The Forex Week Ahead: Trading Outlook

Key Events This Week: February 8th – 12th

Sun: JPY – Trade Balance
Mon: EUR – German Industrial Production & EZ Investor Confidence
Tue: EUR – German Trade Balance, GBP – Trade Balance
Wed: CNY – New Loans, GBP – Industrial Production, Manufacturing Production, GDP Estimate.
Thu: CHF – CPI, Fed’s Yellen Appears Before Senate Banking Committee
Fri: EUR – German GDP, German CPI, Italian GDP, EZ GDP, USD – Retail Sales, U. of Michigan Confidence

The Forex Week Ahead

• USD The US Dollar was driven lower last week on Dovish comments from Fed President Dudley which came amidst a raft of weak US data including ISM Manufacturing & Non-Manufacturing misses. Dudley cooled rate-hike expectations ahead of the March FOMC citing tighter US financial conditions and a weaker global economy. A dismal January NFP was offset by an unexpected drop in the Unemployment rate and a similarly unexpected rise in wage-growth. Retail Sales and Michigan Confidence the headline data for the week.

• EUR Despite a raft of data weakness out of the EuroZone and Dovish comments mid-week by ECB President Draghi, the Euro was stronger over last week benefiting from a weaker US Dollar driven by unwinding US rate hike expectations and falling equity markets which were sent lower on a renewed down-turn in oil. EuroZone & German GDP the headline data for the week.

• GBP Plenty of short positions were paird ahead of the February BOE meeting which saw GBP strengthen across the week. The meeting passed in a fairly muted fashion and as expected the BOE revised lower their short term forecasts but lifted their medium term inflation forecast which is expected to see the Bank’s 2% target hit by 2018. Trade Balance and GDP estimate the key data for the week.

• JPY With Oil and Equity markets sliding, safe-haven demand saw the Japanese Yen strengthening sharply over an extremely volatile week trading back up to recent highs and fully reversing the losses suffered in the wake of the January BOJ meeting which saw the BOJ cutting Japanese rates into negative territory for the first time. Japanese Trade Balance data the key domestic release this week.

• AUD Despite a dampened risk sentiment last week, the Aussie took full advantage of broad US Dollar weakness, ripping higher as US rate-hike expectations dwindled. The RBA left rates unchanged at their February meeting though did leave the door open for further easing citing a subdued inflation outlook. An absence of key domestic data will leave the Aussie trading on Risk and USD flows.

• CAD The Canadian Dollar continued to strengthen last week, again benefiting from sharp USD weakness driven by poor data and Dovish Fed commentary, though some gains were retraced on Friday as the latest Canadian Unemployment data showed an unexpected increase with rate increasing to 7.2% from 7.1% previous. An absence of key domestic data will leave CAD driven by USD and Oil flows.