Trading Week Ahead: 10th – 14th January
Important Data Releases and Events This Week
AUD Retail Sales
USD Fed Chair Powell Testifies
CAD Retail Sales
USD Core CPI
USD Core PPI
USD US Retail Sales
GBP UK GDP
The Weekly Wrap
The start of the year saw a slowdown in headline US economic data with both ISM surveys coming in weaker than forecast while the key US Non Farm Payroll number printed at just 199K new jobs versus consensus estimate of 426K. The underlying dynamics remained robust with Average Hourly Earnings rising an impressive 0.6% versus 0.4% eyed and the unemployment rate declining below the 4% mark to 3.9%.
Despite the overall growth it’s clear that Omicron is taking a toll as economic activity – especially services activity – is starting to slow as consumers once again retreat to their homes. With the virus wave expected to crest over the next eight weeks, the slowdown may extend for the near term.
The news clearly had a risk off impact on the most volatile assets as Nasdaq dropped 4.5% for the week – its worst performance in nearly a year, while Bitcoin inched towards the 40,000 level as speculative activity cooled markedly.
A Look Ahead to This Week
This week the single focus for the market will be on US inflation data with CPI expected to be released on Wednesday and PPI on Thursday. Consensus forecast is for CPI to ease markedly to 0.4% from the stratospheric 0.8% print the month prior but that would still put the rate of inflation above the 2% target of the Fed.
A much more troubling scenario for risk assets would occur if US inflation data printed hotter than forecast. Presently the rates markets are already assigning an 80% probability of a Fed rate hike in March and if the CPI data showed faster growth than 0.4% the odds would move to a near certainty.
The toxic combination of tighter monetary policy from the Fed and the prospect of slower growth due to Omicron impact on both health and activity would wreak havoc with risk assets and both Nasdaq and crypto could come under fresh waves of selling as the week proceeds.
In FX, meanwhile the picture is more murky with USDJPY pushed and pulled between the risk off flows and the prospect of higher US rates. For now the risk off flows bets are winning as the pair fails to hold the 116.00 figure despite US 10 year yields now trading above the 1.75% level.
While the start of the year has been somewhat rocky, the price action could become much more turbulent if US inflation pressures show no signs of easing.
About Boris Boris Schlossberg is Managing Director of FX Strategy for BK Asset Management, Co-Founder of BKForex.com, and Managing Editor of 60secondinvestor.com.
Widely known as a leading foreign exchange expert, Boris has more than three decades of financial market experience.
In 2007, while still at FXCM, Boris started BKForex with Ms. Kathy Lien. A year later, Boris joined Global Futures & Forex Ltd as director of currency research where he provided research and analysis to clients and managed a global foreign exchange analysis team with Kathy Lien.
Since 2012 Boris has focused exclusively on running BKForex.com where he generates trade ideas and designs algorithms for the FX market in partnership with Ms. Lien.
He is the author of “Technical Analysis of the Currency Market” and “Millionaire Traders: How Everyday People Beat Wall Street at its Own Game”, both of which are published by Wiley.
In 2020 Mr. Schlossberg started www.60secondinvestor.com a free website that distills the best of institutional investment research for retail investors.