The main event of the week seems to be the FOMC meeting and the US interest rate decision along with Jerome Powell's press conference. The FOMC decision will be published on Wednesday at 20:00, half an hour later the conference of the chairman of the Federal Reserve will begin.
According to Bloomberg, the Federal Reserve's decision may be the main event causing an increase in volatility on the currency market. Investors on the basis of the options market seem to price a more dovish stance of the representatives of the US central bank. It shows that demand for options, which could gain if the USD strengthens, fell after January 14, when Jerome Powell indicated that the discussion of reducing the bond-buying program is premature at this point. Powell may even speak out in favor of continuing the Fed's actions with even more firmness than before. This in turn could hit the USD.
The forex market has received new investment ideas from the Swedish bank Handelsbanken. According to them, the British pound and the Australian dollar can be bought against the euro in 2021, as brexit risks cease to exist and China's economy can start to gain momentum. Thus, the Swedish bank, quoted by Bloomberg agency, writes a short position on the EUR/GBP pair with a target level at 0.8400 (currently around 0.8900). The rationale is supposed to be greater clarity on Brexit, the rules of cooperation between the UK and the EU and the beginning of managers to weigh in their portfolios the pound, which has been marginalized since 2016.
The second idea of Handelsbanken is a short position on the EUR/AUD pair with a target level of 1.4600 (currently around 1.5700). According to the bank, the continued expansion of the Chinese economy means demand for key Australian commodities, infrastructure investments in dominant financial areas will also increase demand, while Australia's relations with China may begin to normalize (in 2020 China will impose embargoes on Australian products). The euro is expected to be weaker in the second half of the year as large areas of the eurozone have been hit hard by the pandemic and old problems will be replaced by new ones as the economic recovery gains momentum, according to a note from Handelsbanken.
It is worth mentioning that the Davos Economic Forum started today, but in virtual form. President of the People's Republic of China Xi Jinping will speak at 1 p.m. and Christine Lagarde, head of the European Central Bank, is scheduled to speak at 5 p.m. The forum will last until Friday, January 29.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
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