Forex Weekly Outlook – Jan. 22-26 2018

The dollar remained on the defensive but it wasn’t one-sided anymore. The greenback fought back. GDP from the US and the UK, rate decisions in Japan and the euro, and many other events await us in a busy week.  Here are the highlights for the upcoming week.

The greenback suffered from the potential threat of a government shutdown and mixed housing figures. However, comments from various Fed officials remained generally bullish on the economy. The big news from last week remained in play: China may diversify away from US Treasuries. but we have also seen a correction, most notably in USD/JPY. In the euro-zone, ECB officials tried to talk down the euro, with very partial success. UK inflation came out as expected and some calm on the Brexit front helped stabilize the pound. In Canada, the BOC raised the interest rates but the loonie remains range-bound on NAFTA worries. Australia enjoyed another great jobs report and upbeat Chinese GDP. Will we have another busy week?

Updates:

  • Japanese rate decision: Tuesday morning. The Bank of Japan recently triggered a “mini taper tantrum” in Japanese bond markets. Among developed countries, Japan has the most accommodative monetary policy. Is this about to change? Not very soon. Inflation is still too low and the BOJ would prefer maintaining a low exchange rate for the yen as long as possible. In this meeting, they are likely to maintain their bond-buying program and negative interest rates unchanged, not providing any assistance to the yen.
  • US existing home sales: Wednesday, 15:00. Sales of existing homes consist of the lion’s share of transactions of real estate. The figures beat expectations in the past three months and reached an annualized level of 5.81 million in November. We will now get the data for December. A small slide to 5.72 million is expected.
  • New Zealand inflation report:  Wednesday, 21:45. New Zealand releases its inflation report only once per quarter, making every publication have an outsized impact. The impact is strong on the RBNZ and on NZD/USD. In Q3, prices advanced by 0.5% q/q, slightly above expectations. Nevertheless, inflation does not seem to get out of control. We will receive the data for Q4 and for the whole of 2017. A more moderate increase of 0.4% is forecast.
  • Euro-zone rate decision: Thursday, 12:45, press conference at 13:30. The European Central Bank already announced in October that the QE program will run at least until September 2018, albeit at half the rate from this month, January, at 30 billion euros per month. ECB president Mario Draghi left the door open for further bond buying beyond September, in disagreement with some of the more hawkish members of the Governing Council. The meeting minutes from the December meeting showed more optimism about the economy and potentially a change in communication: perhaps an announcement about the end of QE in early 2018. However, the ascent of the euro hurts their efforts to push inflation higher and a few members began sending out warnings about the exchange rate. On this background, Draghi and co. are likely to refrain from any big announcements now, leaving the door open for extending the program beyond September, and making an official announcement a bit later on, perhaps in the March meeting, when they have new forecasts.
  • New Home Sales: Thursday, 15:00. While most transactions are of second-hand homes, sales of new ones trigger more economic activity and are also correlated with the wider economy. Sales leaped to an annualized level of 733K in November. Is it a one-off or the beginning of a bigger trend? The data for December will help in providing an answer. A significant fall to 676K is projected.
  • UK GDP: Friday, 9:30. The British economy certainly slowed down in 2017 after enjoying a great 2016. The UK lagged behind other developed economies in the first three quarters of 2017. Growth picked up in Q3 and stood at 0.4% q/q, yet all the forecasts don’t point to an acceleration in growth. We will now get a look at data for Q4 and the total for 2017. This is the first release out of three. An increase of 0.4% q/q is predicted.
  • US GDP: Friday, 13:30. The US economy woke up from its slow growth pattern and grew at above 3% in Q2 and in Q3, which saw 3.2% annualized growth. According to the data already published for Q4, we could also see a similar growth rate in the last quarter of the year. This first release may see significant revisions in the second and final publications. A similar advance of 3% is estimated for Q4.
  • US durable goods orders: Friday, 13:30. Sales of durable goods feed into the GDP data. The Fed also looks at the data as a forward-looking one. In November, headline orders rose by 1.3% but core orders dropped by 0.1%. We will now get the data for December, but it is somewhat overshadowed by the GDP report that is released at the same time. Headline orders are projected to rise by 0.9% and core orders by 0.6%.
  • *All times are GMT

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    Further reading:

    • EUR/USD forecast – for everything related to the euro.
    • GBP/USD forecast – Pound/dollar analysis
    • USD/JPY forecast – outlook for dollar/yen
    • AUD/USD forecast – projections for the Aussie dollar.
    • USD/CAD forecast – Canadian dollar predictions

    Safe trading!


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