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Majors, US Dollar Forecast

Forex Weekly Outlook May 19-23

A volatile week in currency markets left the euro and pound weaker and the yen stronger.  Rate decisions in Japan, inflation data in the UK and Canada, more  US housing data and the FOMC meeting minutes are the main events on our list. Here is an outlook on the main market-movers for this week.

Fear gripped markets in the past week: lower than expected GDP in the euro-zone plus more details about the move in June kept the euro depressed, dovishness from the BOE sent GBP/USD away from 1.70, and the safe haven yen certainly enjoyed Ukraine fears and stock markets’ nervousness. In this storm, the US dollar looked for a new direction. On one hand, data such as jobless claims, housing and CPI pointed to a stronger recovery, but as not all numbers played along and as US yields remained low, it seemed to lack any sense of direction.  Let’s start,

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  1. UK inflation data: Tuesday, 8:30. UK inflation remained below the BOE’s 2.0% inflation target in March, reaching 1.6%, the lowest reading since October 2009. This reading was preceded by 1.7% in February. This was the sixth consecutive month of low inflation narrowing the gap between wage growth and the rise in prices contributing to business stability. UK inflation is expected to increase to 1.7%.
  2. Japan rate decision: Wednesday. Governor Haruhiko Kuroda maintained the BOJ’s monetary policy in April expressing confidence that the economy is advancing according to plan. However, many analysts believe the BOJ will have to ease policy in the near future to prevent a deflation trend. Kuroda told Prime Minister Shinzo Abe  that he will adjust policy without hesitation in case the 2.0% inflation target may be jeopardized. No change is expected this time, especially as Japanese  GDP beat expectations.
  3. US FOMC Meeting Minutes: Wednesday, 18:00. In the recent FOMC decision in April, the Fed tapered for the fourth time and refrained from any surprises. So, the minutes might reveal some more thoughts of the various members regarding tapering and future rate hikes. Where are low US yields headed.
  4. UK GDP data: Thursday, 8:30. According to the first release, the UK economy grew by 0.8% in Q1 2014. This was slightly below the high expectation of +0.9%, but still shows solid growth. A confirmation of this figure is expected now, in the first revision of the data.
  5. US Unemployment Claims: Thursday, 12:30.Initial claims for U.S. unemployment benefits hit a seven-year low of 297,000 claims last week, confirming the strong recovery in the US economy. Claims fell 24,000 from the preceding week, indicating stronger economic growth in the second quarter. Stronger labor market and rising inflation pressures give green light to the Fed’s ongoing tapering move. Jobless claims are expected to increase to 312,000.
  6. US Existing Home Sales: Thursday, 12:30. Second hand homes sales declined to their lowest level in more than 1-1/2 years in March, reaching an annual rate of 4.59 million units. However, sales were stronger than the 4.57 million forecast by analysts, indicating that the negative trend in the housing market may be over. Supply increased as well as the number of first time buyers. Existing Home Sales are expected to rise to  4.71 million.
  7. German Ifo Business Climate: Friday, 8:00. German  business  climate index rose to 111.2 in March, following a revised 110.7 in February. The reading was stronger than the 110.5 points forecasted by analysts. The Ukraine crisis took less attention in the survey despite Barack Obama’s warnings of additional sanctions against Russia  in case it fails to reach an agreement with Ukraine. German  business  climate is predicted to reach 111.
  8. US New Home Sales: Friday, 14:00. Sales of new U.S. homes plunged to their lowest level in eight months reaching a seasonally adjusted annual rate of 384,000 units in March. It was the second consecutive monthly drop indicating a slowdown in sales. Economists expected sales to increase to 455,000 saying the unexpected drop may be related to cold weather conditions. However, the weak demand increased the months’ supply of houses on the market to 6.0, the highest level since October 2011, from 5.0 months in February. New home sales are expected to reach 426,000.

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

*All times are GMT.

More:  Could EURUSD Be The Trade Of The Year?

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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