Weekly trading forecast January 14 - 18.

Financial markets are getting hotter as the new year gains momentum. Both the geopolitical and macroeconomic sides of the fundamental environment have lots of crucial events for global equities and currencies markets. The US government shutdown story has to find its logical development to finally end up with the political tensions. The US-China trade war escalation should ease traders’ worries as the negotiations between the two largest world’s economy enter into the next round to finalize the agreement reached in early December last year. Brexit vote is scheduled for Tuesday in British Parliament, aiming to resolve current uncertainty. Even a ‘no’ vote, which would refuse the May’s deal, could become a positive signal for the British economy and the Sterling. The best option is to cancel the Brexit at all though. Besides that, the economic calendar is full of meaningful events, reports and speeches, set to influence the monetary policy update in major regions across the globe. Chinese GDP, European, Canadian and British inflation reports, these are just the main headlines for the upcoming week. Add here Federal Reserve Chairman Powell’s testimony in the US Senate, as well as consumer spending survey, and you will get a toxic mix of fundamental impact on financial markets worldwide.

Monday, January 14.

The Asian trading session is expected to quite low-volatile as Japanese traders will be off for National Holiday. The only report worth watching will be Australian Inflation expectations update. India will report the latest inflation figures as well. A downside revision was noticed in the price index and there’s nothing positive to expect for the emerging markets currencies. The Chinese financial data is scheduled to release with M2 Money supply and Loan volumes to be published. The second largest world’s economy Trade balance will also be in the market focus. Both events are tentative. German WPI report and European industrial production will influence the price action of EUR/USD and other cross-rates. The US Federal Reserve Chairman Jerome Powell will start two-days testimony in the Senate, reporting the general economic situation in the country. He will also face a tough challenge and pressure from Senators as the latest regulator’s decision caused the controversial reaction in the political environment and private sector. However, his latest speeches, as well as FOMC statement published last week, show that Powell is ready to withstand the pressure and hold the position.

Tuesday, January 15.

The price action should start accelerating on Tuesday, as the economic calendar starts to include lots of crucial reports. M2 Money Stock will have an impact on Japanese yen currency pairs as investors will monitor the financial situation in the third largest economy in the world. USD/JPY is vulnerable to further losses due to the dovish rhetoric noticed in the Fed officials’ speeches last week and also the risk appetite decline, forcing investors to liquidate some of the long-term speculative positions. The European trading session is also expected to add some selling pressure on EUR/USD as many leading countries will report the gross domestic product development and inflationary pressure results in December: France, Spain and Germany. EU will also publish trade balance final reading for November last year. The current forecast does not add any optimism for the euro bulls, so further decline might take place for the most heavy-volume currency pair. UK Parliament scheduled the vote for Prime Minister Theresa May’s Brexit deal with the European Union. Higher volatility is very likely for all of the pound pairs, including GBP/USD and EUR/GBP, as the importance of that vote cannot be underestimated. It’s tough to predict the outcome, however, there are more odds for the Parliament to refuse the deal, postponing the divorce period. The best-case scenario suggests a total cancelling of the Brexit at all with the second referendum to be announced in the UK, however, the chances are quite low for such a development. US Producer Price Index is due to release at 01:30 PM during the New York Opening. The report is expected to keep the tendency of lowering the inflationary pressure in the US, adding support for equities and other high-yield assets.

Wednesday, January 16.

Westpac consumer sentiment survey will be published in Australia on Wednesday. AUD/USD bulls will look for more improvements from the fundamental side of things, as the pair set for further gains upside, from the technical point of view. Japanese PPI and Core Machinery orders will have an influence on USD/JPY and AUD/JPY currency pairs. Tertiary Industry Activity Index should finalize the market direction during the Asian trading session on Wednesday. European traders will focus on German inflation figures. Consumer Price Index is expected to be published at the level of 1.7% year-on-year. Harmonized Price Index is also predicted to be flat in December. However, disappointing data might come in as the energy sector suffered from falling oil prices recently, which could cut the inflationary pressure in the leading European economy. If that confirmed, EUR/USD might decline. The British Pound will be vulnerable not only to the political situation but also macroeconomic update. So, Consumer and Producer Price indices will be published at 09:30 AM GMT. As long as the previous reports showed a surprisingly fast level of the economic expansion in the United Kingdom, inflation data might also surprise traders. If the CPI and PPI report released higher than the market analysts predicted, then GBP/USD could have a sudden sharp spike Northwards. The same scenario would be on the table for cross-rates such as GBP/JPY and GBP/NZD. American trading session will also be extremely busy on Wednesday. The US reports Retail Sales, Import and Export Price Index, Business Inventories and Factory orders. All of that data is crucial for the equities market, as investors hope for the economic growth to remain robust while the financial conditions to lower the tightening. If the reports were able to meet investors’ expectations, major US stock indices should rally, gaining the strong bullish momentum. Otherwise, we might observe equities coming back to the bearish turmoil, noticed in the fourth quarter of 2018. US Crude oil inventories will impact the price action for oil prices and USD/CAD.

USD/JPY and AUD/JPY
Source:My Trading Buddy


Thursday, January 17.

The main economic report will be the Chinese GDP on Thursday. Most of the emerging markets depend on the current situation in China, as the leading developing region. The market consensus predicts a moderate slowdown of the gross domestic product in China: 6.4% annualized reading compared to 6.5% reported previously. The schedule is tentative though. European CPI and US Philly Fed Manufacturing Index are among the key events in other regions.

Friday, January 18.

Two high-risk currencies will be in the market’s focus on Friday: British Pound and Canadian dollar. The Sterling bulls would try to find another bunch of support from the fundamental side of things as British Retail Sales will be published at 09:30 AM GMT. The analysts’ expectations are in red with the consensus of -0.8% decline on monthly basis. Such a deep negative forecast leaves the room for a positive surprise, especially in the light of stronger-than-expected reports last week. If that suggestion confirmed, GBP/USD could surge. Canada will publish its recent inflation data at New York opening hours. Core CPI was revised down earlier, while CPI headline figure is predicted at the level of 1.7% year-on-year. A potential impact is also divided. If CPI was able to surprise traders, USD/CAD might decline further, as the Bank of Canada will be forced to hike the interest rates. Otherwise, USD/CAD could come back to the gradual uptrend with the same tendency as in December 2018. US Industrial Production and Michigan Manufacturing activity reports will finalize the trading week.

Bank of Canada
Source:CityNews Toronto
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