Markets will begin to get back to normal in the first week of 2018 following the Christmas and New Year breaks. PMI surveys will dominate the economic calendar, but traders will likely be most looking forward to the US nonfarm payrolls report to inject much needed life into the lacklustre US dollar.
The coming week will start a little early, on Sunday, as China releases the official manufacturing and non-manufacturing PMIs. The manufacturing PMI is forecast to ease slightly to 51.4 in December. They will be followed by the private Caixin equivalents on Tuesday (manufacturing) and Thursday (services). The Caixin manufacturing PMI is expected to improve marginally by 0.1 to 50.9 in December. The indicators have been fairly steady in recent months so are unlikely to see much reaction in forex markets, although a big surprise in the figures would still have the potential to cause some volatility as volumes are expected to remain low in the first few days of the year.
The Eurozone is set to have another light calendar week, though the flash inflation release on Friday is sure to attract some attention. Annual inflation in the euro area is forecast to ease to 1.3% in December from 1.5% in November. Core inflation is also expected to moderate, from 1.1% to 1.0%. The data may provide traders with an excuse to sell the euro, which has had an incredible run in 2017 and is on track for a second consecutive week of gains after a poor start to December. However, any selloff would likely be limited as Tuesday’s (manufacturing) and Thursday’s (services and composite) final PMI readings for December are expected to confirm Eurozone business activity was at a near 7-year high in December.
The UK will also see the release of PMI data, which will be more important as flash readings are not published for the UK. The Markit/CIPS manufacturing PMI is due on Tuesday, followed by the construction PMI on Wednesday and the services PMI on Thursday. The manufacturing and construction PMIs are forecast to dip slightly in December, but the services PMI is expected to hold steady at 53.8. The pound regained its footing this week on the back of a weaker greenback, after sliding for much of December. Next week’s data could provide cable with another leg up if they surprise on the upside.
The Canadian dollar has surged to a 10-week high this week, with dollar/loonie breaching the key support area of 1.26. The loonie was boosted last week by stronger-than-expected inflation and retail sales figures. Next Friday’s employment report out of Canada has the capacity to push the currency further higher as investors speculate whether the Bank of Canada could raise rates again as early as the January meeting. Employment is forecast to rise by 10k in December, below the impressive 79.5k figure of November but closer to its long-run average. Also to watch out of Canada are producer prices on Thursday and the Ivey PMI on Friday.
The US currency turned bearish in the short term during December, with many investors putting this down to "buy the rumour, sell the fact" in response to the passage of Trump’s tax plan. Data due out of the United States next week may help shift sentiment to a more positive one. The first major release is Wednesday’s ISM manufacturing PMI. The closely watched index is forecast to fall slightly from 58.2 to 58.1 in December. The non-manufacturing composite out on Friday is expected to be more positive as it is forecast to edge up from 57.4 to 57.6. November trade data and factory orders are also out on Friday but the focus will be the nonfarm payrolls report.
The US economy is expected to add 189k jobs in December versus 228k in the prior month. The jobless rate is forecast to remain unchanged at 4.1%, while average earnings are also likely to hold steady, at 2.5% year-on-year in December.
Dollar traders should also watch out for the FOMC minutes of the December policy meeting on Wednesday. The greenback pulled back after the December meeting as the Fed stuck its projections of three rate hikes in 2018. But any indication of a more hawkish tilt in the minutes than revealed in the statement could spur the dollar higher.
