USD: US stimulus plan to offer support to risk assets and keep the dollar upside limited
Spot
DXY90.472
Week ahead bias
Neutral
Weekly range
90.00-91.00
1 month target
90.00
With a quiet start to the week yesterday with public holidays in Canada and the US and the China New Year, market focus will return to the prospects of US stimulus and the Fed. The plan is expected to go to a vote commencing February 22nd without much resistance leaving the equity markets well supported in the short term. On the data front, January retail sales and Industrial Production are expected to both print on the strong side which is likely to drive the dollar to its strongest levels of the week.
The US retail investor frenzy should come back into focus as well. Thursday sees key participants in GameStop volatility testify to the House Financial Services Committee. It will be a case of those defending the democratization of finance running up against allegations of market abuse.
CAD: USD/CAD Likely to move to 1.26 levels as risk and oil dominate
Spot
USD/CAD1.2755
Week ahead bias
Mildly Bearish
Weekly range
1.2630-1.2800
1 month target
1.2700
CAD had a strong past week as it recovered from the awful jobs numbers for January. This week, data should come back into focus as January CPI data are released. Inflation have likely received some support from higher gasoline prices but the soft activity numbers suggest a lack of pricing power which should ultimately keep core inflation subdued.
Barring any major deviations from the latest levels, inflation is set to stay well below the Bank of Canada's 2% target, which would continue to put off the question of whether the bank will tolerate higher inflation without tightening monetary policy. External risk factors and consolidation of WTI above US$58/bbl should keep the upside on USD/CAD contained. Most analysts expect the fair to move back into the 1.26 region.
EUR: ECB plotting to thwart the euro’s advance?
Spot
EUR/USD1.2088
Week ahead bias
Neutral
Weekly range
1.2050-1.2200
1 month target
1.2200
EUR/USD has been trading in a very narrow range for the last week and this may continue over the coming week. The pair is likely to be pressured around the release of the FOMC minutes which may cause some volatility. On the data front, the coming week will see Eurozone 4Q GDP, minutes of the 21 January ECB meeting and the first look at the February PMIs for the region. The main focus of the ECB will most likely be the ECB’s reaction to EUR strength and whether it would choose more QE or rate cuts to address the currency strength.
As to the PMIs, consensus seems reasonably pessimistic – e.g. Eurozone composite PMI expected at 48.0. As yet there are no signs of a lift-off in the European vaccine roll-out. However, the situation could change over the next month.
GBP: Data misses unlikely to deter appreciation
Spot
GBP/USD1.3804
Week ahead bias
Mildly
Weekly range
1.3750-1.3950
1 month target
1.3800
It is a busy week on the UK data front. Jan Inflation (Wednesday) should remain depressed by energy prices while January retail sales look set to plunge once more. Manufacturing PMI should decline but remain in the expansionary territory while Service PMI should remain firmly below 50. While a busy week data-wise, the impact on GBP should be limited as the data points don’t reflect the vaccination associated positive prospects for a strong recovery in 2Q.
GBP/USD should be primarily driven by the direction of the risk sentiment with the dollar rebound fading, the outlook for cable remains modestly positive for the week ahead.
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