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The US dollar was on the retreat as hope for a super solution in Europe dominated the markets. Rate decisions in the US, the euro-zone and the UK and the Non-Farm Payrolls are the highlights of a very busy week. Here is an outlook on the main events to shape forex trading this week.

Mario Draghi, the president of the ECB said that his institution would do anything to preserve the euro in a speech made in London, raising hopes the ECB will resume its purchases of euro government bonds under the disputed Securities Market Program. Draghi’s sentiment was later echoed by leaders of Germany and France, raising the stakes for massive action to resolve the crisis – something that boosted all currencies against the dollar and the yen.  Let’s start:

  1. Canadian GDP: Tuesday, 12:30. The Canadian economy expanded by 0.3% in April compared to 0.1% gain in March. The rise topped expectations for a 0.2% growth rate. The main factors for this growth are a recovery in oil output, mining, wholesale and transportation. This better than expected reading may improve the BOC’ 2.5% growth rate forecast for the second quarter. A growth rate of 0.2%is predicted now.
  2. US CB Consumer Confidence: Tuesday, 14:00.U.S. consumer confidence continued to decline in June dropping to 62.0, the lowest level since January. This low reading failed expectations for a 63.8 reading coming below the 64.4 figure in May. This survey revealed there was an improvement in sentiment regarding current conditions but growing pessimism in regard to the short-term outlook. A further drop to 61.5 is expected this time.
  3.  US ADP Non-Farm Employment Change: Wednesday, 12:15. ADP Non-Farm Payrolls an important indicator for the official Non-Farm Payrolls, estimated an addition of 176,000 jobs to the private sector during June, well above predictions of 103,000 job additions and following 136,000 jobs in May. The figure was well above the official figure of 80,000 released at the end of the week. An addition of 122,000 is forecasted.
  4. US ISM Manufacturing PMI: Wednesday, 14:00. The ISM manufacturing report shows a weak reading dropping from 53.5 to49.7 in June, below the 50 point line indicating contraction.  New orders declined from 60.1 to 47.8 indicating contraction and prices component fell from 47.5 to 37.0, the lowest reading since the recovery. An expansion to 50.4 is expected now.
  5. US FOMC Statement: Wednesday, 18:15. the FOMC statement released after its monthly meetings concluded revealed the following: FOMC decided to extend Operation Twist through the end of the year including the purchase of treasuries with maturities between 6-30 years and selling treasuries maturities with 3-years or less.  The Federal Reserve isn’t likely to announce any new measures. There’s little the Fed can do at the moment. Bernanke already said in the past that more QE has “diminishing returns“. With yields at record lows, more stimulus will not help. What the FOMC could do is alter the statement, and show more readiness for action in the future. Such hints could help the markets and keep hope for QE3 alive. They could also extend the pledge to keep rates low beyond the current wording of “late 2014” to 2015. This is another form of verbal stimulus, without any real action. The recent decision to extend Operation Twist seems like a substitute to QE3
  6. UK Rate Decision: Thursday, 11:00. The economic situation in the UK is worsening, as seen in recent GDP figures, and the BoE could introduce more QE, perhaps another 25 billion pounds, to show they are “doing something”. On the other hand, one time events such as bad weather, the jubilee and the Olympic Games could deter the BoE from taking more action such as a bigger expansion of the Asset Purchase Facility or a rate cut.
  7. Euro-Zone rate decision: Thursday, 11:45. The stakes are very high, after Draghi committed to do everything to save the euro and added “And believe me, it will be enough”. He did limit his actions to the ECB mandate, but markets didn’t seem to care. The ECB has a wide range of options, including the much desired massive buying of Spanish and Italian bonds – an American / British style QE. The ECB may also lower the main rate below the 0.75% it made last month, lower the deposit rate to  negative value (after cutting it from 0.25% to 0%), announce a new LTRO program (even though it eventually backfired last time), loosen collateral rules or perhaps surprise with other measures. If the ECB indeed makes a big move, the euro and other risk currencies will leap against the dollar and the yen. Otherwise, a big plunge will be seen.
  8. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits declined more than predicted by 35,000 claims last week, possibly due to seasonal factors. This figure was preceded by388,000 in the previous week. Unemployment claims remained low since some automakers skipped their shutdowns this summer in the face of a pickup in auto sales, resulting in fewer temporary layoffs. A rise to 375,000 is predicted now.
  9. US Non-Farm Employment Change: Friday, 12:30.U.S. non farm job market expanded moderately by 80,000 jobs   in June from a revised 77,000   in the previous month. The US will probably see another small gain in jobs, after the recent mediocre reports. The economy continues to grow very slowly, and this will probably be reflected in a gain of around 100K jobs. This is a favorable situation for the US dollar: the US economy is not strong enough to lift the world from its misery, but not bad enough for outright QE3. The unemployment rate might tick up to 8.3% or remain unchanged.
  10. US Unemployment Rate: Friday, 12:30. The U.S. unemployment rate remained unchanged at 8.2% in June following a 80,000 job addition in the NFP release.  The new job creation pace was  downwardly  revised for April from 77,000 to 68,000, and was upwardly revised for May from 69,000 to 77,000. Alan Krueger, chairman of the White House Council of Economic Advisers, stressed the importance of strengthening the middle class economy to prevent another recession.8.2%
  11. US ISM Non-Manufacturing PMI: Friday, 14:00. This is usually a hint towards the NFP, but this time it is released afterwards. The US service sector grew at a slower pace in June, reaching 52.1 score from 53.7 registered in May and below the 53.1 reading predicted by economists. However this reading still indicated expansion suggesting the business sector is growing steadily. An improvement to 52.2 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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