The Week Ahead

Welcome to week 2 of my “The Week Ahead” blog. Last week proved to be quite profitable largely due to the BOE interest rate decision. For this week my currency focus has switched from the pound and the US dollar to the Euro and Japanese Yen. Please note that clocks have been moved forward in the US today for daylight saving time. Clocks are not moved forward in the UK for BST until the 27th of March and so economic data from the US will be announced one hour earlier than usual for the next 2 weeks. Here are my thoughts on the week ahead and the opportunities that may arise. 

Investor Focus

Investor focus at the start of this week will be on Japan and the aftermath caused by it’s worst crisis since WW2. Japan’s largest earthquake on record and the following tsunami may not be the most costly natural disaster for Japan as the epicentre was not near any major cities, yet it has come at a particularly bad time for Japanese businesses which have been struggling lately. Particular attention should be paid to the Nikkei225 index on the open on Sunday evening through to Monday for a round of panic selling. A melt down at Tokyo Electric Power Co.’s Fukushima Daiichi No. 1 reactor could also cause further panic across global equities. 

Economic Releases

There are a few interesting economic releases this week which could provide active investors with opportunities. Here are a few of the biggest:

• 18:15 Tuesday, FED interest rate decision. This is likely to be a none event with the FED very likely to keep interest rates at 0.25 with no indication of when this might change but is something to be aware of nonetheless. 
• 12:30 Wednesday, US PPI numbers. This measure of inflation is usually seen in a historical context these days and doesn’t hold as much importance as the CPI numbers due to the switch of reliance in the US economy from manufacturing to consumerism.
• 12:30 Thursday, US CPI numbers. This event could cause market volatility as it will give investors an indication of the current inflation in the US which has been low until now but is projected to go higher. Gold in particular, being the classic hedge against inflation, may be volatile around this time. I will be looking to sell gold if this number is much lower than expected. 

Currency Focus

Euro: The euro looks set to be the first major currency to start increasing interest rates since the economic crisis and this could have profound affects on it’s value and on the other currencies too. Worries over the debt levels in the periphery countries have kept pressure on the euro recently but early on Saturday European leaders widened the scope of the euro’s rescue fund, authorised it to buy government bonds and eased the terms of Greek bailout loans. This will pave the way for further euro gains over the coming months as the increasing interest rates take priority over debt levels. A strong euro could certainly lead to more problems for periphery countries as their competitiveness is further undermined but for now it should be a case of all aboard the euro express. 

USD/JPY approaching resistance

Japanese Yen: Despite the wide spread damage caused by the earthquake last week the Japanese Yen actually went up against most currencies. This could prove to be short lived however, as the strong Yen is doing severe damage to Japan’s exports. The Yen has been increasing for some time now even though the fundamentals surrounding the currency and the economy are deteriorating. There has been talk over the weekend that the BOJ is preparing a massive round of monetary easing which will surely decrease the value of the Yen at long last. This could be a huge opportunity to sell Yen.

Watch List

EUR/JPY chart over 4 months

EUR/JPY: I will look to buy this pair as soon as I can hopefully around 114. I will place my stop loss at Friday’s low around 13.10 and will target the 116 level initially. This pair could go to 120 over the next month or two I believe. 

USD/JPY, GBP/JPY: I will look to buy both of these pairs on a daily reversal candle or at the 81.20 and 80.40 levels for USD/JPY. 

Gold: With the PPI and CPI numbers being released on Wednesday and Thursday there could be a potential chance to sell gold if inflation is less than expected as gold has been struggling after hitting all time highs last week. 

Thanks for reading this weeks “The Week Ahead”.