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The dollar collapsed after the release of the US inflation report last Thursday. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) for December fell to 6.5% from 7.1% a month earlier, and the so-called core CPI dropped to 5.7%, from 6% in November. The data came after the US labor market report from a week earlier and the ISM Services PMI that registered 49.6% in December, which is lower than the 55.0 forecast and the previous reading of 56.5.
This data strengthened the opinion that the Federal Reserve will continue to dial down interest rate hikes, and at the meeting on January 31 - February 01 will raise the rate only by 0.25% (after increasing by 0.50% in December and by 0.75% months earlier), and then further slow the pace of monetary tightening and possibly go for its easing in the near future.
At the end of the week, the DXY dollar index fell sharply, losing more than 1.5%, approaching the key 100.00 mark even harder.
Thus, the dynamics of the financial market is developing while the dollar is getting weaker
Next week, there will be plenty of macro data, and traders and investors will pay attention to important reports on China, Great Britain, Germany, Canada, US, Australia, as well as the results of the monetary policy meetings of the Bank of Japan and the People's Bank of China (PBOC).
The United States will be celebrating Martin Luther King Day. Banks and stock exchanges of the country will be closed. Trading volumes during the US trading session will be lower than usual and there are no important macro data. It is also worth noting that the World Economic Forum (WEF) will start on this day in Davos (Switzerland) with the slogan "Cooperation in a Fragmented World". During the 5-day meeting, representatives of the world elite will discuss world problems, including wars, the coronavirus pandemic, inflation and climate protection. Unexpected statements made during this forum may also affect the dynamics of financial markets.
The National Bureau of Statistics of China will publish the quarterly GDP report which is the broadest measure of economic activity and a key indicator of the state of the economy. A high reading is seen as positive (or bullish) for the CNY, while a low reading is seen as negative (or bearish).
China's GDP momentum is reflected not only in the CNY, but also in global stock indices, especially Asian equities and commodity currencies like the New Zealand and Australian dollar. China is the biggest trade and economic partner of Australia and New Zealand and a buyer of commodities from these countries.
Therefore, positive macro data from China might have a positive effect on these commodity currencies, although data coming from China shows that the biggest economy in the world is slowing down.
Previous Chinese GDP figures: +3.9% (+3.9% annualized) in Q3, -2.6% (+0.4% annualized) in Q2, +1.3% (+4.8% annualized) in Q1 2022, +1.6% (+4.0% annualized) in Q4, +0.2% (+4.9% annualized) in Q3, +1.3% (+7.9% annualized) in Q2, +0.6% (+18.3% annualized) in Q1 2021.
The level of impact on the markets is medium to high.
The Retail Sales Index is released monthly by the National Bureau of Statistics of China and measures total retail sales and total receipts of sample establishments. It is a key indicator of consumer spending which accounts for a majority of total economic activity. It is also considered as an indicator of consumer confidence and indicates the health of the retail sector in the near term.
A rise in the index is usually positive for the CNY; a decline in the index is negative for the CNY.
Previous index values (annualized) are -5.9%, -0.5%, +2.5%, +5.4%, +2.7%, +3.1%, -6.7%, -11.1%, -3.5%, +6.7% (in February 2022) after rising +8% in the final months of 2019 and falling -20.5% in February 2020.
The data suggest an uneven recovery in this sector of the Chinese economy after a strong fall in February-March 2020. If the data turns out to be weaker than forecast and/or previous values, the CNY could weaken sharply.
The level of impact on markets is medium to high.
Key data on the UK employment market, this report published monthly by the UK's Office for National Statistics (ONS) includes average earnings for the last 3 months as well as UK unemployment data, also for the last 3 months.
A rise in earnings is bullish for the GBP as it is an indirect indicator of a rising consumer spending power and encourages inflationary pressures. A low reading is seen as negative (or bearish) for the GBP.
Average earnings including bonuses are expected to rise again over the last 3 months (September-November) after rising by +6.0%, +6.0%, +5.5%, +5.2%, +6.4%, +6.8%, +7.0%, +5.6%, +4.8%, +4.3%, +4.2% in the previous periods; no premiums, also up (after rising +5.7%, +5.4%, +5.2%, +4.7%, +4.4%, +4.2%, +4.2%, +4.1%, +3.8%, +3.7%, +3.8% in previous periods).
If the data turns out to be better than forecast and/or previous values, the pound is likely to strengthen. Data worse than forecast/previous values will have a negative effect on the pound.
Also, over the 3 months (September-November) unemployment is expected to be at 3.7% (vs. 3.7%, 3.6%, 3.5%, 3.6%, 3.8%, 3.8%, 3.7%, 3.8%, 3.9% in previous periods).
Declining unemployment is positive for the pound, rising unemployment is negative.
Also, when making a trading plan for the day, one should keep in mind that when the British labor market data is released, volatility in the pound is expected to rise.
The level of impact on the markets is medium to high.
Consumer prices account for a large part of overall inflation. Under normal economic conditions, rising prices force the country's central bank to raise interest rates to avoid excessive inflation (above the central bank's target level). One of the dangerous periods of the economy is stagflation. This is rising inflation in a slowing economy. In this situation, the central bank must be very careful so as not to harm the recovery of economic growth.
The Consumer Price Index (CPI) is published by the EU Statistics Office, is an indicator to measure inflation and is used by the Governing Council of the European Central Bank to assess the level of price stability. Normally, a positive reading is seen as positive (or bullish) for the EUR, while a negative reading is seen as negative (or bearish).
Growth of the indicator is positive for the national currency (under normal circumstances). If the indicator is worse than the previous value and/or forecast, it is negative for the EUR.
The previous indicator values: 0% in November, +11.6% in October, +10.9% in September, +8.8% in August, +8.5% in July, +8.2% in June, +8.7% in May, +7.8% in April, +7.6% in March, +5.5% in February, +5.1% in January 2022 (annualized).
Forecast for December: -1.2% (preliminary estimate was -1.2% with a forecast of +11.8).
The level of impact on markets (final release) is medium.
The Core CPI released by the Bank of Canada shows the retail price movements (excluding fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, intercity transportation and tobacco products) and is a key indicator of inflation. Consumer prices account for the majority of overall inflation. An estimate of the inflation rate is important for central bank management in setting the parameters of current monetary policy.
Given that the Bank of Canada's inflation target range is 1%-3%, a rise in the CPI and Core CPI above that range signals a rate hike and is positive for the CAD.
If the expected data is worse than previous levels, it will negatively affect the CAD. However, if the data is better than previous rates, it is likely to strengthen the CAD.
The previous data (annualized): 5,8%, 5,8%, 6,0%, 5,8%, 6,1%, 6,2%, 6,1%, 5,7%, 5,5%, 4,8%, 4,3%, 4,0%, 3,6%. The data indicate a still high level of inflation.
The level of impact on markets is high.
The Dairy Price Index released by the National Statistics Service is a measure of the weighted average price of milk products sold by the dairy industry. The dairy price index released by the Global Dairy Trade (GDT) is a measure of the total trade balance of a country.
New Zealand's economy is still very much a commodity economy, with dairy and animal food products accounting for the bulk of New Zealand's exports (27%, as of 2020). Therefore, a decline in world prices for dairy products negatively affects NZD quotes, as it signals a decrease in export revenues flowing into the budget of New Zealand.
Conversely, an increase in the Dairy Price Index is positive for the NZD.
Previous values are -2.8%, -3.8%, +2.4%, -3.9%, -4.6%, +2.0%, +4.9%, -2.9%, -5.0%, -4.1%, -1.3%, +1.5%, -2.9%, -8.5%, -3.6%, -1.0%, -0.9%.
The level of influence on the markets is low to medium.
The level of interest rates is the most important factor in assessing the value of a currency. Investors look at most other economic indicators only to predict how rates will change in the future.
The BOJ is pursuing an ultra-loose monetary policy, keeping the main interest rate in negative territory. Most likely, the rate will remain at the same level of -0.1%. When the interest rate decision is announced, volatility in the yen quotes and in the Asian financial market may increase sharply if the BOJ makes an unexpected decision.
During the press conference, BOJ Governor Haruhiko Kuroda will give comments on the Bank's monetary policy. As Kuroda has stated many times before, "the BOJ considered it appropriate to continue with monetary easing".
The level of influence on the markets is high.
During the press conference, Kuroda will comment on the Bank's monetary policy. Markets usually react noticeably to Kuroda's speech, especially if he touches on the topic of monetary policy. If he doesn't touch on the subject, the reaction to his speech will be weak.
The impact on the markets is high.
The CPI shows the movement in retail prices and is a key indicator of inflation. The CPI is a key indicator to measure inflation. CPI is an important indicator for central bankers in determining the parameters of current monetary policy.
A figure below the forecast/previous value can provoke weakening of the pound, as low inflation will force the Bank of England to pursue a soft monetary policy. Conversely, rising inflation and its high level will put pressure on the BoE to tighten its monetary policy, which in normal economic conditions is seen as a positive factor for the national currency.
Previous values of the indicator (in annual terms): 10.7%, 11.1%, 10.1%, 9.9%, 10.1%, 9.4%, 9.1%, 9%, 7%, 6.2%, 5.5%, 5.4%, 5.1%, 4.2%. The data show an acceleration in inflation.
The level of influence on the markets is high.
The CPI measures changes in prices of a basket of goods and services during a specific period. CPI is a key indicator for inflation and changes in purchasing habits.
The Core Consumer Price Index (Core CPI) excludes food and energy in the calculation for a more accurate estimate.
Inflation estimates are important for central bank guidance in setting the parameters of current monetary policy. A figure below the forecast/previous value can provoke a weakening of the euro, as low inflation will force the ECB to pursue a soft monetary policy. Conversely, rising inflation and high inflation will put pressure on the ECB to tighten its monetary policy, which in normal economic conditions is seen as a positive factor for the national currency.
Previous CPI values (annualized): +10.1%, +10.6%, +9.9%, +9.1%, +8.9%, +8.6%, +8.1%, +7.4%, +7.4%, +5.9%, +5.1% (in January 2022).
Previous Core CPI values (annualized): +5.0%, +5.0%, +4.8%, +4.3%, +4.0%, +3.7%, +3.8%, +3.5%, +3.0%, +2.7%, +2.3% (in January 2022).
The preliminary estimate was -0.3% (+9.2% annualized) with a forecast of +0.8% (+10.5% annualized) and +0.6% (+5.2% annualized) with a forecast of -0.1% (+5.2% annualized) for core CPI.
The level of impact on markets (final estimate) is medium.
The PPI is a leading indicator of inflation in the U.S., it measures price changes in wholesale producer prices. Higher production costs drive up wholesale selling prices, which are eventually passed on to the consumer, raising inflation. Under normal economic conditions, a high outcome strengthens the dollar.
Previous values for the index: +0.3% (+7.4% annualized), +0.4% (+8.5% annualized),-0.1% (+8.7% annualized), -0.5% (+9.8% annualized), +1.1% (+11.3% annualized), +0.8% (+10, 8% annualized), +0.4% (+10.9% annualized), +1.6% (+11.5% annualized), +0.9% (+10.3% annualized), +1.2% (+10.0% annualized) in January 2022. The data indicate some easing of inflationary pressures, including the Fed's next decision to tighten monetary policy. If the data turn out to be better than expected (above forecasts), the dollar is likely to strengthen.
The level of impact on markets is medium.
The U.S. Census Bureau will release its next monthly report on US retail sales. This key leading indicator of consumer spending reflects total retailer sales. Consumer spending accounts for the majority of total economic activity while domestic trade accounts for the majority of GDP growth. A relative decline of the indicator may have a short-term negative impact on the USD, while an increase of the indicator is positive for the USD.
Previous values: -0.6%, +1.3%, 0%, +0.3%, 0%, +0.8%, -0.1%, +0.7%, +1.4%, +0.8%, +4.9% (in January 2022).
The level of impact on markets is high.
The Retail Benchmark Group indicator estimates volume across the retail industry and is used to calculate price indices for most commodities. A high reading strengthens the US dollar and vice versa, a weak report weakens the dollar. Generally speaking, a high reading is seen as negative (or bearish) for the USD in the short-term.
Previous values: -0.2%, +0.7%, +0.4%, 0%, +0.8%, +0.7%, -0.3%, +0.5%, +1.1%, -0.9%, +6.7% in January 2022.
The level of influence on the markets is high.
The employment report released by the Australian Bureau of Statistics is a significant indicator of labor market conditions. It shows the monthly change in the number of employed people in Australia. It is a significant indicator of consumer spending which accounts for a large part of total economic activity.
Growth in the indicator has a positive effect on consumer spending, which stimulates economic growth. A high reading is positive for the AUD, while a low reading is negative.
Previous indicator values: +64,000 in November, +32,200 in October, +900 in September, +33,500 in August, -40,900 in July, 88,400 in June, +60,600 in May, +4,000 in April, +17,900 in March, +77,400 in February, +12,900 in January 2022.
The unemployment rate is an indicator that measures the ratio of the unemployed population to the total working-age population. An increase in the index indicates weakness in the labor market, which leads to a weakening of the national economy. A decrease in the indicator is positive for the AUD.
The previous inflationary pressures are 3.4% in November and October, 3.5% in September and August, 3.4% in July, 3.5% in June, 3.9% in May, April and March, 4.0% in February and 4.2% in January.
If the data from this report turns out to be worse than expected, AUD is likely to fall sharply in the short run. Better than expected data has a positive effect on the AUD.
The level of influence on the markets is from medium to high.
This document contains an overview of the current policy of the ECB with planned changes in the financial and monetary spheres. The release of this document may cause a spike in volatility in trading the euro and the European stock market.
Investors will carefully analyze the text of the minutes from the recent ECB meeting to pick up additional signals regarding the QE program and the outlook for monetary policy. Weak macro data coming out of the eurozone lately, indicating a slowdown in the European economy and rising inflation, which amid international trade conflicts and the difficult geopolitical situation in Europe is putting pressure on euro quotes and affects the ECB's decisions. Nevertheless, volatility in euro trading could rise sharply if the minutes contain unexpected statements or new information on the outlook for monetary policy.
The level of impact on markets is low to high.
The U.S. Department of Labor will release its weekly report on the US labor market with data on initial and continued unemployment claims. The labor market condition (together with GDP and inflation data) is a key indicator for the Fed in determining its monetary policy parameters.
A result above expectations and a rise in the indicator suggests weakness in the labor market, which negatively affects the US dollar. A fall in the indicator and its low value is a sign of labor market recovery and can have a short-term positive impact on the USD.
The initial and continued unemployment claims are expected to remain at pre-pandemic lows, which is also a positive sign for the USD, indicating a stabilization of the US labor market.
Previous (weekly) values for initial jobless claims data: 205,000, 206,000, 223,000, 216,000, 214,000, 231,000, 226,000, 241,000, 223,000, 226,000, 217,000, 214,000, 226,000, 216,000, 219,000, 190,000, 209,000, 208,000, 218,000, 228,000, 237,000, 245,000.
Previous (weekly) values on unemployment reapplication data: 1,634,000, 1,694,000, 1,718,000, 1,669,000, 1,678,000, 1,670,000, 1,609,000, 1,551,000, 1,503,000, 1,494,000, 1,438,000, 1,383,000, 1,364,000, 1,365,000, 1,346,000, 1,376,000, 1,401,000, 1,401,000, 1,437,000, 1,412,000.
The level of influence on the markets is from medium to high.
The interest rate level is the most important factor in assessing the value of a currency. Investors look at most other economic indicators only to predict how rates will change in the future. As China's economy is estimated to be the world's first-ever economy (by various estimates), China's macro data and monetary policy decisions can have a strong impact on financial markets and sentiment of investors, especially in the Asia Pacific region.
The PBOC is expected to keep the interest rate unchanged at 3.65%, although unexpected decisions are possible. If the PBOC makes unexpected statements or decisions, volatility could rise across the financial market. Also, investors will be interested in the bank's assessment of the impact of the coronavirus on China's economy and its policy in the near future, in connection with it.
The level of impact on markets of the final assessment is low to high.
The Retail Sales Index released by the ONS is a key indicator of consumer spending which accounts for a large part of total economic activity. The index is considered as an indicator of consumer confidence, reflecting also the state of the retail sector in the near term. Generally, a rise in the index is seen as positive (or bullish) for the GBP, while a decline is seen as negative (or bearish). Previous values of the index (in annual terms): -5.9%, -6.1%, -6.9%, -5.6%, -3.2%, -6.1%, -4.7%, -5.7%, +1.3%, +7.2%, +9.4% (in January 2022).
The level of impact on markets is medium
The Retail Sales released by the Statistics Canada is a key indicator for consumer spending which accounts for a large part of the overall economic activity. It is considered as an indicator of consumer confidence which shows the near-term health of the retail sector. Generally speaking, a rise in this indicator is seen as positive (or bullish) for the CAD, while a decline is seen as negative (or bearish). The previous Index is +1.4%, -0.5%, +0.7%, -2.5%, 1.1%, 2.2%, 0.7%, 0.2% and 3.3% (January 2022).
The level of influence on the markets is medium to high.
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