Will Fundamentals This Week Turn the USD up Again?

Last week, we saw a brutal reversal in the USD, as it crashed against most of the major currencies. Nothing really changed for the USD or the US economy, but the decline came after a strong reversal in the EUR/USD and GBP/USD, after the European Central Bank (ECB) and the Bank of England (BOE) meetings last week. These central banks made it clear that they had turned hawkish, which gave the respective currencies a major boost, especially the Euro.

However, the US is still ahead in everything, and inflation remains extremely high. So, the USD should reverse again this week, and resume the bullish trend, especially if inflation keeps growing. The CPI (consumer price index) came at 7.2% for December, and on Thursday, we will get the January CPI inflation report. The decline has already stalled, so it seems that the USD is waiting for the economic data to be released this week.

EUR/USD Daily Chart – Stalling at Resistance

The 100 SMA is also acting as resistance

The strong jobs report puts a 50 basis point hike on the table for March, and that means that the Fed commentary will take on new importance, while all economic data will be closely watched. Next week starts out light, with a calendar that the bears essentially save for the lowly consumer credit report, but it picks up from there. Note though that China will be returning from a week of holidays, so there will be some flows in FX. The Olympics have started as well, so there will be plenty of distractions.

Tuesday:

• NFIB business optimism
• Trade balance

Wednesday:

• Fed’s Bowman
• Fed’s Mester
• BOC’s Macklem
• Wholesale sales
• Weekly oil inventories
• 10-year note auction

Thursday:

• CPI
• Initial jobless claims
• 30-year auction

Friday:

• UMich prelim consumer sentiment

I expect more Fed speakers to pop up throughout the week, and that will mean keeping a close watch on TV and the wires. Keep an eye on the economic calendar too.