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Week Ahead: Central Bank Releases, GDP, and CPI Reports on Deck

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There are going to be three central bank releases next week. The most important of them will be the RBNZ rate decision scheduled on Wednesday. Expectations are that the RBNZ will not announce a rate cut. There is also some optimism that the central bank will sound optimistic because inflation has gone higher while the unemployment rate trickled lower.

Meanwhile, Federal Reserve President Jerome Powell is scheduled to attend Senate Committee hearings next week. He will be asked about the central bank’s current monetary policy and his assessment of the economy. Any remarks about easing or optimism in the economy is going to spark volatility in the market. Meanwhile, RBA Governor Phillip Lowe will continue making his speeches next week. I expect them to have a lesser impact because he has already been making speeches last week.

Trade Idea: Long AUDNZD

On the weekly time frame, we can see that AUDNZD bounced off support at 1.0300. This price has previously acted as floor on March 17, 2019 and August 4, 2019. A morning star candlestick pattern has already formed hinting at a possible bullish run. With an entry above last week’s high at 1.0450 and a stop loss at 1.0300, this setup can result to a trade with a 1.6:1 RR ratio if you set you target at 1.0690. This price served as resistance on April 20, 2019 and coincides with the 100 SMA and 200 SMA too. However, be wary of a drop to this week’s lows because it may suggest that AUDNZD could still fall to its April 2015 low at 1.0006.

Read our Best Trading Ideas for 2020.

A few GDP reports are also due for release next week. On Tuesday, the UK Q4 2019 GDP report is estimated to post a 0.5% uptick from a year ago. On Friday, the German GDP report is eyed to show a 0.1% contraction for last quarter. As for the euro zone’s version of the report, a measly 0.1% uptick is expected.

These reports are important because they are the key metric that central banks track to see if their economies are expanding. Often times, sluggish growth are enough to convince policymakers to cut rates.

Trade Idea: Short EURGBP

On the weekly time frame, we can see that EURGBP found its way back to its previous lows around the 0.8500 handle. This price also coincides with the 23.6% Fib level when you draw the Fibonacci retracement tool from the high of August 11 to the low of December 8. Reversal candles around this price may suggest that there could be enough sellers to push EURGBP to its recent lows at 0.8270. On the other hand, if the currency pair rallies to 0.8600, it could indicate a potential rally to 0.8800 where the SMAs coincide.

A handful of CPI reports are also due for release next week. The primary data used to measure inflation, CPI numbers are also closely-watched by central bankers. Higher CPI readings indicate higher consumer prices and could be enough for a central bank not to cut rates. On the other hand, low inflation reading could suggest slow economic activity.

Switzerland will be the first to release its January CPI. On Monday, it is eyed to print at -0.2%. Meanwhile, China’s CPI is seen at 0.8% while Germany’s is estimated at 0.5%. On Thursday, the US headline CPI has been forecasted at 0.2% while its core reading is seen at 0.2%.

Trade Idea: Long USDCHF

On the daily time frame, we can see that USDCHF has made a higher low following two consecutive lower lows. Consequently, this has allowed for an inverse head and shoulders pattern to form. It is considered as a bullish reversal indicator. A strong bullish close above the neckline resistance around 0.9760 could trigger a rally to resistance around 0.9860.

On the other hand, if the currency pair drops to last week’s low at 0.9737, it could be a sign that USDCHF still has room to fall to 0.9620.