FX Week Ahead - Top 5 Events: China New Yuan Loans, Fed Speeches, US Inflation Rate & Retail Sales, UK GDP
FX Week Ahead Overview:
- The second week of the year sees activity pick up on the economic calendar, with the focus still remaining on the United States economy, much like the first week of the year.
- Shifting winds in FX markets – thanks in part to rising US Treasury yields – may be giving Fed speeches and US economic data increased importance in the short-term.
- Changes in retail trader positioning suggest that the US Dollar can continue to rise in the coming days.
For the full week ahead, please visit the DailyFX Economic Calendar.
All Week | Five Federal Reserve Policymaker Speeches
The economic calendar during the second week of January will provide some key insights into the US economy, which appears to have backtracked in November and December. Coupled with five speeches from Federal Reserve policymakers, including one from Fed Chair Jerome Powell, it’s likely that the US Dollar sees several instances of heightened event risk over the course of the week. For the Fed speakers, we’re watching to see if their comments further instigate taper tantrum concerns.
Fears of another ‘taper tantrum’ a la 2013 have started to wake up, with long-end US Treasury yields rising (notably, the 10-year yield moving back above 1%). Although Fed policymakers won’t be moving on interest rates in an official capacity, we’ll see if this week’s coming slate of Fed speeches produce more early taper tantrum-like reactions across the curve.
01/13 WEDNESDAY | 13:30 GMT | USD Inflation Rate (DEC)
The December US inflation report (consumer price index) due on Wednesday is expected to show continued moderation in price pressures, still insignificant enough that the Federal Reserve will remain moored to its current aggressively dovish policy path.According to Bloomberg News, the headline US inflation rate is expected in at +1.3% from +1.2%, and the core US inflation rate is due in at +1.6% unchanged (y/y). Any recent upside pressure may be explained away by the persistently weak US Dollar and rising energy prices through December 2020.
IG Client Sentiment Index: USD/JPY Rate Forecast (January 11, 2021) (Chart 1)
USD/JPY: Retail trader data shows 56.62% of traders are net-long with the ratio of traders long to short at 1.31 to 1. The number of traders net-long is 4.44% higher than yesterday and 15.05% lower from last week, while the number of traders net-short is 7.02% lower than yesterday and 27.50% higher from last week.
Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.
01/14 THURSDAY | 08:00 GMT | CNY New Yuan Loans (DEC)
The Chinese economy has weathered the coronavirus pandemic as good as anyone could have hoped for at the onset, and its resiliency will be checked once again with the latest New Yuan Loans figure for December. The lending figure is widely considered a leading indicator for economic activity in the world’s second largest economy, and more evidence that the Chinese economy continues to take on debt to fuel its rebound will likely be a welcomed sign. Even with broad US Dollar strength, USD/CNH rates may not be able to ignore more positive news from across the Pacific.
01/15 FRIDAY | 07:00 GMT | GBP Gross Domestic Product (NOV)
The Brexit negotiations are in the rearview mirror, but the coronavirus pandemic continues to rage. But back in November, the reporting period that the upcoming UK GDP report will cover, there were already signs that deceleration was beginning. According to a Bloomberg News survey, the headline GDP is due in at -12.1% from -8.2% (y/y), while the 3-month average is expected to have slumped from +10.2% to +3.4% in November. Given the recent lockdowns in the UK, it’s very likely that the upcoming stretch of UK economic data (particularly for the November 2020, December 2020, and January 2021 periods) will be particularly bleak.
IG Client Sentiment Index: GBP/USD Rate Forecast (January 11, 2021) (Chart 2)
GBP/USD: Retail trader data shows 50.66% of traders are net-long with the ratio of traders long to short at 1.03 to 1. The number of traders net-long is 9.23% higher than yesterday and 13.30% higher from last week, while the number of traders net-short is 9.34% higher than yesterday and 9.93% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests GBP/USD prices may continue to fall.
Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed GBP/USD trading bias.
01/15 FRIDAY | 13:30 GMT | USD Retail Sales (DEC)
Consumption is the most important part of the US economy, generating around 70% of the headline GDP figure. The best monthly insight we have into consumption trends in the US might arguably be the Advance Retail Sales report. In December, according to a Bloomberg News survey, consumption continued to struggle with the headline US retail sales due in flat following a -1.1% (m/m) decline in November. Retail sales ex auto, a less volatile measure of consumption, is due in a -0.1% from -0.9% (m/m). The data tracks with what has been a decelerating US economy in November and December, per the Atlanta Fed GDPNow growth tracker update highlighted in the weekly US Dollar trading forecast.
IG Client Sentiment Index: EUR/USD Rate Forecast (January 11, 2021) (Chart 3)
EUR/USD: Retail trader data shows 40.31% of traders are net-long with the ratio of traders short to long at 1.48 to 1. The number of traders net-long is 16.08% higher than yesterday and 24.57% higher from last week, while the number of traders net-short is 10.75% higher than yesterday and 7.25% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EUR/USD prices may continue to rise.
Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current EUR/USD price trend may soon reverse lower despite the fact traders remain net-short.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.