Weekly Forex Forecast: 12th to 16th January

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Weekly Forex Forecast: 12th to 16th January

The US Dollar was mixed last week, weaker against commodity risk currencies but stronger against the fundamentally weaker currencies. The chart below shows the 5 day relative performance of the USD as of Friday’s close. The Euro was the weakest, with the Kiwi dollar being the strongest last week.

preview

With the major risk event, namely the FOMC meeting minutes done with, the markets are likely to head into the new trading week in a continued risk-off sentiment. In this view, expect short term weaknesses in the Greenback and some surprising moves in the Euro and the British Pound.

Fundamentals for the Week 12 – 16 Jan

Date Event Estimates
12 January Australia home loans m/m 1.8%
US Labor market conditions index 2.9% (prev)
13 January Japan economy watchers sentiment 44.3
German WPI m/m 0.2%
Italy industrial production m/m 0.1%
UK CPI y/y 0.7%
UK Core CPI y/y 1.4%
14 January French CPI m/m 0%
European Court of Justice Ruling
Eurozone industrial production m/m 0%
US Core retail sales m/m 0.1%
US retail sales m/m 0.2%
15 January Japan PPI y/y 2.2%
Australia employment change 5.3k
Australia unemployment rate 6.3%
US PPI m/m -0.3%
Weekly unemployment claims 299k
US Core PPI m/m 0.2%
Empire state manufacturing index 5.3
Philly Fed manufacturing index 20.3
16 January German Final CPI m/m 0%
Switzerland retail sales y/y 1.1%
Eurozone Final CPI y/y -0.2%
Eurozone final core CPI y/y 0.8%
US CPI m/m -0.3%
US core CPI m/m 0.1%
US industrial production m/m 0.1%
Preliminary UoM consumer sentiment 94.2
Preliminary UoM inflation expectations 2.8% (prev)

 

Currencies/Events to Watch this Week

Euro: Probably the most important event will be the European Court of Justice ruling on the legality of the ECB’s OMT or Outright Monetary Transaction, a form of government bond buying by the ECB. The ruling could tilt the scales for QE discussions in either way. Previous judgments from the ECJ included a verdict in favor of the ESM or European Stability Mechanism funds. So the ECJ’s ruling on OMT, should it be in the negative would have wide implications on the prospects of ECB’s QE plans.

Besides the above, CPI data from Germany and Eurozone are also expected later in the week. A deviation from the expected inflation reading, taken in context with the ECJ’s ruling is sure to bring some volatility in the Euro this week.

US Dollar: The Greenback will see some market moving events this week. Retail sales, although expectations are low can surprise to the upside considering that retail sales across Eurozone and the UK beat estimates for December. The same theme is likely to follow suit in the US retail sales data as well.

The US CPI is showing an expectation of -0.3% on a monthly basis. Considering that PPI declined last month, the expectations are to the downside. Also in focus will be the UoM inflation expectations, especially in view of the US interest rate hikes being ruled out until April.

British Pound: The UK will finally get its annualized reading for 2014 which could likely shift bias to the upside, should the reading manage to beat estimates. With the exception of the inflation reading, there isn’t much of data from the UK this week, which leaves most of the GBP pairs to trade based off other currency movements.

Yen: The Japanese Yen heads into a second week of quiet trading with no major news events scheduled for this week. Expect the Yen to continue to strengthen this week as long as US data continues to remain mixed and especially ahead of the ECJ’s ruling.

FX Majors Weekly Pivots

  R3 R2 R1 Pivot S1 S2 S3
EURUSD 1.2181 1.2078 1.1959 1.1856 1.1737 1.1634 1.1515
GBPUSD 1.5594 1.5456 1.531 1.5172 1.5026 1.4888 1.4742
USDCAD 1.2088 1.1989 1.1931 1.1831 1.1773 1.1673 1.1615
USDJPY 122.659 121.651 120.081 119.073 117.503 116.495 114.925
USDCHF 1.0410 1.0313 1.0228 1.0131 1.0045 0.9948 0.9862

 

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