G10 FX Week Ahead: Dry January

Central bankers in the eurozone, Japan, Canada and Norway announce their policy decisions next week but don’t get too excited, caution will likely prevail and no changes are on the horizon. Barring a major disappointment, UK data may pour cold water on expectations for a Bank of England rate cut, suggesting it will be a “dry January” for all G10 central banks.


EUR: Uneventful ECB Jan meeting unlikely to shake the EUR/USD tight range


Week ahead bias Range next week 1 month target



Neutral 1.1060 - 1.1200 1.1100
  • The European Central Bank meeting (Thursday) should be a non-event. No new economic projections are published and the board’s risk assessment is unlikely to change compared to the December outlook. While the ECB's strategic review is set to begin soon, it won't be completed until year-end and in the meantime, the narrative is unlikely to change. Hence, a fairly limited impact on the euro stemming from this meeting. As for the January eurozone PMI (Friday), our economists look for a modest improvement, though the Manufacturing PMI should remain in contractionary territory. Still, stabilising / modestly improving eurozone PMIs fit the current ECB outlook for stability and hopes for a rebound. This, in turn, underscores the fact that there is no need for an imminent change in the policy stance. With no ECB policy normalisation on the horizon any time soon, EUR upside appears to be off the table.
  • In the US, it is a fairly quiet day on the data front. December US Existing home sales (Wednesday) should not materially change the dollar's prospects. Rising speculation about possible US tax cuts might be seen as marginally positive for the US dollar vs the low-yielding euro, as it would benefit the dollar via (a) the improved growth channel, and (b) further reduce the odds of a Federal Reserve rate cut this year (which is still almost fully priced in). As for next week, expect EUR/USD to remain in a tight range, as has been the case for the past few weeks. 

JPY: No rebound in sight


Week ahead bias Range next week 1 month target



Mildly Bullish 109.50 - 111.30 110.00
  • The trail of global upbeat sentiment left by the signing of the 'phase one' trade deal leaves the door open for a week of stabilising risk appetite, leaving regional stories to drive FX moves. Japanese yen bulls must, therefore, rely on some internal push to the currency to prevent USD/JPY from consolidating above 110. Our suspicion, however, is that they may be left high and dry.
  • The Bank of Japan will announce policy on Tuesday but the potential for surprise appears to be low. With no monetary ammunition left to support the economy, BOJ Governor Haruhiko Kuroda will have to be content with the $120 billion of fiscal spending announced in December to soften the impact of the recent consumption tax hike.CPI numbers out on Thursday may show a marginal advance, but this is unlikely to lift the depressed Japanese rate environment. All in all, we see a definitive move back below 110 in USD/JPY as unlikely next week.
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