Review of the past week
Over the last week, main competitors of the US currency consolidated their positions. EUR/USD grew for 0.55%. When speaking as the Fed reserve's Chair on Tuesday 11, Janet Yellen stated about continuation of QE-3 tapering by FOMC, though it may suspend this process if negative employment dynamics goes on. Report on US retails disappointed investors when showed its lowest values over the last 18 months. Drop of the personal consumption index is negative for the leading global economy. On this positive background, bulls boosted EUR/USD quotations up to the point of 1.3691.
European GDP for the 4rd quarter published on the last trading day of the week was not able to encourage investor to open new long positions. Despite the data was above medium level of forecasts, market participants did not hurry to make purchases and trading week was closed by EUR/USD at the point of 1.3691. GBP/USD pair had been growing confidently over the entire trading week. Main event of the week was the quarter report on inflation from the Bank of England. British regulator raised estimation of the UK economy from 2.8% to 3.4% in 2014. It also pointed out an approximate date of the possible increase of the interest rate – April of 2015. Bulls took that with flying colors and GBP/USD dramatically moved up within the day. The pair overcame a number of resistance points on the fly. Growth continued on Tuesday as the USA provided weak data on retails. On Friday bears tried to take the initiative in their hands but bulls gave them no chance and trades were closed at the point of 1.6745.
In the first half of the week, USD/JPY pair tried to show growth as the Japanese stock dynamics was positive though trade balance data was weak. But bulls were discouraged by the negative US report on retails and quotations went down to 101.56 at a moment. Consumer sentiment index for February reported by the Michigan university allowed to rule the things out and the trades were closed on the level of 101.79.
Forecast for the week February 17 – 21:
This week is very interesting for the Forex market. Participants of trades with European currency will wait for the publication of ZEW business sentiment index on Tuesday 18. Good report will encourage bulls and we can see how the level 1.3750 is tested. On Wednesday's late evening on Feb 19, recordings of the last FOMC meeting will be published. Weak employment data in the USA over the last months made experts to guess if the US regulator would take pause in the task of QE-3 tapering. We can expect that the FRS will make a point regarding current problems of the labor market but will characterize them as cyclical and won't change its tapering policy in March. This can speak in favor of a steady consolidation of the US currency. On Tuesday we will receive the US consumer price index. Its weak data on retails, consumer sentiment and employment in January indicate that inflation had slowed down its pace. We can expect the data just lower than the medium level of forecasts which will be a pressing factor for the USD. In general, we can expect that EUR/USD will develop a flat tendency.
Great Britain is publishing a good deal of macroeconomic stats. On Tuesday 18, participants of trade with GBP/USD will receive data on the consumer price index for January. A historical tendency is that growth of inflation in December is changed to the opposite process in January. We can expect negative reports which will put a pressure to the British currency. From a technical point of view, GBP/USD is overbought and this can also contribute to decline of quotations.
On Wednesday 19, report on the labor market will be released as well as recordings of the last BoE's meeting will be published. The last week, British regulator gave all guidelines in the inflation report, report on the labor market can give a pleasant surprise. USA will publish report on inflation for January. Anticipating indicators show drop of the CPI which is negative for the US dollar. In general, British currency is expected to show a decline over the first days of the week and growth in the second half of the week.
On Monday Japan is releasing GDP for the 4rd quarter of the last year. A good growth pace of the net export as well as growth of the personal income and employment in the last quarter of 2013 allow to expect good GDP index. But there is no point to expect release better than consensus-forecast. On Tuesday 18, Bank of Japan will hold its meeting. If it drops a hint about a possible increase of stimulative measures in the future, USD/JPY will go back to 103. Otherwise, a flat tendency may develop within the week.