Next Week’s FX Forecast & Events Feb 03, 2020

Coronavirus fears likely to dominate 

Developments surrounding the coronavirus outbreak are likely to dominate again during the week.

Chinese markets will re-open on Monday following an extended lunar new-year break. Heavy losses are inevitable at the open although the Chinese central bank has pledged to add a total of over CNY1.0trn in fresh funds and there is also likely to be official support for equities.

If Chinese losses are limited, global risk sentiment would be likely to recover slightly. Similarly, evidence that the outbreak can be contained would also help boost confidence.

In contrast, sentiment towards the global growth outlook will intensify if global travel restrictions increase and containment efforts appear to be failing. Inevitably, there will be a high degree of market volatility during the week.

US

There are important data releases during the week. The ISM manufacturing business confidence data is due for release on Monday. This survey has been notably weak over the past few months while other regional surveys have been mixed. Another weak national reading would increase reservations over the outlook.

The non-manufacturing index is due on Wednesday.

Employment releases will be watched closely over the second half of the week with the ADP jobs data on Wednesday. This will be followed by the monthly jobs report on Friday.

Wages will be an important element within the report after a significantly weaker than expected reading last month. Weak earnings growth would reinforce expectations of low inflation and maintain pressure for lower interest rates.

Comments from Federal Reserve officials will, therefore, be monitored closely, especially if they make any significant comment on the coronavirus impact. The dollar will retreat if expectations of lower interest rates increase further.

UK

The final PMI business confidence readings will be released and should confirm a notable upturn for January, although the overall data releases are unlikely to have a significant impact.

Political rhetoric will be significant for sentiment as the UK and EU look to prepare for trade talks. Tough rhetoric as a positioning tactic would tend to unsettle sentiment slightly and certainly limit the potential for further Sterling gains. 

Euro-zone

ECB President Lagarde is due to testify to the European Parliament on Thursday and her tone will be important for market sentiment. The Euro will continue to gain defensive support from the robust current account position.

International

The Reserve Bank of Australia will announce its latest interest rate decision on Tuesday with interest rates expected to remain at 0.75%, but coronavirus fears will increase pressure for a rate cut. The Australian dollar will be vulnerable if there is a cut in rates.

Canadian labour-market data is also due on Friday.

New Zealand labour-market data is due on Wednesday local time and will have a significant impact on the New Zealand currency.

Currency FX Forecast for Next Week

Currency pair Spot  1-week forecast 1-month forecast
EUR/USD 1.109 1.118 1.110
USD/JPY 108.5 107.2 108.2
EUR/GBP 0.842 0.838 0.830
GBP/EUR 1.188 1.193 1.205
GBP/USD 1.317 1.334 1.337
AUD/USD 0.669 0.660 0.680
USD/CAD 1.324 1.328 1.312
USD/SGD 1.365 1.370 1.350
USD/HKD 7.767 7.780 7.790
NZD/USD 0.648 0.640 0.665
GBP/JPY 142.9 143.0 144.7
GBP/AUD 1.969 2.021 1.967
GBP/NZD 2.033 2.085 2.011
GBP/SGD 1.798 1.828 1.805
GBP/HKD 10.23 10.38 10.42
GBP/CHF 1.270 1.277 1.301

 

Tim Clayton

Tim Clayton is a market analyst with more than 20 years of experience in the financial markets, with particular focus on currencies. Holds an economics degree from University of New York. Writes for multiple publications including Investing.com and SeekingAlpha so he is on top of all the happening in the world of currencies and macro-economics.

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