The Japanese Yen saw yet another wildly volatile week of trading, as similarly choppy price action in the Dow Jones Industrials Average and other major risky assets led to major currency price swings through end-of week trade. The USDJPY initially tumbled as our own forex positioning data predicted a downside break, but currency traders quickly flipped direction and our Speculative Sentiment Index currently forecasts short-term USDJPY rallies. The Bank of Japan provided the major piece of Japanese event risk on the week, but a relatively uneventful interest rate decision gave traders little reason to force major moves across JPY pairs. Instead, the bulk of Japanese Yen volatility came from similarly large moves in global stock markets. An ostensibly busy Japanese economic calendar is unlikely to force major moves for the Yen in the week ahead, and traders will continue to monitor flows in risky assets to drive moves in the USDJPY.

A string of market-moving US and European economic reports are likely to determine the Japanese Yen’s fate; strong moves in regional stock markets will likely dominate sentiment in the typically risk-sensitive Yen. Though our forex correlation study shows that the Dow Jones-USDJPY relationship has recently weakened, it remains historically high by any measure and we cannot discount global risk sentiment in forecasting USDJPY moves. That is precisely what we saw through last week’s forex trade; a tumble in European indices led to a sharp G10 Carry Trade sell-off. With that in mind, we will pay especially close attention a steady string of significant US economic data.

First on the ledger is Conference Board Consumer Confidence figures on Tuesday the 26th—almost certain to cause major moves in consumer-related US stocks. That same day, the US Federal Open Market Committee will release its minutes from its most recent interest-rate setting meeting. Currently aggressive US interest rate forecasts for the year ahead may very well depend on rhetoric in said release, and we will have to watch for any significant change in tone from US Fed officials. Otherwise, European traders will pay close attention to German IFO Business Confidence Survey; disappointments will likely force sell-offs in domestic stock indices and spark Japanese Yen rallies.

British Pound’s Prospects Remain Weak

The British pound ended last week down more than 2 percent as UK GDP unexpectedly stagnated during Q2 and led the annualized rate of growth to slow to a 16-year low of 1.4 percent. UK expansion was plagued by a host of factors, and while the Bank of England has made a point of discussing their concerns about the upside risks to inflation and intent to maintain price stability, it’s worth wondering how long the central bank is willing to stand aside as the economy falters.

The markets are betting that it won’t last for much longer, as Credit Suisse overnight index swaps continue to price in over 50bps worth of rate cuts within the next 12 months. Looking ahead to this week, the economic data scheduled to be released isn’t likely to sway the markets into thinking otherwise. Furthermore, according to our Senior Strategist’s Elliott Wave analysis, GBP/USD could be nearing a bottom, but it may have further to fall first. On Thursday, CBI distributive trades is forecasted to show a mild improvement in orders while consumer confidence should worsen. The former report could hold a bit more weight than usual with the markets, as the Bank of England has recently stated that they were looking at survey data more closely given the volatility that tends to occur in the official statistics. Overall though, the economic is not good for the UK economy and thus, the British pound.

David Rodriguez is a Currency Analyst at FXCM.