USD
Range trading was observed last week. The dollar traded within narrow ranges against the yen and within wide ranges against the euro. The British sterling was the only strong currency – GBP/USD pair had been appreciating for almost the whole last week and registered a good profit at the end. Turning to this week, traders will be looking at IBD/TIPP economic optimism index, expected to climb from 47.5 to 48.3 in January. December wholesale inventories are likely to improve by 0.4% m/m after 0.1% m/m earlier, trade deficit will probably widen in December, posting -48.2 bn dollars after -47.8 earlier. Monthly budget execution report is expected to come in with improvement, at -65.2 bn dollars in December after -86.0 bn a month earlier. Fed speak is going to be heavy this week. Bernanke and Fed’s Bullard, Pinalto, Fischer and William are scheduled to deliver their speeches.
EUR
The euro had been trading within wide ranges last week and closed the session with some losses versus the dollar. EU economic data came in with quite pessimistic results, only German statistical data was more or less positive. Italian, Spanish and French unemployment grew, as well as in the whole euro zone in general except for Germany. Preliminary Gross Domestic Product assessment slipped by 0.2% in Belgium and by 0.3% in Spain. Euro commission reported business sentiment indices improved, as well as PMI manufacturing. Services PMI posted a decline. December Produce Prices fell, followed by a decline in consumer prices later in January. The upcoming week is not that rich in significant releases. In the spotlight should be German industrial orders index, expected to climb 1.0% m/m in December after the prior -4.8% m/m decline in November. German industrial production increased by 0.2% m/m in December after -0.6% m/m earlier. Forecasts predict inflation should drop -0.4% m/m, +2.0% y/y in January after the prior +0.7% m/m, +2.1% y/y. Of most importance this week will be ECB interest rate decision, followed by Draghi’s press-conference. The regulator is expected to leave its rate at 1.0%.
GBP
The British pound turned out to be the best performed last week, bolstered by the UK positive economic statistics. This week data front covers only few significant releases with the Bank of England interest rate decision being a central event. Forecasts predict extended bond buying program. Some market analysts anticipate 75 bn pounds, some say asset purchase will be increased to 50 billion. Anyway, this information can’t be considered supportive of the sterling, so the pound may be placed under pressure. Producer price index, being released with a decline this week, indicates weakening inflation and says in favor of future policy softening, giving the bank of England more reasons to continue quantitative easing.
JPY
USD/JPY pair hit its local minimums last week and traded within narrow ranges mostly. BoJ intervention concerns held back the dollar purchase, although positive employment data, released out of the US at the end of the week helped the dollar recoup its losses and close the session at the opening prices against the yen. Quite a batch of significant data is expected to come in today – Japan’s trade deficit is likely to keep on, current account should stay within positive trend in December. As for the yen’s outlook, the BoJ intervention fears will keep halting the yen’s further purchases. It’s possible sell off on the other hand will depend on the situation in the US debt market. Higher yields in the US will trigger the yen’s sell off.
Analysis prepared by:
Arkady Nagiev
Forex4you analyst
