Global growth concerns, soft China data and the aptly labelled 'Grexit' are likely to be key drivers for a risk-off environment leading up to the FOMC statement.
Australian Dollar: Traders pushed the Aussie to a 5-year low and into the 70's rage for the first time since 2009, as traders speculated a rates cut in RBA's Feb meeting. After suffering -3.9% on the week, its most bearish since July 2013, the week closed with a Bearish Engulfing Candle to strongly suggest 0.83c is a significant swing high and not likely to be tested again for some time. This bearish move will probably be extended if Australia prints poor Business Confidence and inflation data this weeks. Interestingly whilst the Net Short positioning remains stable, open interest has dropped as both long and short large speculators have closed positions at these lows.
British Pound: Preliminary GDP is expected lower this week and is the headline event from the UK. With weak Oil prices and inflation at 14-year lows then GDP is likely to follow suit and soften this month. GBPUSD broke below 1.50 last week but has regained ground again in early Asia trading. Above here paints a near-term bullish bias but the risk if for further downside whilst we remain below the 1.525 swing high and to test 1.48.
Euro: The Net long/short ratio is at its lowest since Jan 2012 as traders show no hesitancy to continue piling into shorting the Euro. At some point we have to see an almighty capitulation, but until this day comes (and not knowing what would cause such a move) we have to assume further downside in line with bearish momentum. Preliminary CPI data for Germany and the Eurozone are the highlights of the week to see if deflation has (as expected) increased. EURJPY is attracting a lot of interest as money flows out of the Euro and into the safe-haven JPY, pushing the cross down to a 16 month low with increasingly bearish momentum. This may be a better short then EURUSD as there seems to be a lot more potential for downside with it recently selling off form multi-year highs.
New Zealand Dollar: RBNZ are widely expected to keep rates on hold this week, especially after last week's poor inflation report. A Dovish statement is likely to see further Kiwi weakness and is also highly probable given the inflation report. Weakness will persist if we continue to trade in a risk-off environment this week has started with following on from the Greek elections over the weekend. With the break below 76c for NZDUSD the resumption of the bearish trend has been confirmed and is now eyeing up 75 - 74c over the coming weeks. If we see a risk-on environment return then the hunt for yields will persist, driving EURNZD lower and NZDJPY higher.
US Dollar: Despite 2014 being the US's stringest year for job creating since '99 wage grwoth continues to stamp on the parade, with some expecting a delay in the FED's interest rate hike this year. The FOMC statement and rate [in]decision wil be the highlight of the week on Thursday but will finish off with GDP. The USD Index continues to print fresh multi-year highs with the latest leg up being fuelled by ECB QE plans.
CHINA: Manufacturing PMI is dangerously close to contracting as it rests at 51.1. A weak number will bring further downside pressure on AUD and NZD as they are key trade partners. With the data not expected to get any better, a reading of 50 or 51.1 may help support the AUD and NZD temporarily.
GOLD: Continues to shine as global growth concerns, soft China data and now the Greek elections see money flow in to the shiny precious yellow metal. As highlighted on Friday there is potential for a Double Top but we expect $1282 to hold as support and present a buying opportunity as traders seek to push it up to the $1320 target.
