Forex Fundamental Analysis February 12 ~ 17, 2023

We have quite a few high-impact releases scheduled for the week that may change the Forex fundamental analysis for market. Here are the details:

Tradable news events of the week:

The US CORE CPI (Consumer Price Index) event is a monthly report released by the Bureau of Labor Statistics (BLS) that measures the average change over time in prices paid for goods and services in the United States. The CORE CPI does not include food and energy prices, which are considered more volatile, thus providing a more reliable indicator of inflation. It is an important economic indicator as it reflects changes in consumer spending and inflationary pressures on businesses.

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The UK CPI (Consumer Price Index) event is a monthly report released by the Office for National Statistics (ONS) that measures the average change over time in prices paid for goods and services in the United Kingdom. The report provides insight into the inflationary trends within the economy, allowing the Bank of England to make decisions around monetary policy. The CPI also helps guide government and business decisions around spending and taxation, as well as helping consumers decide when to purchase items that are expected to become more expensive in future.

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Core retail sales measure the total value of retail sales in an economy, excluding automotive fuel and sales from restaurants, cafés, and bars. It is a key indicator of consumer spending and can provide insight into economic trends.

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The AU Employment Change report is a monthly economic release from the Australian Bureau of Statistics that measures the change in the total number of employed persons from the previous month. It provides insight into labor market conditions, helping to inform decisions by business and government. The report also serves to inform the public of labor market trends, which can have a significant impact on consumer confidence.

UK Retail Sales is a monthly report released by the Office for National Statistics that measures the total sales volumes of goods sold by retail stores in the United Kingdom. It provides a snapshot of consumer spending and is used as an important economic indicator since it accounts for approximately 5% of UK economic activity. The report also serves to inform retailers, manufacturers, and other businesses of changing trends in consumer behavior, helping them adjust their production and pricing strategies accordingly.

Weekly Forex fundamental analysis summary

USD:

After a rocky start, US markets eventually steadied. As investors grapple with last Friday’s eye-opening jobs report, which indicates that the Federal Reserve will continue increasing rates to moderate economic growth, stocks have been on unsteady footing this week.

On Tuesday, Chairman Powell largely maintained the rhetoric from his FOMC press conference last week; this was celebrated by bulls who were relieved that he didn’t provide any new hawkish messaging in light of the recent employment report. However, Powell eventually admitted that the Federal Reserve would respond to the data despite his reluctance. Another employment report like January’s could potentially necessitate further action from them.

The sentiment data of the Univ of Michigan has hit an all-time high over the past year, and inflation expectations have also grown.

Furthermore, data from the US Labor Department shows that January’s Consumer Price Index (CPI) numbers were even higher than initially estimated.

As a result, the US 2-year treasury yield has recently catapulted to 4.5%, and the futures market is suggesting a higher terminal rate for 2023, which closely mirrors the projections of the December Federal Open Market Committee meeting.

The US dollar index concluded the week at a nearly one-month high.

Unfortunately, this was not reflected in other major markets: The S&P 500 endured a 1.1% decrease, the Dow Jones Industrial Average dropped 0.2%, and the Nasdaq Composite plummeted 2.4%.

Notable Headlines

• (US) FEB PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 66.4 V 65.0E (Highest since Jan 2022)
• (US) Fed’s Williams (voter): Labor market is very strong, still has work to do on rates; We will need to maintain restrictive rates for a few years
• (US) Atlanta Fed GDPNow: Raises Q1 GDP from 2.1% to 2.2%
• (US) INITIAL JOBLESS CLAIMS: 196K V 190KE; CONTINUING CLAIMS: 1.69M V 1.66ME
• (US) President Biden: See no recession in 2023 or 2024; China’s economy is not functioning very well; US will fully compete with China but does not look for conflict – PBS interview

CAD:

Following the January employment report, which revealed a strong performance from Canada’s economy, the Loonie saw an impressive surge in value.

On Friday, crude prices surged when it was announced that Russia is going to reduce its oil production by 500K barrels a day in March. The upsurge followed days of speculation surrounding the possibility of President Putin commencing a military strike on Ukraine shortly.

Notable Headlines

• (CA) CANADA JAN NET CHANGE IN EMPLOYMENT +150K V +15.0KE; UNEMPLOYMENT RATE: 5.0% V 5.1%E

JPY:

The Yen also experienced volatility due to multiple reports regarding the imminent BOJ leadership transformation. Following the anonymous report that Japan’s Prime Minister Kishida will nominate a BOJ-experienced academic, Kazuo Ueda, as their next Governor of Bank of Japan, the Japanese Yen went through periods of high volatility in its value.

EUR:

• (NL) ECB’s Knot (Netherlands): ECB still has quite some ground to cover on rates, may need 50bps in May if underlying prices do not slow
• (DE) GERMANY JAN PRELIMINARY CPI M/M: 1.0% V 1.0%E; Y/Y: 8.7% V 8.9%E (lowest annual pace in 5 months)

GBP:

• (UK) Q4 PRELIMINARY GDP Q/Q: 0.0% V 0.0%E; Y/Y: 0.4% V 0.4%E

Equity:

This week, US equity markets experienced their first major turbulence of 2023. After Friday’s positive jobs report, stocks were lightly impacted and saw a slight decrease in value.

On Tuesday, stocks surged to their weekly peak after the S&P maintained 4100. The week continued with a steady stream of Federal Reserve members echoing Powell’s sentiments, suggesting that officials still appear satisfied that our economy is in line with their December forecasts.

Bond:

After much convincing from Federal officials that inflation is not yet over, bond markets have begun to give into the notion. As investors began to consider this information, futures market forecasts followed suit and pushed their tightening rate ceiling up to 5.15%. Even more impressive was the year-end expectations for rates increasing by a staggering 60 basis points in just one week – now amounting to 4.9%!

General Sentiment:

On account of the general decline in global growth, shipping giant Maersk has reported that their figures are not good. They have noted a considerable decrease in inventory and anticipate that their seaborne freight business will experience an even deeper slump during the second half of 2023 compared to earlier this year.

Key takeaway

Sentiment forecast

With the Federal Open Market Committee (FOMC) continuing to repeat recent rhetoric and maintain the possibility of raising interest rates, the USD may continue to hold its own. This week’s US CPI and Retail Sales figures will be essential in determining how investors perceive this currency: depending on their outcome, some could move their positions from net short USD into long USD.

The recent BOJ governor leak announcement has evoked a positive reaction from the market, so JPY may either remain stable or become weaker in the upcoming days. It is prudent to monitor the development of this situation and be prepared to short JPY taking advantage of recent higher-risk sentiment.

As crude prices continue to climb and the optimism surrounding the new employment report intensifies, so too may be some limited support for CAD. In light of this information, there could be an opportunity to take on a short position with USDCAD; however, you don’t hold onto it longer than the current week.

With the potential for AUD to fluctuate this week, it’s best not to involve yourself with any trades related to the currency. Take a step back and wait until there is more stability before engaging in AUD pairs.

The UK is set to release two major news events, which may change the short-term outlook for the currency. I’d recommend to focus on news trading the events and stay out of GBP pairs this week.

This week, the EUR is expected to remain stable due to a lack of major announcements. If there are no unexpected developments from the US, we will observe this currency staying within its current range.