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There are several potentially high-impact macro events and data for next week, reports Fawad Razaqzada, FOREX.com Technical Analyst.
There are several macro events and data that can have a big impact on next week. Most macroeconomic indicators come from the euro area and the United States, but there are also other regions. It could therefore be a busy week, especially for EUR / USD. We are also waiting for the much anticipated vote on Theresa May's revised Brexit plan. It could also cause the EUR / USD exchange rate to change, although this is likely to have a much larger impact on the GBP / USD cross and the other pound crosses.
The British Parliament will vote on Plan B of the Prime Minister of May
The British Parliament is set to decide Tuesday when it approves Prime Minister Theresa May's revised Brexit plan. We still do not know exactly what the Prime Minister's revised plan looks like, and it has been suggested that it would not be so different from its original proposal, which was overwhelmingly rejected. In the event that Parliament does not approve it, the uncertainty will remain high. But no one really knows what a defeat will mean for the Brexit process and how sterling might react.
On one side, this will technically increase the chances of a Brexit without agreement, which would be a bad result for the pound, but another potential defeat for May would also strengthen the prospects for a second referendum on the European Union, which we think would be positive. Unless the May deal goes down with surprise, in which case the pound could go up, the currency could fall sharply when the result of the vote is announced. The British pound has been on the rise for several weeks as investors expect the UK's official departure date of March 29 to be delayed. It is expected that the potential delay will lead to a second referendum on the EU or a smooth exit from the EU, which is the default position of the British parliament.
Highlights next week
Tuesday: British Parliament vote on Plan B Brexit; Feeling of the American consumer (CB)
Wednesday: Australian and German CPI; ADP and FOMC
Thursday: GDP of the euro zone; US PCE Base Price Index, Employment Cost Index and Personal Expenses
Friday: Chinese manufacturing PMI of Caixin; CPI of the euro zone and US NFP
The CPI and GDP of the euro area will steer the EUR / USD
EUR / USD continued to decline after Thursday's meeting of the European Central Bank. Although the central bank has not changed its policy, as expected, ECB President Mario Draghi has pointed out that the risks to the economic outlook have "tilted downwards" and overall seemed a bit more accommodating than previous comments, like my colleague Matt Weller. reported. However, as we were already waiting for a dovish ECB, the losses in euros were limited and it had already returned above the 1.13 mark when this report was written on Friday morning. Will next week's Eurozone data point to a surprise recovery to help support the exchange rate, or will we see further deterioration and weakness in the EUR / USD?
The German consumer price index (CPI) will be released Tuesday, a few days before the eurozone inflation data on Friday. As Germany is the largest economy in the euro zone, the Consumer Price Index (CPI) will provide us with a strong indication of what to expect from the single currency bloc on Friday. The euro zone 's CPI has tended to fall since it' s hit a record high of 2.2% from one year to the next in October. By December, the overall CPI had declined to stand at 1.6%, although the core CPI remained steady around 1%. Recent low oil prices also point to weak inflationary pressures for January.
Meanwhile, GDP will be the other important data to watch on Thursday. The growth of the single currency bloc has missed the target in each of the last two quarters. In the third quarter of 2018, GDP barely increased, registering a slight increase of 0.2%. Given the recent correction of German data, we do not expect a significant recovery in growth in the euro area. But that's also what the market can expect. Thus, the most important risk would be that GDP surpbades and the euro skyrockets.
If the latest data from the euro area reveal a new weakness, especially with regard to inflation, the euro could prolong its decline, as investors are still pushing the ECB's expectations for higher inflation. rate. However, if inflation and / or GDP reveal astonishingly high numbers, the market could then start believing the ECB again and predict a rate hike for the fourth quarter. In this case, the euro could push higher.
Non-farm payroll among highlights of US data
There will be plenty of US data to look forward to next week, including Friday's nonfarm payroll figures. The job market continues to look exceptionally strong in the United States and we do not think it will change for at least a few more months. However, other parts of the US economy may begin to deteriorate as a result of continued weakness in China and other emerging market economies, as well as the euro area, which may weigh on US exports. The impact of past tax cuts is also decreasing.
Prior to the release of the NFP, some other important US data will be scheduled for release earlier this week. These include consumer sentiment CB (Tuesday), ADP's payroll report in the private sector (Wednesday) and the CP's core price index, the cost of employment index and personal expenses (all Thursday).
As can be seen, aside from the PDA, there are not many pre-NFP advanced indicators planned for next week. PMI manufacturing (Friday) and services (next Tuesday) will be released after job data. We will not have to take into account the main components of the employment of these two important sectors, which makes the employment figures very difficult to predict, beware of surprises!
FOMC could be a squib dump
In addition to the above data, the Federal Reserve will close its monetary policy meeting on Wednesday. Although no interest rate changes are expected, Fed Chairman Jerome Powell's remarks at the FOMC press conference will be thoroughly examined for clues as future policy changes. Given that the FOMC has indicated that rates will not rise again soon, investors will want to know how long the Fed remains on hold and whether it would consider lowering rates given the high level of risk facing the United States. United. economy this year.
Other macro events to watch
Among the other major currencies, the Australian dollar will probably be among the most interesting currencies to watch. In addition to Australia's quarterly CPI data released on Wednesday, we will also have Caixin's latest Chinese manufacturing PMI on Friday. The two figures may well tip the Australian dollar, China being the largest trading partner of Australia. Keep in mind that US corporate profits are also going very fast and that they can potentially help accelerate the stock market rally or, if we see a series of bad numbers, undermine the appetite for risk.
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