The week ahead – Forex Outlook for 26 Jan – 30 Jan

The week ahead. Weekly SummaryComing out of an eventful week, we step into another big forex outlook. The much-anticipated quantitative easing program by the ECB has finally been announced, though scheduled to kick-off by March. In a move that was well foreseen, Mario Draghi announced the purchase of a mix of government and other bonds at a rate of €60 billion monthly until Sep 2016 at least. This is primarily meant to raise the inflation rate towards its 2% target and boost Consumer prices. Each of the 19 central banks in the euro-zone will buy bonds issued by its own government, and take the losses should that government default, therefore every country taking full responsibility for their own. Interesting news also from China as its quarterly GDP surpassed forecast, showing a 7.3% growth in the economy. This could be attributed to stimulus introduced late last year leading to better production and consumer spending, therefore enhancing the chances of a hit of the y/y growth target. The Bank of Canada in a surprise move lowered the overnight lending rate to 0.75%, sending the CAD to new multi-year lows against the USD.


As a result of the  Bank of Japan’s aggressive easing measures, Shinzo Abe has successfully fulfilled one pledge he made before coming to power in late 2012: weakening the yen. The Japanese currency has been in an extended weakness against the dollar over a two year period and shows no signs of ending that streak yet. This week, the Monetary Policy Meeting Minutes may give insight into the Central banks thoughts on the condition of the yen. The Trade Balance is forecast to improve slightly to -0.74T from -0.93T. The Retail Sales y/y is also expected to improve based on economists’ forecast of 1.1%. This will mark an improvement from 0.5% in December, which was the lowest level within a 5 month period.


The Euro faces renewed selling pressure after Alexis Tsipras’s Syriza party won the Greek elections, as the party plans to renegotiate Greece’s debt, which puts in at risk of an exit from the Euro-zone which is likely to send the Euro down to new lows haven already lost about 400 pips last week against the USD. German Ifo Business Climate scheduled for release on Tuesday. The Survey of about 7,000 businesses which asks respondents to rate the relative level of current business conditions and expectations for the next 6 months is forecated to be 106.7, a slight increase from 105.5 in the previous month. The Eurogroup meetings of finance ministers of the euro-zone is to be held on Monday as they convene for their regular meetings with the newly announced QE and the Greece election situation as the major theme of the meeting. German Prelim CPI m/m which measures the Change in the price of goods and services purchased by consumers is forecast for a decrease to -0.8%. German Unemployment Change has been positive over the last few months and is forecast to continue for this month. The Core CPI Flash Estimate y/y and the Unemployment Rate will be released on the Friday which has been steady at 11.5% over a six month period is quite high and is expected to stay fixed for this month.


The National Australia Bank Business Confidence which surveys about 350 businesses asking respondents to rate the relative level of current business conditions is expected to be released on Tuesday. During the rest of the week, the quarterly Consumer Price Index is forecast for a drop to 0.3% haven been at 0.5% for the last two quarters as well as the Producer Price Index which is forecast for 0.3%, a potential increase fro m the previous 0.2% in the last quarter.


UK’s Prelim GDP q/q is forecast at o.6%, which is likely going to be the lowest within the last 6 quarters which may further drive the pound lower, haven already had a terrible month loosing about 500 pips to the dollar as January Unemployment Claims disappointed and Existing home sales missed expectations.


Reserve Bank of New Zealand’s Official Cash Rate (OCR), the interest rate at which banks lend balances held at the RBNZ to other banks overnight is expected to remain fixed at 3.50%. The central bank estimates output will grow above capacity and inflation will reach the 2% target by the end of the forecast period, which will advance a 40 basis points rate hike by early 2017. In is last speech, Governor Graeme Wheeler reiterated his warnings about the overrated New Zealand dollar but noted that global financial market volatility had taken some pressure off the currency. NZD Trade Balance is forecast at -70m, a potential improvement from -213m in the previous month.


Core Durable Goods Orders m/m has been negative for the past 3 months, falling below expectation. An increase of 0.6% is expected this month. The rise in autos and non-defense aircraft was overshadowed by a sharp drop in defense aircraft orders in December. Both Durable orders and Core orders are expected to gain 0.6%. The almighty FOMC Statement scheduled for Wednesday is expected to reflect the Fed’s thoughts on world events as well as more insight into interest rate expectations. Federal Funds Rate where FOMC members vote on where to set the target rate is expected to remain <0.25%. Unemployment Claims is forecast to show 301k individuals filed for unemployment insurance for the first time during the past week, a slight improvement from 307 in the previous month. Advance GDP q/q for the last quarter of 2014 forcast at 3.1% is due on Friday. The final GDP showed contracting trade deficit showing growth, therefore justifying the end to QE, though Business investment and consumer spending decreased slightly from the second quarter.


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