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The US dollar and the Japanese yen continued and closed the month of May with huge gains as the European debt crisis escalated once again. Will central banks intervene and stop the avalanche?. A very busy week, especially with central banks is awaiting us. Ben Bernanke testifies and could hint about QE3, Rate decisions are scheduled in Canada, Australia, the UK and in the troubled euro-zone. Here is an outlook for the major events awaiting us this week.

Europe is not alone: China showed more signs of slowdown and the US will not save the world:  Non-Farm Payrolls rose by only 69K and together with downwards revisions of previous data, a higher unemployment rate and slower growth in Q1, the US could be carried down rather than be the world’s economic locomotive. How will currencies react? Let’s start:

  1. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia (RBA) decided to cut the official interest rate by 50 basis points to 3.75% last month, as some expected.. RBA Governor Glenn Stevens argued that lower inflation outlook and weaker market conditions were the cause for this cut aimed to stimulate the economy. He also stated the RBA may cut rates further in the coming months if required. The rate is expected to remain 3.75% although a cut to 3.50% cannot be ruled out in the current economic climate.
  2. Canadian rate decision: Tuesday, 13:00. The Bank of Canada maintained its overnight rate at 1.0% calling for a possible reduction of the current monetary policy stimulus. BOC forecasts the EU will The Bank’s profile for the global economy continued to improve, as Europe is now expected to bailout from recession in the second half of the year and U.S. economic conditions seem to improve constantly. However supply constraints in East Africa and the North Sea, as well as geopolitical tensions from the Middle East continue to elevate oil prices becoming a  downside risk for global economic health. No change is expected now.
  3. Euro-Zone Rate decision: Wednesday, 11:45. Wednesday, decision at 11:45, press conference at 12:30.  Mario Draghi hinted that the  ECB is in no rush for any action. A rate cut is certainly desired for the struggling European economies. Recent PMI data was very worrying, even for Germany. Nevertheless, there are higher chances that the ECB will not cut the rates below the historic low of 1% as headline inflation is still above the 2% target.  In the current situation, a rate cut will be positive for the euro. The ECB might cut the rates as part of a globally coordinated move by central banks.
  4. Australian Employment data: Thursday, 1:30.Australia’s unemployment rate improved in April to 4.9% following 5.2% in the previous month. Analysts expected a rise to 5.3%. Meantime the employment market added 15,500 new positions in April following 37,600 in March but higher than the 4800 contraction predicted by analysts. A small addition of 900 positions is predicted with a rise to 5.1% in unemployment rate.
  5. UK Rate decision: Thursday, 11:00. The Bank of England maintained yet again its interest rates at 0.50% announcing they will not raise rates until late 2013 due to unsatisfactory growth rate. Also the QE program remained unchanged at 325 billion pounds. Meanwhile inflation is higher than anticipated going above the 3.5% predicted by the BOE and their 2.0% official target rate. The same rate is expected to be maintained, but there is a 50-50% chance that the BOE could introduce more QE now. This is far from certain, but definitely on the cards. Mervyn King expressed a lot of worry about the implications of the euro-zone crisis on the British economy. On the other hand, the euro-zone crisis is keeping British yields very low, so the impact is limited.
  6. US Unemployment Claims; Thursday, 12:30. The number of Americans filing initial unemployment claims rose last week to a five-week high with 383,000 new claims after370,000 in the week before. Economists expected a reduction in the number of claims to 369,000. This disappointing data suggests the job market remains sluggish. The decline in recent weeks at an average of 370,000 claims implied hiring strengthened but mixed economic indicators make it hard on economists to find a substantial growth trend in the US economy. Another rise of 385,000 is expected now.
  7. Ben Bernanke speaks: Thursday, 14:00. Ben Bernanke head of the Federal Reserve will testify before the House Financial Services Committee, in Washington DC on a semi annual monetary policy report. In his recent talk at a news conference following the monthly two-day meeting at the Federal Reserve he warned that the US economy is heading for a “fiscal cliff” claiming a US Congress is postponing serious economic decisions until after the elections which will lead to a potential economic train wreck, once obligatory budget cuts in federal spending and a termination of the Bush-era tax cuts could  crush the straggling U.S. economic recovery.
  8. Canadian Employment data: Friday, 12:30.Canada’s economy added 58,200 jobs in April with a majority of full-time positions, almost six times more than predicted by economists following a 82,300 increase in March. However despite the impressive job gain, the unemployment rate increased a bit to 7.3% from 7.2% in March due to improving job prospects encouraged more people to look for work.
  9. US Trade Balance: Friday, 12:30. U.S. trade deficit widened more than predicted in March rising to $51.8 billion in March following a contraction in February. Imports increased by $238.6 billion, while exports rose by $186.8 billion. The increase in the value of imports was caused by higher fuel prices. A small contraction to $49.6 billion is expected this time.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

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