The Week Ahead: Trading Outlook

Key Events This Week: February 22nd – 27th:

USD: Consumer Confidence, FED Chair Yellens Testimony Feb 24th Consumer Price Index Feb 26th Gross Domestic Product, Personal Consumption Feb 27th
EUR:  German Unemployment Feb 26th German Consumer Price Index Feb 27th
GBP: Gross Domestic Product Feb 26th
JPY:  National Consumer Price Index Feb 26th                                                                                           CAD: Consumer Price Index Feb 26th

USD Index Short Term (1-3 Days): Neutral –Medium Term (1-3 Weeks) Bullish

A more dovish than anticipated Fed minutes release has tempered traders’ expectations of rate hike towards the front of the June – September range. Dollar didn’t suffer much on the back of the doveish minutes release and medium-longer term USD bullishness remains intact especially as late last week a heavily circulated adviser note  concluded that senior leaders at the Fed are more hawkish than the January minutes suggest and this should become apparent at Chairwoman Yellen’s Humphrey Hawkins testimony  on Tuesday.

EURUSD Short Term (1-3 Days):Neutral –Medium Term (1-3 Weeks) Bearish

Once again last week’s price action was dominated by headline risk and short term news flow driven trading, with a short term deal agreed late Friday the EURUSD likely stabilises ahead of FED Chair Yellen’s Humphrey Hawkins testimony. The ECB is yet to begin QE and although growth in Europe has increased slightly, it is still much less robust than the growth seen in the US. The context of this weaker growth and uncertainty surrounding a longer term solution for Greece is likely to keep the single currency pressured over the medium term.

GBPUSD: Short Term (1-3 Days): Bullish -Medium Term (1-3 Weeks) Bearish

GBP continued to trade with a buoyant tone through much of last week, buoyed by hawkish comment form BOE members and a growing consensus that the BOE were most likely to be next in line to follow the FED in term of a move back towards normalising monetary policy. The upcoming May election poses a medium-term risk but in the near term GBP will likely benefit from any upside surprises from domestic data.

USDJPY: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish

A mixed week last week having started softly, JPY regained some ground on the more dovish than anticipated Fed minutes release. Japanese yields were rising last week mitigating the desire of Japanese investors to place money abroad which should driving near term JPY strength. Near term official comments are becoming geared to maintaining two-way price action which is reflected in recent reduction of positioning as participants become more patient regarding entry points for longer term short JPY exposure.

USDCAD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bullish

A mixed week last week as the USD continued to range trade at elevated levels the more dovish than anticipated Fed minutes release had little meaningful impact on the broader bullish trend. Oil prices continue to impact price action. Continued CAD bearishness is likely as the BOC is expected to continue it’s Dovish tone with the rates market pricing a 65% probability of 25% cut a the next meeting.

AUDUSD: Short Term (1-3 Days): Neutral – Medium Term (1-3 Weeks) Bearish

With no major data releases last week and holidays across several smaller Asian countries, range trading has been the name of the game. Despite the doveish Fed minutes release, AUD still struggled. The combination of a revised monetary policy outlook coupled with continuing concerns regarding China’s growth prospects and the declining commodity price backdrop are expected to see AUD continue to trade softer against the Dollar over the medium term.

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