Forex Weekly Outlook July 16-20

The US dollar index reached  2 year highs, but eventually corrected. Are we heading for a retreat or a continuation now? US Retail sales, inflation data and Bernanke’s testimony before the US Senate are the highlights of this week. Here is an outlook on the events to shape Forex trading in the coming days.

Last week a big shift in US jobless claims was recorded with a 26,000 decline to 350,000 in jobless claims from a 376,000 in the prior week. However, this was probably and outlier due to one time effects. Another US jobs related figure pointed in the other direction. In Europe, new austerity measures didn’t convince markets, but at least Italy managed to lower its yields for a change. China’s growth slowed down, but also this figure seems optimistic.  Let’s Start

1. US Retail Sales: Monday, 12:30. U.S. Retail sales dropped in May for a second month. Retail sales declined 0.2% the same as in April while economists expected a 0.1% gain. Meanwhile Core sales, excluding  cars, decreased 0.4% following a 0.3% drop in April failing analysts’ predictions of a 0.1% increase. Low wage gain and unemployment exceeding 8% are the likely causes for this decline. Retail sales is expected to gain 0.2% while Core sales is predicted to climb 0.1%.
2. UK inflation data: Tuesday, 8:30. UK inflation rate continued to fall in May declining to an annual rate of 2.8% from 3.0% in the previous month. The headline inflation rate dropped amid lower fuel costs. This ongoing decline will enable the BOE to promote yet another round of quantitative easing (QE). A further drop to 2.7% is forecast.
3. German ZEW Economic Sentiment: Tuesday, 9:00. German analyst and investor sentiment plunged unexpectedly to-16.9 in June from 10.8 in May. This was the fastest rate since October 1998, caused by worsening of Spanish banking sector and worries concerning Greek election outcome. This sharp decline failed analysts’ predictions for a reading of 3.8 points. A small improvement to -14.5 is predicted this time.
4. US inflation data: Tuesday, 12:30. US Inflation rate continued to decline amid lower energy prices dropping 0.3% broadly in line with expectations, following a flat reading in the previous month, while the core index gained 0.2% for the third consecutive month. Since the core CPI remained positive it appears that the US economy continues its growth. Core CPI is expected to gain 0.2%.
5. Canadian Rate decision: Tuesday, 13:00. The BOC maintained its overnight rate at 1.0% as announced  it will reduce monetary policy stimulus in case Canadian economy continues to grow as predicted, to achieve the 2.0% inflation target. However such a move will be carefully considered and the next rate hike is estimated to occur before first hike in the Federal funds rate. Interest rate is expected to remain 0.1%. Recent job figures were good in Canada.
6. Ben Bernanke speaks: Tuesday, 14:00 and Wednesday, 14:00. Ben Bernanke, head of the Federal Reserve, will testify before the US Senate in Washington DC at the semi-annual monetary policy report. His speech will cause volatility in the market. This comes after he extended Operation Twist, now a clear substitute to QE3.
7.  UK Claimant Count Change: Wednesday, 8:30. The number of people claiming unemployment benefits in the U.K. increased unexpectedly in May by a seasonally adjusted 8,100, compared to a contraction of 12,800 in April, adding to concerns over the nation’s economic outlook. Economists expected a further decline of 3,100 claims. Another rise to 9,700 is estimated this time.
8. US Building Permits: Wednesday, 12:30. The U.S. annualized building permits hit forty-four month high in May reaching 780,000, the highest level since August 2008. The figure beat expectations of 720,000 units and followed715,000 in the previous month. A decline to 770,000 units is anticipated.
9. US Unemployment Claims: Thursday, 12:30. A huge surprise occurred last week with jobless claims plunging to a four year low of 350,000 down 26,000 from the previous week. The unexpected decline was probably induced by less than usual auto-sector layoffs and other onetime factors. It is believed that unemployment claims will rise again over the next few weeks. A rise to 375,000 is predicted now.
10. US Existing Home Sales: Thursday, 14:00. Sales of existing homes in the US dropped in May by 1.5% to an annual rate of 4.55 million units, indicating economic hardships and lack of cheaper properties weigh down on the housing industry. However compared to a year earlier, May sales were 9.6% higher, and it was the eleventh consecutive month of sales gains compared with a year earlier. A rise to 4.65  million is forecasted.
11. US Philly Fed Manufacturing Index: Thursday, 14:00. Philly Fed’s monthly report disappointed with an unexpected sharp contraction to-16.6 in June beating expectations for 0.7 reading, following 5.8 score in the previous month. This plunge suggests the manufacturing sector may be slowing this summer. An improvement to -7.8 is expected now.

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

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 the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar
• For the Swiss Franc, see the  USD/CHF forecast.