We have a very busy and volatile week ahead of us. In the last trading five-day period, the market was significantly pleased with the USA GDP report for the last quarter of last year. That refuted the negative forecasts of many experts to slow down the economy of the States. The fed’s Jerome Powell turned from the review of the risks and the slowdowns in global and American economies, on the more positive, about the strength of the labor market, the recovery of the stock market and the growth of consumer confidence. That also had a positive impact on the mood of investors.
In Europe, the week begins with different directions. On the one hand, the chances of postponing Britain’s exit from the EU are growing every day, which offsets the chances of exit without a deal. On the other hand, the economic slowdown may in the near future force the ECB to resort to a new stimulation, so-as QE officially ended in December of the last year.
So as the President of the United States Donald Trump has already extended the terms of the trade truce with China, referring to the future the signing of a trade agreement with the leader of China, Xi Jinping, by the end of March at the summit, attention to economic reports will be sharper than last week.
There are sufficient of them. On Tuesday, the EU will report on business activity in the service sector and its composite counterpart. There will also be a release of retail sales. In the US, the day will start representatives of the Federal Open Market Committee, the head of the Boston Federal Reserve Bank Eric Rosengren and the head of the Minneapolis Federal Reserve Bank Neel Kashkari. After that, we will become aware of business activity in the United States, as well as the sales of new housing. Late in the evening, by Moscow time will release a report on the performance of USA Federal budget for January.
Wednesday will be held under the American flag, as volatile news from the EU is not expected. ADP will publish preliminary data on employment outside the agricultural sector. We also learn about the volume of imports/exports and USA trade balance. And before the publication of the “beige book” the FED will be two speeches FOMC members of the head of the Cleveland FRB Loretta Mester and the head of the New York FRB John Williams.
On Thursday, attention will go to the Euro area. So-as in the afternoon will be released Euroblock GDP for the fourth quarter of last year, and after that, the ECB will hold a meeting on monetary policy and announce the decision on the interest rate. It is very rash to expect any changes in the monetary policy of the European regulator, but we can learn about additional stimulations of the EU economy. Less than an hour after the announcement of the interest rate decision, ECB head Mario Draghi will speak at a press conference of the regulator, where he will answer questions. Since the last month was short, which is traditional for February, the release of the report on the labor market changed from the first day of March to the eighth. Yes, in the former CIS countries this day is an official holiday, but the European and American markets will work. So, in the former CIS countries, this day is an official holiday, but the European and American markets will work. Expectations for a particular release are quite mixed. Market participants are waiting for the suspension for 35 days of the Federal government (almost one million people) will affect the report on the labor market and in consequence of the economy. Some expect that the release will be worse than expected, the previous values will be revised downward. On the contrary, a strong release will confirm the words of the head of the FED on the strength of the labor market and raise the chances of recovery of the US economy, as a result, the chances of interest rates rising in America will increase. Very interesting week!
This pair is trading in consolidation, waiting for the end of the trade war between the US and China. The current week began with a gap up and immediately working out to the level of support. However, as fears of escalating trade wars coming to an end, the attention turns to economic data and Australia already knows how to attract investors. Moreover, spring has already come and soon the traditional period of the Australian dollar will begin, which it could not work last year because of the beginning of the trade war.
So, on Tuesday will release the volatile data. These are sales of new housing, the balance of current operations, as well as the Reserve Bank of Australia, will announce its decision on the interest rate in the country, after which the minutes of the RBA meeting will be released. No one expects changes yet, but the regulator’s rhetoric will be extremely important in investors decision to buy/sell the Australian dollar.
On Wednesday, the release of GDP, where expectations are very mixed. If the indicator is expected to grow on a quarterly basis, that’s a slight slowdown in the annual. A little earlier this release will make a statement the head of the RBA Philip Lowe, who will answer the questions and share the vision of the Australian regulator in the near future.
On Thursday, data on retail sales on the Green Continent, as well as the trade balance will be released. Expectations are also very positive. The growth of retail sales in the future will push inflation, and it is known to be one of the main indicators for deciding on the monetary policy of any Central Bank.
We will consider this pair against the background of the strongest rally of the last week, which updated the maximum of the current year and tested the resistance level of 112.00. There are several reasons for such a rapid movement. As we know, USA ten-year bonds are closely correlated with the yen, and their yield increased significantly after a strong release of US GDP in the fourth quarter of last year. And the Japanese love ten-year-olds of the USA, and at their good profitability with pleasure buy dollar that to invest in Federal bonds of States. Obviously, that to buy US dollar, you need to sell the yen.
An additional incentive to sell the yen was the postponement of the US-China trade truce deadline, which reduces the risks of further escalation of the trade conflict. As a result, the need to have protective assets in the portfolio falls. However, today the Governor of the Bank of Japan Haruhiko Kuroda said that the Central Bank will discuss and report a plan to exit its ultra-soft monetary policy. Which is basically a bullish signal for the yen. However, there is no hurry. Speaking on the Budget Committee of the Upper house, Kuroda also noted the need to monitor the side effects of the long-term monetary stimulus, such as the risks of instability in the financial system of Japan.
Also, the head of the Bank of Japan noted that the regulator does not have a specific exit strategy. It was noted that withdrawal from the quantitative easing programme would result in higher interest rates on excess reserves, which financial institutions place in the Bank, and measures to reduce the balance sheet of the Central Bank. The fact that the Bank of Japan started talking about the completion of QE is certainly good in the future, but the lack of a strategy out of it puts a spoke in the wheels of the regulator. Moreover, Japan’s inflation is far from the regulator’s target. Therefore, a strong release on the USA labor market could push the pair even higher.