Week Ahead in FX (Jan. 30 – Feb. 3): Focus Back on Economic Data
It’s gonna be a busy NFP week, as three central bank decisions are also coming up!
Not only do we have the FOMC statement, but we’ll hear from the folks over at the BOE and ECB, 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:
New Zealand quarterly employment change (Jan. 31, 9:45 pm GMT) – First to rock the forex boat this week might be New Zealand’s economic data, as the country will be printing its jobs report for Q4 2022.
A slowdown in hiring is eyed, as analysts are predicting a meager 0.3% uptick in employment for the period. That’s waaay lower than the previous 1.3% increase, but it might still be enough to keep the jobless rate steady at 3.3%.
Eurozone flash CPI (Feb. 1, 10:00 am GMT) – Starting off a brand-new month is a very early look at the eurozone’s inflation figures for January.
A dip in price pressures is expected, with the headline flash CPI slated to go from 9.2% to 9.0% in January and the core figure to tick down from 5.2% to 5.1%.
This might signal that the ECB’s tightening efforts are already bearing fruit, possibly leading the central bank to slow down with its interest rate hikes or pause altogether.
FOMC statement & presser (Feb. 1, 7:00 pm GMT) – Of course the main event to kick off February might be the FOMC decision, as traders are all eyes and ears on the U.S. central bank’s next moves.
Another 0.25% rate hike might be in the cards since Fed head Powell reiterated that they would not be complacent when it comes to warding off inflation. This shouldn’t come off as a surprise, as investors are more interested to find out what the Fed’s plans are for the rest of the year.
With that, the press conference might generate more volatility for dollar pairs, especially if the Fed hints at any change in policy bias.
BOE monetary policy decision (Feb. 2, 12:00 pm GMT) – The U.K. central bank will also be announcing its policy decision this week and might hike rates by another 0.50%.
Note that the U.K. economy is still struggling with high inflation and weak growth, so policymakers have a pretty delicate balancing act. The MPC minutes might show a couple of dissenters favoring a more cautious move.
ECB monetary policy statement (Feb. 2, 1:15 pm GMT) – Next up, the ECB might announce a 0.50% interest rate hike of their own in their February policy decision.
This move seems to be priced in already, as the eurozone economy has seen plenty of improvements over the past months. Also, hawkish ECB members had been pushing for more aggressive tightening efforts recently.
U.S. non-farm payrolls report (Feb. 3, 1:30 pm GMT) – And who could forget the U.S. NFP coming up this Friday?
Uncle Sam is poised to report yet another slowdown in hiring, with employment projected to rise by only 193K in January versus the previous 223K increase. With that, the jobless rate could tick higher from 3.5% to 3.6% for the month, although a pickup in labor force participation could also come in play.
Dollar traders would likely keep an eye out for the average hourly earnings figure as well, with another 0.3% uptick eyed. Stronger than expected wage growth could keep the focus on elevated price pressures.
Forex Setup of the Week: EUR/NZD
Both the eurozone and New Zealand economy have top-tier events happening this week, so I’m counting on a breakout for EUR/NZD!
This pair has formed lower highs and higher lows to consolidate inside a symmetrical triangle on the hourly time frame, with price currently hanging out at the bottom.
A break lower could set off a drop that’s the same size as the formation, which spans roughly 350 pips. Similarly a move past the triangle top could be followed by a rally of that height.
Technical indicators are giving mixed signals at the moment, though.
The 100 SMA is below the 200 SMA to hint that the floor is more likely to break than to hold. On the other hand, Stochastic looks ready to pull higher, suggesting that another bounce is in order.
The quarterly jobs report from NZ is due early in the week, so a downbeat read might be enough to take EUR/NZD back to the top of the triangle.
Later on, the ECB announcement might spur either a bounce or a break for the pair, so I’ll definitely be on my toes during that event!