The start of the week was fairly light data wise and saw a calm period of trading yesterday especially with it being Martin Luther King day in the U.S. so there were no same day USD trades or payments available as it was a USD bank holiday. Sterling held onto the gains it made on Friday after the positive Retail sales figures gave it a boost, we could see the rate edge up further as a lack of activity in the market often creates opportunities for inflated movements. Today should see a pickup in activity with the German ZEW Survey released at 10am likely to affect EUR crosses, expectation is for a positive figure so we could see the EUR strengthen after the data is released. However a disappointing figure would put more pressure on the Euro. The Germans are also ruling on the constitutionality of the ECB’s OMT policy today, it is widely expected that although they will express concerns they will not rule it unconstitutional. Should they find that it is unconstitutional this would undermine the ECB’s whole policy, as the largest economy in Europe would be disagreeing with the recovery plan and a new plan would have to be formed to suit the Germans given that they would the largest funders of any plan.Wednesday has the largest amount of data releases this week and should be the busiest days trading with 3 currencies in focus. AUD will kick off the day in the early hours of Wednesday morning with the Australian CPI figure due to be released at 00.30. AUD has been losing ground for the last 9 months and while January has been a more stable month, further weakening is expected to take place this year. A positive figure of 2.5% is expected so if this comes in below expectation look to see GBP/AUD move towards 1.88 and EUR/AUD over 1.55. JPY is another currency that has significantly weakened over the last 9 months and this is expected to continue into this year. The BoJ release their interest rate and policy statement at 03.00, rates should remain at 0.1% and they will likely outline their current policy of currency intervention.
The main news tomorrow will be the Bank of England minutes at 09.30 which could show if the committee are thinking about reducing the “trigger” level for an interest rate rise from an unemployment rate of 7% to a muted 6.7%. At the same time the UK unemployment figure is released with an expectation for it to fall to 7.3%. This could create a volatile mix depending on what is said in the minutes and what the unemployment rate comes out at. Expect a lot of movement on GBP crosses both before and after the announcement. If the figures are positive we could see GBP/EUR push up towards 1.22 so be sure to put orders in to take advantage of any movement in your favour. I suggest orders of 1.21 and above if you are a buyer of Euros.
The great and the good of world leaders, financiers and economists meet at the annual world economic conference in Davos, Switzerland from Wednesday to Saturday to discuss the current economic climate. There will be a lot of posturing and noise of which road we should take but as always no clear plans will be formed. If any interesting statements are made we will be sure to include them in Friday’s report.
Thursday and Friday are fairly quite data wise so Wednesday morning should set the tone for the rest of the trading week.
Have a great week.
Written by David McNeill