- Forex Weekly Outlook January 23-27
Last week, the US data showed inflation rate rose 0.3 percent in December, while industrial output rebounded from 0.7 percent to 0.8 percent, with a capacity utilization rate of 75.5 percent. Although, the economy continued to churn out data in-line with the Federal Reserve projection for maximum employment and price stability, the US dollar dip during the week.
This is because the uncertainty surrounding the new administration’s likely policy going forward and global events like Theresa May’s proposed Brexit’s exit strategy is hurting the attractiveness of the dollar.
However, the Federal Reserve Chair, Yellen Janet, said with the unemployment rate nearing its longer-run normal level and likely to move a bit lower this year, the labor market remains healthy and will continue to create more jobs. This is one of the reasons investors are positive the Fed will raise rates at least 3 times this year, hence, the surge in demand for bonds.
In the UK, the Prime Minister Theresa May on Tuesday pitched post-Brexit strategy to the world and finally succumb to pressure to allow the parliament to vote on the final Brexit deal, a clause that changed the mid-term outlook of the pound as businesses, investors and stakeholders believe the deal has to be inclusive before parliament will approve it. This bolstered the pound to its highest two-day rally since 2009.
While, the UK economy continued to sustain its 4.8 percent unemployment rate, rising average earnings of 2.8 percent from 2.6 percent and strong consumer spending. The governor of the Bank of England Mark Carney sees weaker growth and rising inflation rate in 2017. Largely, the pound outlook remained uncertain as the country gets ready to exit the European Union 500 million consumers’ market.
In China, the economy grew by 6.8 percent in the 4th quarter of 2016, beating 6.7 percent forecast by analysts. While, on a yearly basis the industrial output rose by 6 percent, slightly below the 6.2 percent recorded a year earlier. The Chinese economy remains moderately strong as capital outflow that saw about $305 billion leave the economy in 2016 has started declining, while fixed asset investment surge to 8.1 percent (ytd).
Overall, the global financial is expected to remain uncertain until investors can deduce succinctly the direction of central banks’ policies, and most importantly the series of changes the 45th president of the United States of America will be making to fiscal policy.
Last week, the pound gained 431 pips against the US dollar after Theresa May’s speech on Brexit strategy. But the pair remains below the 1.2534 resistance level that doubled as 20-day moving average.
Similarly, the drop in demand for the US dollar contributed to the pound gain, which means an increase in dollar demand this week could dampen the pound progress and reinforce the continuation of long-term bearish trend.
However, sustained break of 1.2534 resistant levels, will likely increase buyers’ interest and open up 1.2809 resistance levels as target 2. But failure to break 1.2534 will increase sellers’ interest. So this week, I will be monitoring price action alongside comments from policy makers to trade GBPUSD.
The series of data released last week showed Canadian economy is still struggling with weak inflation rate (-0.2%) and low consumer spending. Although, the manufacturing sector has started picking up, but the uncertainty surrounding crude oil and the increase in demand for haven asset continued to aid CADJPY.
This week, I am bearish on this pair as long as 86.36 resistance holds. While looking to sell below 86.03 price levels for 84.04 targets.
The prime minister May’s comment bolstered all pound against its counterpart last week, hence, invalidating our projection for this pair. This week, I will stand aside to monitor price action better.
This pair retraced 4 days to the inauguration after dropping about 180 pips. This week, I remain bearish on this pair and will look to sell below 114.43 support level.