Forex Weekly Outlook July 1-5

The dollar ended the week, month and quarter with a nice rise. Can it continue into the second half of the year? Top tier US events culminate with the US Non-Farm Payrolls. Jobs data of all sorts becomes very important. In addition, we have rate decisions in Australia, the euro-zone and the UK. Will Draghi change his mood to a negative one? Will Carney make a big announcement in his first rate decision as BOE governor? It will certainly be an exciting week in the hot summer. Here is an outlook on the highlights of this week.

Updates:

• Here is a weekly overview of market events  – The US earnings season is beginning and this has an impact on markets.

Weekly jobless claims dropped to 346K last week, in line with the moderate jobs growth, down 9,000 from the preceding week, matching market expectations. Most data remained mixed, showing the same picture of slow and steady growth in Q2, following a slower growth than expected in Q1. The Fed’s optimism seems to be disconnected from reality at this point. In the euro-zone, we have seen stronger data from Germany, but continued worried about the periphery, especially as yields are rising. The UK is stuck between slow growth and inflation. And in Australia, the bears are firmly in control. Let’s start:

1. US ISM Manufacturing PMI: Monday, 14:00. The US private sector businesses activity declined more than expected, reaching 49.0 following 50.7 in April. Analysts estimated a smaller decline to 50.6. New Orders Index registered 48.8, while manufacturing prices declined to 49.5, with the Employment Index at 50.1.  The reading came below the 50 point line indicating a possible contraction in the Manufacturing sector. A rebound to 50.6 is expected now.
2. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia kept the official cash rate at 2.75%, in line with market expectations. The RBA board said that international conditions remain satisfactory and that domestic inflation is moderating. No change in rates is expected. One of reasons for the rate cut in May was the strength of the Australian dollar. This doesn’t seem to be a problem any more, with the big crash. Will the RBA attempt to stabilize the situation? Or rather acknowledge the weakness of the Australian economy?
3. US ADP Non-Farm Employment Change: Wednesday, 12:15. Private sector employment edged up by 135,000 jobs in May from 113,000 job addition in April. However the reading fell below 171,000 expected by analysts suggesting job creation is stalling. An addition of 161,000 jobs is anticipated now. These are high hopes.
4. US Trade Balance: Wednesday, 12:30. The U.S. trade deficit increased in April reaching 40.3 billion from $37.1 billion in March, due to larger imports. Although the reading was better than the 41.1 billion deficit projected by analysts, it suggests sluggish growth in the second quarter. The US trade deficit is expected to remain unchanged this time.  
5. US Unemployment Claims: Wednesday, 12:30. The number of Americans filing initial claims for unemployment benefits dropped 9,000 last week to 346,000, in line with market expectations. The four-week average fell 2,750 to 345,750. The improvement in the job market was also evident in consumer spending, rising 0.3% after a 0.3% decline in the previous month. A slight drop to 345,000 is predicted.
6. US ISM Non-Manufacturing PMI: Wednesday, 14:00. US non-manufacturing PMI registered a slight increase in June reaching 53.7 from 53.1 in the previous month, a bit stronger than the 53.4 forecast. However this was the slowest growth in two and a half years. New orders and backlogs declined, suggesting lower spending and weaker economic activity in the coming months. A further improvement to 54.3 is expected.
7. UK rate decision: Thursday, 11:00. This decision will probably trigger more action in the markets than previous ones, as it is Carney’s first and expectations are high. However, it is unlikely that he will announce new QE at this time: inflation is rising and there are some signs of a return to more steady growth. In addition, the meeting minutes of recent decisions have shown there is opposition to more QE within the MPC. And while the members might want to be in line with the new governor, he will probably not choose to lead new policy at this time. The pound could leap on no change in policy and slide a bit on new QE.
8. Eurozone rate decision: Thursday, 11:45, press conference at 12:30. The ECB isn’t expected to announce any change in policy in the upcoming meeting. In the previous one, it seemed that Draghi put the idea of a negative deposit rate on the backburner. However, the situation in the financial markets has dramatically changed since then: bond yields have risen and could bring the debt crisis back to the limelight. In the past, Draghi zig-zigged between different  moods  between various meetings. After a positive and confident appearance last month, he could warn about the rising bond yields, growth prospects and falling inflation, given an impression that negative rates are more relevant once again and that the OMT is ready to be used soon. A worried Draghi could send the euro lower, while another confident appearance could help it.
9. Canadian employment data: Friday, 12:30. Canada’s job market expanded by a remarkable 95,000 jobs mainly full-time positions. This was the biggest gain in more than a decade, indicating a genuine improvement in the Canadian economy. The big jump pushed unemployment down from 7.2% to 7.1% in May. All the new jobs are in the private sector-76,700 of them were full-time. However, weaker manufacturing sector still suffered a shortage of 14,200 workers in May from April, bringing the total losses in the sector in the past year to almost 100,000. A contraction of 12,300 jobs is expected, but unemployment is likely to remain at 7.1%.
10. US Non-Farm Employment Change: Friday, 12:30. U.S. employers increased hiring in May adding 175,000 jobs after an increase of 149,000 in the previous month, indicating US economy is resilient. Nevertheless, The unemployment rate increased to 7.6% from 7.5% April as more Americans started to look for jobs. This increase indicates that the economy is still in need of the Fed’s bond-buying stimulus measures. An expansion of 165,000 jobs is anticipated with a drop to 7.5% in unemployment rate. This publication is more important than previous ones due to the emphasis on jobs.

*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 USD/CAD (loonie), check out the  Canadian dollar