The second trading week of 2019 promises to keep surprising traders by enormous volatility and several changes of the trend’s direction in the financial markets. Many crucial events are going to happen this week on both geopolitical and macroeconomic side. Among the key headlines, US-China trade negotiations stay in front as both sides delegations will meet in Bejing on January 7-8. Global investors will be focused on the meeting outcome in order to find some signs of progress in trade war tensions, which could lead to risk-on sentiment across the board if confirmed. The US government shutdown story will keep weighing on traders’ mood in the largest world’s economy, as political pressure on President Trump is getting tougher with Democrats’ majority taking the lead of the House of Representatives. Impeachment challenges get louder in mass media and further development of several investigations against Trump’s businesses could have a huge impact on the financial markets. British Parliament talks will resume in the UK this week as Premier Minister Theresa May will spend additional efforts to convince political parties to support her Brexit deal. So far, the likelihood of no-deal Brexit weighs on the British Pound as the deadline of March 29 approaches fast and there is a lack of optimistic headlines. European Central Bank will publish updates on the monetary policy which should have a greater impact on EUR/USD. The Bank of Japan is expected to step in with verbal interventions given the speed with which the Japanese yen has been strengthening last week. The Bank of Canada meets for interest rates decision and a more hawkish statement is forecasted with additional selling pressure on USD/CAD. Most of those events aren’t even included in the economic calendar for the upcoming week, so another volatile price action is more likely.
Monday, January 7.
The Asian trading session is empty of any significant events with the only exception of Chinese FX reserves to be published at 8:00 AM GMT. European trading session should kick off the week with more volatility back to markets as Germany publishes Factory Orders and Retail Sales in November. It’s hard to expect any positive shifts in that data, especially in light of recent negative reports. European Retail sales are also expected to slow down in November, if not decline. Further selling pressure might be on cards for the single European currency amid uncertainty in EU macroeconomic data. North American trading session is also packed with crucial reports, as the US will publish Factory Orders in November and ISM Non-Manufacturing PMI survey in December. Expectations are tough for the greenback. Ivey PMI report will be released in Canada.
Tuesday, January 8.
The busy trading week will continue with Australian Trade Balance to be published during the Asian trading session on Tuesday. The biggest question for Aussie is in its ability to confirm the technical bottom and any improvement in Trade Balance figures will be crucial for AUD/USD as the Australian economy is highly dependant on exports. Japan will host 10-year JGB auction starting at 03:35 AM GMT. Household confidence report will be released at 05:00 AM GMT and we expect BoJ to have a verbal intervention during that period. Strengthening yen threats local exporters to face a tighter competition overseas and the Japanese regulator is aimed to support the extremely important part of the third largest world’s economy. German Industrial Production, French trade balance and European Business survey - those are the key events during the European trading session on Tuesday. Sterling traders will stick to the Halifax House Price Index report as well as results of 10-year gilt auction results. Brexit headlines will also influence the price action of pound pairs as traders are keen to see any clarification with Brexit saga in British Parliament. US economy will publish Exports, Imports and Trade balance updates in November, as well as JOLT jobs openings survey in December. Canadian Trade Balance report is the last one before the BoC meeting next day, so higher volatility might be in place for USD/CAD.
Wednesday, January 9.
German trade balance report and 1-year Bund auction together with European Unemployment rate - these are the most important news influencing EUR/USD price action on Wednesday. More volatility should be added to the price action during the American trading session on Wednesday. One of the most attractive currency pairs to monitor will be USD/CAD, as the Bank of Canada is expected to announce its rate decision and economic statement. Although an unchanged verdict os widely anticipated by economists, closer attention will be forwarded to Poloz’s press conference and regulator’s statement at 03:15 PM GMT. Some analysts predict that BoC might appear to be much more hawkish due to the recent changes in macroeconomic data and a reversal in the price of oil. There are also certain signs that the negative impact for the Canadian economy has been overestimated and USD/CAD has been overbought. So, we would not be surprised to watch USD/CAD declining further below 1.33/32 support range. Another huge event is US crude oil inventories report. The thing is that the latest unexpected jump in inventories was one of the factors influencing the dramatic surge of WTI Crude price which jumped 7% last week. The headline figure is forecasted to decline by 3 million barrels, and that would hurt oil bulls if confirmed. On the other hand, any positive shifts might lift the black gold price towards $50 per barrel significant technical resistance and psychological level. Last but not least, the Federal Open Market Committee will publish its meeting minutes after the last rate hike in December which caused a massive and brutal sell-off in equities and currencies markets. Any dovish changes of the statement might support stock indices and high-yield currencies. But if the regulator would have kept the hawkish rhetoric, then we might see another round of market crash in the United States and more safe-haven flows in currencies and bonds. Anyway, the inverse correlation of the greenback with US stock indices should remain in place.
Thursday, January 10.
The most significant macroeconomic report for all of the Asian region will be published at 01:30 AM GMT as China will report inflation updates for December. CPI is widely expected to grow 0.3% on monthly basis after a sudden decline by -0.3% in November. Consumer Price Index should slow down to 2.1% year-on-year, while the Producer Price Index would have had an even harder reading of 1.6% compared to 2.4% previously. Any negative shifts of that data might cause another round of sell-off in high-risk assets including emerging markets and commodity currencies. ECB publishes Account of Monetary Policy Meeting at 12:30 PM GMT. The United States will focus on Goods Trade Balance, Initial jobless claims and new home sales reports, while Canada will publish Building Permits and New Housing Price Index.
Friday, January 11.
Japanese yen and Australian dollar will be vulnerable to Household spendings and Retail sales accordingly. Friday will be the biggest day for the British Pound this week, as several important updates will be released: Gross Domestic Product, Manufacturing and Industrial Production, Trade balance. The market consensus is not so optimistic as most of the sterling bulls would have wished, so we would assume a weaker pound versus its major peers including EUR, USD and JPY. US Consumer Price Index report will finish the busy trading week.