- Forex Weekly Outlook January 16-20
The US dollar declined against most of its counterparts last week, after president-elect insisted that companies importing into the U.S. must pay border tax, except they move their jobs to the U.S. Even though the retail sales surged 0.6 percent in December and the Federal Reserve Chair, Yellen Janet was certain the economy faces no serious short-term obstacles. The uncertainty surrounding the incoming administration is hurting the attractiveness of the US dollar.
But with the producer price index increasing 0.3 percent in December, and Trump expected to implement his aggressive fiscal spending, the Fed is likely to follow up with a similar monetary policy by hiking rates at least three times in 2017 to manage inflation. This is projected to renew the attractiveness of the US dollar and boost its exchange rate against its counterparts.
Nevertheless, investors are waiting for Yellen Janet speech due on Thursday for clues on monetary stance after consumer prices data scheduled for Wednesday has been released.
In the UK, industrial production rose 2.1 percent, after data showed consumer spending and services sector continued to support the economy. But the pound sterling plunged against most currencies yet again, as low business confidence about the future of the embattled economy impacts the attractiveness of the currency.
While, the market awaits inflation rate and Prime Minister May speech due on Tuesday for possible clues on monetary policy and Brexit direction, experts have said the Minister will signal “hard Brexit” by focusing more on regaining control of the Britain’s borders and laws as against the widely expected access to the European single market.
This, coupled with key economic data due this week could trigger volatility across the Pound pairs – especially the retail sales, Governor Mark Carney speech, earnings and unemployment rate.
Global Oil, the OPEC members for the first time shown commitment to their pledge, and their readiness to cut production further if the need be, but experts have said sustained price above $55 a barrel will spur more production and dampen current progress, as exempted countries are likely to go aggressive with production and exports. This was after data showed the U.S. output rose by 176,000 barrels a day last week and that the production forecast for the year has been raised also.
However, the surge in oil prices will support the growth of emerging economies and help reduce the foreign exchange gap likely to be created if the US Federal Reserve starts tightening monetary policy to manage consumer prices.
Overall, the financial markets look vague ahead of the new US administration and Brexit, but the US economy is strong and likely to remain so. This week, GBPJPY, USDJPY and last week pick top my list.
The uncertainty created by the Brexit and prime minister May’s comments continued to hurt the Pound sterling. Even after peaking at 148 price levels 5 weeks ago, the pair has lost about 951 pips to trade below 142.42 support (now resistance) levels.
This week, as the world look to welcome Donald Trump as the 45th president of the United States of America, there is likely to be an increase in demands for safe haven currencies as seen last week. Hence, I will be looking to sell below 140.92 resistance for 134.90 as my first target. A sustained break of that level should open up 129.85 support (second target).
For similar reasons, this pair called the top after gaining about 1,384 pips since the emergence of Trump as the president of the U.S. But the pair lost about 250 pips following Trump’s first public conference last week to close at 114.43 support level. This, I will be treating as a risk concern ahead of the new administration’s inauguration. Therefore, I will be expecting the demand for the yen as a safe haven asset to increase while investors await a series of change the president-elect will be passing on to the senate and the ones likely to be approved.
This week, I will be looking to sell this pair below 114.43 price level for 111.81 targets, a sustained break could open up 109.56 support.
This pair is actually unique for the simple fact that the New Zealand dollar gained its last week attractiveness from the increase in demand for safe haven assets and positive outlook of commodity dependent economies. Even though, when data showed its largest trading partner, China, is struggling with capital outflow and the needs to strengthen its overseas alliances to negate Trump’s likely sabotage of their trade relationship, the kiwi continued to gain.
On the other hand, the Canadian currency continued to enjoy strong economic data, increased exports, and moderate manufacturing activities, bolstered by the surge in global oil prices and proposed economic plan by the US president-elect to increase productivity in the US, its largest trading partner.
This week, I remained bearish on this pair as long as 0.9382 resistance holds.
Nothing has changed with EURCAD, last week view holds.