Forex Market Outlook For The Week January 14 – 18, 2019

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After the greenback lost ground amid optimism regarding a China-U.S. trade deal, the focus shifted to the U.K. The all-important Brexit vote is scheduled to be held in the U.K. Parliament in the upcoming week. Both the U.S. and China have reported progress with respect to trade tariff decision. New reports also pointed out that Trump is looking for a deal.

The gains in stock markets, buoyed by dovish words form Jerome Powell, drove money away from the safe-haven currencies Japanese yen and U.S. Dollar. The greenback received a further boost when the FOMC member Bostic indicated the possibility of a rate cut. The dovish minutes also called for patience when it came to raising interest rates.

In Germany, a sharp decline in industrial output raised concerns about an ensuing recession. Meanwhile, in the U.K., the debate heated up, signaling the outcome of the Brexit vote. The U.K. government was beaten on a minor vote.

The upcoming week features a few other top events from elsewhere in the world as well. Here is an outlook on some of the key events:

#1: U.S. PPI (01/15/2019 Tuesday 13:30 GMT)

forex market outlookIn the U.S., the producer prices for final demand goods rose by 0.1 percent in November, following the 0.6 percent increase in October. Analysts had expected the PPI reading to come in flat in November. The services cost increased 0.3 percent, boosted by the increase in trade services index. Meanwhile, the wholesale goods cost fell 0.4 percent, the largest decline since May 2017, as energy prices dropped the most ever since September 2015. Food costs rose by 1.3 percent, following the 1.0 percent gain in the previous month. The core PPI, which excludes energy and food, rose by 0.3 percent after increasing 0.5 percent in the previous month. Analysts had expected a 0.1 percent gain. Forecast for December 2018: -0.1 percent

#2: Euro Area ECB President Mario Draghi Speaks (01/15/2019 Tuesday 15:00 GMT)

Mario Draghi, President of the European Central Bank, is scheduled to testify on the 2017 Annual Report of the ECB in Strasbourg before the European Parliament. Markets often turn volatile during his speeches as traders make an attempt to understand the direction of interest rates in the future.

#3: U.K. Brexit Vote In Parliament (01/15/2019 Tuesday)

The U.K. government postponed the Brexit vote scheduled to be held in December because of the possibility of a defeat. Prime Minister Theresa May also toured Europe and made an effort to secure concessions as regards the Irish backstop issue. However, her counterparts only expressed willingness to provide clarifications and not change the legal text. She is hoping that the MPs would support the agreement.

As of now, the possibility of the government losing the vote is very high. This is because the Parliament has secured the right to limit the powers of the government in the event of a no-deal Brexit. What will be May’s next move if the deal gets rejected? One option for May would be to press for a no-deal Brexit. This would definitely drive the pound down. Another option is to organize a second referendum.

Though the public has shown a shift to the Remain camp, anything can happen and uncertainty is likely to prevail. The possibility of a snap election cannot be dismissed. However, if the Labour Party forms the government under the leadership of Jeremy Corbyn, the markets would definitely be surprised. Postponing Brexit may also be considered, even if the government denies it at the moment. This could drive the pound higher, but it is clear that uncertainty would trigger high volatility.

#4: U.K. BoE Governor Mark Carney Speaks (01/16/2019 Wednesday 09:15 GMT)

Mark Carney, Governor of the Bank of England, is scheduled to testify along with three members of the Financial Policy Committee on the Financial Stability Report in London before the Treasury Select Committee. Markets often turn volatile during his speeches as traders make an attempt to understand the direction of interest rates in the future.

#5: U.K. CPI (01/16/2019 Wednesday 09:30 GMT)

In the U.K., the annual inflation rate fell to the 2.3 percent level in November from the 2.4 percent level in the prior month. The reading for the month was in line with analysts’ expectations. The reading for November was the lowest ever since the month of March last year. The consumer prices were driven down by a slowdown in transport and food, recreation, culture, and non-alcoholic beverages costs. Forecast for December 2018: 2.1 percent

#6: G20 Meetings (01/16/2019 Wednesday and 01/17/2019 Thursday)

Central bankers and finance ministers from as many as20 industrialized nations, including those from G7 nations France, Canada, Italy, Japan, the UK, Germany, and the US. The G20 meetings are not open to the press. However, officials usually talk to the reporters throughout the meeting day. A formal statement on meeting objectives and policy changes are released on the conclusion of the meetings. G20 is not an institution, but it is a powerful global policy-making organization that operates at the highest level. Their policies and initiatives have an impact on the currency markets.

#7: Japan BoJ Governor Haruhiko Kuroda Speaks (01/17/2019 Thursday 03:20 GMT)

Haruhiko Kuroda, Governor of the Bank of Japan, is scheduled to speak in Tokyo at the G20 Symposium. Markets often turn volatile during his speeches as traders make an attempt to understand the direction of interest rates in the future.

#8: U.K. Retail Sales (01/18/2019 Friday 09:30 GMT)

In the U.K., retail trade rose by 1.4 percent on a month-on-month basis in November because of Black Friday promotions. The reading for the previous month was revised downward to a 0.4 percent decline. The reading for November beat analysts’ expectations for an increase of 0.3 percent. Retail trade was driven by the highest increase of 5.3 percent in household goods stores sales since the end of the year 2013. Forecast for December 2018: -0.8 percent

#9: Canada CPI (01/18/2019 Friday 13:30 GMT)

In Canada, the Consumer Price Index (CPI) declined by 0.40 percent on a month-on-month basis in November. It is expected that the CPI would decrease by 0.3 percent in December 2018.

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