Forex Weekly Outlook – Jan. 1-5 2018

The last week of 2017 had a slow start but then saw a dollar sell-off. What’s in store for currencies as 2018 begins? The Fed meeting minutes and a full buildup to the Non-Farm Payrolls promise a lot of action as trading volume picks up. Here are the highlights for the upcoming week.

The US dollar suffered from end-of-year portfolio adjustments as well as an ongoing “sell the fact” response to the approval of the tax bill. Weaker consumer confidence, a miss on jobless claims and other not-so-great news did not help the greenback. It lost ground across the board, with commodity currencies standing out thanks to rising oil and other commodity prices.

Updates:

  • US ISM Manufacturing PMI: Wednesday, 15:00. This forward-looking survey of the manufacturing sector also serves as the first hint for the Non-Farm Payrolls on Friday. In November, the purchasing managers’ indicator stood at 58.2 points, well above the 50-point threshold that separates contraction from expansion. A similar score of 58.3 is forecast now.
  • US FOMC Meeting Minutes: Wednesday, 19:00. These are the minutes from the December decision in which the Fed raised rates as expected and also left the projection for 3 hikes in 2018 unchanged. The dovish surprise in that decision was the dissent of Charles Evans, joining Neel Kashkari in opposing a hike. As both members will not be voters in 2018, the meeting minutes may reveal how much the FOMC is worried about low inflation. Trump may nominate hawkish governors as permanent voters, but the stance of the current members certainly matters. A significant degree of concern about the absence of inflation could weigh on the dollar while sticking to the “transitory” story could keep it bid.
  • UK Services PMI: Thursday, 9:30. Services is by far the largest sector of the British economy and the PMI usually triggers quite a bit of volatility. In November, Markit’s measure disappointed by returning back down to 53.8 points, reflecting moderate growth and showing that October’s rise was a one-off. Expectations of managers about Brexit will undoubtedly shape the result and the prospects going forward. A minor increase to 54.1 is projected now.
  • US ADP Non-Farm Payrolls: Thursday, 13:15. ADP’s report for private sector jobs usually comes out on Wednesday, but this time is different, due to the New Years’ holiday. The report for November met expectations with 190K jobs gained and was well correlated with the private sector job growth in the official BLS report. This isn’t always the case. A gain of 192K jobs is expected now.
  • Euro-zone inflation: Friday, 10:00. The preliminary inflation report for December provides an overview of all of 2017 and will have an impact on the ECB’s decision later in the month. In November, headline CPI stood at 1.5%, which was similar to previous months and not too far from the ECB’s target of “2% or a bit below”. The disappointment came from core CPI, was remained stuck at 0.9%. Without a rise in core inflation, headline CPI may retreat as well. Headline CPI is expected to slide to 1.4% while core CPI carries expectations of an increase to 1% y/y.
  • US Non-Farm Payrolls: Friday, 13:30. The jobs report for December also allows a full overview of 2017, which has seen solid gains in the number of positions while average hourly earnings hardly budged from 2.5%. The report for November refected these trends: a beat on the headline NFP with 228K alongside a mediocre rise of 0.2% m/m in wages or 2.5% y/y. The unemployment rate remains at rock-bottom levels, 4.1%, but as usual, it is accompanied by a low participation rate. The headline may provide the immediate reaction but wages normally take control after a few seconds, driving the reaction in the dollar. Headline NFP is expected to show a rise of 189K jobs and wages to rise by 0.3% m/m. The unemployment rate is expected to remain unchanged at 4.1%.
  • Canadian jobs report: Friday, 13:30. Canada’s job market enjoyed an excellent month in November: no less than 79.5K positions were gained and the unemployment rate fell to 5.9%. This came after a few not-so-great months for the economy, but perhaps it is picking up once again. The publication for December will test if November’s report was the beginning of a trend or a one-off. A drop of 2.5K positions is on the cards while the unemployment rate is forecast to rise to 6%.
  • US ISM Non-Manufacturing PMI: Friday, 15:00. The second ISM report is more important, relating to a bigger sector, services. However, as it is published after the jobs report, it does not work as a hint. Nevertheless, it can move the market even when it’s published 90 minutes after the NFP. November saw a score of 57.4 which was a significant drop, but still representing robust growth. A small increase to 57.8 is expected. Note that the US releases factory orders at the same time. These fell by 0.1% last time. A jump of 1.5% predicted.
  • *All times are GMT

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    Further reading:

    • EUR/USD forecast – for everything related to the euro.
    • GBP/USD forecast – Pound/dollar analysis
    • USD/JPY forecast – outlook for dollar/yen
    • AUD/USD forecast – projections for the Aussie dollar.
    • USD/CAD forecast – Canadian dollar predictions

    Safe trading!


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