• Audere Research

Weekly FX Outlook January 25th



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GB Pound

Sterling hits new high.


Movements

GBPUSD opened at 1.3541 and extended previous week’s gain, hitting a new high since May 2018 at 1.3745 before slightly retracing toward the end of the week. It closed at 1.3698 for a strong gain of 1.16%.


GBPEUR opened at 1.1215 and resumed the uptrend, trading at levels not seen since May last year (high at 1.1324) on Thursday before giving back most of the gain for a weekly appreciation limited to 0.32% (1.1251).


Movement rationale

Sterling resumed its long-term trend against major currencies, hitting new highs against the Dollar (2 and a half year high) and the Euro (8-month high), mainly driven by an improvement in global investor sentiment that pushed higher equity prices and “risk-on” currencies such as the Pound. The rapid vaccine rollout in UK relative to EU and US also supports the currency strength, leading to a more positive economic outlook in Britain. On the data front, while UK inflation came out slightly above consensus at 0.6%, a disappointment was seen on Friday when both retail sales and manufactory data came weaker than expected, briefly pushing the currency lower, before resuming the uptrend experienced all week.


Week ahead

The UK economic data calendar includes the following:


Calendar

Tuesday 7am | ILO Unemployment Rate (Nov)

US Dollar


The US Dollar was weak.


Movements

EURUSD opened at 1.2076 and traded with a positive bias to close with a gain of 0.81% at 1.2173.


GBPUSD opened at 1.3541 and extended previous week’s gain, hitting a new record high since May 2018 at 1.3745 before slightly retracing toward the end of the week. It closed at 1.3698 for a strong gain of 1.16%.


Movement rationale

With a return in investor’s risk appetite and improving global economic outlook, the US Dollar came under pressure once more, losing ground against rival currencies. According to data from the Commodity Futures Trading Commission, Hedge funds and speculators ramped up net short USD positions to the highest levels since April 2018. US Treasury Secretary Janet Yellen spoke to the US Senate on Tuesday, advocating for a larger fiscal relief and cautioning on any plan to seek higher corporate tax rates before the pandemic ends. She also expressed a generally dovish stance, supporting a low interest rates environment going forward and causing further Dollar weakness. After three straight days of losses, the currency regained some ground on Friday as some negative non-US economic data were reported, while US manufacturing activity surged to its highest level since May 2007.


Week ahead

USD is expected to have a relatively volatile week ahead, with a following economic agenda:


Calendar

Tuesday 3pm | Consumer Confidence (Jan)

Wednesday 7pm | Fed Interest Rate Decision, Durable Goods Orders (Dec)

Thursday 1:30pm | Gross Domestic Product Annualized (Q4), Initial Jobless Claims (Jan 22)


Euro

The Euro was soft versus the Pound.


Movements

EURUSD opened at 1.2076 and traded with a positive bias to close with a gain of 0.81% at 1.2173.


GBPEUR opened at 1.1215 and resumed the uptrend, trading at levels not seen since May last year (high at 1.1324) on Thursday before giving back most of the gain for a weekly appreciation limited to 0.32% (1.1251).


Movement rationale

The Euro had a mixed week, supported by a positive risk environment but penalised by a renewed surge in COVID-19 infections, the prospect of prolonged restrictions in the Eurozone and slower vaccination roll-out. In Italy, PM Conte won a crucial confidence vote with a slim margin, securing a fragile majority after last week’s exit of Matteo Renzi’s party from the governing coalition. The ECB met and left rates unchanged, committing to closely monitoring EUR movements and the potential impact on volatility; this caused a muted reaction in the single currency.


Week ahead

The Eurozone economic data calendar includes the following:


Calendar

Monday 9am | IFO – Business Climate (Jan)

Thursday 10am | Consumer Confidence (Jan), Business Climate (Jan)

Friday 9am | German Gross Domestic Product (Q4)


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