Bears dealing with euro are getting stronger! | 10 January 2014

Review of the past week

The first New Year week shows up with USD consolidation against its major competitors. Positive reports from the US regarding Consumer Confidence Index and ISM manufacturing index as well as negative Chinese PMI releases for manufacture and service stimulate investors to close their long positions on risky assets. As the result, decline of major currency pairs and leading stock indices was registered.

No European releases were published and investors focused their attention on US and Chinese data. In the result, Eur/Usd pair lost 1.22% and finished trades on the point of 1.3587. Great Britain as well as China did not encourage investors. PMI data on manufacture and construction were below the medium line of forecasts, which poured oil in the fire. However, cross-rate Eur/Gbp prevented a serious drop of the British currency. Decline of this currency pair managed to restrain collapse of “cable” against its US competitor.

Japanese banks had been closed for New Year bank holidays for the most part of the week. In this regard, investors were expected to close their long positions and fix the profit. Thus, USD/JPY had been going down for the whole week and Japanese currency got stronger. On the last trading day of the past week, reversal found its support in the area of 104 figure. Decline of Usd/Jpy pair is a good chance for long-term investors, because ascending trend is rather stable and besides, from the fundamental point of view, one can predict further drop of Japanese currency.  

Forecast for the week January 6 – 10:

Euro/dollar:

This week is the first full trading week of the new month and is eventful. Participants of Eur/Usd trades must pay a particular attention to Tuesday data and EuCB meeting on Thursday. The first event will strongly impact the second one, because European regulator is concerned with a potential deflation scenario in the region. As for inflation itself, one can expect the data to be released on the medium level of forecast. On Friday, January 10th, the report on labor market will be published in the USA. Employment data in the service field from ISM will be published within a week as well as the index from ADP, which will help to get prepared for the final release on labor market. Recent positive data on Consumer Confidence Index from Conference Board allow to rely upon release of good reports from ADP and ISM. In general, within a week we can witness a steady decline of Euro/Usd quotations, the nearest strong support point is 1.3525.

Pound/dollar:

On the first trading day of the week, service PMI had been published. Service sector is the largest in GDP of Great Britain, so, this report is carefully watched by all participants of the market. The data below forecast's medium line will encourage bears to open short trades. On Thursday, the Bank of England will hold its meeting. It is not expected to bring changes into monetary policy and market will not react seriously. USA can provide a moderately positive ISM report for non-manufacture field and for labor market. Nevertheless, reaching by Non-Farm index of any point above 180 000 will be positive for expectations regarding further cut of stimulative measures that will be discussed by FOMC on Jan 29. In general, Pound/dollar pair will be expected to stay within a flat range 1.6300 – 1.6550.

US Dollar/Yen:

Japan will not provide crucial macroeconomic stats. Investors will focus on the data from China and USA. On the last week we witnessed how Japanese currency consolidated against its US rival on the background of weak releases from China. A good deal of macro reports will be published in the USA. In general, we can expect moderately positive data that will support USD in short-term run. Ascending trend on US dollar/Yen stands good and on the event the US reports are good, we can expect an update of high 105.43.