Thu, Jan 26, 2023 @ 21:29 GMT
HomeContributorsFundamental AnalysisWeek Ahead: Continued BoJ Fallout, BoC, GDP, Inflation Data, and More Earnings

Week Ahead: Continued BoJ Fallout, BoC, GDP, Inflation Data, and More Earnings

Last week, Yen pairs were in focus as the BoJ surprised some market participants, leaving Monetary Policy unchanged.  Meanwhile, Japan’s CPI rose to 4% YoY.  Watch for continued volatility in JPY pairs this week as the BoJ Minutes and the Summary of Opinions will be released.   The Bank of Canada will be in the spotlight this week as it determines whether it should increase interest rates.  Expectations are for a 25bps hike.  In earnings, MSFT and TSLA will be in the hot seat with earnings releases this week.  In addition, it will be a big week for macroeconomic data, with more inflation data, manufacturing PMIs and the US Advanced Q4 GDP on tap. Data last week was weaker than expected overall.  Will it continue this week?

Bank of Japan

The fallout from the Bank of Japan meeting last week should continue to follow through into this week.  The BoJ left Monetary Policy and its Yield Curve Control unchanged at its January meeting last week.  This comes after December’s meeting, when the central bank increased the band around the yield of the 10-year JGB to 0.50%. Many have speculated that this was the beginning of the end for Quantitative Easing, however BoJ Governor has denied it.  On Friday,  Japan released its CPI reading for December at 4% YoY, its highest level since 1981.  However, Kuroda refused to “give in” and said that Monetary Policy will remain accommodative.  This week, the BoJ will release the Minutes from January’s Interest Rate decision meeting.  Will they show that all Committee members are as dovish as Kuroda?  Or do some believe that the central bank should engage in some type of QT.  In addition, the BoJ will release its Summary of Opinions this week.  According to the BoJ, this describes the regulator’s opinion concerning the current state of affairs and the prospects of inflation and economic growth.  Watch for continued volatility in Yen pairs this week.

Bank of Canada

The Bank of Canada meets on Wednesday this week to discuss Monetary Policy. The BoC has been one of the leaders regarding interest rate moves, both on the way up and as it nears plateau levels. Expectations are that the central bank will hike rates by 25bps to bring the overnight rate to 4.50%.  CPI data released last week for December showed that inflation is moving in the right direction, with the headline print down to 6.3% YoY vs 6.8%  YoY in November.  However, as with the US CPI print the week prior, traders focused on the MoM print, which dropped -0.6% vs a prior reading of 0.1%.  This was the largest drop in the month-over-month series since April 2020.  However, the jobs data was strong for December.  Canada added 104,000 jobs in December vs an expectation of only 8,000 jobs.  84,500 of those jobs were full-time!  With inflation falling (although still relatively high) and a good jobs report, will the BoC think about pausing its rate hikes at its meeting this week?

Earnings

With Microsoft, Tesla, and Intel reporting earnings this week, Big Tech companies will begin to release their quarterly results this week.  However, they aren’t the only companies releasing earnings this week.  Large companies such as 3M, General Electric, Johnson & Johnson and Boeing will also be reporting.Other companies releasing earnings this week are as follows: MMM, GE, MSFT, HAL, LMT, VZ, TXN, JNJ, T, BA, TSLA, AAL, ADM, V, MA, BX, INTC, MCD, AXP, CVX

Economic Data

This is a host of economic data to be released this week that could affect markets. On Tuesday, the world will get its first look at January’s Manufacturing and Services PMI data.  Has activity slowed since the beginning of the year or is the world in for a potential soft landing in the months ahead?  In addition, later this week, CPI will be released from New Zealand and Australia.  Will these prints suggest another hike is to come for the RBNZ and the RBA?  Finally at the end of the week. The US will release its advanced look at Q4 GDP and the Fed’s favorite measure of inflation, Core PCE.  Expectations are for Core PCE to drop to 4.4% YoY from 4.7% YoY in November.  If the print is weaker than expected, will the FOMC consider pausing rate increases when it meets on February 1st?  Other important economic data due out this week is as follows:

Monday

  • BoJ Monetary Policy Meeting Minutes
  • Canada: New Housing Price Index (DEC)
  • EU: Consumer Confidence Flash (JAN)

Tuesday

  • Global: Manufacturing and Services Flash PMIs (JAN)
  • Germany: GfK Consumer Confidence (FEB)
  • UK: CBI Industrial Trends Orders (JAN)
  • Mexico: Mid-Month CPI (JAN)
  • US: Richmond Fed Manufacturing Index (JAN)

Wednesday

  • New Zealand: CPI (Q4)
  • Australia: CPI (Q4)
  • Australia: CPI (DEC)
  • UK: PPI (DEC)
  • Germany: Ifo Business Climate
  • Canada: BoC Interest Rate Decision
  • Crude Inventories

Thursday

  • Japan: BoJ Summary of Opinions
  • UK: CPI Distributive Trades (JAN)
  • South Africa: Interest Rate Decision
  • US: Durable Goods Orders (DEC)
  • US: GDP Advanced Growth Rate (Q4)
  • US: Core PCE Prices Advanced (Q4)
  • US: New Home Sales (DEC)
  • US: Kansas Fed Manufacturing Index (JAN)

Friday

  • New Zealand: ANZ Business Confidence (JAN)
  • AU: PPI (Q4)
  • US: Personal Income (DEC)
  • US: Personal Spending (DEC)
  • US: Core PCE Price Index (DEC)
  • US: Michigan Consumer Sentiment Final (JAN)
  • US: Pending Home Sales (DEC)

Chart of the Week: US 5-Year Yields (Daily)

Source: Tradingview, Stone X

US 5-Year Yields are trading near key levels, which could decide the fate of the next move.  The key yield has pulled back from its October 21st highs of 4.504% in an orderly channel to a near-term low of 3.385% on Thursday.  The 5-Year yield spiked below the 200 Day Moving Average at 3.446%, but closed above it.  Within the channel, yields have formed a descending wedge.  Expectations are that yields will breakout to the topside of the wedge, retracing 100% of the wedge.  This would target 3.960%.  Wednesday’s candlestick also closed below the 50% retracement from the lows of August 2nd, 2022, to the highs of October 21st, 2022.  However, the near-term move stalled, and it closed back above the retracement level on Friday, near 3.563%.  This is also the top trendline of the descending wedge.  If yields break higher, resistance is at the 50 Day Moving Average near 3.783%, then the top trendline of the downward sloping channel near 3.857%.  However, if yields continue to move lower, support is at Thursday’s low of 3.385%, which is also the bottom trendline of the wedge.  The next support level is at the 61.8% Fibonacci retracement level from the above-mentioned timeframe at 3.314%.

Perhaps the most important piece of information on the chart for fx traders is the Correlation Coefficient in the bottom panel of the chart.  The current reading is +0.84.  Readings of +0.80 or higher are considered to be a strong positive correlation.  This means that when yields move higher, the US Dollar tends to move in the same direction (as long as the correlation is above +0.80).  Therefore, fx traders can use the movement of the 5-Year Yield as a potential indicator of the next direction for the US Dollar.

This week brings the Bank of Canada to the table for its turn to decide on Interest Rate policy.  In addition, with BoJ events, volatility could remain in the Yen pairs.  There is also important economic data and large company earnings this week.  Watch for volatility across all markets.

One more item to mention is that it is the Chinese New Year! Markets in China will be closed until January 30th.  Therefore, watch for extra volatility in thin markets during the Asian time zone.

Enjoy the New Year if you celebrate.

Have a great weekend!

Forex.com
Forex.com
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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