Analysts at Nomura explained the key events taking place in the week ahead in the G10 FX space.
Key Quotes:
“The Week’s Headline Events (all times are GMT) 1. US: Durable goods (Thursday 12:30), Q4 GDP (third estimate) (Friday 12:30) 2. Canada: Federal budget to be delivered (Tuesday 20:00) 3. Japan: CPI YoY (Thursday 23:30) 4. Europe: Germany IFO (Tuesday 09:00), Euro area PMIs (Tuesday 09:00).
“Relatively quiet next week with no major central bank to meet on policy. Key data in the U.S. will be around durable goods and housing data. Taking positive developments in industrial activity into account, our economists expect durable goods excluding transportation orders to increase by 0.3% in February (following a 1.7% increase in the prior month).
However, considering slowdowns in nondefense and defense aircraft and parts orders, top line durable goods orders should decline by 2.2% in February. In terms of Q4 GDP, our economists expect the figure to be revised down to 0.7% from 1.0% in its third estimate, with the revision to be driven primarily by lower-than-assumed inventory investment and a larger-than-expected trade deficit.
In Canada, the federal government will release its 2016 budget on 22 March, and we expect new measures to include investment infrastructure and a new tax credit for families (which should increase the deficit by about C$15bn to a deficit of about C$32bn, or around 1.6% of GDP).
On the European front, data next week will focus on flash PMIs and UK February CPI and retail sales. On PMIs, our economists expect the composite PMI to decline for the third consecutive month. Headline manufacturing PMI is expected to show a slightly weaker print at 51.0 for March (after 51.2 in February), as output remains constrained by the weakening in new orders and build up in finished stocks, and services PMI is also expected to decline in March. An outcome in line with these expectations would take the average level of composite PMI for Q4 to a level historically consistent with 0.3% q-o-q GDP growth, which is in line with the March ECB staff projection.
On the EUR, we believe that a gradual depreciation is the most likely path this year, though the momentum in the EUR/USD cross may be weak for the time being, especially considering the disappointing price action for USD bulls after the ECB and FOMC meetings. We revise our EUR/USD depreciation path to a more moderate decline, and expect a depreciation towards 1.08 (previously 1.00) by end-June 2016.
In terms of CPI in Japan, we expect the all-Japan core CPI for February to be unchanged from January at 0.0% y-o-y. Meanwhile, our economists forecast Tokyo core CPI for March to come in at -0.3% y-o-y, falling from -0.1% in February, driven primarily by the decline in energy prices. Inflation and wage momentum have been weaker, which will likely encourage the BOJ to consider additional easing, especially after the BOJ’s downgrade in its assessment on inflation expectations. We believe policy responses via fiscal and monetary means are more likely in Q2 before any direct FX intervention, but a rapid movement of USD/JPY towards 105 could change the level of verbal intervention, thereby increasing risks of imminent action.”
(Market News Provided by FXstreet)
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