Markets slow yet caution is advised as surprises may arise

Leaving another heavy week behind us, the holidays season comes into play for the next two weeks. Given that the market is expected to slow-down in that period, as most holidays are normal working days, we would like to underscore the risks of possible thin trading that may arise during the period. It was characteristic that on January 3rd, 2019, during the Asian session, where the Japanese stock-markets were closed, the Aussie suffered a mini crash against other currencies such as the JPY and USD. The fundamentals surrounding the incident, were mostly about Apple lowering its revenue forecast, implying a Chinese slowdown. The Australian currency quickly recovered, yet the damage was already done. Hence, be aware that market reaction to news or surprises to financial data could be disproportional to their usual or expected impact size.

USD – Fed Minutes to be main event

The current week ends with turbulence in the US political scene as the US House of Representatives decided to impeach US President Trump. The path forward may look a bit murky, yet the next step should be for a Senate trial. The market seems to be little worried about the issue and most analysts tend to note that probably the Republican controlled US Senate is to acquit the US President. On other news, the US-Sino relationships seem to have entered a path of reconciliation. Albeit, more clarification may be needed as the “phase 1” deal seems to cover a wide range of issues, including intellectual property protection, technology transfers, agricultural purchases and other. Further headlines about the issue could move the USD as well as other currencies. On the monetary front the focus of greenback traders, may be on the release of the Fed’s monetary policy meeting minutes on Friday the 3rd of January. We expect analysts to scrutinize the document for any further clues about the bank’s intentions, especially after the bank showed through its renewed dot plot that it may remain on hold for 2020. As for financial releases, from the US we tend to highlight the 23rd of the month, with the release of the durable goods orders growth rates as well as the new home sales figure. On December 31st the calendar shows that US consumer confidence is due out for December, while after New Year’s Day, on the 3rd of January we get the ISM manufacturing PMI for December.

GBP – To continue to be Brexit driven

The pound tumbled from last week’s highs as it relented any gains made from the UK elections. Fundamentals surrounding the drop are about Brexit, as the UK Prime Minister stated that the UK is to leave the EU fully, until December 2020. This could happen with or without a deal in place, regarding the future relationship with the EU. The news shocked the markets as expectations were for negotiations to drag past the end of the new year. Analysts tend to note that the 11 month period provided for the UK to negotiate a deal with the EU may prove to be too tight. Also, political analysts mention that the UK Prime Minister may by this way try to leverage for more preferential terms in such a deal. On the other hand, EU officials stated that the limited time provided for the negotiations, may result in a narrower scope of the deal. Hence, we expect that any further hardening of the Brexit rhetoric, by either side could weaken the pound further. As for financial releases, not much is expected in the next two weeks from the UK. Never the less, pound traders could turn their attention on the release of the nationwide house prices for December on the 2nd of January and final PMIs for December on the 2nd and 3rd of January.

JPY – Financial data expected

Safe haven flows continued to move the Japanese currency last week and we could see the risk-effect contnuing to influence the Yen in the next two weeks. As for financial releases, we expect a substantial amount being released after Christmas, as on the 27th of the month, we get Tokyo’s inflation rates for December, the unemployment rate, with the highlight being on the Industrial production growth rate and retail sales growth rate, for November. It would be characteristic that the last two indicators are forecasted to start recovering, yet still to remain in the negatives. On the monetary front we expect JPY traders to zoom in the release of BOJ’s meeting minutes for the end of October, which are due out on the 24th of December. Also on 27th of December, the release of the summary of opinions for the December 19th meeting is due out. Also we could see Governor Kuroda’s speech at the meeting of councillors of the Japanese Business Federation in Tokyo, making headlines, on the 26th of December.

EUR – Preliminary HICP rates to be closely watched

Trade tensions between the US and the EU, seem to start looming over the common currency. After the US administration achieving at least a ceasefire in the US-Sino trade front, with its “phase 1” deal, we could see the Americans turning their attention to the US trade deficit with the EU. Recent headlines highlighting US considerations about applying tariffs on EUR products such as wine, could start making traders worry. It would be inicative that the US trade representative office, floated the idea of imposing tariffs on European products including cheese and wine. Comments about which products should be taken off the list should be submitted by the 13th of January, making the date a defacto deadline to watch out for. We would not be surprised to see the EU responding with a statement, to the US intentions for tariffs. On the other hand should the EU provide a harsh response, we could see the situation escalating further, which may not be in the common currency’s interest. As for financial releases, EUR traders will have to wait until after Christmas week has passed. We start with the release of Germany’s retail sales growth rate on the 30th of December while also the final releases of the European PMI’s are due out on the 1st of January. Main interest of EUR traders though is expected to be placed on the 3rd of January, Friday, when we get the preliminary readings of the HICP rates for December from France and Germany. We expect the first reaction of the market to be with the release of the French rate early in the European session, while the German rate is to follow later on. Also Germany’s employment data for December due out on the 3rd of January could be gathering some interest.

CAD, AUD – Financial releases eyed

Both the Looney and the Aussie seem to have strengthened against the USD in the past week, albeit mainly for different reasons. Staring with the Looney, the Canadian currency may have found some support in the past seven days from strengtening oil prices. This is very evident especially on the USD/CAD pair. Furthemore, the inflation rates released last Wednesday provided a positive note as they met their acceleration target. In the next two weeks, we expect oil prices to continue to influence the CAD, yet Looney traders could be also eyeing the GDP release for October next Monday. While in the following week we get Canadas’ manufacturing PMI for December. We could also see some interest being gathered for BOC’s Senior Deputy Governor Carolyn Wilkins, which will be speaking on Friday the 3rd of January. The Aussie had a stellar run this week against the USD, supported ( among other factors) by the release of some very positive employment data for November, last Thursday. In the coming two weeks, very few releases are expected from Australia yet the Aussie may experience some volatility from the Chinese manufacturing PMIs. Specifically, on the 31st of December we get the National Bureau of Statistics manufacturing PMI, while on the 3rd of January, we get the Caixin manufacturing PMI, both for December. Should the readings remain above the cutoff point of 50.0, or even rise further we could see the AUD getting some support as that would be good news for Australian exporters of raw materials. In addition, any further developments in the US-Sino relationships could provide some volatility for the Aussie.

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