High volatility warning
Currency market volatility is likely to be very high in the short term with very sharp moves across all major pairs.
Coronavirus developments will continue to dominate
Global developments surrounding the coronavirus outbreak will remain extremely important for the week ahead.
The degree of fear in markets will be crucial element and volatility will inevitably remain at elevated levels. If equity markets declined further the yen and Swiss franc will tend to gain further support.
Developments on Wall Street will inevitably have a major impact on global currency markets.
There will be further Chinese PMI data during the week with the Caixin manufacturing release on Monday and services report on Wednesday.
Official responses in focus
Markets will be watching the official responses closely. As well as response to the outbreak itself, potential policy comments will be important.
There will be increased pressure for governments to boost spending in order to support demand.
Monetary policy rhetoric from central banks will also be watched closely. Comments from Federal Reserve speakers will be important, especially with a blackout period coming into effect on March 7th ahead of the March 18th policy meeting.
There are series of important releases during the week which will also spark dollar volatility. Strong data would help lessen fears over the outbreak while weak releases would amplify underlying concerns.
The ISM business confidence data on Monday will be very important after a very mixed set of data over the past 10 days. Several regional surveys reported a rebound for February, but the Markit report signalled a notable dip in activity with the services sector at a 6-year low.
The ISM manufacturing releases and services report on Wednesday will, therefore, be important for market sentiment.
Attention will focus on the labour market over the second half of the week with the ADP jobs data on Wednesday and monthly jobs report on Friday.
Political developments will also be significant with ‘Super Tuesday’ when 14 states will vote in Democrat primaries. There should be a clearer idea of the likely winner after these ballots.
The economic data releases are unlikely to have a major impact, although business confidence data will be watched closely. Comments from Bank of England officials will be watched to assess whether the bank is likely to consider a precautionary cut in interest rates.
Hints over the Chancellor’s budget will also be important ahead of the March 11th statement. Sterling will influenced by the extent of government spending increases with suggestions of a substantial increase tending to support the currency.
Further Sterling losses would represent a potential opportunity for those needing to buy the currency.
The Euro-zone CPI inflation data will be released on Tuesday, although comments on fiscal and monetary policy will be the most important factors during the week.
The Reserve Bank of Australia will announce its latest interest rate decision on Tuesday. The latest GDP data for the fourth quarter of 2019 is due for on Wednesday. Speculation over a cut in interest rates at this meeting has increased after last week’s severe market turbulence.
The Bank of Canada will announce its latest interest rate decision on Wednesday with no change in rates expected at this stage. The latest labour-market report is also scheduled for release on Friday.
Risk trends will still tend to be dominant for commodity currencies in the short term.
Currency FX Forecast for Next Week
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