell threw a bone to markets by changing his mind about the balance sheet reduction. The action continues.

  1. ISM Non-Manufacturing PMI: Monday, 15:00. This forward-looking indicator for the services sector is usually published ahead of the Non-Farm Payrolls, and the late publication gives it its own spotlight. The gauge surprised with 60.7 points in November, above expectations and indicating robust growth. A slide is likely now: 59.6 is projected.
  2. Canadian rate decision: Wednesday, 15:00. The Bank of Canada raised interest rates back in October and made it a “hawkish hike”. However, the Ottawa-based institution seemed more reluctant in its December meeting, stating that the economy can continue growing without further creating a lot of inflation.
  3. FOMC Meeting Minutes: Wednesday, 19:00. The Fed raised interest rates in its last decision of 2018 but downgraded its projections for 2019 from three to two hikes. Was it a dovish hike? Markets thought otherwise as expectations stood on a deeper cut in forecasts. Moreover, Fed Chair Jerome Powell said the Fed will continue shrinking its balance sheet. Quantitative Tightening remains on “auto-pilot.” The minutes from that meeting will shed some light on the thinking of the central bank ahead of its meeting later this month.
  4. ECB Meeting Minutes: Thursday, 12:30. The European Central Bank concluded 2018 by ending the QE program, as expected. ECB President Mario Draghi was slightly cautious in his comments about the economy, expressing concern about protectionism but maintaining the expectations for a rate hike in 2019. The minutes will provide further detail.
  5. Powell talks Thursday, 17:00. The Fed Chair will speak up once again, this time in Washington DC. He will have the chance to clarify the Fed’s intentions. Will he reiterate the patient approach of the Fed to inflation? What will he say about the Quantitative Tightening policy? Markets will be listening carefully.
  6. UK GDP: Friday, 9:30. The UK economy grew at a modest pace of 0.1% in October after a remaining flat in the previous two months but enjoying an OK third quarter. We will now receive data for November when the UK and the EU reached a Brexit deal, an accord that remains in tatters at the moment. An increase of 0.1% is forecast.
  7. US inflation: Friday, 13:30. Headline Consumer Price Index remained flat in November, as expected and due to falling oil prices. Core CPI advanced by 0.2%, also as expected, and pushed the annual figure back to 2.2%. We will now get the numbers for December and thus for the full year. Headline CPI is expected to drop by 0.1% while Core CPI carries expectations for an increase of 0.2%.

*All times are GMT

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