Another trading week is over. Amid choppy trading and mixed movements in the major dollar currency pairs, the DXY Dollar Index stays in a narrow range near 103.00, approximately in the middle: a narrow range between 103.85 and 102.52 and a wider range between 105.50 and 100.68.
Investors are obviously a bit confused, and the market and the dollar need new drivers to move one way or the other.
Federal Reserve Chairman Jerome Powell, who just spoke at the Washington Economic Club, could neither encourage dollar bulls, nor strengthen the negative values of the dollar, which still prevails in its movement.
Powell confirmed the central bank's intention to continue tightening monetary policy, while admitting that the process of disinflation has begun and further Fed actions will correlate with incoming data. That means that if inflation eases further, the Fed's actions on its monetary policy may move from tight to softer.
Next week can provide some clarity on the dollar's direction since the US inflation report will be released on Tuesday. We expect another slowdown in annual inflation, but some acceleration in monthly inflation in January. It is hard to say yet how the market will react to it.
Next week, investors will pay attention to important macro data on Japan, UK, eurozone, Australia, and the US.
Monday, February 13
Japan. GDP (preliminary estimate for the 4th quarter of 2022)
The country's GDP decreased by -0.2% in the 3rd quarter of 2022 (-0.8% YoY) after an increase of +0.9% (+3.5% YoY) in the 2nd quarter, a fall of -0.1% (-0.5% YoY) in the 1st quarter of 2022, an increase of +1.1% (+4.6% YoY) in the 4th quarter of 2021, falling by -0.9% (-3.6% YoY) in the 3rd quarter, growth in the 2nd quarter by +0.5% (+1.5% YoY) and a decline in the 1st quarter 2021 by -1.0% (-3.7% in annual terms). The data points to the uneven recovery of the Japanese economy after its fall due to the coronavirus pandemic in 2020.
The preliminary report implies that in the 4th quarter of 2022, Japan's GDP grew by +0.6% (+1.4% in annual terms), which is a positive factor for both the yen and the Japanese stock market.
The better-than-forecast data is also likely to help the Japanese stock market and the yen rise.
Tuesday, February 14
Japan. Industrial production volumes
The volume of industrial production in Japan is the leading indicator of the state of the entire export-oriented economy of the country. More than 80% of the total industrial production is produced by the manufacturing industry. At the same time, the manufacturing sector forms a significant part of Japanese GDP. If the data is better than the forecast and the previous value, as well as if it's a high figure, this will have a positive impact on the yen. If the data turns out to be worse than the forecast and the previous value, then the yen is likely to fall short-term, but sharply.
Previous values: -0.1% (-2.8% in annual terms) in December.
Forecast for January: -0.1%.
The level of influence on the markets is average.
Great Britain. UK labor market report
As a key indicator of the dynamics of the labor market, this report, published monthly by the UK Office of National Statistics (ONS), includes data on average earnings for the last 3 months (with and without bonuses), as well as data on unemployment in the UK, also for the period of the last 3 months.
Growth in earnings is a positive factor for the GBP, indirectly indicating the growth of the consumer ability of the population and stimulating inflation. The low value of the indicator is a negative factor for the GBP.
It is expected that the average salary, including bonuses, has increased again in the last calculated 3 months (October-December) after an increase of +6.4%, +6.0%, +6.0%, +5.5%, +5.2%, +6.4%, +6.8%, +7.0%, +5.6%, +4.8%, +4.3%, +4.2% in previous periods; without premiums – also increased (after growth by +6.4%, +5.7%, +5.4%, +5.2%, +4.7%, +4.4%, +4.2%, +4.2%, +4.1%, +3.8%, +3.7%, +3.8% in previous periods).
If the data turns out to be better than the forecast and/or previous values, then the pound is likely to strengthen. Data worse than the forecast/previous values will negatively affect the pound.
It is also expected that for 3 months (October-December), unemployment was at the level of 3.7% (against 3.7%, 3.7%, 3.6%, 3.5%, 3.6%, 3.8%, 3.8%, 3.8%, 3.7%, 3.8%, 3.9% in previous periods).A decline in the unemployment rate is a positive factor for the pound, an increase in unemployment is a negative factor.
Also, when drawing up a trading plan, you should bear in mind that volatility could increase once this report is published.
The level of influence on the markets is from medium to high.
Eurozone. GDP for the 4th quarter (second estimate)
Eurostat will publish a report with updated data on eurozone GDP for the 4th quarter. There are 3 versions of the quarterly GDP, published at intervals of about 20 days - Preliminary, Updated, Final (final release). The pre-release is the earliest and tends to have the greatest impact on the markets. This report reflects the overall economic performance of the eurozone countries and has a significant impact on the European Central Bank's monetary policy decision.
GDP growth means an improvement in economic conditions, which makes it possible (with a corresponding increase in inflation) to tighten monetary policy, which, in turn, usually has a positive effect on the quotes of the national currency.
This report usually causes an increase in volatility in EUR quotes. This report may come out with positive values. Data worse than the forecast/previous values will negatively affect EUR quotes.
Previous values: +0.3% (+2.3% YoY) in the 3rd quarter of 2022, +0.8% (+4.1% YoY) in the 2nd quarter of 2022, +0.6% (+5.4% YoY in the 1st quarter of 2022), +0.3% (+4.6% YoY) in the 4th quarter, +2.2% (+3.9% YoY) in the 3rd quarter, +2.2% (+14.3% YoY) in the 2nd quarter and a drop of -0.3% (-1.3% YoY in annual terms) in the 1st quarter of 2021.
The preliminary estimate for the 4th quarter was: +0.1% (+1.9% in annual terms) with the forecast
+0.2% (+2.2% in annual terms).
The level of influence on the markets (second assessment) is average.
US. Basic Consumer Price Index (CPI) (excluding food and energy products)
Consumer prices account for most of the overall inflation. Rising prices force the central bank to raise interest rates to contain inflation, and, conversely, when inflation decreases or signs of deflation (this is when the purchasing power of money increases and the prices of goods and services fall), the central bank usually seeks to devalue the national currency by lowering interest rates to increase aggregate demand.
This indicator (Core Consumer Price Index or Core CPI) is a key indicator for assessing inflation and changes in consumer preferences. Food and energy are excluded from this indicator to obtain a more accurate estimate (prices for this category of goods account for about a quarter of the consumer price index. They tend to be very volatile and distort the underlying trend. The FOMC usually pays more attention to the underlying data).
A high result is a bullish factor for USD, a low one is bearish.
Previous values: +0.3% (+5.7% YoY) in December, +0.2% (+6.0% YoY) in November, +0.3% (+6.3% YoY) in October, +0.6% (+6.6% YoY) in September, +0.6% (+6.3% YoY) in August, +0.3% (+5.9% YoY) in July, +0.7% (+5.9% YoY) in June, +0.6% (+6.0% YoY) in May, +0.6% (+6.2% in annual terms) in April, +0.3% (+6.5% in annual terms) in March.
Data better than the forecast and the previous values should have a positive impact on the USD.
Forecast for January: +0.5% (+5.3% in annual terms).
The level of influence on the markets is high.
Wednesday, February 15
UK. Consumer Price Index (CPI)
The CPI reflects the dynamics of retail prices and is a key indicator of inflation. Consumer prices account for most of the overall inflation. The assessment of the inflation rate is important for the central bank when determining the parameters of the current monetary policy.
The indicator below the forecast /previous value may provoke a weakening of the pound, as low inflation will force the Bank of England to adhere to a soft monetary policy. Conversely, the growth of inflation and its high level will put pressure on the BoE to tighten its monetary policy, which in normal economic conditions is assessed as a positive factor for the national currency.
Previous values of the indicator (in annual terms): 10.5%, 10.7%, 11.1%, 10.1%, 9.9%, 10.1%, 9.4%, 9.1%, 9%, 7%, 6.2%, 5.5%, 5.4%, 5.1%, 4.2%. The data indicate an acceleration in the growth of inflation.
Forecast for January: +0.4% (+10.2% in annual terms).
The level of influence on the markets is high.
Eurozone. Industrial production volumes
Eurostat will publish its next report with data on industrial production in the euro area in December. This is one of the leading indicators of the state of the entire eurozone economy. 80% of the total volume of industrial production is the manufacturing industry. At the same time, the manufacturing sector forms a significant part of the region's GDP. Data better than the forecast and the previous value, as well as a high figure, will have a positive impact on the euro. If the data turns out to be worse than the forecast and the previous value, then the euro is likely to drop sharply in the short term.
Previous values: +1.0% (+2.0% in annual terms) in November.
Forecast for December: 0% (+2.7% in annual terms).
The level of influence on the markets is average.
US. Retail sales. Retail Control Group
The U.S. Census Bureau will publish the next monthly report on retail sales in the United States. This main leading indicator of consumer spending reflects the total sales of retailers. Consumer spending accounts for most of the total economic activity of the population, while domestic trade accounts for the largest part of GDP growth. A relative decrease in the indicator may have a short-term negative impact on the dollar, and an increase in the indicator will have a positive impact on the USD.
Previous values: -1.1%, -0.6%, +1.3%, 0%, +0.3%, 0%, +0.8%, -0.1%, +0.7%, +1.4%, +0.8%, +4.9% ( in January 2022).
Forecast for January: +0.1%.
The level of influence on the markets is high.
The "Retail Control Group" indicator evaluates the volume in the entire retail industry and is used to calculate price indices for most goods. A high result strengthens the US dollar and, conversely, a weak report weakens the dollar. Data worse than the values of the previous period and/or forecast may negatively affect the dollar in the short term.
Previous values: -0.7%, -0.2%, +0.7%, +0.4%, 0%, +0.8%, +0.7%, -0.3%, +0.5%, +1.1%, -0.9%, +6.7% in January 2022.
Forecast for January: +0.3%.
The level of influence on the markets is high.
Thursday, February 16
Australia. Australian employment report
This report from the Australian Bureau of Statistics is an extremely important indicator of the state of the Australian labor market. Reflecting the monthly change in the number of employed Australian citizens, it is also an important leading indicator of consumer spending, which accounts for most of the total economic activity of the population.
The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth. A high value of the indicator is a positive factor for AUD, and a low value is a negative one.
Previous values of the indicator: -14,600 in December, +64,000 in November, +32,200 in October, +900 in September, +33,500 in August, -40,900 in July, 88,400 in June, +60,600 in May, +4,000 in April, +17,900 in March, +77,400 in February, +12,900 in January 2022.
The unemployment rate is an indicator that evaluates the ratio of the share of the unemployed population to the total number of able-bodied citizens. The growth of the indicator indicates the weakness of the labor market, which leads to a weakening of the national economy. The decrease in the indicator is a positive factor for AUD.
Previous values of the indicator: 3.5% in December, 3.4% in November and October, 3.5% in September and August, 3.4% in July, 3.5% in June, 3.9% in May, April and March, 4.0% in February, 4.2% in January.
If the values of the indicators from this report turn out to be worse than the forecast, then the Australian dollar may decline sharply in the short term. Data better than the forecast will have a positive impact on AUD.
The level of influence on the markets is from medium to high.
US. Producer Price Index (PPI). Applications for unemployment benefits
The PPI is one of the leading indicators of inflation in the United States, estimating the average change in wholesale producer prices. Higher production costs raise wholesale prices, which is ultimately passed on to the consumer, raising inflation. In normal economic conditions, a high result strengthens the dollar.
Previous values of the indicator: -0.5% (+6.2% in annual terms), +0.3% (+7.4% in annual terms), +0.4% (+8.5% in annual terms), -0.1% (+8.7% in annual terms), -0.5% (+9.8% in annual terms), +1.1% (+11.3% YoY), +0.8% (+10.8% YoY), +0.4% (+10.9% YoY), +1.6% (+11.5% YoY), +0.9% (+10.3% YoY), +1.2% (+10.0% in annual terms) in January 2022. The data indicate a slight easing of inflationary pressure, including on the Fed when it makes another decision to tighten monetary policy. If the data turns out to be better than the forecast (above the forecast values), the dollar is likely to strengthen.
The level of influence on the markets is average.
At the same time, the US Department of Labor will publish a weekly report on the state of the US labor market with data on the number of primary and continued applications for unemployment benefits. The state of the labor market (together with data on GDP and inflation) is a key indicator for the Fed in determining the parameters of its monetary policy.
A result higher than expected and the growth of the indicator indicates the weakness of the labor market, which negatively affects the US dollar. A decline and its low value is a sign of the recovery of the labor market and may have a short-term positive impact on the USD.
It is expected that the number of initial and repeated applications for unemployment benefits will remain at lows corresponding to the lows of the period before the coronavirus pandemic, and this is also a positive factor for the dollar, indicating the stability of the US labor market.
Previous (weekly) values according to data on initial applications for unemployment benefits: 196,000, 183,000, 186,000, 190,000, 205,000, 206,000, 223,000, 216,000, 214,000, 231,000, 226,000, 241,000, 223,000, 226,000, 217,000, 214,000, 226,000, 219,000, 190,000, 209,000, 208,000, 218,000, 228,000, 237,000, 245,000.
Previous (weekly) values according to repeated applications for unemployment benefits: 1,688,000, 1,650,000, 1,666,000, 1,647,000, 1,634,000, 1,694,000, 1,718,000, 1,669,000, 1,678,000, 1,670,000, 1,609,000, 1,551,000, 1,503,000, 1,494,000, 1,438,000, 1,383,000, 1,364,000, 1,365,000, 1,346,000, 1,376,000, 1,401,000, 1,401,000, 1,437,000, 1,412,000.
The level of influence on the markets is from medium to high.
New Zealand. Manufacturing PMI
This report is an analysis of a survey of 400 purchasing managers, during which respondents are asked to assess the relative level of business conditions, including employment, production, new orders, prices, supplier deliveries and inventories. Since purchasing managers have, perhaps, the most up-to-date information about the situation in the company, this is an important indicator of the state of the New Zealand economy as a whole. Data from the manufacturing sector of the economy form a significant part of New Zealand's GDP. A result above 50 is seen as positive and strengthens the NZD, below 50 would be negative for the New Zealand dollar. Data worse than the forecast and/or the previous value will have a negative impact on the NZD.
Previous values: 47.2, 47.4, 49.3, 51.7, 54.8, 53.5, 50.2.
Forecast for January: 51.6.
The level of influence on the markets is average.
Australia. Reserve Bank of Australia Governor Philip Lowe's speech
Lowe will assess the current situation in the Australian economy and indicate further plans for the country's monetary policy.
Lowe has more influence on the dynamics of the Australian dollar than any other person from the Australian government. Market participants will closely follow the progress of Lowe's speech in order to catch hints and better understand the prospects for the RBA's monetary policy.
Any signals from him regarding changes in the RBA's monetary policy plans will cause a sharp increase in volatility in AUD quotes. A harsh stance regarding the containment of inflation and the RBA's policy plans will cause the AUD to strengthen. If Lowe does not touch on the topic of monetary policy, then the market reaction to his speech will be weak.
The level of influence on the markets is from low to high.
Friday, February 17
UK. Retail sales
The retail sales index is the main indicator of consumer spending, which accounts for most of the total economic activity, and is published monthly by the ONS. The index is considered an indicator of consumer confidence, also reflecting the state of the retail sector in the near future. The growth of the index is usually a positive factor for the national currency; a decrease in the indicator will have a negative impact on the GBP. Previous values of the indicator (in annual terms): -5.8%, -5.9%, -6.1%, -6.9%, -5.6%, -3.2%, -6.1%, -4.7%, -5.7%, +1.3%, +7.2%, +9.4% ( in January 2022).
Forecast for January: +1.8% (in annual terms).
The level of influence on the markets is average