Forex Weekly Outlook January 6-10

The week of the new year saw the dollar and the yen make a comeback against the euro and the pound. And now, the real action returns: FOMC Meeting Minutes as well as important employment data culminating in the most important NFP event on Friday are joined by rate decisions in the euro-zone and in the UK, among other events. These are the main market movers on our list for the second week of 2014. Here is our outlook for the major events to influence forex trading.

Last week US first weekly jobless claims report in 2014 posted a 339,000 increase in the number of new claims for unemployment benefits. The figure was broadly in line with market consensus and was down 2,000 claims from the prior week. Further good news arrived with US consumer confidence, rising to 78.1 in December after posting 72 points in the previous month.  Manufacturing growth was also satisfactory sustaining its growth trend reaching 57.0, following   56.4 in the previous month. All in all US economy continues to expand, a good omen for 2014. EUR/USD lost long term uptrend support, and cable reached out above 1.66 but fell sharply, as data was good, but not as high as expected.  Let’s start,

1. US ISM Non-Manufacturing PMI: Monday, 15:00. The U.S. services sector index fell to 53.9 in November from 55.4 in October indicating cautious spending by consumers. This lukewarm expansion rate was lower than the 55.4 reading forecast by analysts. The employment gauge fell to 52.5 from October’s 56.2 to hit its lowest since May, while business activity growth slowed to 55.5 last month from 59.7 in October. Growth in the service sector was steady in 2013 with an average of 55 over the past 12 months. A rise to 54.6 is expected this time.
2. Fed Chairman Nomination Vote: Monday, 10:30., The US Senate will vote to approve the nomination of Janet Yellen as Federal Reserve Chairperson for a term, Feb 2014 – Jan 2018. The event is expected to go smoothly. Any delays could weigh on the dollar.
3. US Trade Balance: Tuesday, 13:30. The U.S. trade deficit narrowed to $40.6 billion in October from September’s gap of $43 billion due to an all-time high in energy products export. Exports rose 1.8% to a record $192.7 billion.  Imports climbed 0.4% to $233.3 billion, the highest since March 2012. Oil imports rose 1.5%. U.S. petroleum exports edged up 9.3% in the first 10 months of 2013 compared with the same period in 2012, while petroleum imports plunged 11.1%. Economists believe exports will keep growing, reflecting modest recoveries in Europe, Japan and China. Trade deficit is expected to contract further to 40.2 billion.
4. US ADP Non-Farm Payrolls: Wednesday, 13:15. The U.S. private sector employment market added 215,000 jobs in November, exceeding forecasts of a 172,000 increase. Hiring picked up since October after a sharp upward revision reaching an 184,000 job-gain. This event is usually overshadowed by the major non-farm payrolls report from the U.S. Labor Department but the upward trend increases optimism among economists. A smaller gain of 199,000 is expected now.
5. US FOMC Meeting Minutes: Wednesday, 19:00. The Fed releases the minutes of the meeting in which QE tapering was decided upon. It will be very interesting to read into the sentiment of policymakers in this big decision, and to see whether we get hints for future moves. While the general path is known, end of QE by the end of the year, the pace is certainly not, and the decision if to taper or not to taper in January remains open.
6. UK rate decision: Thursday, 12:00. No change is expected from the BOE. At the moment, the UK enjoys a perfect combination of low inflation and strong growth, including in jobs. If growth remains strong, we can expect an update to forward guidance in one of the quarterly inflation reports, perhaps in May.
7. Eurozone rate decision: Thursday, 12:45, press conference begins at 13:30. The ECB is unlikely to change its policy in January, but could certainly hint about looser policy in the next meeting. There are a few encouraging signs in the old continent, but financial conditions remain tight, and deflation is a threat, especially with a strong value of the currency. Draghi tends to zig-zag between an optimistic message to a pessimistic one. After sending a calm one in December, we can expect him to weigh on the euro this time, especially if the negative deposit rate option receives a bigger hint than usual..
8. US Unemployment Claims: Thursday, 13:30. US first weekly jobless claims report in 2014 posted a 339,000 increase in the number of new claims for unemployment benefits. The number of claims was 2,000 lower than the reading posted in the prior week. The data in recent weeks was highly turbulent due to the holiday season volatility. This week’s reading returns to a more stable state. Nevertheless, nearly 4.5 million people received some form of unemployment benefits in the week ending Dec. 14, the latest data available. That’s 180,000 more than the previous week. An addition of 334,000 jobs is expected now.
9. Canadian employment data: Friday, 13:30. The Canadian job market created 21,600 jobs in November, posting the third consecutive rise. The rise topped predictions for a 12,300 rise.   Meanwhile, the unemployment rate remained at a nearly five-year low of 6.9%.  The Bank of Canada is more concerned about low inflation than the situation in the job market. The positive job market figures are welcome news for them. Since November 2012, the economy added 179,100 jobs, an increase of 1.0 percent. The Canadian job market is expected to add 13,300 jobs and unemployment rate is expected to remain unchanged at 6.9%.
10. US Non-Farm Payrolls and Unemployment rate: Friday, 13:30. Non-farm payrolls posted a 203,000 job gain in November, following a revised 200,000 increase in October. The increase was well above market prediction of a 180,000 job addition pushing jobless rate to a five-year low of 7.0% from 7.3% in October. Analysts believe further improvement in the labor market will occur in 2014 aided by stronger GDP growth. The pick-up in hiring suggests companies are more confident in future demand and labor conditions are improving amidst this upward trend. The US economy is expected to add 194,000 jobs with the same unemployment rate.

*All times are GMT.

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

More:  FX Outlook 2014 – Conditional Dollar Strength

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
• For the kiwi, see the  NZDUSD forecast.