TALKING POINTS – EURO, GDP, US-CHINA TRADE TALKS, YEN, AUSSIE DOLLAR
Euro could fall as smooth 4Q GDP knowledge weighs on ECB charge hike bets
International slowdown worries could cool post-FOMC market optimism
US-China commerce talks could also be formative for threat sentiment developments
Fourth-quarter Eurozone GDP knowledge headlines the financial calendar in European buying and selling hours. The year-on-year pattern progress charge is predicted to sluggish to 1.2 p.c, the weakest in 5 years. Knowledge circulate out of the forex bloc has steadily underperformed relative to forecasts since September, hinting analysts’ fashions are too rosy and opening the door for a draw back shock.
A weak end result has scope to weigh on the Euro as merchants mark down the likelihood of an ECB rate of interest hike this 12 months. Because it stands, the prospect of a rise is priced in at 39.6 p.c. With markets thus already leaning towards the chance of standstillearlier than the calendar turns to 2020, the affect of a disappointment could also be much more pronounced in belongings geared to world progress than the one forex.
Sentiment-sensitive currencies just like the Australian, Canadian and New Zealand surged alongside shares after yesterday’s seemingly dovish FOMC charge choice. That makes some sense: a slower rise in credit score prices may be supportive for financial progress, all else being equal. Nevertheless, worries about ominous macro-level headwinds accounting for the coverage shift appear to tarnish its pro-risk implications.
The truth is, the likelihood of a world recession inside one 12 months has jumped to 19.2 p.c – the very best since June 2013 – in line with a survey of economists by Bloomberg. Merchants could also be reminded as a lot if the Eurozone GDP report accents world slowdown fears. Which will put post-FOMC worth strikes into reverse, pushing commodity-bloc currencies decrease whereas the anti-risk Japanese Yen and US Greenback rise.
CAN US-CHINA TRADE TALKS KEEP INVESTORS HAPPY?
US-China commerce negotiations are one other necessary enter for establishing the extent of market-wide threat urge for food. Chinese language Vice Premier Liu He’s due for a second day of talks with US officers together with President Donald Trump on a go to to Washington, DC. If the journey concludes with no clear path towards commerce struggle de-escalation, the markets may have but another excuse to fret.
With that mentioned, buyers appear eager to present negotiators the good thing about the doubt. Because of this even a modest nudge ahead – like planningadditional talks earlier than the March deadline for a deal that presidents Xi and Trump set out final 12 months – may buoy animal spirits. The fillip is unlikely to materialize absent at the least some specifics nonetheless. Moreover, hopeful pre-positioning forward of Mr Liu’s go to may uninteresting its affect.
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** All instances listed in GMT. See the full financial calendar right here.
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— Written by Ilya Spivak, Forex Strategist for DailyFX.com
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