3rd February 2020 - 7th February 2020
Moving ahead, market participants would keep a close watch on Australia’s AiG performance of manufacturing index and building permits data, slated to release on Monday. The pair is expected to find support at 0.6697, and a fall through could take it to the next support level of 0.6678. The pair is expected to find its first resistance at 0.6737, and a rise through could take it to the next resistance level of 0.6758. At the beginning of February, Markit will release the final versions of January PMI for both economies. The US will add the official indexes, usually much more relevant for the greenback. The ISM Manufacturing PMI is foreseen at 48 from 47.2, while the ISM Non-Manufacturing PMI is expected at 55.1 from 55 in December. Important day for Australia as RBA will release their Rate decision and rate statement. The RBA has a tough balancing act on its hands when it concludes its policy meeting on Tuesday. On the one hand, recent data have been solid enough to dispel market expectations for an immediate rate cut to support the economy, with the implied probability for such an action currently resting at a lowly 15%. The unemployment rate fell back down to 5.1% in December, retail sales accelerated sharply in November, and inflation picked up in Q4 – even if it remains stubbornly below the RBA’s target range. As for the aussie, even if the RBA doesn’t cut rates this time, the risks around the currency still seem tilted to the downside. The Bank will surely maintain a dovish bias, global risk sentiment remains in the doldrums, and Australia’s close trading ties with China expose its currency to any virus-related weakness in the Chinese economy going forward. Admittedly though, the aussie has already fallen dramatically, so whether or not sellers can break below the 10-year low of 0.6670 in aussie/dollar may be crucial. As Britain enters its first week outside of the EU, finalized private sector PMI numbers are due out. Expect plenty of sensitivity to any revisions, particularly manufacturing and service sector numbers due out on Wednesday. Following last week’s BoE monetary policy decision any material downward revisions could reverse the bet on a BoE hold near-term. Private sector PMI numbers for Italy, Spain and the Eurozone are due out on Wednesday. Finalized numbers are also due out of France and Germany. On Wednesday, Eurozone retail sales figures will also provide direction ahead of German factory orders on Thursday. The retail sales figures will need to come in ahead of forecasts, however, following the slide in German retail sales. After the ECB’s dovish outlook and better than expected PMI numbers out of Germany, positive stats out of Germany would certainly provide further support to the EUR. The day will end with the US ISM non-manufacturing PMI which is expected to edge higher in January which could buoy the Dollar as this is the US Federal Reserve’s preferred PMI measure. After the ECB’s dovish outlook and better than expected PMI numbers out of Germany, positive stats out of Germany would certainly provide further support to the EUR. If last week’s IFO Business Climate figures are anything to go by, it could be a tricky week ahead. Outside of the numbers, the ECB economic bulletin and EU Economic Forecasts, due out on Thursday, will also provide direction. If Lagarde’s press conference was anything to go by, the reports are unlikely to be too upbeat. All eyes will turn to the employment numbers for January. Nonfarm payrolls are expected to clock in at 156k, mildly higher than the 145k in December, and a number consistent with further tightening in the jobs market. The unemployment rate is forecast to hold steady at 3.5%, while average hourly earnings are anticipated to accelerate slightly to 3.0% on a yearly basis, from 2.9% previously. The US labor market has displayed some signs of stress lately, with real wage growth cooling substantially and job openings as measured by the JOLTS survey declining, which may be an early indication that overall employment growth may be set to slow down. This puts extra emphasis on the upcoming data to either confirm this weakening narrative or dispel such concerns, especially considering markets are already pricing in an ~85% probability for a Fed cut by July.Monday
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