EUR/USD
There will be no one main event this week as it was in the previous week (U.S. Non-Farm Payrolls). Investors will be getting ready for January 22, when the ECB decides on its monetary policy. There are some important macroeconomic releases in the calendar for this week: Euro zone industrial production and U.S. retail sales (on Wednesday) and U.S. CPI, industrial production and consumer sentiment of the Michigan University (on Friday). Any comments from key ECB or Fed officials could be strong market movers this week.
The EUR was under pressure of deflation fears with expectations of the ECB implementing sovereign QE and the uncertainties surrounding the upcoming Greek elections. The next very strong support zone for the EUR/USD is near 1.1640 (2005 lows).
The reaction of the EUR/USD to Friday’s stronger-than-expected was muted and shows that the bearish sentiment on the EUR/USD may be reversing. We do not forecast the EUR/USD will continue to fall further in the medium-term in our baseline scenario and expect profit taking on EUR-selling positions after January 22, when the ECB meets to make its decision on QE. If the ECB disappoints investors and postpones sovereign bonds purchases, the rise in the EUR/USD may be even stronger.
GBP
GBP traders will be focused on Britain’s CPI data ( Tuesday 09:30 GMT). Our forecast is at the level 0.6% yoy vs. market consensus of 0.7% yoy. Lower CPI reading could trigger further GBP weakening and the next relevant support level is psychological barrier of 1.5000. Breaking below this level will open the way for the GBP/USD bears to 1.4814 (2013 lows from July 9). However, in our opinion getting short on the GBP/USD is risky and we expect a reversal of current downward trend soon due to expected changes of the EUR/USD trend.
AUD
The AUD/USD recovered slightly over the last couple of days, mostly due to stabilization of commodity prices. However, the AUD may be still under pressure of slowing Chinese economic growth. There is also a risk that recent stabilization in iron ore prices, Australia’s most important export item, will have a lasting effect. However, technical situation on the AUD/USD suggests that bear momentum is fading. This week AUD traders will be waiting for jobs report (scheduled for January 15).
CAD
The CAD can be expected to remain under pressure due to USD strength and weakness in commodity prices. Moreover, recent Canada’s jobs report showed that economic recovery is threatened. That is why the uptrend on the USD/CAD is still in place and getting long on dips could be a good idea.