Intro
We've covered what's happening for the major currencies in the coming weeks. Read on to see what we are looking for.
Our Outlook
USD
Both Markit prelim services and existing home sales came in with better than expected data in the last week, with existing home sales increasing 0.7% from the previous month, which meant positive economic data for the United States. Another positive outcome was the US oil inventories data, which nearly doubled the expected forecast of 2425K to 4352K. These positive data results are welcomed as they follow a trend of negative economic data coming from the United States. Following the positive economic data results and Biden’s 1.9 trillion economic stimulus package, there could be further gains for USD. USD/CAD also poses an opportunity given the United States oil inventory surplus. Within the coming week, events to watch out for include the Goods Orders data on Wednesday (27/01), the FOMC Statement, Rate Decision and the GDP Data on Thursday (28/01) for intraday volatility and an updated fundamental perspective.
EUR
The European Central Bank leaving their interest rate and deposit rate unchanged saw modest gains for EUR in the last week. The CFTC Commitment of Traders revealed an increase of 7000 EUR long contracts, a 4.4% change that took it from 156,000 to 163,000. There are no high-impact economic events coming in the next week for EUR. Keep an eye on Germany’s CPI data on Thursday (28/01) and GDP data on Friday (29/01) for intraday volatility.
AUD
The AUD has been trading sideways in the last week, closing slightly down across the board as it struggled to remain afloat. With Australia’s heavy reliance on trade with China, their underperformance on GDP and Retail Sales from economic data released in the last week means negative effects on the AUD. At the moment, the Australian and Chinese governments are in a soft trade war that could continue well into 2021. This is greatly costing Australia as reports show that they have lost 3 billion so far in commodity sales in 2020. Australian job data in the last week saw unemployment rate drop from 6.80% to 6.60% despite it being forecasted to remain the same. Also, retail sales data came out with 4.2% contraction which is negative for the AUD. In the coming week, events to look out for include the RBA Trimmed mean CPI Data and the CPI Data on Wednesday (27/01).
GBP
The GBP continued to appreciate in the last week, with hopes still rising on the Brexit agreement and Covid-19 Vaccine. A bullish indicator for the GBP, the CPI data came in at 0.6%, higher than the 0.5% consensus that was expected. However, this positivity was temporary due to the Markit Services PMI data. The results came in at 38.8, much lower than the 49.9 forecast that was expected. Despite this, we continue to maintain our outlook for long term GBP appreciation throughout the year. In the coming week, look out for the GBP Claimant count data and unemployment rate data on Tuesday (26/01).
JPY
As the risk-on sentiment slowly returned to markets, we saw the yen slowly depreciate in the last week. Considered as a safe haven currency, the JPY can be highly affected by global risk flows. As expected, BoJ’s interest rates remain unchanged. Policy makers continue to wait on Covid-19 vaccine rollout to re-evaluate fiscal policy. We continue to maintain our long term JPY bearish bias. An event to watch out for to gain further insight into Japan’s economic status is the BoJ Monetary Policy Meeting Minutes on Tuesday (26/01).
CAD
As oil prices dropped, the CAD was weak last week and continued to move sideways. Being a commodity backed currency, the CAD is vulnerable to fluctuations in the oil trade. A potentially bearish factor for the CAD is the US oil inventory surplus, as it could provide short term independence for the US from Canada’s oil supplies. However, there is still some bullish news for the CAD as economic data last week was positive. Both the CPI and the Retail Sales data came in above consensus. Another positive sign for the CAD is the BoC leaving rates unchanged. There are no high impact economic events for the CAD in the next week.
CHF
The CHF continued to perform well last week despite there being no high impact economic events. Switzerland has also had strong economic data during the last few months. However, Switzerland still holds negative rates which makes the CHF less appealing for long term investors. This is one of the reasons our outlook for the CHF for the year is depreciation. There are no significant events coming in the next week for the CHF.