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The Mid-Week Wrap and Look Ahead – 20th January 2020

The middle of February has been reached. How have the major currencies been doing in regards to data during the last half week?

For the U.S Dollar

It’s been a quiet start to the week for the U.S Dollar, with the U.S holiday on Monday.

In spite of the quiet start, economic data impressed on Tuesday, with the NY Empire State Manufacturing Index on the rise in February.

The figures supported FED Chair Powell’s outlook towards the U.S economy, which he expected to remain resilient.

A pickup in manufacturing sector activity as other economies see manufacturing woes was certainly impressive.

Coupled with risk aversion on Tuesday, stemming from the prospect of COVID-19 having a greater impact on the global economy, the Dollar rallied by 0.44% on Tuesday to reverse losses from the start of the week.

Over the remainder of the week, there’s still plenty to consider.

On Wednesday, the FOMC meeting minutes are due out after housing sector figures due out earlier in the day.

The focus will then shift to Philly FED Manufacturing Index figures on Thursday and private sector PMIs on Friday.

Expect February’s prelim Service PMI to have the greatest impact.

For the EUR

It’s also been a relatively quiet start to the week on the economic calendar.

ZEW Economic Sentiment figures out of Germany and the Eurozone weighed on the EUR on Tuesday.

Concerns over the impact of COVID-19 on global trade had a greater impact on sentiment than had been anticipated.

A combination of disappointing data and risk aversion on Tuesday saw the EUR pullback to $1.07 levels.

Apple’s earnings warning on Monday delivered the markets with a reality check early in the week.

The Eurozone economy is certainly more reliant upon global trade. With the Eurozone economy stuttering in the 4th quarter, it’s not looking good for H1 2020, even with fiscal and monetary policy support.

Over the remainder of the week, German and Eurozone consumer confidence figures will influence ahead of private sector PMIs on Friday.

On the monetary policy front, the ECB monetary policy meeting minutes shouldn’t provide too many surprises…

For the Pound

January claimant count figures and another sizeable jump in employment provided support on Tuesday. The better than expected numbers left the unemployment rate at 3.8% in December.

While wage growth was on the rise, wages + bonuses eased in December, limiting any major upside for the Pound.

Ultimately, negative chatter from France and Britain’s chief trade negotiator David Frost weighed on the Pound early in the week.

France talked of tough talks ahead.  Frost made it clear that Britain was not interested in having strings attached.

Through the remainder of the week, inflation figures are due on Wednesday, with retail sales figures due out on Thursday.

Positive numbers would leave monetary policy out of the equation near-term, allowing the markets to focus on Brexit…

It appears that, with the exception of the GBP, most currencies had no macroeconomic data impacting them. In the meantime, how have commodity currencies behaved?

It’s been a choppy week for the commodity currencies, with the Aussie Dollar and Kiwi Dollar under pressure.

While there were no material stats due out of Australia or NZ to provide direction, sentiment towards the economic outlook weighed on Tuesday.

For the Aussie Dollar

The RBA meeting minutes from 4th February added further pressure on the Aussie Dollar on Tuesday. While the RBA statement had been somewhat calm over the likely impact of COVID-19, the minutes suggested otherwise.

There was also a discussion on cutting rates further, which added further pressure on the Aussie Dollar.

Through the remainder of the week, 4th quarter wage growth figures on Wednesday and employment figures on Thursday will provide direction.

For the Kiwi Dollar

There were no stats to provide direction through the 1st half of the week. That didn’t stop the Kiwi from sliding, however. Economic disruption in China that extends beyond the 1st quarter will have a material impact on the NZ economy.

At the end of last year, China accounted for 28% of NZ exports. That’s quite a substantial number…

Through the remainder of the week, 4th quarter wholesale inflation figures will provide direction on Thursday.

Ultimately, however, it will be sentiment towards the global economic outlook that will ultimately drive the pair. Any pick in the rate of infections in China and beyond would be negative.

It appears that the commonwealth currencies have traded flat. What about the dominant currencies in Asia, the Yen, and the Yuan?

For the Japanese Yen

4th quarter GDP numbers on Monday sounded the alarm bells. A 1.6% contraction in the 4th quarter came ahead of what is likely to be an even tougher 1st quarter.

While typhoons, a sales tax, and the U.S – China trade war weighed, its COVID-19 that will hurt quite possibly into Q2.

On Wednesday, trade data came in better than expected though the trade deficit saw a marked widening in January.

Exports fell by 6.4% to China, by 7.7% to the U.S and by 5.4% to Germany.

While the stats were skewed to the negative, the Yen continued to find support as risk aversion gripped the markets early in the week.

Expect more of the same through the remainder of the week. The BoJ must be under some pressure to make a move, however…

For the Chinese Yuan

There were no material stats to provide direction, leaving the Yuan in the hands of risk appetite.

Mixed sentiment towards China’s economic outlook and COVID-19 updates provided direction.

The government announced tax and fee cuts, with the PBoC allowing banks to let NPLs rise to support the economy.

In spite of the support, the Yuan was on the back foot in response to Apple’s earnings warning…

Disruption to the Chinese economy and the region may well be greater than currently anticipated.

Expect the PBoC and Beijing to continue to look to deliver support. This may be positive near-term, but a weakening in the Yuan will also be needed.

On Thursday, the PBoC is in action, with the markets expecting loan prime rates to be cut further.

This article was originally posted on FX Empire

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