Forex Weekly Outlook: Eurozone inflation continues

Kenny Fisher MarketPulse

The year 2020 is finally over, but the economic impact of Covid-19 is far from over. With many of the major economies in lockdown, the road to recovery promises to be long and bumpy. The US dollar is showing signs of stabilizing, but with more easing and stimulus likely under the Democrats, the dollar has more room to decline in the coming weeks and months.

Eurozone inflation continues to struggle in the eurozone, as CPI came in at -0.3%, marking a fifth straight decline.

UK PMIs were a mixed bag in December. Manufacturing remains strong, as the PMI accelerated to 57.5, up from 55.6 beforehand. This was the highest level since November 2017. Services PMI has slipped into contraction territory and came in at 49.4, below the neutral 50-level. Construction also remains in expansionary territory and the PMI came in at 54.6 points.

Canada’s economy showed a loss of 62.5 thousand jobs, the first decline since April. The unemployment rate ticked up to 8.6%, up from 8.7%.

In the US, ISM PMIs reports pointed to accelerated expansion in December. Manufacturing PMI improved to 60.7, up from 57.5 beforehand. This beat expectations and was the highest reading since August 2018. Services PMI climbed to 57.2, up from 55.9 beforehand. This exceeded the estimate of 54.5 points.

Nonfarm payrolls was a disaster, with a sharp loss of 140 thousand. The consensus estimate called for a gain of 60 thousand. There was better news from wage growth, which jumped 0.8%, up from 0.3% a month earlier. This was the strongest gain since April.

US Inflation Report: Wednesday, 13:30. CPI has been weak, but headline inflation is projected to rise to 0.4% in December. The core reading is expected to remain at 0.2%.
ECB Monetary Policy Meeting Accounts: Thursday, 12:30. The accounts provide details of the ECB’s most recent policy meeting. Investors will be looking for any hints regarding future monetary policy and possible easing measures in the new year.
British GDP: Friday, 7:00. The monthly GDP report has been falling and came in at just 0.4% in October. Analysts are braced for a sharp contraction of 4.6% in November.
French CPI: Friday, 7:45. Inflation in the eurozone’s second-largest economy remains soft. The forecast for December stands at 0.2%, after an identical reading last month.
Core Retail Sales: Friday, 13:30. Retail sales were dismal in November. The headline figure declined by 1.1%, while core retail sales contracted by 0.9%. In December, the numbers are expected to improve to 0.0% and -0.1%, respectively.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.