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
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?
NZDUSD Fundamentals (based on dailyfx article)
Fundamental Forecast for New Zealand Dollar: Neutral
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
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
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
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
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
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.
GOLD Fundamentals (based on dailyfx article)
Fundamental Forecast for Gold: Neutral
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
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
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.