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Majors, US Dollar Forecast

Forex Weekly Outlook Jan. 27-31

The Japanese yen was the big winner of a volatile week that saw new levels for a few currency pairs, and ended with risk off sentiment. The Fed decision is naturally the most important event, and is accompanied by the first releases of GDP in the US and the UK, as well as other events. Here is an outlook on the main highlights on the coming days.

US existing home sales  disappointed with 4.87 million. Even though the next taper is on the way, it served as an opportunity to sell the USD against the recovering pound (lower UK unemployment rate)  and euro (strong German PMIs). It was a different story against the Aussie and the CAD, as both were hit by their central banks. A talk about AUD/USD at 0.80 in Australia and relatively dovish comments in Canada sent these currencies to multi-year lows. And towards the end of the exciting week, the crisis in Argentina together with fears about China boosted the safe haven yen.  Let’s start,

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  1. German Ifo Business Climate: Monday, 9:00. German business sentiment edged up in December to 109.5 up from 109.3 in November, reaching its highest level since April 2012. The reading was broadly in line with market consensus. Analysts are optimistic concerning economic growth in 2014 unlike most of its neighbors in the Eurozone. Both domestic demand and exports are expected to further this year. German business climate is expected to reach 110.2, despite the disappointment in ZEW.
  2. US New Home Sales: Monday, 15:00. Sales of new single-family homes declined mildly in November to an adjusted annual rate of 464,000 units, down from a five-year high of  474,000 posted in October. Economists expected new home sales to fall lower to 449,000. However compared with November last year, sales increased 16.6%. Despite higher mortgage rates, the housing market is expected to expand further this year. New home sales is expected to decline to 457,000.
  3. UK GDP: Tuesday, 9:30. Britain’s economy expanded to a three-year high of 0.8% in the third quarter, showing economic activity has increased across the board, a sign the country is on the right path to prosperity. Service sector activity edged up 75% climbing above its pre-recession peak, but production is still 12% lower. However this improvement gives further confirmation that the UK has shaken off years of economic stagnation. Another 0.8% gain is expected this time.
  4. US Durable Goods Orders: Tuesday, 13:30. Orders for long-lasting products jumped 3.5% in November as demand increased. The increased was preceded by a 0.4% rise in October. Economists forecasted a lower increase of 0.9%. Meanwhile Core goods orders excluding the volatile transportation items surged 4.5% rebounding from two straight months of declines. The positive readings give further proof that US economic activity continues to strengthen. Durable Goods Orders is expected to climb 2.0% while core Durable Goods Orders is predicted to increase0.7%.
  5. US CB Consumer Confidence: Tuesday, 15:00. US consumer sentiment improved at the close of 2013, reaching 78.1 from 72 in November, more optimistic about future job prospects as well as present situation, suggesting the US economic activity is on strong footing. Economists believe the housing market and the manufacturing sector will continue to expand this year. US consumer sentiment is expected to remain unchanged.
  6. US FOMC Statement: Wednesday, 19:00. The Federal Reserve is expected to taper bond buys for a second time in a row, by another $10 to $65. Bernanke and his colleagues successfully delivered the first taper in December after months of preparation. Unless something materially changes, they are expected to continuously deliver small reductions to bond buys in the next meetings, thus avoiding surprises to the markets. While the recent jobs report was weak, it can certainly be regarded as a one off, given other positive figures. A no-taper decision now would trigger unwanted speculation, and the Fed would probably like to communicate continuity, especially as the figure at the top position changes.
  7. NZ rate decision: Wednesday, 20:00. Reserve Bank of New Zealand   kept its official cash rate at 2.5% since a 50-basis point cut in March 2011. Governor Wheeler, concerned with rising inflation stated the bank will raise rates  in the first half of 2014 to keep inflation around 2.0%. Wheeler set limits on low-deposit mortgage lending in October to tackle rising house prices, and fuel demand for the dollar. The RBNZ forecasts growth will average 3% in 2014 before starting to slow raised its growth forecast for the year through March 2015 to 2.8% from 2.3%, saying NZ economic activity is gathering momentum. No change in rates is expected now, but higher inflation can lead to a more hawkish statement.
  8. Mark Carney speaks: Wednesday, 0:15. BOE Governor Mark Carney is scheduled to speak in  in Edinburgh. Carney and his colleagues are making a big effort to convince markets that the 7% unemployment level is not a trigger for raising rates, but rather a threshold. With lower inflation, this certainly seems achievable. Market volatility is expected.
  9. US Advance GDP: Thursday, 13:30. The U.S. economy advanced an annualized rate of 4.1% in the third quarter according to the final release, much better than initially reported and expected. The main reason for this expansion was a buildup of inventory among businesses. For the fourth quarter, the debt ceiling issue and the partial shutdown weighed only partially on manufacturers’ business investments and on domestic demand. However the housing recovery and the ongoing improvement in the job market and manufacturing sector are expected to push GDP up in the fourth quarter. U.S. economy is expected to expand 3.2% in the fourth quarter.
  10. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits increased mildly by 1,000 last week to a seasonally adjusted 326,000, indicating steady job gains. The four-week average fell for the third straight week to 331,500 close to pre-recession levels. However 1.4 million people stopped receiving payments since an emergency program that prolonged benefits expired in Dec. 28. Analysts expect unemployment rate will fall due to the expired benefit program. Nevertheless, there are positive signs for economic growth with a rise in consumer confidence and retail sales as well as manufacturing output in the final quarter of 2013. A small rise of 331,000 is anticipated now.
  11. US Pending Home Sales: Thursday, 15:00. Contracts to purchase existing U.S. homes climbed 0.2% in November, posting the first increase in six months. Economists expected a more substantial increase of 1.0%. However this climb may suggest the housing market is stabilizing after rising mortgage rates pushed existing home sales down. Nevertheless, continued growth in the US job market and improvement in manufacturing are good signs for a stronger growth in 2014. A decline of 0.1% is predicted now.
  12. Canadian GDP: Friday, 13:30.  The Canadian economy expanded by 0.3% in October, posting the fourth consecutive month-to-month rise, following the same increase in the previous month. Growth in the manufacturing and services sectors picked up sustaining the growth trend in the Canadian economy. Canadian economy  is expected to expand 0.2% in November.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies.

More:  Eurozone Turning Japanese and What it Means for the EUR

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Anat Dror

Anat Dror

Anat Dror Senior Writer I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew. In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students. I've also worked as a community organizer