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Forex - Weekly outlook: February 3 - 7

Published 02/02/2014, 05:18 AM
Updated 02/02/2014, 05:18 AM
Euro falls to 10-week lows against broadly stronger dollar

Investing.com - The euro fell to 10-week lows against the dollar on Friday after data showing that the annual rate of euro zone inflation slowed in January rekindled fears that the European Central Bank would have to tighten monetary policy to avert the risk of deflation in the region.

EUR/USD hit 1.3478, the weakest since November 22 and was last down 0.49% to 1.3488. For the week, the pair lost 1.35%.

The annual rate of euro zone inflation slowed to 0.7% in January, Eurostat said, after a 0.8% gain in December. Analysts had expected the inflation rate to tick up to 0.9%.

It was the fourth consecutive month the inflation rate came in at less than 1% and was well below the ECB’s target of 2%. The ECB unexpectedly cut rates to a record low 0.25% when inflation fell to a four-year low of 0.7% in October.

The common currency fell to two-month lows against the yen, with EUR/JPY dropping 1.07% to 137.75, extending the weeks losses to 1.89%.

The dollar was also lower against the yen as euro’s steep declines and a broad based selloff in emerging economies bolstered safe haven demand. USD/JPY ended Friday’s session down 0.69% at 101.99, and finished the week 0.63% lower.

The Canadian dollar fell to a fresh four-and-a-half year lows against the U.S. dollar on Friday as the selloff in emerging markets prompted investors to stage a broad retreat from riskier assets.

USD/CAD hit highs of 1.1224 before retracting some of those gains to settle at 1.1125. NZD/USD fell 0.97% to 0.8080 at the close of trade, while AUD/USD was down 0.50% to 0.8751.

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Emerging markets were hard hit by a combination of concerns over the impact of cuts to the Federal Reserve’s stimulus program and fears over a possible slowdown in China. The Turkish lira and the South African rand tumbled after surprise rate hikes did little to shore up the currencies.

Emerging market economies are vulnerable to reductions in Fed stimulus, as they rely on foreign investment to plug their current account deficits.

On Wednesday the Fed said it would scale back its monthly asset purchase program by another $10 billion to $65 billion, citing improvements in the labor market.

Data released on Thursday showed that the U.S. economy grew 3.2% in the fourth quarter, in line with expectations.

The dollar was higher against the pound and the Swiss franc on Friday. GBP/USD was down 0.29% to 1.6436 at the close and the pair lost 0.83% for the week. USD/CHF advance 0.39% to settle at 0.9064, extending the week’s gains to 1.12%.

In the week ahead, investors will be keenly anticipating Friday’s U.S. nonfarm payrolls report for January after December’s report showed that the economy added far fewer jobs than expected.

Interest rate decisions by the ECB, the Bank of England and the Reserve Bank of Australia will also be in focus.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

Monday, February 3

Markets in China are to remain closed for the Lunar New Year holiday.

Australia is to produce data on building approvals, a leading indicator of future construction activity.

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In the euro zone, Spain and Italy are to publish data on manufacturing activity. Elsewhere in Europe, Switzerland is to release its SVME manufacturing index.

The U.K. is also to publish data on manufacturing activity, a leading indicator of economic health.

Canada is to release data on raw materials price inflation.

In the U.S., the Institute of Supply Management is to produce data on manufacturing activity, a leading economic indicator.

Tuesday, February 4

The RBA is to announce its benchmark interest rate and publish its rate statement, which outlines economic conditions and the factors affecting the monetary policy decision.

Markets in China are to remain closed for the Lunar New Year holiday.

In the euro zone, Spain is to release data on the change in the number of people unemployed.

The U.K. is to publish data on construction sector activity, a leading economic indicator.

The U.S. is to produce data on factory orders, a leading indicator of production.

New Zealand is to publish data on the change in the number of people employed and the unemployment rate.

Wednesday, February 5

Markets in China are to remain closed for the Lunar New Year holiday. Japan is to publish data on average cash earnings.

The euro zone is to release data on retail sales, the government measure of consumer spending, which accounts for the majority of overall economic activity. Spain and Italy are to publish data on service sector activity.

The U.K. is also to release data on service sector activity, a leading economic indicator.

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Canada is to produce data on building permits.

The U.S. is to release the ADP report on private sector job creation, which leads the government’s nonfarm payrolls report by two days. Meanwhile, the ISM is to publish a report service sector activity.

Markets in New Zealand are to remain closed for a national holiday.

Thursday, February 6

Australia is to release data on retail sales and the trade balance, the difference in value between imports and exports. The nation is also to release private sector data on business confidence.

Markets in China are to remain closed for the Lunar New Year holiday.

Germany is to publish data on factory orders.

The BoE is to announce its benchmark interest rate.

Later in the day, the ECB is to announce its benchmark interest rate. The announcement is to be followed by a press conference with President Mario Draghi.

Both the U.S. and Canada are to publish data on the trade balance, and the U.S. is also to publish the weekly report on initial jobless claims. Canada is to publish its Ivey PMI.

Friday, February 7

The RBA is to publish its monetary policy statement, which outlines economic conditions and the inflation outlook from the bank’s perspective.

Germany is to publish reports on industrial production and the trade balance.

Switzerland is to publish data on retail sales, while the Swiss National Bank is to release data on foreign currency reserves. This data is closely scrutinized for indications of the size of the bank’s operations in currency markets.

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The U.K. is to produce data on manufacturing and industrial production, as well as a report on the trade balance.

Canada is to publish data on the change in the number of people employed and the unemployment rate.

The U.S. is to round up the week with the closely watched government data on nonfarm payrolls and the unemployment rate.

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