Weekly trading forecast January 21 - 25.

The upcoming trading week should clarify many uncertainties in geopolitics field. The Brexit saga in the UK and EU, US government shutdown and global trade wars - is the list full enough to turn the financial markets upside down? The economic calendar is also full of crucial events as we’re approaching monthly meetings of major central banks to update the monetary policy perspective. Commodity markets are expecting reports and announcements from the supply-demand side of things. The fixed-income market will focus on the results of government bond auctions across major regions as well as global economic growth forecasts. And, of course, market players will listen to several officials speaking this week.

Monday, January 21.

The trading week will kick off with the Chinese Q4 GDP report. The expectations are quite low, leaving room for a positive surprise: 1.5% quarter-on-quarter and 6.4% year-on-year. The latest data did not show any significant improvements, so it would be hard to expect a sudden jump in Q4 GDP. However, we suggest that things aren’t so bad as many sceptics are trying to show. Yuan is predicted to keep falling anyway, as such a policy is in the very own interest of Chinese government and export-oriented corporations. Retail sales and Fixed Asset Investments reports are also due to release, as well as NBS scheduled a press conference to comment on economic growth. Another important speech for the financial markets is Theresa May’s representation of a Plan B for the Brexit, as her deal was voted down in UK Parliament last week. British Prime Minister is aimed to announce next government steps to resolve the issue of leaving the European Union. The British Pound is vulnerable to any possible income, so it’s rather hard to predict the market’s reaction. The United States celebrates Martin Luther King Jr. day, so financial markets will be closed on Monday in the country and lowe volatility is expected in the American trading session.

Tuesday, January 22.

Korean GDP and Inflation reports will affect the local currency on Tuesday. The rest of the Asian trading session is expected to be comparatively quiet. Average earnings, Claimant count change and the unemployment rate in the UK will influence the price action for the Sterling pairs and it would be especially important for EUR/GBP cross-rate as the latest sharp movement suggests that higher volatility is possible this week. ZEW Institute will publish its economic survey in Germany and EU, affecting EUR/USD. Technically speaking, the pair is vulnerable to further weakness, however, the level of 1.1300 seems to be rather strong support line. Manufacturing and Wholesale Sales report are due to release in Canada with rather a soft market consensus. USD/CAD was one of the underperformers last week and further weakness might be on the table, especially if oil prices kept climbing. The United States will report New Home Sales and Redbook survey, however, the impact might be limited for the greenback.

Wednesday, January 23.

The Kiwi traders will stick to their monitors during the CPI release. The quarterly report is expected to show a modest slow down in the inflationary pressure in New Zealand and, if confirmed, NZD/USD could slide even lower than 0.6700 support. Japan will release Trade Balance figures before the BoJ’s meeting and interest rates decision on Wednesday. The event is tentative, as always, and the most interest is focused on the regulator’s economic statement and press conference. No changes to expect in the monetary policy so far but a possible cut of inflation perspective might lead to further supportive measures by the Bank if Japan, which should be a negative factor for the Japanese Yen. USD/JPY might test 111.00 resistance on Wednesday if BoJ officials would try to lift the currency pair be verbal interventions. The European trading session is free of any significant macroeconomic reports, while the American session will bring lots of news: Richmond Manufacturing Index and survey, Redbook financial conditions report and House Price Index. The government shutdown story will also be in the market focus. The greenback was consolidating previous losses last week, so we might see the next round of weakness if the data did not satisfy investors and traders.

Thursday, January 24.

Australia will appear in the market focus on Thursday as the country reports Employment Change in December. Economists predict a modest reading with 16.5K jobs added, while the previous period was stronger in the Labour market, showing 32.4K new jobs. The Australian dollar might surge in case if Employment was stronger than anticipated. AUD/JPY would be the most attractive currency pair to trade on, especially in the scope of the BoJ meeting. French, German and EU Manufacturing Purchase Managers Index will be the key report influencing EUR/USD price action before the ECB meeting and rate decision later on Thursday. No changes are expected so far, but Draghi's press conference might bring more light on the monetary policy perspective fro the nearest future. ECB President is a well-known dove, so it would be surprising to hear something hawkish from him, however, the ultra-soft financial conditions cannot last forever and the regulator will face tough questions about the time when ECB plans to start the tightening cycle. Draghi’s speech has to answer the question of whether EUR/USD is able to find a short-term bottom, or should the pair continue the downtrend. US Crude Oil inventories report is the key event in New York. If the demand issue kept supporting oil bulls, then we would see WTI Crude above $55. Otherwise, a pullback down to $50 per barrel is likely.

Friday, January 25.

Tokyo Core CPI report is the main event for Asian financial markets on Friday, and we expect nothing but stronger support for USD/JPY. German IFO Institute will publish its latest economic outlook for the European Union. Gross Mortgage Approvals report is the only event in the UK. On the other side of Atlantic, Durable Goods Orders and New Home sales reports will affect US equities and the greenback, while Canada will publish the latest Trade Balance. Anyway, the price action will mostly depend on previous events earlier this week rather than all of those reports combined, so it’s tough to make any predictions so far. Stay tuned for our market updates and analysis!
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