Last Week Recap: USD was the weakest ccy after a deep sell-off on Friday. The WSJ reported Fed is considering no longer shrinking it’s massive balance sheet earlier. That is, the eventual size of the portfolio of treasury securities could be larger than originally expected. This is seen as a move in response to the adverse stock market conditions back in December. AUD ended as the second weakest but has already pared back much of those losses after Friday’s rebound. JPY followed as the third weakest. GBP ended as the strongest ccy, boosted by a receding chance of a no-deal Brexit. NZD was the second strongest after solid CPI lowered chance of an RBNZ cut. EUR proved to be surprisingly resilient and survived a batch of weak data as well as a dovish ECB but will face tests from GDP and CPI this week.

Week Ahead: The start of the week should be fairly quiet, with little of note today but be ready for a busy week ahead, including:

FOMC rate decision. Some policy makers might want to take the balance sheet reduction off autopilot. This is definitely a topic Fed Chair Jerome Powell will be scrutinised on in the post FOMC meeting press conference on Wednesday.

US-China trade talks. The highly anticipated meeting between US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He will take place on 30th-31st January in Washington. Ahead of that, there will be vice ministerial meetings on Monday and Tuesday. Comments from the US side has been rather conflicting. On the one hand, Commerce Secretary Wilbur Ross said the two countries are “miles and miles” away on a trade deal but White House economic adviser Larry Kudlow said Trump is optimistic. One thing is for sure, there is so far no news regarding how China is going to handle the biggest concerns of the US, including intellectual property threat, forced technology transfer, and opening up market access. It remains to be seen if there will be any real progress in the negotiations.