Liquidity fears surround New Year
The middle of the week will be dominated by the New Year holidays when global markets are closed.
Position adjustment will be a significant factor early in the week with last-minute portfolio shifts.
After the holiday break, traders will be attempting to identify the likely themes for 2020 and shift funds accordingly.
There will be low trading volumes during the week and the risk of erratic moves in currency markets. Last year, the yen spiked higher on January 2nd as the dollar flash-crashed. Markets will be wary of further sharp currency moves on the first day of trading next year.
Trade developments remain important
Trade negotiations will continue to be important with markets monitoring whether the US-China trade deal will be signed. At this stage, markets are optimistic that a deal will be inked early in January and any delay would trigger some unease.
US politics will also be important ahead of President Trump’s impeachment trial in the Senate. Any erosion of Republican support for Trump would be potentially important in triggering speculation that he could be dismissed from office.
There are important data releases during the week, although it should be noted that the monthly jobs data will not be released on January 3rd and is scheduled for the following Friday.
The Chicago PMI release is due on Monday with consumer confidence data on Tuesday.
The ISM manufacturing release on Friday will be watched very closely following recent weakness. A significant recovery would bolster confidence in the US and global economy. Another disappointing release, however, would trigger fresh reservations.
Minutes from December’s Federal Reserve meeting will also be released on Friday. Markets will be looking for further thinking on the 2020 outlook for rates.
The UK manufacturing business confidence data will be released on Thursday with construction data on Friday. The flash manufacturing data has already been released, but the final data will still be important to see whether the General Election outcome has had an impact on sentiment.
Hopes for a stronger global economy next year should provide some short-term Sterling support amid hopes for a recovery in trade volumes.
The latest Euro-zone business confidence data will also be examined to assess whether pessimism had eased during the month.
The Chinese business confidence data will also be released during the week with releases on Tuesday and Thursday. Last month’s data was stronger than expected and further improvement would boost confidence in the global economy.
Currency FX Forecast for Next Week
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