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Majors, US Dollar Forecast

Forex Weekly Outlook September 3-7

The US dollar slid lower for a second week in a row. Hopes for Europe improved the appetite for risk assets, and so did Bernanke’s speech in Jackson Hole which left the door open for QE3 even though there were no strong hints. Rate decisions in Australia, Canada, the UK and most importantly in the Euro-Zone will precede the US Non-Farm Payrolls. All provide a very strong start to September, as many traders return from vacations.. Here are the main market-movers coming our way this week.

Ben Bernanke said the employment situation is  grave and justified past QE. There was a very subtle hint about extending the low rate pledge, but in general, all options are on the table, and the upcoming data, especially job data, will provide clues for what kind of action we can expect on September 13th.  The number of weekly unemployment claims remained unchanged at 374,000 last week. This is mediocre but not too bad.. Factory orders rose. In the upcoming week, there is a nice buildup to the NFP. Let’s start:

  1. Mario Draghi speaks: Monday, 13:30. ECB President Mario Draghi will speak before the European Parliament’s Economic and Monetary Affairs Committee, in Brussels.  His speech may reveal clues about the ECB’s next decision as the tension between him and the German central bank (Bundesbank) is growing over the bond buying proposals. There was talk that the president of the Bundesbank might resign.
  2. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia maintained its cash rate on at 3.5% for the second time, in line with expectations. Moderate domestic growth and earlier cash rate reductions had prompted the decision. All in all, the RBA is satisfied with current economic conditions in Australia, but warns against downside risks from global markets. No change is expected this time.
  3. US ISM Manufacturing PMI: Tuesday, 14:00. American manufacturing sector continued to contract in July reaching 49.8 from 49.7 in June. Economists expected the index to cross the 50 point line to 50.3. Nevertheless, the rate of contraction was slower than before. A rise above the 50 point line to 50.1 is predicted now. The employment component should also be watched as a hint towards the Non-Farm Payrolls.
  4. Australian GDP: Wednesday, 1:30. The Australian economy expanded unexpectedly by 1.3% in the first quarter, doubling economists forecast after 0.6% growth rate in the fourth quarter of 2011. The main cause for this boost was an unexpected growth in mining investment. A rise of 0.9% is anticipated this time.
  5. Canadian rate decision: Wednesday, 13:00. The Bank of Canada maintained its overnight rate at 1.0% in July. The BOC said domestic economy especially consumption and business investment, will offset global headwinds from Europe and China leading to moderate economic growth. The report also left the door open for possible rate hikes in the future. Rates are expected to remain unchanged, and a more hawkish tone could be seen after the strong GDP data.
  6. Australian employment data: Thursday, 1:30.Australia employment market improved in July despite difficulties in the global economy. The job market gained 14,000 positions following a contraction of 28,300 jobs in the previous month. The rise was well above predictions of a 10,200 addition. Meantime Unemployment rate also improved going down to 5.2% from 5.3% in June. Australian government invests over $15.6 billion in the vocational education in order to increase the nation’s productivity. Economists expect a small gain of 5,200 jobs with a higher Unemployment rate of 5.3%.
  7. UK rate decision: Thursday, 11:00. The BoE decided to keep the official bank rates at 0.5% in its August meeting, in line with predictions. The asset purchase program destined to expire in November will continue for the time being. The possibility of prolonging the asset purchase program was not discussed. In addition to the asset purchase program the £2.5 billion FLS program will enable banks to give loans to small/medium sized businesses and individuals helping to boost the UK economy. No change is predicted now. Recent British figures were mixed after a bad second quarter.
  8. Euro-Zone rate decision: Thursday, 11:45, press conference at 12:30. The ECB will likely provide more details about the new bond buying scheme. One interesting part is the seniority issue that was problematic in the Greek bond swap. Another is the question of sterilization: if the ECB drains out the money or not. The ECB isn’t expected to act immediately in the markets after the decision, as Spain isn’t in a hurry to submit an aid request. Another reason for the ECB to wait is the September 12th decision by the German constitutional court on the ESM. On this background of no action expected on the bond buying front, there are growing chances that the ECB will cut the interest rate from 0.75% to 0.50%, to help the struggling economies. This is far from certain though, so there’s more room for market action after the rate decision, in addition to the action around the press conference.
  9. US ADP Non-Farm PAyrolls: Thursday, 12:15. Automatic Data Processing Inc. showed a gain of 163,000 jobs in the private sector during July, far better than the 121,000 anticipated by analysts and following172,000 in June. However the ADP report does not always correlate with the same month’s NFP results but the second consecutive rise could indicate a growth trend in the job market. A gain of 141,000 jobs is predicted now.
  10. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits remained flat last week at 374,000, pointing to a sluggish job growth. This together with the high unemployment rate stuck above 8.0% for more than three years, point on a weak labor market. A decline to 369,000 is expected this time.
  11.  US ISM Non-Manufacturing PMI: Thursday, 14:00. Service sector activity expanded better than expected in July reaching 52.6 compared to 52.1 in June. The ISM non-manufacturing details were mixed. Hiring contracted to 49.3 from 52.3 in June while new orders grew to 54.9 from48.9 in June. A small drop to 52.5 is anticipated. The employment component will be watched towards the NFP, despite the miss last month.
  12. Canadian employment data: Friday, 12:30. The Canadian job market was badly affected by the global economic slowdown cutting an unexpected 30,400 jobs in July following a 7,300 gain in the previous month and contrary to predictions for a 9,600 rise. This sharp drop can indicate a slowdown in the job market. August does not look so good either with the expected addition of the education sector layoffs. Meantime Unemployment rate also grew to 7.3% from 7.2% in June a reading that may force the BOC to cut rates. A job addition of 11,300 is predicted with the same unemployment rate of 7.3%.
  13. US Non-Farm Employment Change: Friday, 12:30. The most influential job market indicator in the US, excluding the farming industry, came in better than predicted with a 163,000 job addition in June. The reading was well above predictions and followed 64,000 job additions in the previous month. However with this kind of a reading the Fed is unlikely to authorize a third round of QE. An addition of 122,000 jobs is expected this time.
  14. US Unemployment Rate: Friday, 12:30.US unemployment rate increased despite encouraging job creation of 163,000 reported by employers. The reason for this mixed reading came from the household survey pointing to a contraction of 195,000 jobs. About 852,000 “discouraged workers” were not included in the labor force, because they did not look for a job in the last four weeks raising the so called  “underemployment rate” to 15%, its highest level since January. No change is forecasted.

*All times are GMT.

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

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Anat Dror

Anat Dror

Anat Dror Senior Writer I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew. In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students. I've also worked as a community organizer