Forex Weekly Outlook Jan. 14-18 - After the Fed's dollar downing Brexit vote in focus - Forex Crunch

1/11/2019

After the US Dollar was on the back foot amid optimism for a US-Chinese trade deal, the focus shifts to the UK with the all-important Brexit vote in a busy week that features other top events. Here the highlights for the next week.

The US and China reported progress and reports came out saying Trump wants a deal. The advance in stock markets, already buoyed by Powell’s dovish words, sent money away from the safe-haven US Dollar and Japanese yen. the greenback got a further boost when FOMC member Bostic opened the door to a rate cut. Moreover, the meeting minutes were dovish, calling for patience on raising rates. Concerns about a recession in Germany surfaced after industrial output plunged. The debate in the UK heated up, and the government was defeated on a minor vote, signaling things to come.

UK Parliament votes on Brexit: Tuesday. The UK government delayed the vote that was scheduled for December due to prospects of a defeat. PM Theresa May toured Europe in an attempt to secure concessions about the Irish backstop issue, but her counterparts were only willing to provide clarifications but no changes to the legal text. She was hoping that the ticking clock towards Brexit Day on March 29th would push MP’s to support the agreement. At the moment, it seems like the government is set to lose. Parliament secured the right to curb the government’s powers in case of a no-deal Brexit, in a humiliating defeat for the government. What will May do if the deal is rejected? One option is to push for a no-deal Brexit which would send the pound plunging. Another is to hold a second referendum. The public has slightly shifted to the Remain camp but anything can happen, and uncertainty will prevail. A snap election is also an option and markets would fear a Labour government led by Jeremy Corbyn. Postponing Brexit is also on the cards, even if it is currently denied by the government. It could push the pound higher. All in all, only one thing is clear: uncertainty will trigger high volatility.
US PPI: Tuesday, 13:30. Producer prices impact consumer prices down the line. Headline PPI rose by 0.1% in November as energy prices cooled. Core PPI surprised with a significant increase of 0.3%. The headline is projected to drop by 0.1 while Core PPI to advance by 0.2%.
Mario Draghi talks Tuesday, 15:00. The President of the European Central Bank presents the annual report before the European Parliament in Strasbourg and will have the opportunity to share his views about the economy. Recent signs have been worrying, with growing chances of a recession in Germany and in Italy. On the other hand, unemployment is down and inflation is steady. He may also express his opinions on the global economy.
UK CPI: Wednesday, 9:30. Inflation has been cooling down in the UK, mostly thanks to energy prices. Headline CPI rose by 2.3% in November, a deceleration in comparison to the previous month. Core CPI was at 1.8%, and the Retail Price Index (RPI) stood at 3.2%.
US Retail Sales: Wednesday, 13:30 – may be postponed due to the government shutdown. The US economy is centered on consumption. The volume of sales in November was more modest than in previous months but satisfactory. Sales increased by 0.2% and upwards revisions were recorded as well. Core sales rose by 0.2% as well.
FOMC’s John Williams talks Friday, 14:05. Williams is the New York Fed President and considered No. 3 at the central bank. He has been quite optimistic about the economy in recent speeches but has not had his chance to voice new opinions in quite a while. In his speech in New Jersey, it will be interesting to hear if Williams goes dovish.
US Consumer Sentiment: Friday, 15:00. The University of Michigan’s consumer survey hit 98.3 points in December according to the final version, off the highs but reflecting optimism. We will now receive the preliminary data for January which is expected to fall to 96.1 points.