Two Economic Themes for Next Week’s Trading

The U.S. nonfarm payrolls (NFP) week might be over but the party is just getting started for market players! Next week we’ll be facing not one, but two major types of economic reports.

Interest rate decisions from the BOE and ECB

In its latest meeting minutes, the Monetary Policy Committee (MPC) unanimously agreed to keep its interest rates at 0.50% and its asset purchases at 375 billion GBP. They believe that additional stimulus is unnecessary at the moment and that more asset purchases at this point could even raise inflation risks.

But that was before we saw significant weaknesses in December’s retail sales, January’s manufacturing PMI, and the Q4 2012 GDP. On Thursday we’ll see if the weak reports are enough to change some MPC members’ minds. With current BOE head Mervyn King and incoming Governor Mark Carney both expressing their readiness for more stimulus, it probably won’t take much to change the MPC’s tone.

Right after the MPC’s announcement is the European Central Bank’s (ECB) own monetary policy decision. Though its rate is expected to remain at 0.75%, analysts will be closely watching what ECB head Draghi has to say. Will he comment on the euro zone banks’ long-term refinancing operations (LTRO) repayments which could boost the euro or will he warn against the rapid rise of the common currency?

Data dump from commodity-related countries

Next week China, Australia, Canada, and New Zealand will also print major reports, starting with the Reserve Bank of Australia’s (RBA) interest rate statement on Tuesday. Recall that Australia’s employment, retail sales, trade balance, AND inflation reports came in weak last month, so there is plenty of room for the RBA to cut its rates and stimulate growth.

Also keep an eye out for Canada’s labor and trade figures on Friday. Remember that the BOC recently shed its hawkish feathers and downgraded its growth forecasts. If Canada’s trade numbers continue to deteriorate, then we might see USD/CAD revisit last week’s highs.

In New Zealand, a positive labor data on Wednesday could boost NZD/USD since it would support the Reserve Bank of New Zealand’s (RBNZ) optimism for its economy. And last but definitely not least are China’s trade and inflation reports on Friday, which could dictate risk sentiment until the end of the week.

Calendar

Now that you have marked these important events down, it’s important for you to prepare for it. Mark the potential inflection points on your charts, read up on possible tendencies after the reports are released, and make sure that you have considered as many scenarios as possible.

Good luck and happy trading, folks!