RBC Capital Markets

Week ahead: The US labour market should stay soft in thenear-term. January employment will likely see anotherdecline in payrolls. But the big caveat is that we typically seea huge 2.0–2.5 million in net unadjusted job losses inJanuary as the temporary holiday season hiring rolls off. Weare accordingly building a positive outcome of about +200Kseasonally-adjusted non-farm payrolls growth (Friday).As usual, the ADP employment (Wednesday) hors d’oeuvrewill be served before the NFP report. Other data and eventsinclude euro area Q4 GDP (see EUR), BoE meeting (seeGBP), RBI meeting, and Canada employment report (seeCAD).

GBP: Despite the deterioration in the near-term outlook forthe UK economy, we expect the MPC meeting (Thursday) toleave policy unchanged. Recent BoE statements suggest awillingness to look through the impact of the latestlockdown. We also take negative rates out of our BoE ratesprofile.

EUR: PMI surveys and advance hard data suggests that euroarea activity may have begun to adapt to the effects oflockdown with increased online shopping and better-targetedlockdown measures. We have thus revised our Q4 GDP(Tuesday) estimate higher to -1.3% q/q (est. -0.95). Adarkening virus outlook however suggests that the economyis likely experience a double-dip recession in Q1. The recentGerman ‘flash’ estimate of January HICP was much higherthan expected at 1.6% y/y, compared with -0.7% previously.This suggests a strong upside surprise to euro area HICP(Wednesday), and we forecast a significant pick-up to 0.6% y/yfor January accordingly.SEK: Riksbank Governor Ingves will testify at a parliamentaryhearing on financial stability on Tuesday.

AUD/NZD: A week of RBA communication. RBA GovernorLowe delivers a key speech (Wednesday), followed by hisparliamentary testimony on Friday ahead of the release ofRBA forecast updates in the quarterly Statement onMonetary Policy. We expect the macro forecasts to beupgraded, given the improved data-flow and vaccinetimetable. New Zealand Q4 unemployment rate(Wednesday) is also due.

CAD: Our economists expect a second straight drop in Januaryemployment (Friday), given increased restrictions in parts ofthe country. December’s decline has been revised to 52.7Kand we forecast a 40K follow-up drop in January. This shouldbe concentrated in the hardest-hit sectors (e.g.,food/accommodation), though again here, seasonality shouldlimit the headline decline. Hours worked fell 0.4% m/m inDecember, and are now 5.3% below the February 2020 level,one of several signs of slack remaining in the labour market.The unemployment rate was revised up to 8.8% for December(on a labour force participation adjustment) and we see itedging 0.1pp higher in January

Credit Agricole

GBP was sold last week, in particular by real moneyinvestors and corporate clients. However, this was not reflected in priceaction with the currency having stabilised. Hence, last week’s shortGBP/USD trade was closed broadly flat with our positioning basedindication having turned neutral from here. Turning to the EUR, real money investors continued to buy with longpositioning remaining close to multi-month extremes.

However, withthe current degree of net long positioning being broadly in line with itslonger-term average, position squaring-related downside risk seemslow. If anything, much will depend on the USD angle when focusing onmajors such as EUR/USD. With USD long positioning being far from overbought territory, and as itcannot be excluded that risk sentiment will turn more unstable in theweeks to come, there is scope for rising buying interest to the benefitof the currency. Alternatively, further rising market rates could help theUSD regain ground against low yielders such as the CHF and JPY.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 65% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money