The Forex Week Ahead: Trading Outlook

Key Events This Week: February 1st – February 5th

Mon: CNY – Manufacturing PMI, GBP Manufacturing PMI, Net Consumer Credit, Mortgage Approvals, USD – PCE, ISM Manufacturing
Tue: NZD – Unemployment Rate, Dairy Auctions, AUD – RBA Rate Decision, EUR – German Unemployment, EZ Unemployment Rate
Wed: GBP – Services PMI, CNY – Caixin PMI, EUR – EZ Retail Sales, USD – ISM Non-Manufacturing
Thu: GBP – BOE Rate Decision, & Inflation Report,
Fri: USD – Non-Farm Payrolls & Unemployment Rate, CAD – Unemployment rate

The Forex Week Ahead

  • USD The Dollar was slightly lower last week, recovering initial heavy losses as a Dovish Fed confirmed the views of many players who were already pushing out subsequent rate-hike expectations. The Fed’s concern regarding the threat to the US inflation and growth outlook from global financial developments and continued energy price declines has USD upside capped for now. US GDP on Friday printed in line with expectations whilst Q3 Personal Consumption printed above expectations. Key data focus this week will be the employment reports on Friday with USD bulls hoping to see a continuation of recent positive momentum in labour conditions.
  • EUR The Euro traded higher over last week driven in part by equity market weakness, spurred by further Oil price declines in the early part of the week, and finally by USD weakness in the wake of the Dovish January FOMC. EuroZone January CPI printed in line with expectations with a small beat on core inflation. Light domestic data slate this week with German & EZ Unemployment the key focus.
    GBP Sterling was able to reclaim higher ground last week, making a break above the key 1.4350 resistance level driven by a recovery in Oil prices,US Dollar weakness and Q4 GDP printing in-line with expectations, allaying fears that growth had slowed more than expected in the end of last year. However gains were sharply reversed as month end flows saw heavy GBP selling. All attention will be on the BOE’s “Super Thursday” this week as they release their updated inflation report.
    JPY The Bank of Japan shocked markets on the final trading day of January as they announced a move into negative interest rates, a move which in the words of BOJ Governor Kuroda is intended to “show people that the BOJ is strongly committed to achieving 2 percent inflation and that it will do whatever it takes to achieve it”. Despite noting the continued recovery for the Japanese economy Kuroda explained that the move is intended to combat the risks posed from the “recent further falls in oil prices, uncertainty over emerging economies,including China and global market instability”. An absence of key domestic data will leave JPY driven by USD and risk flows.
    AUD The Australian Dollar sustained a recovery last week, with positive surprises on the domestic data front coming from better-than-expected CPI data which showed that inflation ticked up in the fourth quarter. Gains were extended in the latter half of the week as a Dovish FOMC meeting saw players pricing out expectations for a further rate-increase in March, with the Fed citing a low inflation outlook and global market turmoil as threats to the US economy. Attention this week will turn to the RBA who are expected to keep rates on hold. Of importance also will be China data over the week, with the potential for AUD downside pressure if data disappoints.
    CAD The Canadian Dollar continued to reclaim higher ground last  week as a rebound in Oil prices and US Dollar weakness conspired to support the beleaguered Canadian currency. Canadian GDP on Friday printed in line with expectations. Traders will be monitoring Oil as it rests just under the key $34.50 resistance level. Canadian unemployment on Friday the key domestic data focus this week.