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Next week’s Forex forecast

Sergiy Zlyvko
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The coming year promises to be positive for the U.S. economy and despite recent decline in the ISM manufacturing, all the data point in favor of its continued recovery. Nevertheless, the stabilization has its own downside – incentive program reduction, which has supported consumer and corporate sectors. Now higher borrowing costs raise the price of doing business and the process can affect the dynamics of the stock market. Nevertheless, for USD the development of current situation gives a good basis for strengthening. Moreover, observed recent cooling of the Chinese economy may be an additional factor. The slowdown of China would make U.S. assets more attractive.

Coming week will help to ensure the development of these trends: the U.S. will publish the data on business activity in the service sector and the labor market as well as the protocol of the last meeting of FOMC, which reflect the view of monetary authorities on the country’s economic prospects. Meanwhile, China will present reports on business activity in the services sector, trade balance and inflation. In the first case we will see the strengthening of indicators and in the second – their decline, we can expect further strengthening demand for USD, which will be manifested particularly clearly in the pair USDJPY as Japanese economic calendar of events is completely empty.

EURUSD during last week carried a substantial loss, causing suspicion that the pair ran into a pretty strong resistance, which can complete the uptrend. In fundamental terms, conflicting economic indicators and soft attitude of the ECB are two main factors of pressure on currencies. In the coming week we will see a series of reports on business activity in the service sector from the region as well as reports on the labor market, inflation and trade balance of Germany and the Eurozone as a whole. ECB rate meeting will be the key event next week, but all previous releases will help us to prepare for the press conference of Mario Draghi and guess what to expect from the regulator.

Yet unexpected weakening PMI in UK manufacturing was an unpleasant surprise for the GBPUSD and reminded investors that recovery processes in the British economy is uneven so far. The most important series of reports is ahead that will help us to clarify the fundamental picture emerging at the moment. Let’s pay attention to the business activity in the services sector, trade balance, industrial production and GDP from NIESR. Also on Thursday rate decision from the Bank of England is scheduled, but it is unlikely that this time we will see something new.

Despite the fact that on Monday some countries still continue to celebrate the New Year, economic calendar will give us a lot of interesting catalysts for currency movements. It is worth noting that the day will be marked by services PMI report, which will contribute to the expectations of the key events of the week: ECB meeting and Non-Farm Payrolls report.

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