The US Dollar sell-off based on worries about protectionism in the USA and comments from the US Treasury Secretary at Davos saying that a weaker US Dollar is good for the US economy as it relates to trade and opportunities, will be tested today as there is the important economic event about the US GDP Growth Rate and the Durable Goods Orders. Any positive surprise could pause the depreciation of the US Dollar as the fundamentals will come into play again.
There is also earlier today the GDP Growth Rate for the UK, and the Inflation Rate for Canada. High volatility is expected for the GBP/USD, EUR/USD and USD/CAD currency pairs. The forex market will focus on the ECB monetary policy decision and its statements about economic conditions and prospects of continuation or ending of the quantitative easing program.
These are the main economic events for today in the forex market to focus on:
European Session
- France Business Confidence and Consumer Confidence, World Economic Forum Annual Meeting
Time: 07:45 GMT, 08:00 GMT
Business Confidence Indicator measures the state of the businesses and its coming prospects, while the Consumer Confidence index tracks the consumers’ insights regarding financial conditions, future state of economic and buying conditions. Rising or better than expected figures are indicating optimism regarding the current and future conditions and are positive for the economy of France and the Euro.
The reading for the Business Confidence is expected to remain unchanged at 112.0, while the reading for the Consumer Confidence is expected to increase to 106.0, higher than the previous reading of 105.0. At the World Economic Forum Annual Meeting the forex market will focus on any statements that can add additional volatility and influence the trend direction of several currency pairs.
- UK GDP Growth Rate
Time: 09:30 GMT
The GDP growth rate is the most important economic indicator for broad overall growth, indicating the state of economic activity. Rising or better than expected readings are positive for the UK economy and the British Pound. The forecasts are for an unchanged reading of 0.4% on a quarterly basis and a decline on an annual basis with a reading of 1.4%, lower than the previous reading of 1.7%. Any negative or positive surprise has the potential to influence significantly the British Pound.
American Session
- Canada Inflation Rate and Core Inflation Rate
Time: 13:30 GMT
Rising or higher than expected figures for the inflation rate signal the existence of inflationary pressures in the economy, which can lead to a tighter monetary policy in the future, as the Bank of Canada can increase the benchmark interest rate. This should be positive for the Canadian Dollar, which also has a close correlation with the oil prices. The inflation rate is expected to decrease on a monthly basis, and on a yearly basis with a reading of 1.9%, lower than the previous reading of 2.1%.
However the Core Inflation Rate which measures the change in the prices of a basket of goods and services after excluding some volatile items, is expected to increase on a yearly basis with a reading of 1.5%, higher than the previous reading of 1.3%. The Core Inflation Rate is a more conservative measurement of the inflationary pressures in the economy, so its predicted increase should be positive for the Canadian Dollar, as it implies that inflation is starting to increase gradually.
- US Durable Goods Orders, GDP Price Index, PCE Prices and Core PCE Prices, GDP Growth Rate
Time: 13:30 GMT
The US Dollar after the recent sell-off attributed to the statements of US Government Officials, is having 3 important economic events, and the fundamentals can either pause its weakness, or continue it depending on the outcome of the figures. The GDP Growth Rate on a quarterly basis and annualized is expected to decline to 3.0%, lower than the previous reading of 3.2%, Durable Goods Orders are expected to decline on a monthly basis, but Personal Consumption Expenditures are expected to increase on a quarterly basis. Increased readings for Durable Goods Orders indicate optimism for the current and future economic conditions.
These mixed signals can influence the US Dollar, but focusing on the reading for the Core Personal Consumption Expenditures which is closely monitored by the Fed about the inflation rate and its trend, and measures the changes in the price of goods and services purchased by consumers for the purpose of consumption, then its expected higher reading may support the US Dollar and act as a trend reversal to its recent sell-off. Higher readings of core inflation will increase the chances of higher future interest rate increases by the Fed, a very important fundamental supportive factor for the US Dollar.
