The EUR/USD is trading heavy on broad Dollar strength as traders prepare for the US GDP report as an event to guide the next major direction. Most of the recent direction has been guided by corporate earnings, which many forex traders tend to disregard. But this is a mistake because strong corporate earnings tends to fuel gains in the stock market and there is a high correlation between stocks and high yielding currencies. This week, some of the attention comes back to macro data and central bank interest rate decisions. At the official level, we will have an interest rate decision from the Bank of Japan.
No changes in the country’s 0.1% interest rate are expected, so most of the attention will be placed on the accompanying policy statement that will be released after the decision. The main question will be whether or not the BoJ will announce any changes to its massive stimulus program (introduced last month). Any evidence the BoJ is looking to inject additional monetary stimulus will be a negative for the Japanese yen, and a positive for carry trades. The BoJ has clearly shown its intention to weaken the yen (saying the currency is artificially strong), as this helps the country’s export companies and makes it cheaper for consumers to borrow money. This policy looks set to remain in place for the foreseeable future, and this essentially suggests we will see much higher values in currency pairs like the USD/JPY and AUD/JPY.
Economic Data Centered Mostly in the US
The rest of the economic data on this week’s scheduled will be centered in the US, but we will have the German IFO and this should have a significant effect on the EUR/USD for the remainder of the week. US data includes GDP and Durable Goods Orders. The GDP report is expected to show faster growth rates in the world’s largest economy but the Durable Goods Orders will likely balance any positives here, as it is expected to show a -3.0% drop from the previous month. Initial reactions to the data will likely come in a predictable direction but if we do see positive numbers, the later reaction will likely be Dollar negative as the improved sentiment will bring buyers back into risk currencies.