Forex Weekly Outlook Mar. 2-6

The euro was the loser in week that saw the dollar retreat and make a comeback. The first week of the new month is packed: rate decisions in Australia, Canada, the UK and the euro-zone, GDP data from Canada and Australia and a full buildup to the US Non-Farm Payrolls. These are the main market movers on FX Calendar. Join us as we explore the highlights of this week.

Janet Yellen managed to send mixed signals and was analyzed as dovish. However, was she preparing us for the removal of forward guidance? Her colleague Bullard was quite bullish. US data came out mixed: jobless claims rose to 313,000, and CPI declined 0.7% due to continued slide in oil prices, while Core CPI surprised with a 0.2% rise and maintained a stable 1.6% y/y figure. The latter number trumped the others and allowed the dollar to make a comeback. In the euro-zone, the Greek list was approved and the crisis is off for now. Data has been somewhat upbeat. UK GDP remained supportive of the pound while in Australia, speculation mounts about an RBA cut. We’ll get lots of answers now. Let’s start:

1. US ISM Manufacturing PMI: Monday, 15:00. Manufacturing activity in the U.S. expanded mildly in January, reaching 53.5, after posting 55.5 in December. The lukewarm reading raised concerns over the health of the economy. Economists expected a stronger reading of 54.9. New Orders declined 4.9 points to 52.9, Production Index was 1.2 points below 57.7 posted in December and Employment Index registered a 1.9 points decline to 54.1. The headline number for February is expected to rise to stand at 53.4 points.
2. Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia surprised markets in February with a rate cut of 0.25% to 2.25%. This was the first change since August 2013.The RBA noted that the recent drop in oil prices were not enough to boost growth and global economy is also expanding in a moderate pace. Inflation is expected to remain slow, domestic demand is forecast to weaken and the unemployment rate is expected to increase. We think that the RBA could cut again.
3. Canadian GDP: Tuesday, 13:30.  Canada’s economy unexpectedly contracted 0.2% in November, prompting talks of a second rate cut in six weeks. Economists expected a small decline of 0.1%. Sluggish activity in manufacturing, mining oil and gas extraction lead to this decline. The BOC noted that if economic data remain weak in early 2015, it could lead to another rate cut. On a yearly base, Gross domestic product grew 1.9%, the lowest year-on-year advance since the 1.9% of March 2014. A +0.1% growth rate is on the cards now.
4. Australian GDP: Wednesday, 0:30.  Australia’s gross domestic product grew by a mere 0.3% in the third quarter, reaching a 2.7% expansion, in the 12 months to September. Economists forecast a 0.7% growth for the quarter and 3.1% for the year. However, policymakers noted the GDP was only marginally lower than expected. Despite the rise in unemployment, exports are getting stronger and will lead to expansion in 2015. Expectations stand at +0.7% q/q.
5. US ADP Non-Farm Payrolls: Wednesday, 13:15. The U.S. private sector added 213,000 jobs in January, missing analysts’ forecasts of 224,000. December’s private payrolls were revised up to 253,000 from the previously reported 241,000. Despite the weaker than expected data economists believe that the U.S. labor market is expanding at a solid pace. A similar gain of 218K is predicted now.
6. Canadian rate decision: Wednesday, 15:00. The Bank of Canada surprised markets by cutting its key overnight lending rate by a quarter of a percentage point to 0.75%. The ongoing decline in oil prices posed a threat to Canadian economic growth. Bank of Canada governor Stephen Poloz said the revenues from oil exports will be reduced on top of sluggish investment and employment in the energy sector. The rate cut was aimed to rebalance the economy. The Central Bank also downgraded its growth forecast for 2015, from 2.4% to 2.1% and expect a mere 1.5% growth in the first six months.
7. US ISM Non-Manufacturing PMI: Wednesday, 15:00. The U.S. services activity remained strong in early 2015 but employment slackened. ISM non manufacturing purchasing managers index reached 56.7 in January, nearly unchanged from 56.5 in December. Analysts expected the index to reach 56.6. The majority of responders were positive towards business conditions. The new orders index increased to 59.5 from 59.2 in December. Business activity edged up to 61.5 from 58.6 but the employment component declined to 51.6 in January from 55.7. A similar figure of 56.5 points is on the cards now.
8. UK rate decision: Thursday, 12:00. Bank of England policymakers voted unanimously to keep rates on hold in February but raised the possibility for the first time that it could cut interest rates below 0.5% if inflation weakens further. British inflation plunged to 0.3% in January, the lowest level since records began in 1989 and far below the BoE’s 2% target. The BoE noted it may cut rates below zero in the coming months. BoE policymaker Martin Weale said the bank will need to start raising interest rates sooner than investors expect as inflation recovers from current low levels. No changes are expected.
9. Euro zone rate decision: Thursday, 12:45. The European Central Bank announced the start of a massive government bond-buying program to pump billions in new money into the euro zone economy starting from March until the end of September 2016. ECB President Mario Draghi said that by September 2016, more than 1 trillion euros will be added from quantitative easing. The ECB is trying to restore inflation to its target of just below two percent; consumer prices fell in December, but there are doubts, and not only in Germany, over whether printing fresh money will work. No change is expected now, but Draghi has a lot to talk about: the ECB’s role in the Greek crisis, how Draghi sees inflation evolving after the stabilization in oil prices, hopes for growth and more. The president of the ECB usually moves markets
10. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits edged up unexpectedly last week to 313,000, from 282 in the prior week. The 31,000 rise was the biggest jump since December 2013. Economists expected claims to reach 288,000. The four-week average increased to 294,500 from a revised 283,000 the week before. Chair Janet Yellen noted in her congressional testimony this week that there are still too many unemployed, wage growth is still slow and inflation remains well below the Fed’s objectives.
11. US Non-Farm Payrolls report: Friday, 13:30. The US economy added 257,000 jobs in January, exceeding expectations of a 230,000 jobs gain, reconfirming the strength of the US economy. The economy has created more than 1 million new jobs in the last three months and the private sector has added 11.8 million jobs over 59 straight months of job growth, extending the longest streak on record. Wages in the private sector also increased, with a rise of 12 cents in average hourly earnings to $24.75. Over the last 12 month average wages have increased by 2.2%, up from a previous estimate of 1.9%. However, despite the increase in new jobs, the unemployment rate increased slightly from 5.6% to 5.7%. Economists believe the rise may be a result of the huge surge in the labor force increasing statistical noise, but can also reflect growing optimism about the chances of gaining work. Estimations currently stand at a gain of 241K, an unemployment rate of 5.6% and a rise of average hourly earnings of 0.2% m/m.
12. US Trade Balance: Friday, 13:30. The U.S. trade deficit widened sharply in December reaching $46.6 billion 17.1% higher than in the previous month. . It was the biggest percentage increase since July 2009. The trade gap suggested a downward revision to the fourth-quarter gross domestic product. Imports increased 2.2% to $241.4 billion, and imports of non-petroleum products edged up to a record high, a sign of strengthening in the domestic economy and a strong US dollar. Exports declined 0.8% to $194.9 billion in December. A narrower deficit of 41.6 billion is on the cards now.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies