The Forex Week Ahead: Trading Outlook

The Forex Week Ahead: February 22nd – 26th

Mon: JPY – Manufacturing PMI, EUR – EuroZone Manufacturing, Services & Composite PMI’s, USD – Manufacturing PMI
Tue: EUR – German 4Q GDP, German IFO expectations, USD – Consumer Confidence
Wed: GBP – CBI Reported Sales, USD – Services & Composite PMI’s, New Home Sales, Crude Oil Inventories
Thu: CHF – CPI, GBP – 4Q GDP, EUR – EuroZone CPI, USD – Durable Goods, NZD – Trade Balance, JPY – CPI
Fri: EUR – German CPI, USD – Advance Goods Trade Balance, Personal Consumption, 4Q GDP, PCE, University of Michigan Confidence

Overview

  • USD January FOMC minutes revealed a Dovish tone to the meeting, as expected, with the Fed citing a deteriorating economic environment since December with growing downside risks. The minutes were largely seen as confirming expectations that a March rate hike is off the table. January CPI was better than expected, holding unchanged against an expected -0.1% loss, with core inflation registering its biggest gain in over 4 years. Key data focus this week will be GDP & PCE data on Friday with PCE data a key inflation gauge used by the Fed.
  • EUR Euro was driven lower last week as equity markets surged higher on an improved risk-appetite. ECB January meeting minutes endorsed market expectations that further easing is likely to come in March. Expectations were fuelled further as the OECD slashed EuroZone 2016 growth outlook to 1.4% from 1.8% previous. Key domestic data focus this week is EuroZone CPI on Thursday with any weakness likely to further increase expectations for ECB easing.
  • GBP Sterling was heavily weighed upon last week by a set of weaker-than-expected January inflation figures, followed by an increase in Unemployment. The UK currency is also currently under pressure as “Brexit” concerns build with UK PM Cameron currently taking part in a “make or break” two-day summit to secure better terms for the UK’s membership of the EU. Markets are anticipating sharp GBP weakness if a UK exit from the EuroZone does occur. Key data focus this week is 4Q GDP.
  • JPY Despite a recovery in risk appetite last week, the Japanese Yen was still  bid continually throughout the week as speculators continue to play chicken with the BOJ. BPJ Governor Kuroda called for coordinated action by central banks to stabilise global markets, his comments come ahead of the G20 meeting which is due to take place later this month. Japanese CPI will be key data focus this week.
  • AUD Alongside resurgent US Dollar strength, the Australian Dollar found itself under pressure last week as the Unemployment rate unexpectedly ticked higher. Resilient labour conditions have been the backbone of the AUD bullish view over recent months, despite weakening inflation, and this development strikes a blow to the heart of this outlook. An absence of key domestic data will leave AUD driven by risk-sentiment and USD flows.
  • CAD A recovery in Oil last week bolstered the Canadian Dollar which improved across the board, further supported by a set of stronger than expected January inflation figures, tempering expectations for further BOC easing. An absence of key domestic data will leave CAD driven by Oil and USD flows.