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Majors, US Dollar Forecast

Forex Weekly Outlook July 15-19

The US dollar was on the back foot after Ben Bernanke released dovish comments. Will the dollar begin a period of weakening? Or will markets understand that tapring is still on course? US Retail sales, German ZEW Economic Sentiment, Ben Bernanke’s speech as well as the US Unemployment Claims. Check out these events and more, on our weekly outlook.

Last week minutes from the Federal Reserve’s June policy meeting revealed split opinions among the Federal reserve on the QE removal. Bernanke’s speech did nothing to clear the air about the Fed’s true intentions, but contained quite a few dovish words, seand the dollar tumbled down rapidly.He stated that loose policy is here to stay and that the unemployment rate overstates the health of the job market. Coming on low liquidity,  EUR/USD jumped 300 pips  and had made big swings afterwards.  Spain’s government is on the brink of collapse, but the markets ignored it. Chinese trade data pointed to a global slowdown, but the  Aussie escaped 0.90. The BOJ kept on easing but the yen’s strength is not pleasing.  Let’s Start

* Overview of the previous week:  Bernanke’s comments undermine the dollar; What to expect this week?

  1. US retail sales: Monday, 12:30. U.S.  retail  sales advanced more than expected in May due to an increase of automobile purchases. Sales increased 0.6% following a 0.1% rise in April, indicating stronger market activity. Economists expected retail sales to rise 0.4%. Meantime core sales, excluding automobiles, gasoline and building materials, rose 0.3% after a 0.2% gain in April. Recent data supports this rise, showing an improvement in the pace of job gains as well as in consumer confidence. US retail sales are expected to climb 0.7%, while Core sales are predicted to advance 0.5%. Consumers are less confident.
  2. UK Inflation data: Tuesday, 8:30. Consumer price index in the UK increased to 2.7% in May, after reaching 2.4% in April. The rise was mainly due to higher transportation costs. The Bank of England expects inflation to go beyond 3% this year and above 2.0% until early 2016. May’s reading was higher than analysts predicted. A further increase of 3.0% is expected this time. The relatively high inflation limits Carney’s potential moves.
  3. German ZEW Economic Sentiment: Tuesday, 9:00. German economists and investor climate continued to rise for the second straight month in June, reaching 38.5 following 36.4 in May, beating predictions for a reading of 38.2. The positive data suggests German economy is regaining strength despite recent doubts raised concerning its recovery. ZEW President Clemens Fuest said the German economic recovery will accelerate in the second half of the year. Another improvement to 39.9 is projected by analysts.
  4. US Inflation data: Tuesday, 12:30. U.S. consumer prices edged up in May, Consumer Price Index gained 0.1% following a 0.4% decline in April, broadly in line with market expectations. Meanwhile Core prices, excluding food and energy climbed 0.2% suggesting stronger demand in the  economy. The rise was in line with expectations, preceded by a 0.1% increase in the previous month. CPI is expected to climb 0.3%, while core CPI is anticipated to increase 0.2%. PPI exceeded expectations.
  5. UK meeting minutes: Wednesday, 8:30. While jobs data will be released at the same time, the meeting minutes from Carney’s first decision will undoubtedly overshadow them. Carney released a strong statement warning on interest rates, and he sent the pound crashing down. The minutes could reveal if there is substance behind this warning and the BOE is ready to act, thus hurting the pound again, or if it was only a theoretical discussion lacking substance, in which case the pound can rise.
  6. US Building Permits: Wednesday, 12:30. US Building permits for privately-owned housing reached a seasonally adjusted annual rate of 974,000 units in May, lower than the revised rate of 1,005,000 in April, but higher than  last year reading of   806,000, indicating that the jousting sector is continuing to thrive. A rise to 1 million is expected now.
  7. Ben Bernanke Testifies: Wednesday, 14:00, Thursday, 14:00. The Chairman of the Federal Reserve Ben Bernanke will testify before the House Financial Services Committee, in Washington DC. His speech will cause volatility in the markets especially in light of the QE tapering starting date yet to be declared. In his last testimony, he released a relatively dovish prepared statement, but he later commented that QE tapering could begin in one of the next few meetings. The market was whipsawed.
  8. Canadian rate decision: Wednesday, 14:00.  The  Bank of Canada  kept its target for  the overnight rate  at 1.0%.  The BOC expects global economic activity to continue modestly in 2013 before strengthening in the next two years and domestic economy in  Canada  , is expected to be stronger than the  Bank  projected in April. The Bank also forecast household debt will improve due to subdued foreign demand and ongoing competitiveness challenges, including the persistent strength of the Canadian dollar. No change in rates is forecast. This is the first rate decision made by the new governor, Stephen Poloz.
  9. US Unemployment Claims: Thursday, 12:30. U.S. The number of initial claims for unemployment benefits increased more than expected last week, reaching 360,000. This reading was higher by 16,000 compared to last week’s release. Economists expected claims to reach 342,000. The less volatile four-week average increased 6,000 to 351,750. A decline to 349,000 is predicted.
  10. US Philly Fed Manufacturing Index: Thursday, 14:00. Business conditions improved in the Philadelphia region. The general index soared to 12.5 in June beating predictions for a 0.6% drop. This was the highest reading since April 2011. New orders edged up to 16.6 after dropping to minus 7.9 in May. A fall to 6.9 is expected now.
  11. Canadian inflation data: Friday, 12:30. The consumer price index edged up 0.2% in May after falling 0.2% in April. Meantime, core CPI, excluding energy and other volatile items, also climbed 0.2%, leaving the annual rate unchanged at 1.1%. Both CPI and Core CPI were below market forecasts. However the BOC declared it intends to raise rates instead of cutting rates and projects inflation to reach 2.0% by mid-2015. A decline of 0.3% is expected this time.

*All times are GMT.

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

Further reading:

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