Forex Investment and Currency Trading

Europe

• Next week the European Commission releases growth forecasts on Mon, while the ECB monthly report is due on Thur. Hard to see the European Commission doing anything other than marking down the outlook for 2009. Also due on Thur are new industrial orders for November (likely to be a poor read given other data already released). In Germany, CPI revisions are due tonight but the main event will be next week, with the ZEW survey due on Tues. This will be watched closely after the survey rose modestly in December. In the UK CPI is due next Tues, while the BoE minutes are released on Wed along with jobs data.
• Short Bias for EUR/USD for the week ahead even though Trichet took markets off the scent of a February easing. Of course there are other factors which are weighing on EUR too, with S&P lowering Greece’s credit rating, rumours of Ireland needing IMF assistance and continuing problems for some of the regions largest banks. EUR/USD is likely to weaken further from here and any moves back above the 55 day moving average of 1.3225 should be seen as an opportunity to sell on strength. Look for a move back to 1.2800. For GBP/USD, expect the pair to drift lower in line with broader USD strength but it will probably take some fresh specific bearish UK news to see the pair fall through 1.4350. EUR/GBP remains a strength, with GBP further along the adjustment process than EUR.

USD

• Little in the way of meaningful economic data or Fed speeches next week. Housing starts (Thurs) are at all time lows but still high inventories and the credit freeze could easily see starts down 5%+ (vs consensus at -3.2%). Corporate earnings though will likely be more definitive.
  Bank of America (Tue) and a swathe of large US regional banks report Q4 earnings next week.
• A long USD bias. While US activity data remains very weak acros the board recently reported declines in exports, orders and industrial production across Asia and Europe have been nothing less than staggering. There are yet more scope for downside data surprises outside the US. Rate support, heightened risk aversion and weak commodities (all inter-related) play to ongoing DXY strength.