The Forex Week Ahead: Trading Outlook

Key Events This Week: January 25th – 29th

Tue: USD – Consumer Confidence
Wed: AUD – CPI, NZD – RBNZ Rate Decision, USD – FOMC Rate Decision
Thu: GBP – GDP 4Q, EUR – German CPI, USD – Durable Goods, JPY – CPI
Fri: EUR – EZ CPI Estimate, USD – Advance Goods, GDP 4Q, CAD – GDP YoY Nov, JPY – Monetary Policy Statement

The Forex Week Ahead

• USD Despite softer than expected December CPI data the US Dollar advanced again last week as the policy divergence present between the US and other G10 economies was further endorsed as the ECB paved the way for further easing in March and investor expectations grow for further easing also from the BOJ. The FOMC rate decision this week is not expected to see a further increase though traders will be paying close attention to the policy statement for clues as to the timing of the next increase.

• EUR The single currency was ultimately driven lower on the week as a recovery in risk-appetite stemming from the ECB’s January meeting saw a rebound in equity markets. The ECB noted that continued Oil price declines were weighing heavily on the inflation outlook, which is now though to be significantly lower over 2016 than projected in December, and cited also the continuing downside risks to inflation and growth stemming from the slowdown in emerging markets. The ECB have committed to reviewing its monetary policy stance in march and have prompted a heightening of easing expectations among investors. EuroZone CPI on Friday is the key domestic data focus.

• GBP Sterling was able to avoid printing a sixth consecutive negative week as a rebound in risk-sentiment towards the end of the week prompted some short covering in the beleaguered British Pound, with an unexpected drop in in Public Sector Net Borrowing adding support for the move. The latest labour conditions data continued its recent theme, showing a further decline in the Unemployment rate but also a decline in average weekly earnings. The disappointing reversal in wage-growth momentum alongside growing uncertainty surrounding the issue of a “Brexit” still weighs on GBP despite this correction. 4Q GDP is the key domestic data focus for the week.

• JPY The Japanese yen was driven lower last week in part by a recovery in global risk-sentiment and also by mounting expectations of further BOJ stimulus to be announced this week. A Japanese Govt official commented mid-week that the Japanese Govt were closely watching currency moves which was taken as a clear sign by investors that the recent strength in JPY will force the BOJ’s hand. BOJ monetary policy statement will be release on Friday.

• AUD The Australian Dollar reversed some its recent losses last week as a rebound in risk-sentiment and commodity prices spurred some short-covering in the Aussie. Intervention by the PBOC and the promise by Chinese Vice President Li that China would continue efforts to stabilise equity markets helped calm investor nerves and stem the volatility that marred the first half of the week.

• CAD The Canadian Dollar staged a much needed recovery last week as a support stemming from a solid rebound in Oil prices was strengthened by the Bank Of Canada’s decision to keep rates on hold. The BOC were largely expected to cut at their January meeting and the decision to hold, alongside a rather neutral statement, took many by surprise spurring profit-taking on some CAD short positions. The latest CPI data on Friday showed that domestic inflation was seen rising at the fastest pace for more than a year in December. Canadian GDP on Friday is the key domestic data focus.