Let’s recap last week’s movements before we look ahead to what may happen this week. We saw plenty of movement late last week off the back of data and sentiment. There was plenty of fluctuation in EUR/USD towards the end of the week, especially during Mario Draghi’s press conference on Thursday. He started off with a much more negative outlook than usual and it was almost as if he said the ECB had run out of ideas on how to tackle the Eurozone crisis, hardly a surprise given the last 4 years of “kicking the can down the road”. The markets initially reacted badly with EUR/USD falling to below 1.28; however after negotiating the numerous questions from reporters in his usual stoic tone, the Euro recovered and focus turned towards the USD.Perhaps the most important figure out last week was the very disappointing non-farm payroll figure from the U.S. which came in well below expectation and saw EUR/USD push back over 1.30 and GBP/USD over 1.53 as a result. This along with comments from Ben Bernanke hinted at a slowdown of the recent recovery in the U.S. This could signal a move from the FED to weaken the USD again and we could see GBP/USD “yo-yo” back up to 1.60 which has happened in the past. There may be some opportunities in the coming weeks to lock in levels in the mid 1.55’s for those of you who buy Dollars. Likewise if you’re a seller, you may want to lock in some protection at the current levels to hedge against a possible move upwards.

It seems most major nations are happy to continue seeing who can devalue their currency the most and Japan have won that game over the last week losing over 6.5% of its value against GBP, EUR and USD. I would expect this to continue as they seek to aggressively weaken the Yen in order to stimulate their lagging economy. The speed at which the Yen has devalued and the openness the BOJ is showing with regards to their stimulus measures sets up a volatile period for currencies as we should see other nations react to this with similar measures.

Turning our attention to this week, the first few days are fairly light in terms of key data. I would look towards Wednesday’s FOMC minutes out of the U.S. for direction of where the market may move, we could see a hint at further QE and I would expect the minutes to have a fairly negative outlook on the U.S. economy. If this turns out to be the case then we should see the USD weaken further possibly to near 1.55.

The ECB release their monthly report on Thursday morning which gives a further detailed outlook on the Eurozone economy to add to last Thursdays press conference. Again expect this to be downbeat and look for reaction in EUR crosses towards the downside. The week is rounded off with U.S. retail sales figures released at 13.30 on Friday. The consensus is for the figure to be low and I would expect given the other recent data from the U.S., for this to be the case. The main beneficiary this week could be Sterling especially against the Dollar and I think we are now starting to see a correction of the hammering it took in January and February this year. It moved far too fast and without any real good reason, so it’s good to see the markets moving towards more realistic values.

Please drop me a line if you would like more information about the economic outlook for this week or any currency pair. As always we welcome your thoughts or comments.

Have a good week.

Written by David McNeill