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Forex Weekly Outlook January 26-30 (based on forexcrunch article)

Greek Parliamentary Election; German Ifo Business Climate; UK GDP data; US Durable Goods Orders; US CB Consumer Confidence; US housing data; Rate decision in the US and in New Zealand; US Unemployment Claims; GDP data in Canada and the US. These are the most important economic releases for this week. Follow along as we explore these Forex market movers.

Last week’s central event was Draghi’s announcement of an extensive bond-buying program which will insert hundreds of billions in new money into the sluggish euro zone economy. The European Central Bank said it would buy sovereign debt from March till September 2016. Germany opposed this move, saying it will aid countries in debt to loosen economic reforms. The ECB plans to add more than 1 trillion euros by September 2016, to boost the Euro-area economy and fight deflation. However, since only 20% of purchases would be the responsibility of the ECB, critics warn that in case a euro zone government defaults, it would fall on national central banks, getting weak countries deeper in debt. Draghi said the QE could create the basis for growth, but the main responsibility lays on governments to implement structural reforms to sustain growth. Will this move help revive the Eurozone economy?

  1. Eurozone Greek Parliamentary Election: Sunday. The national elections this week will determine whether Prime Minister Antonis Samaras will maintain his position or be defeated by Alexis Tsipras from Syriza party. Samaras said he can reach an agreement with Greece’s creditors by the end of February, while Tsipras said he can get an agreement by this summer keeping Greece within the euro area. Greece will not receive the next bailout money of 7.2 billion euros unless a review of the country’s progress in meeting the terms of its bailout is completed by Feb. 28.
  2. Eurozone German Ifo Business Climate: Monday, 9:00. German business confidence increased 0.8 points in December, reaching 105.5, broadly within market expectations. Falling oil prices and the weaker euro boosted German economy. Economic data showed improvements in the manufacturing and wholesaling sectors despite downturn trend in sales to Russia and sluggish reforms in France and Italy. Business sentiment is expected to reach 106.7 this time.
  3. UK GDP data: Tuesday, 9:30. U.K. economic growth weakened in the third quarter, amid sluggish economic activity in the euro-area. Gross domestic product increased 0.7% in the three months through September, following 0.9% rise in the second quarter. The reading was in line with market forecast. On an annualized basis, the U.K. economy expanded 2.8% in the third quarter. Worrying signs of renewed stagnation in the euro zone may have a negative effect on UK’s. UK growth is predicted to be 0.6% in the fourth quarter of 2014.
  4. US Durable Goods Orders: Tuesday, 13:30. Durables orders plunged 0.7% in November after gaining 0.3% in October, while analysts expected a 3.0% jump. Likewise, core orders dropped 0.4% in November after contracting 1.0% in the prior month. Analysts predicted a 1.2% rise. Transportation declined 1.2% a 3.3% jump in October. The rise in autos and nondefense aircraft was overshadowed by a sharp drop in defense aircraft orders. Both Durable orders and Core orders are expected to gain 0.6%.
  5. US CB Consumer Confidence: Tuesday, 15:00. American consumers were more positive in December amid strong economic data releases. Consumer sentiment climbed to 92.6 in December from a revised 91 in the previous month. 17.1% of responders noted a rise in job availability from 16.2% in November. 19.6% claimed business conditions were worse compared to 21.8 in November. The rise in confidence goes hand in hand with GDP growth and the constant improvement in the job market. A further increase to 95.7 is expected now.
  6. US New Home Sales: Tuesday, 15:00. Sales of new U.S. homes contracted 1.6% in November to a seasonally adjusted annual rate of 438,000 units, indicating the housing sector still hasn’t benefited from the recent improvements in the job market. The reading was worse than the 461,000 rate forecasted by analysts and lower than October’s downwardly revised rate of 445,000. New-home sales remain far below the annual rate of 700,000 seen during the 1990s, as many Americans lack solid credit records to enable obtaining mortgages. Sales of new U.S. homes is expected to reach 452,000 in December.
  7. US rate decision: Wednesday, 19:00. The Federal Reserve policy makers have repeatedly announced their intentions to raise rates. However the sharp plunge in consumer prices during December may detain such a move. Federal Reserve chair Janet Yellen, claimed that the sharp drop in oil prices was positive for the US economy boosting household spending, but other Fed policy makers prefer to see stronger inflation before voting to raise rates. The Fed’s focus is on core inflation to help assess underlying price pressures in the economy. Fed official said recently that mid-year would be an appropriate time to consider a rate rise. No change in rates is expected.
  8. NZ rate decision: Wednesday, 20:00. The Reserve Bank of New Zealand has maintained its Official Cash Rate at 3.5% in December in line with market forecast. 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. Reserve Bank of New Zealand Governor Graeme Wheeler repeated his warnings about the overrated New Zealand dollar but noted that global financial market volatility had taken some pressure off the currency.
  9. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits was higher than expected last week, indicating the holiday volatility sill continues. Jobless claims declined by 10,000 to 307,000, while expected to reach 301,000. Layoffs of holiday staffing make it difficult to assess the true state of the weekly jobs data. However, except for these temporary layoffs the US job market remains resilient at the beginning of 2015. The number of jobless claims is expected to reach 301,000 this week.
  10. Canadian GDP: Friday, 13:30. Canada’s economy expanded more than expected in October rising 0.3% following a 0.4% gain in the previous month. Analysts expected a small increase of 0.1%. However weak oil prices are forecasted to weaken growth in 2015 by contracting exports and investment. The BOC projects a yearly growth of 2.2% in 2015 from 2.5% growth in 2014. However exports to the US are expected to increase as the US economy strengthens. Canadian growth is expected to contract 0.1%.
  11. US GDP data: Friday, 13:30. The U.S. economy expanded 3.5% in the third quarter, indicating the US economy continues to improve and has no need for further QE. The GDP release was stronger than the 3.1% growth rate expected by analysts. Business investment and consumer spending dropped slightly from the second quarter, however, trade deficit contracted. Growth in four of the past five quarters reached 3.5% or above suggesting self- sustaining growth. Us economic growth in the fourth quarter is expected to be 3.1%.
 

NZDUSD Fundamentals (based on dailyfx article)

Fundamental Forecast for New Zealand Dollar: Neutral

  • Soft 4Q CPI Fuels Dovish Shift in Markets’ New Zealand Policy Bets
  • NZ Dollar May Rise as RBNZ Rhetoric Maintains Hawkish Overtones


Deterioration in the outlook for monetary policy sent the New Zealand Dollar sharply lower last week. The currency fell nearly 2.6 percent on average against its leading counterparts, making for the worst five-day performance since August 2013. A dismal set of CPI figures was a leading catalyst behind the selloff. The benchmark year-on-year inflation rate fell to 0.8 percent in the fourth quarter, missing economists’ expectations for a print at 0.9 percent and marking the weakest reading in 1.5 years. The outcome weighed heavily on interest rate expectations: a Credit Suisse gauge tracking the priced-in 12-month policy outlook now shows investors are leaning toward easing for the first time since December 2012.

The markets will not have to wait long to see if their newfound dovish outlook holds water as the RBNZ prepares to deliver its policy announcement in the week ahead. The priced-in probability of a change in the baseline lending rate this time around is nil. Economists generally agree: all 15 of them polled by Bloomberg predict the central bank will stay put at 3.50 percent. That will place the spotlight on the policy statement accompanying the rate decision, with traders readying to comb through the document for language telegraphing where Governor Graeme Wheeler and company intend to steer from here.

December’s RBNZ statement was interpreted to be decidedly hawkish. Mr Wheeler seemed sanguine about weakness on the export side of the equation, citing strong domestic demand. Growth was seen at or above trend through 2016, which the RBNZ chief said meant that “some further increase in [interest rates] is expected to be required.”When the Kiwi dutifully rallied on the statement, Wheeler seemed at a loss, saying in the press conference following the policy announcement that he was surprised at the currency’s reaction. For their part, market participants seemed surprised at his surprise, wondering what policymakers thought a currency ought to do if not advance when the central bank signals tightening ahead.

Looking ahead to January’s outing, this could make for a curious outcome. New Zealand economic news-flow has continued to improve relative to consensus forecasts since December’s meeting, according to data from Citigroup. This has occurred even as the price for the country’s dairy exports – the largest component of the external sector – slid to the lowest level since August 2009. That suggests December’s narrative about domestically-led growth remains largely unchanged. Meanwhile, Statistics New Zealand – the government agency that produces CPI figures – chalked up the fourth-quarter slump to sinking oil prices. If the RBNZ dismisses ebbing price growth as transitory on this basis (much like the Federal Reserve, for example), their hawkish posture may remain unchanged.

Such an outcome will clash with the markets’ dovish-leaning sentiments, sending the Kiwi sharply higher.

One might suspect the RBNZ would play to investors’ leanings and encourage depreciation considering its long-standing duel with the exchange rate. In fact, it has become difficult to remember a month in which policymakers did not bemoan the “unjustifiably and unsustainably high” exchange rate in official communications, foretelling “significant depreciation” ahead.Given last month’s surprise at how FX responds to central bank rhetoric however, that may be too fancy a strategy to bet on.

 

USDJPY Fundamentals (based on dailyfx article)

Fundamental Forecast for Japanese Yen: Neutral

  • ECB Move Drives EURUSD to 11-Year Low, EURJPY On the Edge
  • USD/JPY 1 Month into Consolidation; Could be a Triangle


The fundamental developments due out next week may undermine the bullish forecasts surrounding USD/JPY should the Federal Open Market Committee (FOMC) scale back its hawkish tone for monetary policy.

Despite growing expectations for a Fed rate hike in mid-2015, the rotation within the voting committee may spur a material shift in the forward-guidance for monetary policy, and the central bank may sound increasingly cautious this time around amid the fresh batch of monetary support from the Swiss National Bank, European Central Bank and Bank of Canada. Indeed, the Fed may not way to get too far ahead of its major counterparts as it struggles to achieve the 2% target for inflation, and Chair Janet Yellen may show a greater willingness to further delay the normalization cycle especially as the advance 4Q Gross Domestic Product (GDP) report is expected to show the economy growing an annualized 3.2% versus the 5.0% expansion during the three-months through September.

At the same time, Japan’s Consumer Price Index (CPI) may also fail to encourage a bullish outlook for USD/JPY as the Bank of Japan (BoJ) continues to endorse a wait-and-see approach for monetary policy, and the pair remains at risk for a larger correction over the near-term as Governor Haruhiko Kuroda remains confident in achieve the 2% inflation target over the policy horizon. In turn, USD/JPY may continue to carve a sting of lower-highs going into February should the data prints drag on Fed interest rate expectations.

With USD/JPY struggling to push back above the 119.00 handle, the pair faces a risk for move back towards near-term support around the 117.00 handle, and the dollar-yen may make a more meaningful run at the January low (115.84) should the bullish sentiment surrounding the greenback fizzle.

 

GBPUSD Fundamentals (based on dailyfx article)

Fundamental Forecast for GBP: Neutral

  • British Pound plummets versus surging US Dollar on diverging central bank policy
  • Forex volatility risk has surged following last week’s moves – coming days may prove pivotal


A negative surprise from the Bank of England helped push the British Pound lower for the sixth-consecutive week versus the US Dollar. Extremely stretched price action raises the risk of a short-term bounce, but what could reasonably force the Sterling higher?

The seemingly-unstoppable US Dollar clearly remains in control against major counterparts, and the British Pound is no exception. UK economic event risk will be relatively limited in the week ahead and offers little hope of a news-driven GBP reversal. Instead traders will likely remain focused on a highly-anticipated US Federal Open Market Committee (FOMC) policy decision on the 28th. Any surprises could have far-reaching effects across FX and broader financial markets.

Unprecedented Quantitative Easing from the ECB, negative interest rates from the SNB, and expectations of unchanged monetary policy from the Bank of England makes the US FOMC stand out from the crowd. Unlike its G10 counterparts, markets expect the US Federal Reserve could soon raise interest rates. The key divergence helps explain why the US Dollar has significantly outperformed most major currencies through recent price action, but the risk of a sharp Dollar correction is especially high.


A disappointing US Federal Reserve decision could force a substantial Dollar pullback, and we believe the British Pound could outperform on such a USD correction. UK economic fundamentals and interest rate expectations may be relatively lackluster in the absolute sense. Yet relative to the likes of the Euro, Swiss Franc, and other majors, we believe the Sterling stands to do well absent further deterioration in domestic inflation figures.

Traders should use limited leverage ahead of what promises to be an important FOMC decision in the days ahead. Reversal risk is high as positioning data shows large traders are heavily long the US Dollar. It may take little to force a significant correction.
 

GOLD Fundamentals (based on dailyfx article)

Fundamental Forecast for Gold: Neutral

  • Gold Stalls at Technical Resistance- Remains Constructive Above 1262
  • Gold Target is Still 1345


Gold prices are higher for a third consecutive week with the precious metal rallying 0.91% to trade at $1292 ahead of the New York close on Friday. Gold has remained well supported as concerns over a global economic slowdown and a flurry of unexpected central bank policy shifts saw inflows into the US Dollar and bullion. While the luster of gold seems to be gaining appeal, near-term the trade has come into a significant area of resistance ahead of major US metrics next week.

Given the slew of major surprises from global central banks, traders will be closely eyeing key US data prints next week with Durable Goods Orders, New Home Sales, Q4 GDP and the highly anticipated FOMC Interest Rate Decision on tap. Gold may continue to catch a bid in the coming days should the Federal Reserve interest rate decision further dampen the appeal of fiat currencies in light of the fresh wave of easing measures from SNB, ECB, and BoC. The high level of uncertainty surrounding the monetary policy outlook may continue to heighten the appeal of the bullion.

Despites expectations for a Fed rate hike in mid-2015, the new rotation within the voting committee may drag on interest rate expectations, especially as we lose the two hawkish dissenters from 2014 (Richard Fisher & Charles Plosser). As a result, the fresh vote count combined with a weakening outlook for global growth may undermine the bullish sentiment surround the greenback and boost demand for alternative stores of wealth should the FOMC talk down bets for a rate hike this year.

Last week we noted, “Look for a pullback early next week to offer favorable long-entries with the near-term outlook weighted to the topside while above $1248. A breach above resistance targets the 76.4% retracement of the July decline at $1294 and the upper median-line parallel of the November advance, currently just above the $1300-mark.” Gold remains within the confines of a well-defined ascending pitchfork formation off the November lows with this week’s rally coming into resistance at the upper median-line parallel, currently around $1307. Longs are at risk below this mark near-term with the broader bias remaining weighted to the topside while above $1263. Look for a pullback next week to offer favorable long entries with a breach of the highs targets resistance objectives at $1320/21, the July high-day close at $1335 and $1345.

 

Nikkei forecast for the week of January 26, 2015, Technical Analysis

The Nikkei as you can see rose during the course of the week, using the ¥17,000 level as a bit of a springboard. It appears that we continue to consolidate, and therefore we anticipate that the Nikkei will rise to the ¥18,000 level next. Once we break above there, we feel that the Nikkei will then go to the ¥20,000 level, but it will of course take some time. Ultimately, we believe the pullbacks are buying opportunities as the Bank of Japan continues its ultra-loose monetary policy. With that, we are buyers only.


 

DAX forecast for the week of January 26, 2015, Technical Analysis

The DAX as you can see broke higher during the course of the week, and is now completely broken out above the resistance at the €10,100 area. With that being the case, we feel that the DAX can be bought on pullbacks now, and should continue to go much higher than, possibly as high as €12,000 over the course of the next several weeks. With that, we are bullish but recognize that there may be a little bit of volatility simply because we have gone straight off. No plans whatsoever to sell.


 

NASDAQ forecast for the week of January 26, 2015, Technical Analysis

The NASDAQ as you can see broke higher during the course of the week, but did not manage to break above the 4800 level yet. This is an area that needs to be cleared in order for us to serve buying from a longer-term perspective, but we do anticipate that will happen. If we can get above 4800, we don’t see any reason whatsoever why the market will then head to the 5000 level. Pullbacks should continue to be buying opportunities as we believe that the 4600 level below is massively supportive.


 

S&P 500 forecast for the week of January 26, 2015, Technical Analysis

S&P 500 fell initially during the course of the week but found enough support near the 2000 level to turn things back around and smash into the 2060 level. That’s an area that has little bit of resistance, but ultimately we believe that if we get above there the market should then head towards the 2100 level. The market is most certainly in an uptrend, so we have no interest in selling anyway. Pullbacks should offer buying opportunities but you may have to look at shorter-term charts in order to find the correct candles.


 

Silver forecast for the week of January 26, 2015, Technical Analysis

The silver markets broke higher during the course of the week as you can see, clearing the $18 level. That of course was an area of resistance, so it makes sense that we would continue to go little bit higher. However, the $19 level above is resistive as well, so we could get a little bit of a pullback. This has been a rather strong move higher and we believe that there is quite a bit of bullish pressure underneath, so we look at pullbacks as potential buying opportunities. However, this is a market that might be easier if we trade off of the shorter-term charts.


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