Forex Weekly Outlook April 23-27

The US dollar retreated as doubts about the US economy’s strength continue mounting. The US rate decision which also features a press conference by Ben Bernanke, is definitely the main event of the week, but a rate decision in Japan and initial GDP releases in the US and UK among other events. Here is an outlook on the main market-movers ahead.

The most worrying piece of information was  US jobless claims, that remained on high ground  ,  indicating a hesitant recovery in the labor market. Yet also the Philly Fed Index disappointed. Is this a temporary setback for the US economy? It is become harder being optimistic.  In Europe, the divergence between Germany and all the rest continues growing.  Let’s start:

1. US CB Consumer Confidence: Tuesday, 14:00. U.S. consumer confidence dropped more-than-expected in March following the climb to 71.6 in February, the index dropped to 70.2. The majority claimed that current conditions are improving but dropped in the short term outlook. A small drop to 70.1 is expected now.
2.  US New Home Sales: Tuesday, 14:00. The number of new home acquisitions dropped unexpectedly in February for a second month to 313,000 from 318,000 in January while analysts expected an increase to 326,000. Despite signs of recovery in some regions, it is not broad based. Builders are required to compete with existing inventories and foreclosure deals. An increase to 321,000 is anticipated.
3. UK GDP: Wednesday, 8:30. The British economy squeezed by 0.3% in Q4 2011 and was up 0.8% on the year. Despite the gloomy reading business investment seems to be on the rise with an active manufacturing sector helping to boost the labor market and propel the UK economy. A growth of 0.1% is predicted this time. Note that this is the first release. Two planned revisions follow, and occasionally data is revised also after a long time.
4. US Core Durable Goods Orders  : Wednesday, 12:30. US companies extended their ordered of long-lasting goods in February rising 1.8% from a sharp drop of 3.0% in January. The main cause for this rise was stronger demand for machinery, computers, autos and aircraft indicating market conditions are improving. An increase of 0.6% is anticipated.
5. US rate decision: Wednesday, Statement released at 16:30, FOMC Economic Projections released at 18:00 and Ben Bernanke begins his press conference at 18:15. The FOMC decided to maintain its short-term interest rates as well as its monetary policies in March. The Fed announced that the job market was improvingas well as conditions in the EU after the European Central Bank injected more than a trillion dollars. The last FOMC report on economic projections revealed that the Fed’s annual inflation target is 2.0%, and target federal funds rate will remain between 0-0.25% until 2014. The Fed also expects unemployment rate to drop to 5.2%-6.0% in the long run.
   The FOMC is not likely to introduce any policy change in the upcoming meeting. US data is softer, especially with the weak NFP and the rise in weekly jobless claims. Nevertheless, these figures aren’t bad enough or consistent enough for QE3. Bernanke and his associates will probably wait at least until June, the time that also Primary Dealers expect a move. QE3 is still far from certain.
   Also regarding the interest rate pledge, we are expected to see more dissent within the committee, but no change in the statement.  What the statement will more likely contain is a softer language regarding the economy, perhaps revising the subtle positive changes seen in March. This will provide a cautious recognition of the weakness.
   A bigger surprise might come with the extension of the “Operation Twist” which ends in June, but there’s a higher chance that such a possible move will come only in June.
   All in all, I think the dollar will slide a bit on a softer look on the economy, with expectations remaining high for QE3 in June.
6. NZ rate decision: Wednesday, 21:00.New Zealand central bank maintained interest rates at a record low of 2.5% amid slow growth, a rising currency and holdups in rebuilding the earthquake-damaged city of Christchurch. A rate hike is expected only in December. Rate is expected to remain 2.50%.
7. US Unemployment Claims: Thursday, 12:30. Initial U.S. unemployment claims dropped less than predicted last week reaching 386,000 following 388,000 claims in the previous week. Analysts expected claims to drop further to 370,000 indicating the labor market recovery is not in the clear.378K
8. US Pending Home Sales: Thursday, 14:00. Second hand housing sales dropped in February 0.5% following 2.0% gain in January, while economists expected a 1.0% increase. The slow reading suggests the housing market struggles to maintain its recovery. A 1.4% climb is anticipated.
9. Japan rate decision: Friday. The Bank of Japan voted  to maintain its monetary policy on April 10, leaving rates unchanged despite a relative growth in business and political pressure offer further easing measures. No change is expected, yet the BOJ surprised in the past with unexpected QE, and has a goal of weakening the yen. So, surprises cannot be ruled out.
10. US GDP: Friday, 12:30. The US economy grew by a nice 3.0% in Q4 2011, but the recovery is still below average. Expectations are lower for Q1 and for the whole year. US economy is expected to expand by 2.6% this time. The better-than-expected trade balance deficit helps improve the figure. Note that significant revisions are likely later on.

*All times are GMT.

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