Weekly Market Outlook – It will be a busy week with a number of central bank decisions and data releases. The Federal Reserve plans to gradually increase rates as inflation has decreased, with attention focused on the comments of Chairman Powell. Additionally, market expectations indicate that the European Central Bank and the Bank of England will implement larger rate increases than the Fed. The week will end with the release of the latest US employment report.
What to watch on the Economic Calendar this week
Monday, Jan 30:
- NZD: Trade Balance (DEC)
- CHF: KoF Leading Indicators (JAN)
- EUR: Spanish Flash CPI
- EUR: German Prelim GDP
- JPY: Unemployment Rate (DEC)
- JPY: Retail Sales (DEC)
- JPY: Industrial Production Prel (DEC)
- AUD: Retail Sales (DEC)
- CNY: NBS Manufacturing PMI (JAN)
Tuesday, Jan 31:
- JPY: Consumer Confidence (JAN)
- JPY: Housing Starts (DEC)
- EUR: Germany Retail Sales (DEC)
- EUR: Germany Unemployment Change (JAN)
- EUR: Germany GDP Growth Rate Flash (Q4)
- CHF: Retail Sales
- EUR: French Prelim CPI
- GBP: BoE Consumer Credit (DEC)
- GBP: Mortgage Approvals (DEC)
- EUR: GDP Growth Rate Flash (Q4)
- EUR: Germany Inflation Rate Prel (JAN)
- CAD: GDP Prel (NOV)
- USD: Employment Cost Index (Q4)
- USD: S&P/Case- Shiller Home Price (NOV)
- USD: Chicago PMI (JAN)
- USD: Consumer Confidence (JAN)
- NZD: Employment Change (Q4)
- NZD: Unemployment Rate (Q4)
- CNY: Caixin Manufacturing PMI (JAN)
Wednesday, Feb 01:
- GBP: Nationwide Housing Prices (JAN)
- EUR: CPI Flash (JAN)
- EUR: Unemployment Rate (DEC)
- USD: ADP Employment Change (JAN)
- USD: ISM Manufacturing PMI (JAN)
- USD: Fed Interest Rate Decision
- AUD: Building Permits (DEC)
Thursday, Feb 02:
- GBP: BoE Interest Rate Decision
- EUR: ECB Interest Rate Decision
- USD: Unit Labour Costs Prel (Q4)
- USD: Nonfarm Productivity Prel (Q4)
- USD: Factory Orders (DEC)
- CNY: Caixin Services PMI (JAN)
Friday, Feb 03:
- EUR: Final Services PMI
- GBP: Final Services PMI
- EUR: PPI (DEC)
- USD: Non-Farm Payrolls (JAN)
- USD: ISM Non-Manufacturing PMI (JAN)
Keep yourself updated on the most important forex market events in this week by keeping an eye on AximTrade’s Economic Calendar.
USD: Focus on USD ahead of Fed Report
The US dollar has faced challenges in recent months. The global reserve currency saw a decline as the slowdown in inflation reinforced the idea that the Federal Reserve will soon conclude its tightening cycle. A warm winter in Europe also contributed to this by reducing concerns about an energy crisis and severe recession, which in turn strengthened the euro.
Additionally, the effects of the Fed’s quantitative tightening program have been counteracted by recent actions taken by the US Treasury. Faced with another debt ceiling dispute, the Treasury has been utilizing its cash reserves at the Federal Reserve, resulting in the injection of liquidity back into markets. This dynamic has helped drive gains in “meme stocks” and other risky assets, but it has had a negative impact on the dollar.
As the Federal Reserve’s decision approaches on Wednesday, Chairman Powell and his colleagues will have to evaluate various mixed signals about the economy. Inflationary pressures seem to be decreasing, but mainly due to weakening demand and a slowing of economic growth. However, the labor market remains very tight, and this presents a concern for policymakers that inflation could return if the job market remains tight. As a result, the Fed will need to maintain a restrictive stance until they see a significant decline in employment figures.
The markets have already accounted for a 25-basis point rate hike this week, so the dollar’s response will primarily depend on Chairman Powell’s statements during the press conference. He may express dissatisfaction with the recent easing of financial conditions, which have returned to the level they were at when the Fed began its tightening cycle.
This phenomenon hinders the efficient implementation of monetary policy and poses the risk of inflation returning, so Chairman Powell may take a firm stance against it. A strong message from the Fed leader, emphasizing that the task is not yet completed, would likely benefit the dollar. However, the Federal Reserve makes decisions based on data, so the employment report on Friday could carry more weight. Analysts predict another strong report, with nonfarm payrolls predicted to be 175k in January. However, business surveys by S&P Global indicate a less positive outlook, warning of a near halt in job growth.
Despite indications of a cooling labor market, it may be too early to see any significant weakness in this data as the applications for unemployment benefits remain low. While there have been reports of mass layoffs, it has not yet been reflected in the official data.
Friday will also see the release of the ISM non-manufacturing survey for January, which could also influence the economic narrative.
ECB and BoE to move forward
In Europe, the week will begin with the initial estimate of Germany’s GDP for the last quarter on Monday. Germany’s latest inflation figures will be released on Tuesday, along with the Eurozone’s GDP for Q4. The Eurozone’s monthly inflation numbers will be available on Wednesday. The highlight of the week will be the European Central Bank’s decision on Thursday. Markets have already factored in a 50bps rate hike, as signaled by President Lagarde’s statement on the need for swift half-point increments. As a result, similar to the Fed, investors will pay attention to the press conference.
The Eurozone economy has been positively impacted by the recent warmer-than-usual weather, which has helped to ease concerns about a potential energy-driven recession and also helped to cool inflationary pressures.
Despite this, officials from the European Central Bank (ECB) have emphasized the need for strong action to prevent inflation from becoming entrenched. As a result, market expectations are that the ECB will continue to raise interest rates into the summer.
On the other hand, the economy in the United Kingdom is facing more challenges, making it difficult for the Bank of England (BoE) which also meets on Thursday. Business surveys suggest that the risk of a recession is increasing due to the cost-of-living crisis, higher interest rates, and widespread worker strikes.
However, inflation is still high, which is forcing the BoE to continue raising rates despite the deteriorating economy. The markets are divided on how much the BoE will raise rates this week, with a 70% probability for a half-point move and a 30% chance for a smaller, quarter-point increase.
The outcome of the Bank of England’s decision on interest rates this week may hinge on the updated economic projections for inflation and growth. Some members of the central bank may prioritize recession concerns while others may focus on inflation risks, leading to a divided vote.
The outlook for the British pound is uncertain as the domestic economy faces challenges and the currency tends to be closely tied to the performance of US stock markets, which may be subject to a decline as valuations are high and earnings growth slows.
Other Key Data Releases & Earnings
The focus this week will be on China’s economic reopening, as investors will be updated on the status of it through the latest business surveys on Tuesday.
The New Zealand dollar is expected to perform well due to speculation of the RBNZ raising rates above the Fed, which is mainly due to the nation’s strong job market. As a result, the Q4 employment numbers, out on Wednesday, will be of significant importance.
Additionally, the Canadian jobs report for January will be released on Friday, along with the US data. Lastly, the corporate earnings season will begin with major tech companies such as Apple, Google, Amazon, and Meta releasing their quarterly results.
Why should you Trade Forex During Recession?
During a recession, currencies can be more volatile and may provide more trading opportunities for those who are able to navigate the market conditions. Additionally, many investors may seek to invest in currencies as a safe haven during times of economic uncertainty. This can lead to increased demand for certain currencies, which can create potential profit opportunities for forex traders.
Furthermore, central banks may take monetary policy measures such as interest rate cuts or quantitative easing, which can also affect currency values and provide trading opportunities.
Learn more about the ins and outs of Forex trading during recession with this comprehensive guide.