Forex Weekly Outlook – Coronavirus, Fed, and BOE in focus

The coronavirus scare gripped markets and boosted the safe-haven dollar and yen. Will they continue higher? The calendar features rate decisions in the US and in the UK, as well as other top events. Here the highlights for the upcoming week.

At the time of writing, the death toll from the coronavirus outbreak has reached 56, and around 2,000 infections are known, most of them in China. With some 35 million people locked down in the world’s second-largest economy, fears for global growth have hit markets worldwide and boosted safe-haven assets. Upbeat UK figures have reduced the chances of a rate cut in the UK while the Bank of Canada opened the door to slashing borrowing costs. The European Central Bank announced it is conducting a strategic review and somewhat weighed on the euro.

US Durable Good Orders: Tuesday, 13:30. Orders of durable goods represent investment, which the Federal Reserve watches closely. Moreover, the data serve as a warmup toward the growth figures later on. After both headline orders and core orders dropped in November, both are projected to advance in December, with economists predicting an increase of 1.2% in the headline statistic and 0.4% in the core.

CB Consumer Confidence: Tuesday, 15:00. The Conference Board’s gauge of consumer sentiment has been off the highs but still showing elevated levels of confidence, reflecting robust spending. After scoring 126.5 points in December, a rise to 128.2 is on the cards for January.

Australian CPI: Wednesday, 00:30. The land down under releases inflation figures only once per quarter, making every publication substantial. Headline Consumer Price Index carries expectations of accelerating from 0.5%to 0.6% in the fourth quarter of 2019 while the Trimmed Mean CPI (core) is projected to repeat the rise of 0.4% that was seen in the third quarter. After the recent strong jobs statistics, the Reserve Bank of Australia will likely hold rates unchanged.

Fed decision: Wednesday, 19:00, press conference at 19:30. After three consecutive rate cuts, the world’s most powerful central bank signaled it would take a long pause. Since then, officials have reiterated this message, that rates are “appropriate.” Nevertheless, investors will scrutinize every word in the accompanying rate statement and that comes out of Jerome Powell, Chairman of the Federal Reserve. In the previous decision, Powell reaffirmed his stance that the bar for raising rates is higher than the one for cutting them. Inflation would first need to sustainably rise before the Fed would consider hiking borrowing costs. However, a deteriorating outlook could trigger a cut. Markets will be watching his words about this topic and also about the recent mediocre jobs report, the healthy growth rates, and lower trade tensions between China and the US. An upbeat tone could lift the dollar while a downbeat one could depress it.

UK rate decision: Thursday, 12:00, press conference at 12:30. Downbeat data and dovish comments from members of the Bank of England gave the notion that a rate cut was unstoppable. However, then came an upbeat jobs report and optimistic Purchasing Managers’ Indexes, and now bond markets see the odds of a cut as 50-50. Apart from this January decision, pound traders will also observe hints about the next ones. Given the high uncertainty, volatility is set to be extreme. This is the last decision by Governor Mark Carney before he passes the baton onto his successor Andrew Bailey. That pushes the dial closer to a cut, saving that dilemma from Bailey. Nevertheless, anything can happen.

US GDP: Thursday, 13:30. The first release of Gross Domestic Product figures tends to trigger a stronger reaction than the second and final publications. The US economy grew at a moderate clip of 2.1% in the third quarter and economists foresee a marginally faster clip of 2.2% in the last quarter of 2019. A drop below 2% could weigh on the dollar while a rise toward 2.5% would push it higher. Apart from the headline figure, markets will want to see if the investment has recovered or if the consumer continued carrying the economy on its own. The Fed may receive the data in advance and hint about it in its meeting.

Eurozone inflation: Friday, 10:00. Christine Lagarde, President of the European Central Bank, expressed cautious optimism about rising inflation as both headline and core inflation stood at 1.3% in December. The first release of CPI figures for January is set to show a divergence, with headline prices hitting 1.4% yearly while core CPI slips back to 1.2%. If underlying inflation surprises with an increase, it would be the highest since 2013. Nevertheless, the chances are slim as growth has faltered.

Canadian GDP: Friday, 13:30. Canada publishes growth figures once per month, and the upcoming release is for November. GDP figures disappointed in October with a squeeze of 0.1% and were one of the reasons for the Bank of Canada to open the door to cutting interest rates. A return to growth is possible in the upcoming release.