Preview of the coming week on the forex market:
- The second week of the year sees activity pick up on the economic calendar, with the focus still on the U.S. economy, a bit like the first week of the year.
- Changing winds in currency markets – in part thanks to rising US Treasury yields – could give Fed rhetoric and US economic data increased importance in the near term.
- Changes in retail trader positioning suggest that the US dollar may continue to rise in the coming days.
For the whole week ahead, please visit the DailyFX Economic Calendar.
All week | Five speeches from Federal Reserve decision-makers
The economic calendar for the second week of January will provide key information on the US economy, which appears to have pulled back in November and December. Coupled with five speeches from Federal Reserve policymakers, including one from Fed Chairman Jerome Powell, the US dollar is likely to see several instances of heightened event risk during the week. For Fed speakers, we’re watching if their comments cause further concern.
Fears of a new ‘taper tantrum’ at the end of 2013 began to revive, with yields on long-term US Treasuries rising (notably, the 10-year yield rising above 1%) . While Fed policymakers aren’t acting on interest rates in an official capacity, we’ll see if the Fed’s next list of speeches this week produces more tantrum-type reactions on the curve.
01/13 WEDNESDAY | 13:30 GMT | Inflation rate in USD (DEC)
the December United States Inflation Report (Consumer Price Index) due on Wednesday is expected to show continuous moderation in price pressures, still insignificant enough that the Federal Reservee will remain moored to its current aggressively accommodating political route.According to Bloomberg News, the American inflation rate is expected in at +1.3% from +1.2%, and the underlying inflation rate in the United States is due to + 1.6% unchanged (a / a). Any recent upward pressure may be explained by the continued weakness of the US dollar and rising energy prices until December 2020.
IG Client Sentiment Index: USD / JPY rate forecast (January 11, 2021) (Chart 1)
USD / JPY: Retail traders data shows 56.62% of traders are net long with a ratio of long to short traders of 1.31 to 1. The number of net long traders is 4.44% higher compared to yesterday and 15.05% lower than last week, while the number of net-short traders is 7.02% lower than yesterday and 27.50% higher than in the week last.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests that USD / JPY prices may continue to decline.
The positioning is more net-long than yesterday but less net-long than last week. The combination of current sentiment and recent changes gives us another USD / JPY blended trading bias.
01/14 THURSDAY | 08:00 GMT | CNY loans in new yuan (DEC)
The Chinese economy has weathered the coronavirus pandemic as well as anyone could have hoped at the start, and its resilience will be verified again with the latest figure of new yuan loans for December. The loan figure is widely regarded as a leading indicator of economic activity in the world’s second-largest economy, and more evidence that the Chinese economy continues to take on debt to fuel its rebound will likely be a welcome sign. Even with the US dollar’s broad strength, USD / CNH rates may not be able to ignore more positive news from across the Pacific.
01/15 FRIDAY | 07:00 GMT | GBP Gross Domestic Product (NOV)
Brexit negotiations are in the rear view mirror, but the coronavirus pandemic continues to rage. But by November, the period covered by the next UK GDP report, there were already signs that the deceleration was starting. According to a Bloomberg News survey, overall GDP is expected to stand at -12.1% from -8.2% (y / y), while the 3-month average is expected to have fallen from + 10.2% to + 3.4% in November. Given the recent lockdowns in the UK, it is very likely that the next round of UK economic data (particularly for the periods of November 2020, December 2020 and January 2021) will be particularly grim.
IG Client Sentiment Index: GBP / USD rate forecast (January 11, 2021) (Chart 2)
GBP / USD: Retail traders data shows that 50.66% of traders are net long with a ratio of long to short traders of 1.03 to 1. The number of net long traders is 9.23% higher than that of yesterday and 13.30% compared to last week. while the number of net short traders is 9.34% higher than yesterday and 9.93% lower than last week.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net long suggests that GBP / USD prices may continue to decline.
The positioning is shorter on the net than yesterday but longer on the net than last week. The combination of current sentiment and recent changes gives us another mixed GBP / USD trading bias.
01/15 FRIDAY | 13:30 GMT | Retail sales in USD (DEC)
Consumption is the most important part of the US economy, generating around 70% of the global GDP. Perhaps the best monthly insight we have on consumer trends in the United States could be the Advance Retail Sales report. In December, according to a Bloomberg News survey, the consumption continued to struggle with US retail sales expected to stagnate after falling -1.1% (m / m) in November. Non-auto retail sales, a less volatile measure of consumption, are expected to drop from -0.1% to -0.9% (m / m). The data tracks what was a decelerating US economy in November and December, According to the Atlanta Fed’s GDPNow Growth Tracker update highlighted in the weekly US dollar trading forecasts.
IG client sentiment index: EUR / USD rate forecast (January 11, 2021) (Chart 3)
EUR / USD: Retail traders data shows that 40.31% of traders are net long with a ratio of short / long traders of 1.48 to 1. The number of net long traders is 16.08% higher than ‘yesterday and 24.57% higher than last week, while the number of net short traders is 10.75% higher than yesterday and 7.25% lower than last week.
We generally take a contrarian view of crowd sentiment, and the fact that traders are net short suggests that EUR / USD prices may continue to rise.
However, traders are less clear short than yesterday and compared to last week. Recent sentiment shifts warn that the current EUR / USD price trend may soon reverse lower despite traders staying net short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist