USD/JPY: meeting of Bank of Japan is in the focus | 24 January 2014

Review of the past week

The last week on the currency market showed consolidation of the US currency against its major competitors. As German GDP data for 2013 was weak and the US inflation report was moderately positive, united European currency got under pressure. Economic growth in one of the leading European economy – Germany – demonstrates decline 3 years in succession, which one more time confirms accuracy of Mario Drahgi's expectations about a weak growth of European economy within nearest few years. A moderate growth of the US CPI and PPI increased the number of supporters of tapering of stimulative measures which will be demonstrated at the FOMC meeting on January 29. All these facts worked in favor of bears and having lost 139 points for the week Eur/Usd pair finished week's trades at the point of 1.3539.

GBP/USD quotations had been declining from Monday to Thursday on the background of week inflation data in Great Britain. But strong Friday's report on retails allowed “cable” to cut the distance between this currency and USD. Growth of retails in 2013 was the most significant over the last 9 years. Positive news background on the last trading day allowed British currency to close the week with minor damages on the level of 1.6423.

For the last week, USD/JPY currency pair added 0.3%. Japan did not publish any important macroeconomic stats. Negative background for the Japanese currency is formed by investors' s expectations regarding further tapering of stimulative measures in the USA and enhancement of quantitative softening in Japan. Any strong correction of USD/JPY pair is followed by growth of quotations which speaks for a strength of ascending trend.

Forecast for the week January 20 – 24:

Euro/US dollar:

A limited number of reports is scheduled for release for this week. On Tuesday, 21, ZEW economic sentiment index will be published. Over the last time, leading European economy provides moderately positive data and if the trend is the same, we can predict recovery of demand in Eur/Usd.

On Thursday, 23, market participants will get data on French and German PMI. The last report on European manufacturing was strong which will provide a short-term impetus for bulls for opening long positions.

Important US stats will include release on house sales on real estate market that will be launched on Thursday, 23. We can expect the data to be on the level of consensus forecast or little worse that will render a short-term support for the US currency. In general, trades with Eur/Usd pair will be conducted within the range of 1.3440 - 1.3650.

Pound/US dollar:

On Wednesday 22, participants of market trades with Pound/US dollar pair will obtain labor market report as well as recordings of the last BoE meeting. Over the last time, labor market shows positive dynamics and we can expect it will continue. Positive comments regarding economic growth of Great Britain is able to support demand in British currency. Besides, from the viewpoint of technical analysis, we can expect decline of Pound/US dollar cross-rate below 82 which is also favorable for GBP/USD. This week the range 1.6320 – 16550 is preferable for this pair.

US Dollar/Yen:

Wednesday's meeting of the bank of Japan will be a key event for USD/JPY pair. It can provide comments regarding a possible enhancement of stimulative program, because consumption tax will be increased in April. The last measure is negative for the profit of corporations and will put a pressure on the economic growth in the second quarter of the current year. On the event of enhancement of stimulative program, weakening of the Japanese currency won't be late in coming. Otherwise, market will moderately react on this event. This week can provide a moderately ascending trend within the range of 103.30 - 105.50.