Weekly Outlook: 2014, January 27 - 31

NZD/USD weekly outlook: January 27 - 31

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The New Zealand dollar fell sharply against its U.S. counterpart on Friday, after a steep selloff in U.S. equities and ongoing turmoil in emerging markets dampened demand for risk-sensitive assets.

NZD/USD fell to 0.8212 on Friday, the pair’s lowest since January 20, before subsequently consolidating at 0.8214 by close of trade, down 1.06% for the day and 0.53% lower for the week.

The pair is likely to find near-term support at 0.8211, the low from January 20 and resistance at 0.8295, Friday’s high.

A broad based selloff in financial markets Friday spurred safe haven demand. U.S. stocks suffered their worst weekly loss since 2011, with the Dow plunging 318 points on Friday.

Market sentiment was hit by concerns over a slowdown in China after data on Thursday showed that the preliminary reading of the HSBC manufacturing index fell to a six-month low in January.

The Asian nation is the world’s second largest economy and New Zealand’s second biggest export partner.

Meanwhile, a selloff in emerging markets accelerated on Friday, after the Turkish lira fell to the latest in a series of record lows against the dollar. South Africa’s rand, the Russian ruble and the Argentine peso all fell to multi-year lows against the greenback.

Emerging market currencies have been hard hit since the Federal Reserve announced plans last month to begin scaling back its asset purchase program.

The New Zealand dollar was also sharply lower against the yen on Friday, with NZD/JPY plunging 1.98% to hit a seven-week low of 83.95 at the close.

Data from the Commodities Futures Trading Commission released Friday showed that speculators reduced their bullish bets on the New Zealand dollar in the week ending January 21.

Net longs totaled 8,556 contracts as of last week, down 11% from net longs of 9,614 contracts in the previous week.

In the week ahead, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program.

Data from the U.S. on fourth quarter growth and an interest rate decision from the Reserve Bank of New Zealand will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

The Reserve Bank of New Zealand is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.

New Zealand is also to publish data on building consents.

Thursday, January 30

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Later Thursday, New Zealand is to produce data on the trade balance.

Friday, January 31

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

AUD/USD weekly outlook: January 27 - 31

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The Australian dollar tumbled to the lowest level since July 2010 against its U.S. counterpart on Friday, as surprisingly weak Chinese manufacturing data and a selloff in emerging markets dampened demand for growth-linked assets.

AUD/USD fell to 0.8660 on Friday, the pair’s lowest since July 19, 2010, before subsequently consolidating at 0.8683 by close of trade, down 0.97% for the day and 1.1% lower for the week.

The pair is likely to find short-term support at 0.8631, the low from July 19, 2010 and resistance at 0.8774, Friday’s high.

Market sentiment was hit by concerns over a slowdown in China after data on Thursday showed that the preliminary reading of the HSBC manufacturing index fell to a six-month low in January.

The Asian nation is the world’s second largest economy and Australia’s biggest export partner.

Meanwhile, a selloff in emerging markets accelerated on Friday, after the Turkish lira fell to the latest in a series of record lows against the dollar. South Africa’s rand, the Russian ruble and the Argentine peso all fell to multi-year lows against the greenback.

Emerging market currencies have been hard hit since the Federal Reserve announced plans last month to begin scaling back its asset purchase program.

The Aussie came under additional pressure after a Reserve Bank of Australia board member said Friday that a value of around USD0.80 would be a “fair” level for the currency.

The Australia dollar was also sharply lower against the yen on Friday, with AUD/JPY plunging 1.84% to hit a four-month low of 88.88 at the close.

Data from the Commodities Futures Trading Commission released Friday showed that speculators increased their bearish bets on the Australian dollar in the week ending January 21.

Net shorts totaled 64,584 contracts, up 19.5% from the previous week’s total of 51,988 net shorts. Gross long Australian dollar positions rose by 5,269 contracts to 15,645 last week, while gross short positions increased by 17,935 contracts to 80,229.

In the week ahead, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program.

The policy-meeting will mark the last for outgoing Fed Chairman Ben Bernanke, as current Vice Chair Janet Yellen prepares to take over.

In addition, the initial estimate of U.S. fourth quarter gross domestic product is reported on Thursday.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

Australia is to publish private sector data on business confidence, a leading indicator of economic health.

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

Thursday, January 30

Australia is to release data on import prices, while China is to publish the revised reading of the HSBC manufacturing PMI.

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Friday, January 31

Australia is to produce reports on producer price inflation and private sector credit.

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

USD/JPY weekly outlook: January 27 - 31

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The yen rose to seven-week highs against the dollar on Friday as weak Chinese manufacturing data and a selloff in emerging markets bolstered investor demand for the traditional safe-haven yen.

USD/JPY fell to 102.00, the weakest since December 6 and was last down 0.91% at 102.33. For the week, the pair lost 1.83%.

The pair is likely to find support at 101.20 and resistance at 103.57, Friday’s high.

Market sentiment was hit by concerns over a slowdown in China after data on Thursday showed that the preliminary reading of the HSBC manufacturing index fell to a six-month low in January.

A selloff in emerging markets accelerated on Friday, after the Turkish lira fell to the latest in a series of record lows against the dollar, when a currency market intervention by Turkey’s central bank failed to halt the currency’s steep decline. South Africa’s rand, the Russian ruble and the Argentine peso fell to multi-year lows against the dollar.

Argentina's central bank said Friday it was loosening strict foreign exchange rules, giving up its traditional policy of supporting the currency through interventions.

Emerging market currencies have been hard hit since the Federal Reserve announced plans last month to begin scaling back its asset purchase program. Recent indications that the global economic recovery is deepening has fuelled expectations that some central banks may move to tighten monetary policy this year.

Bank of Japan Governor Haruhiko Kuroda said Friday the country’s economy is making significant progress after the bank unveiled a huge stimulus program last April, but added that there was still some way to go before policy would be normalized.

The euro was also sharply lower against the yen on Friday, with EUR/JPY down 1.05% to a six-week low of 139.97 at the close.

In the week ahead, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program.

Data from the U.S. on fourth quarter growth will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The BoJ is to publish the minutes of its latest policy meeting, which contain valuable insights into economic conditions from the bank’s perspective. Japan is also to release data on the trade balance, the difference in value between imports and exports.

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

Thursday, January 30

Japan is to produce official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Friday, January 31

Japan is to release a series of data, including reports on household spending, inflation, and industrial production.

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

EUR/USD weekly outlook: January 27 - 31

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The euro ended Friday’s session slightly lower against the dollar, with EUR/USD down 0.17% to 1.3676, after rising to three-week highs of 1.3738 earlier.

The pair is likely to find support at 1.3600 and resistance at 1.3700.

Elsewhere, the common currency was sharply lower against the yen and the Swiss franc. EUR/JPY fell 1.05% to six-week lows of 139.97, while EUR/CHF fell 0.44% to a one-month low of 1.2231.

A broad based selloff in financial markets accelerated on Friday as investors sold off stocks and emerging market currencies amid expectations that the Federal Reserve will continue to taper stimulus measures.

The Turkish lira fell to the latest in a series of record lows against the dollar, after a currency market intervention by Turkey’s central bank failed to halt the currency’s steep decline. South Africa’s rand, the Russian ruble and the Argentine peso fell to multi-year lows against the dollar.

Argentina's central bank said Friday it was loosening strict foreign exchange rules, giving up its traditional policy of supporting the currency through interventions.

Emerging market currencies have been hard hit since the Fed announced plans last month to begin scaling back its asset purchase program, while worries over political instability and the outlook for growth for some countries also weighed.

Market sentiment was also hit by concerns over a slowdown in China after data on Thursday showed that the preliminary reading of the HSBC manufacturing index fell to a six-month low in January.

Elsewhere, the euro was sharply higher against sterling, with EUR/GBP up 0.82% to 0.8298, recovering from the one-year lows of 0.8167 struck on Wednesday.

Sentiment on the pound was hit after Bank of England Governor Mark Carney said it was time for the central bank to “evolve” its forward guidance on rates, because the unemployment rate has fallen far more quickly than the bank anticipated. The comments sparked concerns that the BoE may abandon the 7% unemployment threshold to consider an increase in interest rates.

The pound rallied after data earlier in the week showed that the U.K. unemployment rate dropped to 7.1% in the three months to November.

Carney said that even with falling unemployment, the U.K.'s economic recovery had yet to reach "escape velocity", adding that exceptional monetary policy is still relevant.

In the week ahead, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program.

Euro zone data on inflation and unemployment will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

In the euro zone, Germany is to release the Ifo report on business climate.

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

In the euro zone, Italy is to hold an auction of 10-year government bonds.

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

Thursday, January 30

Germany is to produce preliminary data on consumer price inflation, which accounts for the majority of overall inflation, as well as a report on the change in the number of people unemployed. Elsewhere in the euro zone, Spain is to release preliminary data on fourth quarter growth.

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Friday, January 31

The euro zone is to release preliminary data on consumer inflation and a separate report on the unemployment rate across the currency bloc

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

GBP/USD weekly outlook: January 27 - 31

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The pound ended Friday’s session lower against the dollar, as a broad based selloff in emerging markets bolstered safe haven demand for the greenback, sending sterling retreating from almost three year highs struck earlier in the day.

GBP/USD hit highs of 1.6668, the strongest level since May 2011 but ended the session down 0.94% at 1.6480. For the week, the pair gained 0.33%.

Cable is likely to find support at 1.6400 and resistance at 1.6668, Friday’s high.

The dollar strengthened against sterling as investors sold off stocks and emerging market currencies amid expectations that the Federal Reserve will continue to taper stimulus measures.

The Turkish lira fell to the latest in a series of record lows against the dollar on Friday, when a currency market intervention by Turkey’s central bank failed to halt the currency’s steep decline. South Africa’s rand, the Russian ruble and the Argentine peso fell to multi-year lows against the dollar.

Argentina's central bank said Friday it was loosening strict foreign exchange rules, giving up its traditional policy of supporting the currency through interventions.

Emerging market currencies have been hard hit since the Fed announced plans last month to begin scaling back its asset purchase program, while worries over political instability and the outlook for growth for some countries also weighed.

Market sentiment was also hit by concerns over a slowdown in China after data on Thursday showed that the preliminary reading of the HSBC manufacturing index fell to a six-month low in January.

Comments by Bank of England Governor Mark Carney also pressured the pound lower. Carney said it was time for the central bank to “evolve” its forward guidance on rates, because the unemployment rate has fallen far more quickly than the bank anticipated. The comments sparked concerns that the BoE may abandon the 7% unemployment threshold to consider an increase in interest rates.

The pound rallied after data earlier in the week showed that the U.K. unemployment rate dropped to 7.1% in the three months to November.

Carney said that even with falling unemployment, the U.K.'s economic recovery had yet to reach "escape velocity", adding that exceptional monetary policy is still relevant.

In the week ahead, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program.

Data from the U.S. and the U.K. on fourth quarter growth will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

The U.K. is to release preliminary data on fourth quarter gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health.

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

Thursday, January 30

The U.K. is to release data on net lending to individuals.

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Friday, January 31

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

USD/CAD weekly outlook: January 27 - 31

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The Canadian dollar recovered from four-and-a-half year lows against the U.S. dollar on Friday following the release of stronger-than-expected Canadian inflation data, while a selloff in emerging market currencies also lent some support.

USD/CAD ended Friday’s session at 1.1086, having risen to highs of 1.1172 on Thursday, and the strongest level since July 2009. For the week, the pair advanced 1.20%.

The pair is likely to find support at 1.1025 and resistance at 1.1172, Thursday’s high.

The loonie, as the Canadian dollar is also known, recouped some losses after data on Friday showed that the annual rate of Canadian inflation rose slightly more than forecast in December, but remained well below the Bank of Canada’s 2% target.

Statistics Canada said the annual rate of inflation rose to 1.2%, from 0.9% in November, above expectations for an increase of 1.0%, as gasoline prices rose. Core inflation rose 1.3% on a year-over-year basis, accelerating from 1.1% in November, and also beating expectations for a 1.0% gain.

On a monthly basis, consumer prices fell 0.2% from November.

The loonie received an additional boost as investors sold off emerging market currencies and stocks amid expectations that the Federal Reserve will continue to taper stimulus measures. Emerging market currencies have been hard hit since the Fed announced plans last month to begin scaling back its asset purchase program, while worries over political instability and the outlook for growth for some countries also weighed.

The loonie fell to four-and-a-half year lows against the U.S. dollar after the BoC said Wednesday it expects inflation to remain well below target for some time. The bank also left the door open to a rate cut, saying the path of the next rate move would depend on economic data.

The central bank also noted that the recent depreciation in the Canadian dollar would help bolster exports, but added that the currency was still strong.

The BoC maintained the target for the overnight rate at 1%, in a widely anticipated decision.

In the week ahead, Wednesday’s outcome of the Fed’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program. Data from the U.S. on fourth quarter growth and Canada’s monthly GDP report will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

Thursday, January 30

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Friday, January 31

Canada is to publish the monthly report on GDP growth.

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

USD/CHF weekly outlook: January 27 - 31

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The dollar fell to three-week lows against the Swiss franc on Friday as a move by the Swiss National Bank to tighten monetary policy and a selloff in emerging markets saw investors flock to the traditional safe-haven franc.

USD/CHF fell to lows of 0.8902, the weakest since January 2 and was last down 0.32% to 0.8943. For the week, the pair was down 1.82%.

The pair is likely to find support at 0.8865, the low of December 31 and resistance at 0.9000.

Market sentiment was hit by concerns over a slowdown in China after data on Thursday showed that the preliminary reading of the HSBC manufacturing index fell to a six-month low in January.

A selloff in emerging markets accelerated on Friday, after the Turkish lira fell to the latest in a series of record lows against the dollar, when a currency market intervention by Turkey’s central bank failed to halt the currency’s steep decline. South Africa’s rand, the Russian ruble and the Argentine peso fell to multi-year lows against the dollar.

Argentina's central bank said Friday it was loosening strict foreign exchange rules, giving up its traditional policy of supporting the currency through interventions.

Emerging market currencies have been hard hit since the Federal Reserve announced plans last month to begin scaling back its asset purchase program. Recent indications that the global economic recovery is deepening has fuelled expectations that some central banks may move to tighten monetary policy this year.

The Swiss franc received an additional boost after Switzerland’s government on Thursday increased the amount of capital banks must hold to guard against mortgage write-downs. Switzerland’s government said it agreed to the SNB’s request to raise the level of capital banks must hold to underpin mortgage lending, in order to curb the country’s booming housing market.

Elsewhere, EUR/CHF fell to a one-month low of 1.2231 on Friday.

In the week ahead, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program.

Data from the U.S. on fourth quarter growth will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

Thursday, January 30

Switzerland is to publish its KOF economic barometer.

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Friday, January 31

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

Weekly outlook: January 27 - 31

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The dollar fell to seven week lows against the yen on Friday and hit three week lows against the Swiss franc, as a broad based selloff in financial markets spurred safe haven demand.

USD/JPY fell to 102.00, the weakest since December 6 and was last down 0.91% at 102.33. For the week, the pair lost 1.83%. USD/CHF fell to lows of 0.8902 and was last down 0.32% to 0.8943, extending the week’s losses to 1.82%.

Market sentiment was hit by concerns over a slowdown in China after data on Thursday showed that the preliminary reading of the HSBC manufacturing index fell to a six-month low in January.

The growth linked Australian dollar came under renewed selling pressure following the soft Chinese data, falling to three-and-a-half year lows against the U.S. dollar. AUD/USD hit lows of 0.8659 and was last down 0.97% to 0.8682. For the week, the pair dropped 1.37%.

The Aussie was not helped after a Reserve Bank of Australia board member said Friday that a value of around USD0.80 would be a “fair” level for the currency.

A selloff in emerging markets accelerated on Friday, after the Turkish lira fell to the latest in a series of record lows against the dollar, when a currency market intervention by Turkey’s central bank failed to halt the currency’s steep decline. South Africa’s rand, the Russian ruble and the Argentine peso fell to multi-year lows against the dollar.

Argentina's central bank said Friday it was loosening strict foreign exchange rules, giving up its traditional policy of supporting the currency through interventions.

Emerging market currencies have been hard hit since the Federal Reserve announced plans last month to begin scaling back its asset purchase program. Recent indications that the global economic recovery is deepening has fuelled expectations that some central banks may move to tighten monetary policy this year. Data last week showing a sharper than expected fall in the U.K. unemployment rate heightened expectations that the Bank of England may tighten monetary policy sooner than anticipated.

Sterling rose to two-and-a-half year highs of 1.6668 against the dollar on Friday, but ended the session down 0.94% at 1.6480.

The euro ended Friday’s session slightly lower against the dollar, with EUR/USD down 0.17% to 1.3676, after rising to three-week highs of 1.3738 earlier. Elsewhere, the common currency was sharply lower against the yen and the Swiss franc. EUR/JPY fell 1.05% to 139.97, while EUR/CHF fell 0.44% to a one-month low of 1.2231.

In the week ahead, Wednesday’s outcome of the Federal Reserve’s monthly meeting will be in focus amid expectations for a reduction to USD65 billion from the current USD75 billion in the bank’s stimulus program.

Data from the U.S. and the U.K. on fourth quarter growth and euro zone data on inflation will also be closely watched.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, January 27

The Bank of Japan is to publish the minutes of its latest policy meeting, which contain valuable insights into economic conditions from the bank’s perspective. Japan is also to release data on the trade balance, the difference in value between imports and exports.

In the euro zone, Germany is to release the Ifo report on business climate.

The U.S. is to produce data on new home sales, a leading indicator of demand in the housing sector.

Tuesday, January 28

Australia is to publish private sector data on business confidence, a leading indicator of economic health.

The U.K. is to release preliminary data on fourth quarter gross domestic product, the broadest indicator of economic activity and the leading measure of the economy’s health.

In the euro zone, Italy is to hold an auction of 10-year government bonds.

The U.S. is to release data on durable goods orders, a leading indicator of production, as well as what will be a closely watch report on consumer confidence.

Wednesday, January 29

The Federal Reserve is to announce its federal funds rate and publish its rate statement.

The Reserve Bank of New Zealand is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.
New Zealand is also to publish data on building consents.

Thursday, January 30

Japan is to produce official data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity.

Australia is to release data on import prices, while China is to publish the revised reading of the HSBC manufacturing PMI.

Germany is to produce preliminary data on consumer price inflation, which accounts for the majority of overall inflation, as well as a report on the change in the number of people unemployed. Elsewhere in the euro zone, Spain is to release preliminary data on fourth quarter growth.

Switzerland is to publish its KOF economic barometer.

The U.K. is to release data on net lending to individuals.

The U.S. is to publish preliminary data on fourth quarter economic growth. The nation is also to release the weekly report on initial jobless claims and data on pending home sales.

Later Thursday, New Zealand is to produce data on the trade balance.

Friday, January 31

Japan is to release a series of data, including reports on household spending, inflation, and industrial production.

Australia is to produce reports on producer price inflation and private sector credit.

The euro zone is to release preliminary data on consumer inflation and a separate report on the unemployment rate across the currency bloc

Canada is to publish the monthly report on GDP growth.

The U.S. is to round up the week with a report on manufacturing activity in the Chicago region, revised data on consumer sentiment and a report on personal spending.

Australian Dollar at a Crossroads as Focus Turns to FOMC

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Fundamental Forecast for Australian Dollar: Neutral

• Australian Dollar Sank to a 3.5 Year Low Amid Risk Aversion Last Week
• Forward Outlook Clouded as the Spotlight Turns to the FOMC Outcome

The Australian Dollar continued to sink last week, dropping 1.1 percent against its US namesake to settle at the weakest level in three and a half years. The currency veered away from its relationship with US Treasury yields – a reflection of sensitivity to the Fed monetary policy outlook – to take cues from risk sentiment trends. Indeed, last week’s selloff tracked a sharp downward reversal in the MSCI World Stock Index while the rate on the benchmark US 10-year note fell to the lowest in two months (2.715 percent).

Another rotation in the driving catalysts behind Aussie price action may on tap in the week ahead as the spotlight turns to the FOMC monetary policy meeting. The sit-down will mark the first outing to be led by newly-minted Fed Chair Janet Yellen. Expectations call for another $10 billion cutback in aggregate QE, spread evenly between purchases of MBS and Treasury bondsecurities. While a mixed tone to US economic news-flow in recent weeks has introduced a degree of speculation about a pause in the “tapering” process, commentary from Fed officials has forcefully dismissed such concerns, suggesting stimulus reduction will proceed as advertised.

Confirmation of another $10 billion cutback would effectively reflect the FOMC policy status quo as established at December’s meeting. With that in mind, traders will be keen to dissect the text of the statement accompanying the announcement. On this front, the spotlight will be on any changes in the forward-guidance framework accompanying the QE cutback process. The US unemployment rate averaged 7.3 percent in 2013, a hair higher than the 7.0-7.1 percent range expected by the FOMC in December’s updated set of economic forecasts. Inflation expectations derived from bond yields (so-called “breakeven rates”) are pointing to price growth below 2 percent in the next 1-2 years, hinting the 2.5 percent bound set by the FOMC is not in danger.

Euro Rally Begins on Better Data – Will EONIA Rates Force ECB Action?

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Fundamental Forecast for Euro: Bullish

- The Euro entered the week directionless, at the behest of growth data losing momentum…
- …but better than expected January PMI readings across the region sparked a midweek breakout.
- On a technical basis, the EURUSD is primedto rally further after holding key support.

The Euro proved resilient the past week, gaining one percent or more against four of the other seven major currencies, while holding its own against the top two performers, the Japanese Yen and the Swiss Franc. The EURJPY (-0.94%) and EURCHF (-0.72%) tumbles can largely be attributed to a global shift to safer assets, with equity markets sliding and high-rated sovereign debt rallying (German Bunds, US Treasuries).

Yet as concerns cropped up elsewhere, in emerging markets and the Asian-Australasian theatre (EURAUD +2.12%, EURNZD +1.51%) as well as North America (EURCAD +2.12%, EURUSD +1.00%), the Euro’s fundamental backdrop strengthened. The January PMI figures, coming off of a mixed batch in December – which prompted the Euro’s early-January tumble – came in well above expectations, further supporting our core theme for 2014: faster rates of growth return to the European continent.

Markets may not necessarily treat any data this week with more importance than the January CPI figures due on Thursday and Friday. The German Consumer Price Index is expected to see some turbulence: the monthly figure is due lower by -0.4% after a +0.4% gain in December; but the yearly figure is forecast to increase to +1.5% from +1.4%. On Friday, the Euro-Zone CPI Estimate (JAN) will rise to +0.9% from +0.8% (y/y), according to consensus forecasts. In all, these data are not reassuring enough so as to deter “deflation” conversation from popping up, which has tended to be bearish for the single currency given the European Central Bank’s response – to cut its main interest rate to a record low of 0.25%. Even so, the ECB may not react immediately if the inflation data remain tepid. At the World Economic Forum in Davos, Switzerland, ECB President Mario Draghi explicitly said that "I don't see deflation in the euro area…medium-term inflation expectation remain firmly anchored at +2%." Translation: low inflation isn’t reflecting declining growth conditions (diminishing demand, putting downside pressure on prices), but something else – weak credit growth. Certainly, if there is ever a reason for the ECB to act, it would be to ensure that liquidity remains plentiful by keeping short-term rates anchored low for the foreseeable future. Funding stresses could be starting to appear: overnight EONIA rates (interbank lending rates) have been trending higher the past few weeks, with readings as high as 0.446% on December 31, 2013 and 0.359% on Monday, January 20, 2014. These are the highest readings since the President Draghi was forced to stake out his “whatever it takes” claim to save the Euro in July 2012. In light of the fact that Italian and Spanish bond yields remain exceptionally low (by crisis norms), the recent upswing in EONIA rates may not be worth worrying about (in theory they could stoke a more dovish ECB, thereby hurting the Euro). Excess liquidity in the Euro-Zone stands at €161B but only after dipping as low as €125B on January 21. This means that the rising EONIA rate may be tied to LTRO repayments (EONIA rates spiked on January 20).

A BoE-styled Funding for Lending Scheme (FLS) could address credit concerns without putting the Euro at risk of a massive ECB balance sheet expansion that another LTRO or a Fed-styled QE would bring. With the EURUSD technically poised for a bullish move, we take these considerations into account and surmise a bullish bias for the Euro this week.