Markets look to earnings for direction

Currencies Direct January 21st 2014 - 2 minute read

A US holiday yesterday kept a lid on market activity but there
will be plenty of Q4 earnings reports over coming days to give
further direction. In terms of policy decisions the Bank of Japan
and Bank of Canada will
likely keep policy unchanged following their policy decisions this
week. The BoC is faced with inflation well below target while the
BoJ continues to battle to push inflation towards its 2 per cent
target. Both central banks will maintain easy policy.

On the data front there is very little of note in the US to
focus on, with the main release being the December existing home
sales report on Thursday where a rebound of 1 per cent is expected.
European data releases may prove to be more interesting, with the
release of flash purchasing managers indices on tap. Further
gradual gains are likely to be registered in January although there
will be attention on France which has lagged behind other

Ratings decisions by Moody’s and Fitch on Germany and France,
respectively, will also garner some attention. Rumours of a German
downgrade are likely to prove unfounded. In the UK the Bank of
England MPC minutes will be likely to reveal an unchanged outcome
of voting to keep policy unchanged although the BoE is likely to
adjust its guidance soon reflecting the quicker than anticipated
fall in the unemployment rate.

The USD looks well placed to
extend last week’s gains, especially against the EUR, with a drop
below 1.3500 on the cards. Disinflation pressures and relatively
soft growth highlight the potential for easier monetary policy. A
variety of options for the ECB are on the cards but the EUR will
struggle to make headway given expectations of more ECB action.
Additionally the EUR appears to be benefiting less from reserves
recycling flows, especially given that Asian central bank reserves
accumulation has likely to have slowed. The deterioration in
speculative positioning reflects the deterioration in sentiment for
the currency.

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