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Hi everyone,


2022 is fully up and running now with lots going on in markets to talk about. Yes as often is the case it's largely about the Fed - But - the good news is we are seeing some nice breakout moves in forex markets, including EUR/USD reaching its highest in 2 months. Also on the agenda China GDP, a BOJ rate decision and CPI data from the Eurozone, UK and Japan. Stay tuned!


So finally the EUR/USD forex pair broke out of its 2-month old sideways range. Let me talk just a second about what’s going on. It isn’t just the euro gaining - GBP/USD just reached its highest level since October and USD/JPY is down over 200 pips from its 5-year high above 116. At the same time gold and cryptocurrencies have been rebounding. The common denominator of course is the dollar.


The initial catalyst of the dollar weakness last week was Jerome Powell’s testimony to Congress. He simply wasn’t that hawkish. While many had expected him to be ringing the alarm bells about inflation - he didn’t and signalled no intent to raise rates faster than the Fed have already indicated. This initial dollar weakness then accelerated after US inflation data came in at a massive 7% year-over-year - a 40-year high. Although that might sound like it should be good for the dollar, it was in line with expectations so was already priced in. So markets refocused on the less hawkish Powell testimony and the dollar got smashed.


As a side note, there has been an interesting example of news that matters for trading forex and news that doesn’t. The British pound was among the top FX risers last week despite a political scandal surrounding Prime Minister Boris Johnson, who seemingly attended a big party, where invitees were encouraged to bring their own drinks, which he now claims to have been just a “work do”. Markets are assuming Johnson will stay in office but even if he doesn’t - there are bigger forces at play - namely decade high global inflation - so the news has been essentially ignored.


Now, diverting to an important topic very quickly - please don’t forget to hit the like button - it is that thumbs up icon just underneath where you’re watching! - it really helps us get noticed by the youtube algorithm.  Thanks very much!


OK, let's move on to this week’s economic calendar highlights. There is a lot going on this week now that government agencies are waking back up after their holiday reporting break. 


China GDP will be a big one to start the week. China’s economy grew by 4.9% in the third quarter and with property market problems and the emergence of Omicron, one would imagine that should be lower in the fourth quarter. Also to consider will be China retail sales and industrial production data, which arrive at the same time as GDP figures.


The Bank of Japan make a decision on interest rates this week. The low level of inflation in Japan means they are under less pressure than other central banks but just watch out for a hawkish surprise. The UK, Eurozone, Canada and Japan all report CPI numbers this week, which will make for interesting comparisons with the US equivalent, which hit a 40-year high last week. 


And before I wrap things up, I would just highlight ECB meeting minutes, which aren’t always much of a market mover but could be if European central bankers are worrying more about inflation than their public comments imply. A hawkish shift from the ECB could be another tailwind for the euro.


Right thanks everyone, good luck trading this week and make sure to click on subscribe so you don’t miss the next episode of the week ahead.


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