The Week Ahead: Trading Outlook

Key Events This Week: February 9th – 13th:

Monday: EUR German Trade Balance
Tuesday:  GBP Industrial Production
Wednesday:  USD Mortgage Applications
Thursday:  AUD Unemployment Change, GBP BoE Inflation Report, USD Adv Retail Sales
Friday:   EUR German GDP, EUR EZ GDP, USD Univ. of Michigan Confidence

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

After a week when the USD showed a loss of momentum Friday’s headline employment number was badly needed to try reinvigorate the long USD trade. In the short-term, the latest data will protect the USD’s downside that looked very exposed going into the numbers. To that extent the data surprise should actually reduce volatility. Lastly, the data adds to the medium-term conviction that the Fed will be an important part of the strong USD story later this year

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

EURUSD had been subject to whipsaw week being subjected to headline driven flows related to the new Greek governments negotiations with the ECB regarding its out standing debt obligations and the terms of its refinancing deal with the Troika. Fridays  jobs data  the broad USD bid has taken EUR back towards the lows of last week and the pair looks vulnerable as trading begins this week.

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

The BOE policy decision to keep rates and the current 375bln asset purchase programme on hold and the accompanying statement that suggested the BOE remained on course to raise rates in the medium term added support the GBP with further support coming from a two percent rise in UK house prices in January. As we head into the new week positions are being pared in line with broad USD strength. The BOE inflation report will be key to cables fortunes this week.

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

The addition of Professor Yutaka Harada as the latest board member to the BOJ is viewed as a move which would strengthen and embolden Bank of Japan Governor Kuroda, it is envisaged that Professor Harada would be seen as supportive of Kuroda’s expansionary policies and this would open further likely hood of more policy moves to come. The JPY is one of the big losers from last week as flows chase USD higher, currently the USDJPY look like it will resolve its two week range to the upside.

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

The CAD s fortunes which have been inextricably linked to the aggressive decline in crude oil experienced a reprieve in the devastating 10% decline witnessed through January as crude appeared to be finding its legs this week so to did the CAD and as such the pair took a breather from its almost straight line advance of the past month. However at this stage the pull back still looks corrective and with markets continuing to price another move by the BOC this temporary set back looks like a decent opportunity to reposition for more upside in the weeks ahead.

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

After printing five year lows last week with the RBA cutting rates on Tuesday the AUD had staged a significant recovery from the mid .76 area, this recovery was in tandem with an improvement in overall commodity prices. The AUD’s improving fortunes were further bolstered with the RBA policy statement overnight which suggested there was little indication of a strong easing bias beyond this week’s 25bp rate cut to 2.25%.

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