Forex Weekly Outlook August 1-5

The US dollar was hit by the Fed and also by poor GDP. Is this the beginning of a downtrend? A full buildup to the Non-Farm Payrolls as well as key rate decisions in the UK and in Australia stand out. These are the highlights of this week. Join us as we explore the market movers for the coming week.

GDP grew at a disappointing rate of 1.2% after a downwardly revised 0.8% growth in the first quarter. Economists expected a growth rate of 2.6% in the second quarter. The main cause for this sharp decline was an $8.1 billion drop in inventory investment subtracting 1.16 percentage points from GDP growth. Meanwhile,  consumer spending remained robust growing at a 4.2% rate, the fastest since the fourth quarter of 2014. The Fed was more upbeat on the economy but did not provide any hike hints. In Japan, the BOJ added some measures but did not satisfy the markets’ hunger. Oil continued sliding.  Let’s start,

1. US ISM Manufacturing PMI: Monday, 14:00. U.S. economy’s manufacturing sector increased its activity in June, rising to 53.2 from 51.3 the previous month. The reading was above expectations of 51.3, indicating expansion. The employment index edged up to 50.4 from 49.2 while expected a reading of 49.0. New orders climbed to 57.0 from 55.7. The prices index declined to 60.5 from 63.5, while forecasted 63.5. Manufacturing activity is expected to decline to 53.1 this time.
2. Australian rate decision: Tuesday, 4:30. The RBA board decided to leave the cash rate unchanged at 1.75% at its July meeting. Global economic growth remains below the average pace and Australia’s terms of trade are weaker than in previous years and growth is moderate due to a large decline in business investment. Labor market figures are mixed with some improvement. The central bank awaits further information before changing its assessment of the outlook for growth and inflation and adjusting its monetary policy. The RBA  is expected to cut rates to 1.50% at its August meeting.
3. US ADP Non-Farm Employment Change: Wednesday, 12:15. The U.S. private sector hired 172,000 workers in June beating the market forecast for a gain of 158,000. The previous payroll gains were revised down to 168,000 from an originally reported 173,000 increase. The unemployment was expected to tick up to 4.8% compared to 4.7% recorded a month earlier. ADP report is expected to show a jobs gain of 171,000 in July.
4. US ISM Non-Manufacturing PMI: Wednesday, 14:00. The services sector expanded more than anticipated in June rising to 56.5 to a seven-month high, following 52.9 posted in the prior month. Economists expected a reading of 53.3. US services sector is expected to remain in expansion at 56 this time.
5. US Crude Oil Inventories: Wednesday, 14:00. U.S. crude inventories edged up 1.7 million barrels last week reaching a crude inventory of 521.1 million barrels. The inventory remains at historically high levels for this time of year. Despite the rise, crude inventories remain within the five-year range.
6. UK Rate decision: Thursday, 11:00. The Bank of England kept  interest rates on hold at its first meeting after  the Brexit vote. However, the central bank left the door open for a rate cut in August to prevent recession after June’s referendum result has clouded the outlook for the British economy. The economic uncertainty is likely to weigh on growth and may drag Britain back into a recession. For this reason, the BoE prefers to act in advance of a downturn, rather than after one has begun. The Bank of England is expected to cut rates to 0.25% in August.
7. Mark Carney speaks: Thursday, 11:30. Mark Carney, Governor of the Bank of England will speak in London about the Inflation Report. After the Brexit vote Carney stepped in to stem the Brexit panic. His main challenges are to prevent a recession, boost entrepreneurship and make the British economy work for everyone. Mr. Carney also said that the bank was piloting a digital currency project in order to better defend against crises such as Brexit, financial crimes, encourage honest competition, foster innovation, and financial inclusion and boost growth. Market volatility is expected.
8. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits increased more than expected last week, rising 266,000 following 252,000 claims in the previous week. However, the underlying trend continues to show a robust labor market. Economists forecast a rise of 261,000. Claims remain below 300,000 for 73 consecutive weeks, the longest stretch since 1973. The four-week moving average of claims declined by 1,000 to 256,500 last week, the lowest level since April. The number of new claims is expected to reach 265,000 this week.
9. Canadian Employment data: Friday, 12:30. Canadian labor shed 700 jobs as gains in the services sector were offset by declines in factory and construction work. The employment data suggests the Canadian economy is headed for a second-quarter contraction of up to 2%. The unemployment rate fell to 6.8% from 6.9 % in the previous month. The drop was largely due to the lower participation rate of 65.5% compared to 65.7 in the month before. The employment market is expected to gain 10,200 jobs, while the unemployment rate is predicted to rise to 6.9% in July.
10. US Non-Farm Payrolls: Friday, 12:30. US employment market surprised in June with a positive payroll growth of 287,000 compared to an 11,000 gain posted in the previous month. Economists anticipated a jobs gain of 175,000. Meanwhile, the unemployment rate increased to 4.9% as more people entered the labor force. However, wages increased less than expected, as the hourly earnings increased by 0.1% from a month earlier. The pace of hiring remained strong but was moderated by weaker profits and overseas developments such as Britain’s vote to leave the European Union. The US employment market is expected to expand by 180,000 new jobs while the unemployment rate is expected to decline to 4.8%.

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

*All times are GMT.

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