Focus On FOMC Minutes And US CPI This Week

EUR/USD
We have a lot of US macroeconomic releases this week, including industrial production (Monday), CPI (Thursday), housing data and probably the most important for forex traders - the FOMC minutes (Wednesday). Analyzing the CPI figure we should remind the FOMC statement: “ (…) although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2% has diminished somewhat since early this year.” That is why the reaction to slightly lower CPI reading may be limited.
Preliminary PMI readings for the Euro zone readings are also scheduled for this week (Thursday). After a slightly better than expected data in October, we expect further rise of the index for the manufacturing sector, as the manufacturers are likely to see the helpful influence of past euro drop.
Our short-term target for the EUR/USD is 1.2330 (slightly below 1.2342 low on August 21, 2013). In the medium-term we see the EUR/USD at 1.2050.

JPY
The upside momentum on the USD/JPY remains strong. Monday will be an important day for USD/JPY traders. Prime Minister Shinzo Abe returns from an extended trip on Monday and will be able to comment on snap elections. Q3 GDP release is also scheduled for Monday (Sunday 23:50 GMT). The data are crucial for the decision on delaying the sales tax hike. Another big event for the USD/JPY traders this week is another meeting of the Bank of Japan (scheduled for Wednesday GMT). Although we see a never-ending discussion about further quantitative easing, we do not expect any additional measures at the nearest meeting.

GBP
The Bank of England will release the minutes of the MPC’s November meeting on Wednesday. We expect no change in the vote. We expect that hawks Ian McCafferty and Martin Weale continued to vote for a 25bp hike. The majority is likely to emphasize a lack of significant acceleration in wages and a risk of economic slowdown coming from slowing activity in the Euro zone.
We took profit on our short GBP/USD position (1.5910-1.5600) last week. The medium-term outlook is still bearish. However, a slight recovery cannot be excluded after digesting recent dovish BOE Inflation Report.

CAD
The CAD has been relatively strong since the release of much better than expected Canadian employment report. On the other hand it still suffers on the back of low oil prices. The USD/CAD traders will be focused on Canadian CPI inflation data this week. The short-term outlook for the rate is bullish and our strategy is to get long on dips. However, improving macroeconomic data are likely to gradually strengthen the CAD in the medium term.

NZD
The NZD strengthened significantly against the AUD and JPY last week benefiting from a fall in global risk aversion. However, in our opinion the potential of further appreciation of the NZD against the AUD or especially USD is limited. The NZD is still under pressure of low dairy prices and the central bank is still determined to intervene to see the currency at lower levels.