Weekly Risk Events Preview 12 January: High-Probability Trading Opportunities
Article published on January 12th, 2025
When trading, the economic calendar serves as a roadmap to high-probability opportunities. Keeping track of major events and understanding their impact on the markets helps traders make smarter decisions and stay ahead of the game. This week offers several such opportunities, particularly with the pound (GBP) and the dollar (USD). Let’s dive into the critical events and the trading setups they may provide.
Key Risk Events for the Week Ahead
1. UK CPI Data (Wednesday, January 15)
The main focus at the start of the week will be the UK Consumer Price Index (CPI) data. Last week, the pound experienced a sharp sell-off, attributed to unusual moves in the UK gilt market. Initially perceived as a sign of sovereign distress, the sell-off was tied to surging bond yields and concerns over economic confidence. However, analysts from ING have clarified that this bond market activity does not indicate sovereign default risk.
The UK’s five-year sovereign credit default swap (CDS) remains stable, suggesting no imminent default concerns. Instead, recent pound weakness can be attributed to strong dollar themes and market positioning.
For this week, a significant miss in UK CPI data could give the Bank of England the leeway to consider interest rate cuts. If CPI prints below expectations, traders should look for:
- GBP/USD downside
- EUR/GBP upside
Positioning in favor of pound weakness aligns with ongoing bearish sentiment and dollar strength.
2. US CPI Data (Wednesday, January 15)
Later on Wednesday, US CPI data will take center stage. The Federal Reserve’s (Fed) recent minutes emphasized a “higher for longer” narrative on interest rates, supported by projections of sticky inflation and solid economic growth.
Key scenarios for US CPI:
- Above expectations: Reinforces dollar strength, favoring EUR/USD downside ahead of President-elect Trump’s inauguration on January 20th.
- Below expectations: Contradicts the Fed’s projections, potentially weakening the dollar and providing an opportunity for EUR/USD upside.
With the Fed’s confidence in economic stability, any deviation in CPI could be a pivotal moment for dollar traders.
3. UK GDP Data (Friday, January 17)
To cap off the week, the UK GDP print will be critical. The Bank of England remains constrained due to persistently high service inflation, nearly triple its 2% target. Despite this, Governor Andrew Bailey hinted at up to four rate cuts in 2024, a more dovish stance than the current market expectation of two cuts.
Key scenarios for UK GDP:
- Below expectations: Signals economic struggles and increases pressure on the BoE to accelerate rate cuts. This would likely lead to GBP/USD downside.
- Above expectations: Provides temporary relief for the pound, although broader trends may remain bearish.
Trading Outlook
GBP/USD: Look for short opportunities if UK CPI or GDP data disappoints.
EUR/GBP: A strong alternative for pound weakness, particularly in response to weak UK data.
EUR/USD: Watch for directional movement tied to US CPI outcomes.
Conclusion
This week’s economic calendar offers multiple high-probability trading opportunities. Focus on key data releases like UK CPI, US CPI, and UK GDP, as they hold the potential to drive significant market moves. By staying tuned to these events, traders can seize the moment and take advantage of market shifts. As always, manage risk effectively and keep an eye on evolving conditions.