Forex Weekly Outlook February 4 - 8 – Will The USD Continue Falling?

The Federal Reserve made a significant dovish twist and downed the US Dollar. Will it continue falling? The Bank of England’s decision stands out as delayed US data also begin rolling out. Here the highlights for the next week.

The Fed is pausing its rate hikes and now pledges patience, making the patient policy official. The FOMC is also open to modifying the balance sheet reduction program. It sent the US Dollar down. The move came on top of China’s slowdown, the US government shutdown, and also Brexit. The UK Parliament instructed the government to renegotiate the controversial Irish backstop and also called for exiting the EU with a deal, albeit not in a binding manner. The EU rejects fresh talks. At the moment, the clock is ticking toward March 29th, and the default option is a hard Brexit. Italy is officially in recession and the plunge in German retail sales does not help either.

  1. Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia makes its first rate decision of the year after enjoying a summer vacation in January. The Canberra-based institution has not changed since mid-2016. Officials have said that the next move will likely be up rather than down, but they are firmly neutral. No change is expected now, but since the last meeting, the global picture has worsened. It will be interesting to hear the opinions of Phillip Lowe and his colleagues about Chinese demand, the stuttering housing sector, and the local job market, which is doing quite well. Any hints about changes in rates may impact the Aussie.
  2. ISM Non-Manufacturing PMI: Tuesday, 15:00. The services sector report, like the manufacturing one, is published after the Non-Farm Payrolls and has its own time in the sun. The figure came out at 57.6 points in December, below expectations. The worsening global picture and the US government shutdown may drag it down this time. The indicator is a forward-looking one. A score of 57 is expected.
  3. New Zealand jobs report Wednesday, 21:45. New Zealand publishes its employment report only once per quarter, making a substantial splash on each publication. The third quarter of 2018 was excellent, with an increase of 1.1% in overall employment and a drop in the unemployment rate to 3.9%. A more modest increase in employment is likely this time: 0.3% is projected. A jobless rate of 4.1% is on the cards.
  4. UK rate decision: Thursday, data at 12:00, press conference at 12:30. In addition to the regular rate decision and meeting minutes, this is a “Super Thursday” in which the Bank of England also publishes its Quarterly Inflation Report. Governor Mark Carney holds a press conference after the event. The growing uncertainty around Brexit overshadows everything. The BOE would have raised rates from the current level of 0.75% had the Brexit issue been resolved. Real wages are on the rise and accelerating, jobs are aplenty, and inflation is above 2%. However, if the UK leaves without a deal, the economy could plunge, even if it does not suffer the BOE’s most adverse scenario. No change is expected in the policy and the vote in the Monetary Policy Committee will likely be unanimous: all nine in favor of making no change. The QIR has projections for inflation and growth. So far, the BOE assumed a smooth Brexit. Is it still the case? The hot topic will likely dominate the press conference. Carney may maintain the optimistic assumptions but could surprise with revelations on the preparations for a no-deal Brexit.
  5. Canadian jobs report Friday, 13:30. Canada’s jobs report is published on a different Friday than the US one, allowing USD/CAD to move solely on the outcome. Canada ended the year with a modest increase in jobs: 9.3K after a surge of 94.1K in October. The unemployment rate surprised by staying at 5.6% instead of an expected rise. We may see similar numbers now.
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