Greece continued dominating the news, and the week ends with some optimism, but nothing is certain.. The showdown for Greece, the ECB rate decision, US inflation, retail sales, Yellen’s testimony and various rate decisions all stand out as the main market movers on Forex calendar. Here is an outlook on the highlights of this week.
The Greek crisis further escalated with the clear NO vote in the Greek referendum. A recovery began as preparations were made for what seems as the real deadline: the EU Summit on Sunday. Pressure for debt restructuring mounted and eventually Greece submitted its proposals, which consisted of a capitulation on austerity but also a request for a longer plan, an investment plan and most importantly debt relief. The euro rallied but there are still doubts if a deal will be sealed. The safe haven yen enjoyed the crisis and so did the dollar, but they retreated when things seemed to improve.
Elsewhere, the Federal Reserve released the minutes from its June meeting, showing policymakers were concerned about Greece’s debt crisis and expressed caution in general. The rate hike timeline was also discussed, as mixed economic data made it harder for the Fed to initiate such a move in June. Many members were determined to receive further solid data before deciding to raise rates. The pound dropped on the background of the budget presentation but managed to recover. The loonie was hit by oil and the Aussie reached new cycle lows on the Chinese crisis and the RBA’s desire for a lower AUD. Both currencies enjoyed positive labor figures. It certainly was busy and it’s likely to remain so. Let’s start,Updates:
- Weekend talks on Greece: Eurogroup on Saturday and EU Summit on Sunday (could be cancelled) and tentative Eurogroup on Monday. As EU top official Donald Tusk described it, this may be the final deadline to reach a deal. With Greek austerity proposals basically bowing to the creditors’ demands, there is much optimism that a deal is indeed done. The Eurogroup’s blessing on Saturday could seal it. If not, there may be trouble. With an endorsement from France, the key remains in Merkel’s hands and the hot topic remains debt restructuring, as always. If she agrees, this would be a retreat for Germany, but if she refuses, Germany will find itself alone against France and the IMF (which will only sign a deal that consists of debt restructuring), showing that it only wanted Tsipras out and never negotiated in good will. Assuming a deal, we could get a small relief rally, as this is already priced in. If there is no deal, a big crash could occur.
- UK inflation data: Monday, 8:30. Britain’s inflation rebounded in May, after turning negative in the prior month. Official figures showed prices increased 0.1% amid higher airfare and oil prices. The reading was in line with market forecast. Analysts expect inflation will remain weak in the coming months and will stay below the BOE’s goal of 2% until 2017. However, low prices and rising wages are beneficiary to household finances. UK’s inflation is expected to rise by 0.1% in June.
- German ZEW Economic Sentiment: Monday, 9:00. German Economic Sentiment Index fell to 31.5 in June, following 41.9 posted in May. Analysts expected a higher reading of 37.5. The Current condition declined to 62.9 from 65.7 reported a month earlier. External factors as the Greek crisis were the main source of worry for German responders. Germany wishes to keep Greece on the euro zone to maintain the single currency, but there are other voices calling for a Grexit. Economics expect sentiment will deteriorate to 30.6.
- US Retail Sales: Tuesday, 12:30. Americans increased their spending at retailers in May, buying more autos, clothes and building materials. Retail sales rose a seasonally adjusted 1.2% after a mere 0.2% advance in April, indicating the job market continues to improve increasing store sales. The reading was broadly in line with market forecast. Over the past 12 months, sales have gained 2.7%. Excluding automobiles, core retail rose a solid 1% in May while economists forecasted a 0.7% rise. If this trend continues, the Federal Reserve may raise rates in the near future. Retail sales is expected to rise 0.4%, while Core sales are forecasted to advance 0.7%.
- Japan rate decision: Wednesday. The Bank of Japan kept its monetary policy in tact in its June meeting. The central bank will continue to expand the monetary base at an annual pace of 80 trillion yen and increase the frequency of its economic outlook reports to improve transparency. The recent slowdown in exports poses risks to economic growth, but Kuroda said that inflation remains on track with accordance to the BOJ’s target. The central bank chief reiterated that Japanese economy is recovering moderately.
- UK employment data: Wednesday, 8:30. The number of Britons claiming unemployment benefits declined by 6,500 in May after contracting 7,800 in the previous month. Economists forecasted a bigger decline of minus 12,500. The unemployment rate remained at a seven-year low of 5.5% and wages increased at the fastest rate in four years. The number of unemployed fell 43,000 in the three months to April indicating UK’s labor market continues to improve. The number of unemployed in the UK is expected to decline by 9,300 in June.
- US PPI: Wednesday, 12:30. U.S. Producer Price Index edged up 0.5% in May, compared to minus 0.4% in April. Analysts expected a 0.4% rise. On an annual basis, headline inflation fell 1.1%. May’s rise resulted from a broad-based increase in energy prices. Analysts expect that higher pipeline inflation pressures could induce the Federal Reserve to hike rates in September. Producer Prices are expected to rise 0.2% this time.
- Canadian rate decision: Wednesday, 14:00. The Bank of Canada maintained its interest rate at 0.75%. The central Bank noted that inflation was in line with projections and consumer spending remains strong, but monetary policy will be re-examined in the coming months. Bank of Canada governor Stephen Poloz ascribes Canadian expansion to US economic growth, saying a strengthening American economy will provide a major boost for Canada. Goldman expects a dovish surprise.
- Janet Yellen testifies: Wednesday, 14:00. Federal Reserve Chair Janet Yellen will testify before the House Financial Services Committee, in Washington DC, on the Semiannual Monetary Policy Report. Yellen may speak about the reasons for the Fed’s decision to postpone the rate raise in June, and suggest a possible timeline for the first hike. The U.S. economy expanded a solid 2.4% in 2014, but the Fed’s latest prediction for 2015 shows weaker growth of 1.8% to 2%. Any talk about rate hikes will rock the markets. While a September hike has the best chances, a dovish stance can never be ruled with Yellen.
- Eurozone rate decision: ECB rate decision: Thursday, 11:45 with the press conference at 12:30. The European Central Bank played a key role in the Greek crisis, basically forcing banks to shut down once negotiations broke down and Greece went to a referendum. This role will be questioned by reporters. For markets, perhaps the bigger focus is on plans regarding QE. Assuming a deal, will the ECB go all-in into Greek bonds? Will QE be expanded given the repercussions the crisis had on the continent? In addition, the assessment of the Bank on inflation and growth developments is also key, even though no forecasts are expected now.
- US Unemployment Claims: Thursday, 12:30. The number of initial claims for unemployment benefits in the U.S. edged up 15,000 last week, reaching an adjusted 297,000. The reading was much higher than the 274,000 claims forecasted by analysts. The four-week moving average increased by 4,500 claims to 275,000. Continuing claims, rose by 69,000 claims to a seasonally adjusted 2.33 million. The unexpected rise can be attributed to layoffs in the auto industry. The number of claims is expected to reach 282,000 this week.
- US Philly Fed Manufacturing Index: Thursday, 14:00. Manufacturing conditions in the Philadelphia region have improved in June, rising from 6.7 in May to 15.2 in June. Analysts expected a modest rise to 8.1 points. The increase was across the board. New orders climbed to 15.2 in June from 4.0 in May. Paid sub index surged to 17.2 from minus 14.2 in May. However, the employment index fell to 3.8 from 6.7. The reading suggests higher growth in the second half of 2015. Manufacturing activity is expected to decline to12.1 this time.
- US Building Permits: Friday, 12:30. U.S. building permits for home construction surged 11.8% in May to a seasonally adjusted annual pace of 1.28 million units. The nearly eight-year high reading suggests a positive trend in the housing sector as well as improvement in the broader economy. Policymakers viewed the housing sector as one of the weak spots in the US economy. More solid data came from retail sales and employment indicating the first-quarter’s soft patch is over. U.S. building permits is expected to reachv1.11 million in June.
- US inflation data: Friday, 12:30. U.S. consumer prices increased 0.4% in May, registering the largest increase in more than two years, amid rising gasoline prices. The rise marks the end of the oil crisis and the sluggish first quarter. The fed estimates inflation will rise over the summer enabling a rate hike in September. Meanwhile, core CPI excluding food and energy costs, inched 0.1%, the smallest gain in five months, after a 0.3% rise in April. On a yearly base, core CPI rose 1.7%, slowing from a yearly increase of 1.8% in April. CPI is expected to gain 0.3%, while core CPI is predicted to grow by 0.2%.
- US UoM Consumer Sentiment: Friday, 14:00. Consumer confidence jumped to 96.1 in the final read in June . The rise in confidence was due to solid data released from the job market and consumer spending surged after wages grew and inflation remained low. Consumer confidence is expected to reach 96.7 in July. Higher confidence implies more retail sales, but the correlation is not always there.
That’s it for the major events this week. Stay tuned for coverage on specific currencies
*All times are GMT.
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