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FOMC, NFP, Earnings Headline a Big Week for Global Markets

FOMC, NFP, Earnings Headline a Big Week for Global Markets

James Stanley,

Talking Points:

- This week’s economic docket is rather packed with a plethora of potential drivers for global markets.

- In the midst of this outlay of drivers are a number of interesting price action themes which will likely be aided, in one direction or the other, by this week’s data and news. Below, we look at three of the more interesting price action themes for this week.

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This week’s economic docket picks up considerably as a slew of data points on each day carries the potential to drive price action across global markets. Speaking of price action, there are quite a few major currency pairs that appear to be in some form of transition as we start the week, and the drivers brought to the fray over the next few days can help to denote how each situation can be or should be handled.

Below, we preview the highlights of this week’s data and below that, we look at three of the more pronounced ‘transitions’ in price action taking place in the FX-space.

This week’s drivers: (Economic Docket)

Rate decisions: On Tuesday morning we’ll hear from the Reserve Bank of Australia. There are scant expectations for any changes here, but as has become usual for the Aussie, the details surrounding this rate decision will likely be the driver. On Wednesday, we hear from the Fed for their May rate decision and there’s little expectation for any actual moves here either. There is no press conference for this meeting, at least not yet on the Calendar; but as Chair Yellen has reminded numerous times, every meeting is a ‘live meeting’ in which the bank may hike rates, after which they would hold a press conference to address the details around the move.

U.S. Equity Earnings: We’re in the thick of earnings season and this week sees quite a few big names report. Apple reports earnings after market close on Tuesday, and then both Facebook and Tesla report after Wednesday’s close. Apple, in particular, can be interesting from a macro perspective given their focus on sales growth in China.

Central Banker Speeches: To begin the week, the Federal Reserve is still in a ‘blackout period’ in which Fed members cannot publicly comment on rate policy, but that door opens after Wednesday’s rate decision. Later tonight we hear from Haruhiko Kuroda, the head of the BoJ, at a Global Think Tank Summit in Yokohama. And then on Thursday afternoon, we hear from Mr. Mario Draghi when he speaks in Lausanne, Switzerland; and later that evening we’ll hear from Bank of Canada Governor Stephen Poloz. Chair Yellen caps off the week with a speech after market close on Friday when she speaks at Brown University.

Jobs Friday: Non-Farm Payrolls for the month of April is set to be released at 8:30 AM (ET) on Friday morning. The current forecast is for 190,000 jobs to have been added to American payrolls last month; but as usual, volatility will likely come from the deviation in the actual print versus that expectation.

Top Three Price Action Themes for This Week:

Will the Dollar Find a Lifeline?

As we came into 2017 there was a very real fear of a hawkish Federal Reserve driving exorbitant strength into the U.S. Dollar as they were one of the few Central Banks that were actually looking at rate hikes or ‘policy normalization’. This is but a side-effect of a truly globalized economy where asset flows follow interest rate expectations; and when there’s only a few areas where investors may actually be able to forecast potential rate hikes, those markets are likely going to be driven-higher from the deductive lack of competition.

But since the open of the New Year – the Fed has gotten even more-hawkish, they hiked rates in a month not named December for the first time in over 10 years, and the bank hasn’t really backed-down from their expectation for three full hikes in 2017. But even with all of that, the U.S. Dollar remains at five-month lows after having topped-out just days after the 2017 open.

Over the past week we’ve seen a range build in the Greenback, and the very fact that we have some element of balance in price action highlights that we might be looking at a near-term low. On the chart below, we’re looking at the ‘big picture’ take on the Greenback; and below that we look at the shorter-term view in the effort of devising some strategy to take-forward on DXY.

Chart prepared by James Stanley

Below, we’re looking at the hourly chart of DXY in order to better focus-in on that near-term range. After last week’s gap-down, price action in the Greenback spent most of last week being batted back-and-forth around that 61.8% retracement. For those that are investigating bullish, top-side approaches, waiting for price to break-above resistance in this short-term range could make the prospect of continuation considerably more-attractive.

Chart prepared by James Stanley

Is Yen Weakness Coming Back?

Going along with the ‘Trump reflation trade’ in Q4 of last year was an exuberantly-weak Japanese Yen. As the expectation for rate hikes and policy normalization began to grow after the Presidential Election, so did the idea of continuing to use the Japanese Yen as a funding currency given their negative rate protocol and the fact that this won’t likely change until growth engines have been re-fired around-the-world.

But after the Fed hiked rates in December, the Japanese Yen hit a bottom that was re-tested just a couple of weeks later; after which price action spent much of the last four months strengthening. So, in USD/JPY we have six weeks of trend followed by four months of retracement; and much of that retracement takes place in a descending channel, as seen below:

Chart prepared by James Stanley

It’s the top-side burst seen in the pair over the past couple of weeks that makes this theme rather exciting at the moment. Since setting a near-term low just above 108.00 two weeks ago, USD/JPY has turned-in a rather aggressive up-trend to run back into the zone of key support/resistance between 111.61-112.40. How USD/JPY performs here can be telling for how traders should respond: If we get little resistance or pullback as price action runs through this zone, the prospect of continued Japanese Yen weakness is going to look considerably more-attractive.

Chart prepared by James Stanley

Is the Euro on the Cusp of a Bullish Continuation Move?

We heard from the European Central Bank last week; and ECB head, Mario Draghi seemed to make a pronounced effort at talking down the Euro as he continued to say that the bank hasn’t even investigated ‘exit strategies’ from their massive QE programs. This, of course, talks to the prospect of QE-taper, which could create a difficult situation for the ECB by investors attempting to front-run the bank.

But despite Mr. Draghi’s efforts, the Euro remained relatively strong. The Press conference around ECB gave a quick-dip to price action; but bulls returned shortly thereafter and have re-driven price right back to those prior highs.

Chart prepared by James Stanley

For those that do want to look at bullish continuation in EUR/USD, the zone of potential support between 1.0820-1.0855 could be key for such an observation. Should support show-up here, we have the prospect of a higher-low in a setup that could offer a controlled-risk entry.

--- Written by James Stanley, Strategist for

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.