Category: US Dollar Forecast

Forex Weekly Outlook Jul. 28 – Aug. 1



The US dollar advanced nicely in a week that saw mixed data. A triplet of top tier US events dominates the scene: Q2 GDP, the Fed meeting and the Non-Farm Payrolls. There are other important indicators in the US and elsewhere. Here is an outlook on the major events coming our way.

Geo-politics continued to dominate the headlines, but this time it didn’t help the yen too much. We received mixed signals in the US. For example: jobless claims reached an 8 year low but bad news came from a big drop in new home sales. All in all, the US dollar emerged as a winner. The euro continued to deteriorate but some positive PMIs rescued it out of the abyss and created a hammer pattern. The pound was pounded with weak data and a hesitant central bank. The kiwi fell despite a rate hike on a dovish turn of the central bank and the Aussie couldn’t rise despite good data. Also the loonie ended the week sliding down. Will the action continue?

Updates:

 

  1. US Pending Home Sales: Monday, 14:00. The number of contracts to purchase existing U.S. homes surged in May by 6.1%, the biggest climb since April 2010. The reading was far better than the 1.4% addition predicted by analysts, showing a strong rebound in the housing market. Stronger employment conditions as well as cheaper borrowing costs, enable the pick-up in the housing sector.  Pending sales are expected to decline 0.2% this time.
  2. US CB Consumer Confidence: Tuesday, 14:00. U.S. consumer confidence edged up in June to 85.2 following a downwardly revised 82.2 in May, posting the highest reading since January 2008. Economists expected a smaller rise to 83.6. The expectations index increased to 85.2 in June from 83.5 in May, while the current situation index improved to 85.1 versus 80.3 in May. A further rise to 85.5 is expected now.
  3. US ADP Non-Farm Employment Change: Wednesday, 12:15. Private sector employment increased by 281,000 workers in June from 179,000 in May, according to the ADP report. Economists’ expected a modest rise of 207,000 jobs. The strong reading reflects continued strengthening in the labor market with a pick-up in Job creation. Private sector employment  is expected to expand by 234,000.
  4. US GDP data: Wednesday, 12:30. The US economy contracted sharply in Q1, shrinking by 2.9% (annualized) according to the final read, which was far off the initial one. Weather conditions and sluggish exports, housing and business investment were the main contributors for the shabby growth rate. The US economy probably rebounded strongly in Q2 2014, and an annual level of 3.1%. Strong growth is needed in order to compensate for the sharp fall.
  5. FOMC Statement: Wednesday, 18:00. The Fed is expected to taper bond buys for the sixth time to $25 billion per month. Apart from that, Yellen and her colleagues are likely to make minor changes to the statement and not rock the boat too much, especially as the decision is not accompanied by economic forecasts nor by a press conference. The FOMC statement could include a more optimistic assessment of the labor market, a somewhat more concerned approach towards housing and a mention of geo-political events. All in all, the sentiment could be slightly more positive (given the recent positive data) but probably not enough for a serious dollar rally. The fireworks will probably wait for September, when Yellen could provide more details about the Fed’s moves after QE tapering ends in October: the exit strategy and keys for a first rate hike.
  6. Euro-zone inflation data: Thursday, 9:00. While the ECB is waiting for the results of its monetary blitz from June, inflation data is certainly important. The low inflation or “lowflation” is expected to continue with yet another read of 0.5% y/y headline CPI and 0.8% in core CPI in the preliminary read for July, the same as in June. The euro will need any positive surprise to recover.
  7. Canadian GDP: Thursday, 12:30. Canadian GDP growth nearly stalled in April, inching 0.1% as in the previous month, while expected to rise 0.2%. Wholesale and retail activity edged up mildly, while mining and construction output weakened. On a year-over-year bases gross domestic product expanded 2.1%, the same rate marked in the previous month. Canadian economy is expected to grow by 0.3%.
  8. US Unemployment claims: Thursday, 12:30. The US Labor market registered a decline of 19,000 claims for jobless benefits in the previous week; reaching 284,000.Analysts expected a rise to 307,000 in the number of claims. This was the lowest reading since February 2006. The four-week moving average declined by 7,250 to 302,000, from the previous week. This is the lowest average level since May 19, 2007. This week’s reading reinforces views that the US economy is matching forward. The number of unemployment claims is expected to reach 306,000.
  9. Haruhiko Kuroda speaks: Friday, 3:30. BOJ Governor Haruhiko Kuroda will speak in Tokyo. He may speak about the slowdown in inflation and his plans for the coming months. According to some speculation, the door is now open in a wider manner to more stimulus, and this could hurt the yen.
  10. US Non-Farm Payrolls: Friday, 12:30. The US labor market showed a remarkable job addition of 288,000 in June, the strongest reading since January 2012, following a gain of 217,000 in May. Analysts expected a weaker increase of 214,000. This was another sign that the US job market is strengthening parallel to the economic recovery. The unemployment rate fell to 6.1% from 6.3% registered in May, the lowest level since Sep. 2008. Analysts expected rates to remain unchanged at 6.3%. The US labor market is expected to increase by 230,000 jobs, while the unemployment rate is forecasted to remain unchanged at 6.1%.
  11. US ISM Manufacturing PMI: Friday, 14:00. In June, the ISM manufacturing index declined mildly to 55.3, from 55.4% recorded in May. The figure was a little below market forecast of 55.6. However, the index still indicates expansion in the manufacturing sector. Declines in production and in supplier deliveries were the main reason for the lukewarm rise. US manufacturing sector is expected to expand to 56.1.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

More: Market Movers Podcast Test Episode #8: correlations, geo-politics and the pounding of the pound

Further reading:

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