Forex Weekly Outlook July 2-6

The US dollar erased the gains in the previous week on the surprising outcome of the EU Summit. The dollar’s fall lasted longer this time. So is this a game changer for all currencies? Or just a longer rally until the mood dampens again?  US Non-Farm Payrolls and rate decisions in the UK, Australia and the euro-zone are the highlights of a busy week that begins a new month and a new quarter. Here is an outlook on the main market-movers ahead.

The leaders of the EU decided on allowing the bailout funds to directly buy bonds and recaptilize the banks, providing a lot of hope for resolving the debt crisis. There are quite a few conditions there, but the markets seem to ignore them now, as stocks and risk currencies gain. In the US, weekly jobless claims dropped 6,000 to 386K from last week  but remain on higher ground towards the all-important NFP. Meanwhile the US housing sector has continued its recovery trend with an unexpected rise of 369K in new home sales and an unpredicted surge of 5.9% in Pending Home Sales. Lot’s of US figures await us now. Let’s Start

1. US ISM Manufacturing PMI:  Monday, 14:00. U.S. Manufacturing PMI expanded less than predicted in May, dropping to 53.5% compared to 54.8 in April. The main contributors for the slowdown in production were lower inventories and backlog of orders. A further drop to 52.1 is predicted now.
2. Australian rate decision: Tuesday, 4:30. The Reserve bank of Australia lowered the official cash rate by 25bps to 3.5% in line with expectations amid the slowdown in China’s growth and declining commodity prices. The rate is expected to remain 3.5%, although the RBA can sometimes surprise. In this case, a surprise would be another rate cut.
3. UK rate decision: Thursday, 11:00. It seems all but certain that the MPC will vote for more quantitative easing. Inflation is back to the desired range, unemployment is rising and the recent minutes showed that the decision to leave the current program unchanged was against the will of the BOE Governor King. An expansion of 50 billion pounds in the AFP is the most likely outcome. The pound might slide on such an outcome, but not collapse..
4. Euro-Zone Rate decision: Thursday, 11:45. Draghi disappointed last month by not offering anything new.  There is a good chance that the ECB will finally move and cut the rates. Falling inflation in Germany will likely remove the Bundesbank’s objection. A rate cut was already on the cards last time and some members have hinted that this will the outcome. The struggling economies of the euro-zone certainly need a rate cut in the current conditions. If Draghi indeed announces a rate cut, this will probably be cheered by the markets and boost the euro. Another non-action by the ECB will hurt the common currency..
5. US ADP Non-Farm Employment Change: Thursday, 12:15. The US private sector added 133,000 jobs during May, lower than the 145,000 predicted by analysts suggesting a slowdown in hiring. However May’s score is higher than the 113,000 jobs gained in April due to a rise in the financial services sector. A smaller addition of 101,000 is predicted now.
6. US Unemployment Claims: Thursday, 12:30. The number of Americans seekingU.S. unemployment benefits dropped last week by 6,000 to 386,000, however the score is too high to signal a pickup in hiring. Us economy added an average of only 73,000 jobs per month in April and May,  much lower than the average of 226,000 added in the first three months of this year. U.S. manufacturing activity also dropped in May from April and Europe’s debt crisis also contributed to the economic sluggishness in the last two months. A small drop to 385,000 is anticipated this time.
7.  US ISM Non-Manufacturing PMI: Thursday, 14:00. US Service sector expended better than predicted in May, reaching 53.7 from 53.5 in April. Analysts had anticipated a flat reading 53.5.  New Orders Index increased by 2.0 points to 55.5 from 53.5, while the Employment Index decreased by 3.4 points to 50.8 from 54.2, indicating continued growth in employment at a slightly slower rate. A decline to 53.1 is predicted now.
8. Canadian employment data: Friday, 12:30. The  Canadian economy stopped the job growth spree occurred in the last two months, adding 7,700 jobs. Finance Minister Jim Flaherty remarked that this modest figure is consistent with current economic trends. Economists expected a 10,000 increase. The good news is that the manufacturing sector posted an annualized 36,400 jobs pick-up indicating Canadian economy is improving. Meantime Unemployment rate remained unchanged at 7.3%.  Canadian economy is expected  add 5,200 jobs while unemployment rate is expected to remain 7.3%.
9. US Non-Farm Employment Change: Friday, 12:30.US NFP rose less than expected in May dropping for the third consecutive month. Job gain slowed down to 69,000 while they were expected to reach 150,000. April NFP was downwardly revised to 77,000 from its original print of 115,000. This slowdown trend will put the quantitative easing issue back on the FOMC’s table. NFP is expected to gain 92,000 jobs this time.
10. US Unemployment Rate: Friday, 12:30. US economic indicators continued disappointing throughout June. However, there is no clear evidence that the US has entered a recession.. The low NFP gain of 69,000 jobs, increased unemployment rate to 8.2% from 8.1% in April. These negative figures could damage President Obama’s chances of reelection. No change is expected now.

*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 the New Zealand dollar (kiwi), read the  NZD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar
• For the Swiss Franc, see the  USD/CHF forecast.