It’s gonna be another busy week in the FX markets, as the BOJ gears up to announce its policy decision while Uncle Sam will be printing retail sales figures.
Oh, and the U.K. economy will be releasing its CPI and jobs data, too!
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
Chinese GDP (Jan. 17, 2:00 am GMT) – First among the top-tier events this week is the release of China’s Q4 2022 GDP. How did the Asian giant perform during this period?
Analysts are counting on a slowdown in growth from 3.9% to 1.6% for the quarter, with a lower than expected result possibly reviving recession concerns.
In addition, watch out for any immediate reaction from Chinese monetary policy officials that could spur volatility for risk assets.
U.K. economic data dump (starting Jan. 17, 7:00 am GMT) – Starting off the hectic week for pound pairs is the jobs report from the U.K. due on Tuesday.Expectations are for a slight improvement in claimant count, as the figure could show a 19.8K increase in joblessness. This would be lower than the previous 39.5K jump in claimants.
Also, the average earnings index is slated to tick higher from 6.1% to 6.2%, likely keeping inflation elevated.
Canada’s CPI reports (Jan. 17, 1:30 pm GMT) – The latest round of CPI readings from Canada might signal that the BOC’s tightening efforts are starting to bear fruit.
Number crunchers estimate the headline figure to show a 0.6% reduction in price levels, erasing part of the previous 1.0% jump. The median CPI could dip from 5.0% to 4.9% while the trimmed mean CPI is projected to fall from 5.3% to 5.2%.
BOJ monetary policy statement (Jan. 18) – Perhaps the biggest market mover for the week is the BOJ’s policy decision, as the central bank could unveil fresh measures to address inflation and yen volatility.
Keep in mind that the Japanese central bank has been busy with its bond-buying operations but is still struggling to keep price pressures under control.
Any major adjustments to their economic outlook and policy bias might trigger spikes for yen pairs, especially during the press conference.
U.S. retail sales (Jan. 18, 1:30 pm GMT) – Is the U.S. consumer sector reeling from the Fed’s increase in borrowing costs? The December retail sales report might have some clues.
Headline retail sales likely posted a steeper 0.8% decline for the month, following the earlier 0.6% drop. Core retail sales probably slipped by 0.5% during the holiday season after a 0.2% dip in November.
Weaker than expected results could cast doubts on the Fed’s plans to keep hiking interest rates in the near-term, likely keeping investors jittery about a recession later in the year.
Forex Setup of the Week: CAD/JPY
Since I’m counting on yen and Loonie volatility around the middle of the week, I’m keeping this potential CAD/JPY retracement play on my radar.
The pair is already hanging out at the bottom of its descending channel on the hourly time frame, so bulls might step up to defend the floor.If that’s the case, a correction opportunity could materialize, as CAD/JPY inches closer to the pullback levels marked by the Fib tool.
I’m eyeing the mid-channel area of interest around the 38.2% Fib as a possible entry point for a short play or the 61.8% level closer to the dynamic resistance at the moving averages.
A bearish moving average crossover is starting to take place, confirming that the selloff is likely to resume at some point.
For now, however, Stochastic is reflecting exhaustion among sellers, so the pullback could carry on until the oscillator reaches overbought levels.