Financial data dispersion to ease USD dominance

A rocky week is about to end with the main characteristic move maybe being the weakening of the USD. Fed Chairman Powell’s testimony and the release of the US CPI Rates for December seem to have provided fertile ground for USD bears. The week has not ended yet for the USD though as we get a number of high impact US financial releases in today’s American session that could allow for a correction higher under certain circumstances. In the coming week we note the wide number of high impact financial releases. We make a start on Monday with China’s GDP rates for Q4, while on Tuesday we get UK’s employment data for November and Canada’s CPI rates for December. On Wednesday we get UK’s CPI rates for December and on Thursday we note release of Australia’s December employment data. Finally on Friday we note the release of Japan’s December CPI rates and UK’s as well as Canada’s retail sales growth rate for December and November respectively. On the monetary front we highlight the release of BoJ’s interest rate decision on Tuesday the 18th, while on Thursday the 20th of January we get from Norway Norgesbank’s interest rate decision and from Turkey CBRT’s interest rate decision. Also a number of policymakers from central banks across the world are scheduled to make statements as well and could affect the markets with their statements.

USD – Low number of high impact financial releases allows room for fundamentals

The USD in an impressive drop since Monday, seems about to end the week lower against its counterparts. Nevertheless, it should be mentioned that some high impact financial releases are still due out in today’s American session, yet we doubt whether the greenback could recover the ground lost since the start of the week. Powell’s testimony before the US Senate for his reappointment, was characteristic as the Fed Chairman seemed to be uncertain about the pace of the tightening of the Fed’s monetary policy as he also stated that the reduction of the bank’s balance sheet is not imminent. The event intensified bearish tendencies for the USD, which had somewhat stabilised since the release on Friday of Decembers’ Employment report, with a disappointing NFP figure. It should be noted though that the US unemployment rate for the same period also retreated easing the market worries and actually could be providing the basis for the Fed to continue with the tightening of its monetary policy. The USD bears were spurred once again on Wednesday with the release of December’s US CPI rates. Despite the headline CPI rate for December accelerating as was expected reaching 7% yoy, which is the highest level reached for the rate since 1982, that did not seem to worry traders as it may have been deemed insufficient for the Fed’s monetary policy to become even more hawkish and contributed to USD’s selloff. In the coming week we expect fundamentals with issues like the path of the pandemic to take over along with any comments which are to be made by Fed policymakers and should they sound more confident and hawkish we may see the USD getting some support. Nevertheless as for financial releases we would like to note the release of the US construction data for December on Tuesday the 18th of December, as well as the weekly initial jobless claims figure and the Philly Fed Business index for January on Thursday the 20th of the month.

GBP – UK CPI rates in focus

GBP has intensified its upward motion against the USD in the past few days yet seems to have limited itself in a sideways movement against the EUR and JPY for the week. On a fundamental level we note the recent renewed allegations against UK PM Johnson for organising a party in a lockdown period. The headlines seem to have irritated besides the Labour party, which is in the opposition and has called for the resignation of Johnson, also some members of the Tories, Johnson’s own party and its characteristic that the leader of the Tories in Scotland has stated that he asked for Johnson’s resignation. It should be noted that Prime Minister Johnson apologised for attending a lockdown gathering and that could buy him some time yet should headlines about the issue continue to reel in, the pressure on Johnson could increase causing him to resign and creating some instability on the UK political scene which could weigh on the pound. On the monetary front market expectations for a tightening of BoE’s monetary policy may be still present and seem to support the pound. In the coming week, the state of UK’s economy could become clearer as we get a number of important financial data. We make a start with UK’s employment data for November on Tuesday the 18th of January. Should the data show that the UK employment market continued to tighten in November, we may see the market’s expectations rise and provide some support for the pound. We highlight the release of UK’s CPI rates for December on Wednesday the 19th of January. Should the headline rate accelerate, we may see the pound getting some support as that would imply that inflationary pressures in the UK economy are very strong, practically making the case for BoE to tighten its monetary policy rather sooner than later. Last but not least we would also note the release of UK’s retail sales growth rate for December on Friday the 21st of January.

JPY – BoJ to stand pat

JPY has gained against the broadly weak USD for the week and managed to break a losing streak of being five weeks in the reds, in a row. However the Japanese currency remained rather stable against the EUR and GBP, implying that the gains made against the USD were a result mostly due to USD weakeness, rather than JPY strength. On a fundamental level, the rise of the number of new Covid daily cases tends to create worries in Japan as the country had almost reached zero cases about a month ago. On the monetary front, we highlight the release of BoJ’s interest rate decision on Tuesday the 18th of January. The Bank is widely expected to remain on hold keeping rates at -0.10% and attention turns to the accompanying statement. Economists and analysts mention that the bank could be adjusting its view on inflation risks, for the first time since 2014. Neveretheless, despite some nudging up of the inflation and GDP projections being expected by BoJ, it is rather unlikely that the bank is to move away from its usual dovish stance and ultra loose monetary policy. Statements made by BoJ Governor Kuroda that consumer inflation is expected to accelerate gradually on rising energy costs and an expected increase of demand, were characteristic as was also his warning that the Japanese economy remains in a severe state due to the impact of the coronavirus pandemic. As for financial releases JPY traders are to have an early start this week, as on Monday we get Japan’s machinery orders growth rate for November, while on Thursday the 20th of January we get Japan’s trade data for December. Also we highlight the release of Japan’s CPI rates for December on Friday the 21st of the month. Overall though it’s possible for the Japanese currency to stick to its role as a safe haven and prove more sensitive to safe haven flows in the coming week as well.

EUR – Still in the grip of the pandemic

EUR seems about to end its best week against the USD, in months, while remained relatively stable against the pound and the Yen. On a fundamental level the pandemic still torments the Eurozone and its characteristic that Germany suffered a record number of new daily cases on Wednesday, surpassing the psychological barrier of 80,000. The picture seems to be getting worse with France reporting the same day also a number of record new daily cases surpassing 360,000. On a wider European level, we highlight the deadend of the negotiations between Russia and the US about Ukraine, which could have a detrimental effect on EUR as tensions could rise further on Europes’ borders. It should be noted that EU defence ministers issued a dire warning against Russia, while on the flip side the Russians seem ot be contemplating the deployment of military personel in Cuba and Venezuela. On an economic level the crisis could puch natural gas prices higher, thus slowing the growth of the Eurozone, as the area extensively uses natural gas as fuel. On the monetary front, we note ECB President Christine Lagarde’s statements on Tuesday, as she called on Eurozone citizens, worried about the rise of prices, to trust the ECB to stabilise inflation. It seems that the easing of inflationary pressures in the Zone as reported by the preliminary HICP rates releases for December, has not eased market worries.Thus, in the coming week we note the release of Germany’s and the Eurozone’s final December HICP releases on Wednesday and Thursday respectively. Before that and on Tueday the 18th of the month we get from Germany January’s ZEW indicators which could provide us with a picture about the sentiment and the current conditions for the largest economy of the Zone. Finally on Friday the 21st of the month EUR traders may be interested in the release of Eurozone’s preliminary consumer sentiment for January.

AUD – Australia’s employment data and China’s GDP rates in the epicenter

The Aussie is about to end the week in the greens against the USD, reversing losses made in the week before and advancing further. It seems that the Aussie may have gained also against the JPY and even its neighbouring Kiwi. Growth or commodity currencies seem to have been favoured by the market in the past few days. It should be noted that the Djokovic story is heavy in the headlines in the land of the Down Under yet seems to have little effect on the markets. Nevertheless its characteristic how the case seems to have been politicised, given also that the election date for Australia is nearing. On a more fundamental level, we would expect that AUD as a commodity currency, could benefit should the market sentiment be more risk oriented and should the market be able to see past the Omicron variant adverse effects. On the monetary front we note that headlines for RBA to be scrutinised seem to be increasing. It seems that the opposition Labor party, which currently seems to be heading the polls, is actively seeking for such an enquiry but also current members of the Australian government seem to have been committed to such an idea. As for financial releases Aussie traders are to have an early start this week as on Monday the 17th of January, we get China’s GDP rates for Q4 2021, amidst a slew of data. Australian exporters of raw materials are also expected to keep a close eye on the simultaneous release of China’s industrial output growth rate for December, while on second base we also note China’s retail sales growth rate and Urban Investment growth rate, both being for December as well. On Wednesday we get Australia’s employment data for December and should the unemployment rate and employment change figure show that the Australian employment market was able to tighten further we may see the Aussie getting some support as it could provide more confidence for RBA to adopt a more optimistic stance.

CAD – Watch out for the CPI rates

Despite some hesitation yesterday the Loonie is about to end the week in the greens against the USD. Given the lack of financial releases in the past days fundamentals seemed to be the key driver for the CAD. Itshould be noted that oil prices relented some of their gains yesterday, yet are about to end the week higher than when the week begun. Latest developments in the oil market seem to include also worries about China’s demand levels given that China’s crude oil imports dropped in 2021 for the first time in twenty years. Also encouragement from Chinese authorities to avoid travelling during the Lunar New Year holiday, a typical period that lots of Chinese ctizens use to go home, could ease oil demand expectations further. On the other hand there seems to be some optimism among oil market participants that the adverse effects of the Omicron variant could be overcome rather sooner than later. Overall should oil traders regain their confidence and oil prices restart their climb higher we may see the CAD benefitting. Also a more positive, risk on sentiment of the market could provide tailwinds for the Loonie as a commodity currency. On the monetary front, market expectations for further tightening of BoC’s monetary policy, seems to be enhanced after the release of Canada’s solid employment data for December last Friday. Once again should such market expectations grow further in the coming week that could be an additional plus for the Loonie. As for financial releases, CAD traders are to leave behind them the inactivity of the past few days and keep a close eye over the release of Canada’s CPI rates for December on Tusday the 18th and should the rates accelerate, we may see the market’s hawkish expectations for the BoC intensifying, given the tightening of the Canadian employment market for the same month. On Friday the 21st of January we note the release of Canada’s retail sales growth rates for November.

General Comment

General CommOverall in the coming week we may see the USD relenting some of the initiative in the forex market to other currencies, given also the dispersion of releases in the economic calendar. Next week’s calendar seems to provide a variety of financial data from various countries, on a more balanced basis, thus creating a blend of trading opportunities for a greater variety of financial instruments. On the monetary front we would also like to make a couple of comments about Norway’s Norgesbank and Turkeys’ CBT interest rate decisions, both on Thursday the 20th of January. Norgesbank is expected to remain on hold keeping rates at 0.50%, given December’s 25 basis points hike and also its forward guidance for the interest rate to increase gradually over the next few years. However should the bank in its forward guidance imply a faster pace of hiking rates we may see the NOK getting some support. As for Turkey’s CBT we must note that the bank had performed a rate cut in its last meeting, however the aggressive easing policy of the bank could take a break for next week’s meeting by remaining on hold to see whether the Lira could remain stable and inflation to be curbed. On the flip side, should the bank continue with another rate cut in the coming meeting, we may see TRY losing considerable ground especially against the USD and EUR. Besides the FX market we note that for US stockmarkets the earnings season is about to commence and may shift some of the market’s attention towards that direction. As for gold’s price we highlight that the negative corelation with the USD was on display once again in the past few days as the precious metal benefited from the weakening of the greenback and we would not be surprised to see it maintained in the coming week as well.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

Поделиться: