American FX Outlook: US housing market is set to decelerate ahead of next week’s FOMC

What you need to know before markets open

• The Financial Policy Committee at the Bank of England continues to judge that, apart from those related to Brexit, domestic risks remain standard overall, and that risks from global vulnerabilities remain material. The FPC will conduct the leading UK banks stress testing in 2018 taking into account new loan loss provision rules.
• ECB chief economist Peter Praet backed the official view of Eurozone inflation slowly proceeding toward the target but warned of unexpected economic slack having a detrimental effect on Eurozone inflation path.
• Actual inflation figures saw the Eurozone headline inflation actually decelerating to 1.1% y/y in February while core inflation remained at 1.0% y/y.
• The US housing market figures are expected to decelerate, but this macro data are unlikely to alter the scenario of new FOMC chairman Jerome Powell delivering its first rate hike next week on Wednesday.

Friday’s market moving events

• The US housing starts are seen decelerating to 1.28million while building permits are seen falling to 1.32 million in February.
• The Canadian manufacturing sales are seen falling -0.8% m/m in January.
• The US industrial production is expected to rise 0.3% m/m in February.

Major market movers

• Major currency pairs are seeking the direction as the economic calendar is not providing enough clues.
• Forex market is numb before the FOMC meeting next Wednesday that is expected to deliver fresh wind of higher interest rates and the economic assessment of the US economy.    

Earlier in Asia/Europe

• German wholesale prices fell -0.3% m/m while decelerating to 1.2% y/y in February.
• The Eurozone labor cost index rose less than expected by 1.5% y/y in the final quarter of 2017.
• The Eurozone inflation decelerated to 1.1% y/y in February, down from 1.2% y/y in the previous month. The core inflation rose in line with the expectation by 1.0% in February.
• The Bank of England's Financial Policy Committee (FPC) sees signs of rising domestic risk appetite in mortgage market at high loan-to-income ratios. In terms of disorderly Brexit risk, the FPC expects the UK banking system could continue with Brexit risks not warranting additional capital buffers for banks. The FPC will conduct stress testing of the UK leading banks the same way as in 2017, taking into account new accounting rule for loan loss provision.