The main release for the Dollar is inflation data on Friday, whilst the minutes from the recent European Central Bank meeting could provide an insight into when they may end their stimulus programme; charts are warning of a major resistance ceiling overhead.
The Euro-to-Dollar rate has just arrived at a tough resistance zone overhead lying between 1.2090 and 1.2115, as illustrated by the orange band on the chart below.
This zone is likely to present a formidable barrier to further upside.
It is composed of the R1 monthly pivot at 1.2115 and the September highs at 1.2090, both of which tend to act as barriers against rising prices.
We view upside capped by this resistance zone and there is a possibility the exchange rate could correct back - a view enhanced by the patterning on the chart.
The move up from the November lows has formed an abcd pattern, which is like a three-wave zig-zag or figurative 'lightening fork', in which the first wave (a-b) is of a similar length as the third wave (c-d).
This abcd appears to have now completed, increasing the chances that the market could be peaking and be about to pull-back.
Nevertheless, the uptrend is still at this stage intact and so we cannot rule out a continuation higher, although for confirmation we would seek a break well above the resistance zone and 1.2140, with an upside target from there at 1.2200.
Data and Events for the Euro
The market expects positive data for the Euro and the consensus view is that the region is on a strong recovery track - a negative result, therefore, is more likely to cause volatility as it unexpected; for a higher result to cause volatility it will have to be much higher than expected.
The week kicks off with retail sales data for November, out on Monday, January 8, at 10.00 GMT, which is forecast to show a rise of 1.3% from -1.1% previously.
The unemployment rate is out on Tuesday, January 9 at 10.00 and is expected to show a basis point fall to 8.7% from 8.8%.
Industrial Production is out on Thursday at 10.00 and is expected to show a rise of 0.6% in November from 0.2% previously.
The minutes the European Central Bank (ECB) rate meeting will be out at 12.30 on Thursday and are likely to draw attention from investors.
The minutes will reveal the governing council's current thinking on monetary policy and when it is expecting to end QE.
QE is an elaborate form of money-printing used to alleviate crisis-hit economies, which is negative for a currency, so the date when the ECB finally expects to end it is likely to impact on the Euro, with the market currently expecting an end to QE in 2018.
Data and Events for the Dollar
The most important data for the US Dollar does not come out until Friday when inflation and retail sales data is released.
Inflation data is out at 13.30 GMT and it is important to the Dollar because it influences interest rates which in turn are highly correlated to the Dollar.
CPI in December is forecast to show a 2.1% rise compared to 2.2% in December of the previous year, 2016.
Core CPI, which omits volatile fuel and food inflation is forecast to show a 1.7% rise, which is the same as at the same time in the previous year.
The other main release is retail sales on Friday also at 13.30, which is forecast to show a 0.4% rise compared to the previous month of November when it rose by 0.8%.
Retail sales rose by 5.8% in November compared to the same time in 2016, and although a consensus estimate is not available it is forecast to rise by 5.6% in December by data website tradingeconomics.com.
"We look for a relatively modest 0.2% rise in retail sales, with downside risks on account of the cold snap in winter temperatures and the unsustainably strong pace in core sales in the prior three months." Says Canadian investment bank TD Securities.
The week ahead will see commentary from several members of the Federal Reserve's rate-setting committee, including Fed president's Dudley, Bullard, Evans, Kashkari, and Bostic.
The Dollar may be sensitive to what they say if they touch on longer-term inflation expectations, which remain subdued in the US.
"The highlight should be NY Fed President Dudley on Thursday, who has been supportive of the Fed’s plans to date. Incoming 2018 voters Bostic, Mester, and Williams (of Atlanta, Cleveland and San Francisco) also speak at the start of the week. The FOMC is expected to tilt more hawkish in 2018, which may be confirmed by this trio’s comments." says TD.
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