The market seems to be heating up with last week’s volatility a sign that money is starting to flow in and out of currencies once again. There was a good opportunity for GBP sellers last week with GBP/USD reaching a high of 1.6664 early on Friday morning before falling back to below 1.65 after negative comments from BoE Governor Mark Carney, stating that Sterling strength presents a significant headwind to the UK economy. GBP/EUR pushed above 1.22 on Wednesday following on from the positive UK unemployment rate of 7.1% but like GBP/USD faltered on Friday and ended the week back in the mid 1.20’s.This sets us up for what should be another volatile week for Sterling and the Dollar. We should see a recovery in Sterling at least until the UK GDP figures are released on Tuesday morning at 09.30. Expectation is for a positive figure of 2.8% year on year, if this comes in we should see GBP/EUR testing 1.22 again so look to take advantage of any positivity after the figures are released. USD comes into focus on Tuesday afternoon with the durable goods orders figure for December released at 13.30. There is only moderate expectation around this figure so if anything look for a bit of Dollar strength after the figure is released.
Wednesday evening is the next key event to look to as the FED will be announcing their interest rate and asset purchase decisions at 19.00. The main thing to look out for here is a further $10bn worth of tapering of the FED asset purchase program. If this is announced as predicted, expect strong Dollar support against both the EUR and GBP. This could lead to a very volatile Thursday morning and afternoon with a plethora of data already being released throughout the day including German unemployment, German CPI and the U.S. GDP figure all coming out before 13.30. The Eurozone CPI figure rounds off the week data wise on Friday at 10.00.
If the markets are volatile this week we could see a bout of profit taking on Friday afternoon especially with it being the end of the month, it would be best to get your trades in early on Friday before 12.00 to avoid any adverse effect this may have. With last week’s volatility we also saw an increase to risk aversion which meant safe haven currencies such as the CHF and JPY were in vogue again and this could be a theme we see over the course of the year as central banks tighten their policies, with emerging currencies likely to suffer the most.
There will likely be opportunities for both buyers and sellers of GBP,EUR and USD this week. Speak to your trader about appropriate levels for limit orders and stop losses so you can be best prepared whichever way the market moves.
Have a great week.
Written by David McNeill