Fundamental Comment

Economic Week: ECB meeting, preliminary PMI

ECB meeting and preliminary PMI

Financial market participants will be carefully watch key events this week, as a number of major central banks, led by the European Central Bank, will decide on interest rates and monetary policy path.

Also, important reports will be out, most notably the Service and Manufacturing Purchasing Managers Index released from a number of major economies, which is likely to give some initial features about growth at the beginning of the New Year.

Euro

The euro will most likely be affected after the European Central Bank meeting, as the strategic review announced by Ms. Christine Lagarde at the December meeting is expected to start.

While interest rate is expected to remain unchanged, the review, which ends at the end of the year, will be of interest as it examines the effectiveness of all the monetary policy instruments adopted by ECB.

Regarding economic data, investors will focus on the eurozone preliminary Composite PMI, which includes the manufacturing and services, which may show a slight increase to 51.0 from 50.9 recorded in December.

US Dollar

Given the absence of high-relevance economic data from the United States this week, it is expected that the dollar will be affected by the general trend in financial markets.

The most important report will be the preliminary Composite PMI for the services and manufacturing sectors for January, which may indicate a slight decline in the pace of growth to 52.5 in January, compared to December's reading of 52.7.

Last but not least, any developments regarding trade negotiations between the United States and China and the situation in the Middle East may affect the dollar in particular and the markets in general.

Pound Sterling

This week, the UK will release the preliminary PMI for the services and manufacturing sectors for January, which may provide the latest update on the health of the British economy at the beginning of 2020.

Expectations are for an improvement, but with the contraction continuing at 49.6 in January, compared to 49.3 recorded in December, according to analysts' expectations for the preliminary composite PMI that includes the three sectors. Other than this report, the pound might move according to the general market trend.

Commodities

Gold continued to face some negative pressures after hitting a record high last week, as the initial trade deal between the United States and China increased risk appetite and reduced demand for safe haven assets.

The yellow metal this week will largely depend on the important economic data issued by major economies, as in the case of increasing concern about the slowdown in global growth, this could give some support to the precious metal.

With regard to crude oil, prices continued to drop with the slowdown in economic growth in China, the largest importer of crude oil in the world, raising concerns about fuel demand and lessening the wave of optimism that cheered markets after signing of the phase-one trade agreement between China and the United States.

Oil prices are expected to be affected this week by data related to global growth, as well as the weekly US crude stockpiles report.

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