Forex Weekly Outlook August 5-9

The US dollar managed to end the busy week a bit stronger, but the NFP took some of the wind out of its sails. ISM Non-Manufacturing PMI, US trade balance, and jobless claims, as well as rate decisions in Australia and Japan are the main market movers for the week ahead. Here is an outlook on the top events on our calendar.

Last week the NFP release was a big disappointment with a lower than expected gain of 162K jobs in July. Economists expected a bigger increase of 184K. This came after an encouraging number from ADP: a 200K addition in private sector jobs. This reading sends mixed signals to the U.S. Federal Reserve and will certainly make them more cautious about their QE tapering plan. Will the US job market show resilience and ease growth concerns? In the euro-zone, Draghi acknowledged some green shoots, but policy will stay accommodative. In the UK, the focus shifts to this week. Let’s Start

1. US ISM Non-Manufacturing PMI: Monday, 14:00. The U.S. business activity slowed in June to 52.2 from 53.7 in May, despite a pick-up in employment.  Economists expected a further expansion, rising to 54.3. Despite the relative slowdown it is still better on yearly bases.  A rise to 53.2 is expected this time. This is usually a hint towards the NFP, but it will have a strong impact also afterwards, as the services sector is the largest in the US.
2. Australian rate decision: Tuesday, 4:30. The central bank maintained the cash rate at a record low of 2.75% in July, sounding more positive regarding the outlook on global economy. RBA governor Glenn Stevens noted global financial conditions “remain very accommodative” and the pace of borrowing has remained relatively subdued. Growth is expected to continue and the RBA board is waiting to see whether the Australian dollar will fall further before making changes in monetary policy. After a recent dovish speech and weak PPI, many expect the RBA to cut the rate to 2.50%. Here are 5 reasons for the Aussie’s crash.
3. US Trade Balance: Tuesday, 12:30. The U.S. trade balance in May widened unexpectedly to $45.0 billion from $40.1 billion in April amid a fall in exports and an increase in imports. However the rise in imports also indicated improvement in domestic demand. Analysts expected deficit to reach $40.3 billion. This result may hurt GDP but at the same time suggests an improvement in domestic demand.  U.S. trade balance deficit is expected to reach $43.1 billion this time.
4. NZ employment data: Tuesday, 22:45. New Zealand’s labor market improved in the first quarter with a fall to 6.2% in unemployment rate following a revised 6.8% in the fourth quarter of 2012 and a sharp increase in the number of 38000 new jobs equaling a 1.7% rise in the first quarter. The good results indicate a pick-up in New Zealand’s job market and economic activity. A job addition of 0.4% is expected, while unemployment rate is predicted to climb to 6.3%.
5. British Inflation Report: Wednesday, 9:30. In the rate decision announcement, the MPC said that a review about forward guidance will be released in the inflation report, making it a highly anticipated event. Mark Carney is expected to provide ammunition for pound bears, with a commitment for low rates. However, with the better economic signs and with inflation just under 3%, new QE will be a hard task.
6. Japanese rate decision: Thursday. The Bank of  Japan  issued its most optimistic announcement in two-and-half years, noting Japan’s economy  is finally recovering from its long lasting deflation. The BOJ maintained monetary policy intact. However, the slowdown in China still remains a major downside risk for Japan’s economic recovery. Rates are expected to remain unchanged for now.
7. US Unemployment Claims: Thursday, 12:30. The number of Americans applying for unemployment benefits plunged by 19,000 last week to a seasonally adjusted 326,000, the lowest figure since January 2008. This decline suggests the job market continues to strengthen and would boost economic growth later this year. Economists expected a small rise to 346,000. The ADP report also turned out better than expected with a 200,000 rise providing further cause for optimism. An addition of 336,000 is expected now.
8. Canadian employment data: Friday, 12:30. The Canadian job market remained nearly unchanged in June, following May’s massive addition of 95,000 new jobs. Economists expected a contraction of 4200 jobs but Statscan reported a small loss of 400 jobs. Unemployment rate remained steady at 7.1%, in line with market expectations. However the economy lost 32,400 full-time positions while adding 32,200 part-time jobs, a major drawback for the Canadian job market. A job addition of 6,200 is expected with no change in unemployment rate.

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

*All times are GMT.

Further reading:

• For EUR/USD, check out the  Euro to Dollar forecast.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD to USD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar