Currency pair of the week

Already cutting rates in June, the European Central Bank will be in focus again this week. This time, no rate cuts are expected from the ECB, which, together with reduced political uncertainty in Europe and weakness in US data, should all help to keep the euro supported against the US dollar, maintaining the short-term EUR/USD forecast in bulls’ favour.

The upcoming release of US inflation data is likely to alter the odds of a September rate cut in the direction of the surprise, putting the GBP/USD forecast into focus. Thus, a clearer trend for the US dollar could emerge this week, after the greenback fell across the board last week.

One big risk event is taking place next Sunday, on June 30. This will mark the first round of the French parliamentary election. But it is likely that the extent of Marine Le Pen party's progress will only be known after the run-offs on July 7.

The GBP/USD forecast is in focus, with the upcoming Bank of England rate decision, UK CPI, retail sales from both sides of the pond and global PMI data all on tap this week. Plus, there is the added uncertainty from the upcoming UK general election.

The markets have reacted negatively with both the CAC and euro falling following European elections turmoil and France's decision to call a snap election. Markets generally don't like uncertainty and not when far-right parties are making gains across Europe, especially in Austria, Italy and Germany.

It will be a busy week for the greenback with lots of top-tier data releases to come, starting with the ISM manufacturing PMI on Monday. Among major currency pairs, the likes of the USD/CAD will be quite volatile with the Bank of Canada also expected to make a rate announcement in mid-week.

EUR/USD outlook could be impacted by key inflation data from Eurozone and US this week, as euro makes positive start to new week and dollar falls. EUR/USD technical analysis points higher after breaking from its bullish flag pattern. However, with key data on tap, the upside could be limited.

Our GBP/USD outlook remains bullish, mainly due to our bearish US dollar forecast. On the GBP side of the equation, the Bank of England is getting closer to cutting interest rates, although the market seems to be looking past this. Domestically, the focus this week is on UK inflation data, which is expected to cool, potentially cementing expectations that the central bank will cut rates in June.

The USD/JPY will face a major test in the week ahead, with both the Bank of Japan and US Federal Reserve set to make monetary policy decisions a day apart. The USD/JPY has managed to recover strongly, rising from around 146.50 to above 149.00 in a few days. The recovery has been driven in part because of a rebound in bond yields a stronger dollar.

The US dollar is steady after Friday’s drop. We have BOC rate decision, Powell testimony and NFP jobs report among the macro highlights for this week.

The USD/CAD will be among the busier of major currency pairs in what will likely be relatively quieter week, at least in so far as macro data is concerned. Given the closure of US markets for Presidents' Day and the majority of major data releases already published in preceding weeks, the week ahead will present few noteworthy macroeconomic highlights, aside from a select few.

For FX traders, this week's US CPI and retail sales are among the key data highlights. Pound traders also face busy week with several market moving data to come from the UK. GBP/USD technical analysis points modestly lower.

NFP, Powell and FOMC all paint a bullish US dollar story. This week's data highlights are ISM services PMI and monthly jobs report from Canada. The USD/CAD technical analysis point to bullish break above 1.35 handle.

With the FOMC and BoE rate decisions to come in mid-week, ahead of the NFP on the last day of week, the GBP/USD is set to be in for a roller-coaster ride. Are we finally going to see a breakout above 1.28 or will it drop to 1.25 handle first?

The EUR/USD was a touch lower in the first half of Monday’s session, with many traders sitting on their hands ahead of the big macro events later in the week. With US GDP and Core PCE on tap from the US, and a rate decision to come from the European Central Bank, the EUR/USD is clearly going to be a bit more volatile this week, making it out currency pair of the week.

Thanks to the Martin Luther King Day holiday, FX markets were quiet-ish on Monday without the participation of US banks. But things should start to pick up from Tuesday onwards. We are going to have some potentially market-moving macro data from around the world to look forward to later this week. Among these macro pointers, we will have some important UK data too, including CPI, wages and retail sales, making the GBP/USD the currency pair of the week.

The AUD/USD is our featured currency pair this week, as we have important inflation data from the US, Australia and the latter’s largest trading partner, China. The economic calendar is otherwise quieter as we start the first full trading week of the year.