Forex Weekly Outlook – July 10-14 2017

The US dollar recovered across the board in a busy start to the second half of the year. Apart from further reactions to the NFP, we have all-important inflation, consumption data, and Janet Yellen’s testimony. Here are the highlights for the upcoming week.

The Fed meeting minutes revealed that the FOMC is split regarding the potential start of the balance sheet reduction. Markets still expect an announcement in September, but nothing is certain. The euro suffered from doubts about the taper announcement, while the pound was relatively stable after the storm. The Aussie dropped after the RBA expressed concerns over debt and wages while the loonie showed some strength.

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1. US JOLTS Job Openings: Tuesday, 14:00. The Fed has highlighted this report in the past, giving it importance despite the lag. The publication is for May, while we already have the NFP data for June. In the previous report for April, the indicator surprised by topping the 6 million mark, hitting 6.04 million. A drop to 5.898 million (annualized) is on the cards.
2. FOMC’s Brainard talks: Tuesday, 16:00. Lael Brainard is a permanent voter at the Fed and used to be a dove. In the past, her endorsement of a rate hike provided a confirmation for markets that a rate was coming. Will she be skeptical about inflation now or stay optimistic like her colleagues?
3. UK jobs report: Wednesday, 8:30. Britain enjoys a high level of employment, with unemployment at 4.6% back in April. However, wages were stuck at 2.1%, below the level of inflation. A drop to 1.8% y/y is on the cards now. And in May, jobless claims, known as Claimant Count Change, rose by a worrying 7.3K. This is expected to show another rise, 10.4K this time.
4. Janet Yellen testifies Wednesday and Thursday at 14:00. The Fed Chair meets lawmakers and she will undoubtedly talk about the economy. Her previous public appearance did not touch on any market-moving topics. Markets are curious to understand what the next moves of the Fed are. The most common assumption is that the Fed will begin reducing its balance sheet in September and raise rates once again in December. The recent rate statement included optimism about growth and employment while shrugging off weak inflation as transitory. Will Yellen repeat this tone once again? Or are doubts beginning to creep in? The prepared statement will be released on Wednesday at 14:00 and it will be followed by a Q&A session. Yellen will then repeat the same statement on Thursday with another set of Q&A. Market impact will likely be stronger on Wednesday.
5. Canadian rate decision: Wednesday, 14:00. After the recent hawkish tilt from the BOC, expectations are high. Stephen Poloz and his colleagues are unlikely to raise rates in this July meeting, but a hike in October is not ruled out. The accompanying statement could include important hints about future moves. The economy is growing nicely and oil prices are stable. On the other hand, there are worries about the housing market and inflation is not going anywhere fast. Poloz will meet the press at 15:15.
6. Crude oil inventories: Wednesday, 14:30. Oil prices have risen as US shale production began reaching its limits. We will now see if this, together with the driving season, push inventories lower.
7. US PPI: Thursday, 12:30. Producer prices serve as a warm up to consumer prices and have an impact on future CPI. In May, prices remained flat, as expected. Core PPI rose by 0.3%, beating expectations. PPI is expected to stay flat while Core PPI will likely rise by 0.2%.
8. US CPI: Friday, 12:30. Inflation is falling, but the Fed calls it transitory, due to one-off factors. In May, annual core CPI fell to 1.7%, more than expected. Month over month, core inflation was up only 0.1%. Headline CPI dropped by 0.1%, but this could genuinely be blamed on oil prices. The figure will be closely watched. Headline CPI is expected to rise by a modest 0.1% m/m and core CPI by 0.2%.
9. US Retail Sales: Friday, 12:30. Consumption is key to the US economy. In May, sales were down 0.3%, falling short of expectations. Also core sales declined by 0.3%, showing that the US consumer is more hesitant. Both headline sales and core sales carry expectations for a rise of 0.2% m/m.
10. US industrial output: Friday, 13:15. While the manufacturing sector is relatively small, it still has an impact and is closely watched. Production remained flat in May and a small rise is on the cards for June: 0.3%.
11. US consumer confidence: Friday, 14:00. The University of Michigan / Reuters measure of consumer confidence stood at 95.1 points in June, slightly lower than in April. We now get the preliminary figure for July and expectations stand at 95.2 points.

*All times are GMT

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