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The Mid-Week Wrap Up! The coronavirus and U.S Data in Focus

Bob Mason

The first week of February has started. Are there any notable events on the economic calendar that could impact the major currencies?

After some positive numbers through the 1st half of the week, we have nonfarm payroll and wage growth figures to look forward to on Friday.

This week we saw a pickup in service sector activity in January and a whopping 291k jump in nonfarm payrolls according to the ADP, a solid set of numbers will give the Dollar another boost.

Anything in the 200k range for nonfarm payrolls and expect sentiment towards the economic outlook to materially improve.

For the EUR, we’ve got Germany in the spotlight, with trade and industrial production figures due out on Friday.

The numbers follow on from Germany factory orders from Thursday and the ECB’s Economic Bulletin.

How the EUR responds to Friday’s numbers will largely depend on Thursday’s Economic Bulletin.

Dire numbers coupled with a gloomier outlook and expect the EUR to slide.

PMI numbers for January may have been on an upward trend, but they were still far from impressive…

For the Pound, upward revisions to private sector PMIs had provided support only for Brexit to reverse any gains.

We’ve seen the Pound slide back to sub-$1.30 levels. With no material stats due out over the remainder of the week, expect the Pound to remain under pressure.

The battle for a no-strings-attached trade agreement with the EU may well be a painful one near-term.

A busy start of the month might keep traders and investors awake. How have other countries done during this period? Let us start with commodity currencies.

It’s been quite a ride for the commodity currencies.

For the Aussie Dollar, a more hawkish than anticipated RBA delivered a boost to the Aussie early in the week.

Economic data has been skewed to the negative, however. We saw manufacturing sector numbers slide and retail sales also sink in December. Australia’s trade surplus also narrowed.

On the retail sales front, a rise in sales in the 4th quarter and year-on-year prevented any slide in the Aussie Dollar on Thursday morning.

In spite of the disappointing numbers, support from the PBoC also drove demand for riskier assets, offsetting the effects of weak numbers.

On Friday, the RBA’s quarterly statement of monetary policy will garner plenty of interest, however. Any doom and gloom would reignite expectations of a near-term rate cut that could see the Aussie Dollar back at sub-$0.67 levels.

For the Kiwi Dollar, it’s been a quiet week. Employment figures for the 4th quarter delivered mixed signals. While the unemployment rate fell to 4%, the decline was a result of a fall in the participation rate. There was no change in employment through the quarter to drive unemployment lower.

Inflation expectation numbers due out on Friday could add some pressure on the Kiwi Dollar, however.

With heavy reliance on China for trade, sentiment towards the effects of the coronavirus remains key.

For the Loonie, we’ve got Ivy PMI and employment figures due out of Canada tomorrow to provide direction.

Expect plenty of market sensitivity to the numbers. A dovish BoC, weak economic data and the anticipated negative impact of the coronavirus would be a heavy burden for the Loonie…

It is quite an active week for those who trade the Aussie and Kiwi Dollars. In the meantime, how have the Asian currencies done?

It’s been a tough week for the CNY, which slumped back to sub-CNY7 levels against the Greenback this week.

Unsurprising when considering the spread of the coronavirus and rise in the death toll.

Things would have been far worse, however, had the PBoC not stepped in at the start of the week.

Expect sensitivity to the news wires to persist, however. A continued spread and increase in the mortality rate would add further pressure. Much will ultimately depend on how much support the government delivers to the economy.

Private sector PMI numbers out in the week showed slower growth, which was to be expected.

The focus will now shift to Friday’s trade figures. Any particularly dire numbers and expect risk aversion to hit the markets.

For the Japanese Yen, economic data continues to be lackluster at best. This has left the Yen in the hands of market risk appetite and the news wires.

We saw the Yen climb to 108 levels against the greenback before risk appetite returned.

With the BoJ standing pat on policy, more of the same is expected near-term.

Household spending figures are due out tomorrow and are forecasted to fall further in December. We don’t expect too much reaction from the Yen, however.

This article was originally posted on FX Empire