Forex Weekly Outlook March 18-22

The US dollar rally took a break after long weeks of advances. What’s next for the greenback? Ben Bernanke holds the key to the next moves. The rate decision and accompanying press conference are the highlights of this week, as well as US housing and Philly Fed Manufacturing Index.  Here is an outlook on the main market-movers awaiting us.

The US posted some solid economic releases  with strong retail sales and more signs of  labor market growth: a 5 year low of 332,000 unemployment claims, raised speculations that the FED might shorten its  open-ended QE in the coming months. Will the US economy prove it has no need for additional monetary easing?  Let’s Start

1. UK inflation data: Tuesday, 9:30. Britain’s consumer price inflation was maintained at 2.7% for the fourth consecutive month, its highest level since May amid 8.5% increase in the prices of alcohol and tobacco. The Bank of England warned that inflation might stay above its 2% target for the next two years.  A rise to 2.8% is expected this time.
2. German ZEW Economic Sentiment, Tuesday, 10:00. German investor and analyst sentiment soared in February posting a reading of 48.2 from 31.5 in January, amid fresh optimism regarding the ending of the euro zone debt crisis. German economy has shown resilience to the global  economic  downturn in the last few months avoiding the wide spread recession in the EU area. Steady private consumption and growing exports have boosted growth in the German economy. A small decline to 47.9 is forecast.
3. US Building Permits: Tuesday, 12:30. Privately-owned housing permits issued in January climbed to an annual rate of 925,000, from a revised reading of 909,000 permits in December.  This continuous rise indicates builders are confident in the market, another good indicator for recovery. A further improvement to 930,000 is predicted.
4. US rate decision and press conference: Wednesday, 16:30, followed by FOMC economic projections at 18:00 and Ben Bernanke’s press conference from 18:15.  After stating that the economy has “paused”  and making absolutely no change to policy,  The FOMC is unlikely to change nor hint a change in policy in the upcoming meeting. At 7.7%, the unemployment rate is the best post crisis figure, but still far from the 6.5% goal that the Fed stated for changing the interest rate. The meeting minutes revealed some hawkish views, but the hawks are still a minority. Doves led by Bernanke still command a majority. The Fed could note the improvement in jobs and perhaps say that the economy returned to growth after a pause in Q4, but the overall picture isn’t likely to change. This outcome will probably lead to some minor dollar selling – an opportunity to take dollar profits after the recent rally. Any unexpected hint about stopping or reducing the open-ended bond buys will send the dollar sharply higher across the board. More analysis:  FOMC unlikely to change policy, but statement could be upbeat
5. NZ GDP: Wednesday, 21:45. New Zealand’s gross domestic product gained 0.2% in the third quarter of 2012 following 0.3% expansion in the second quarter. Forecasts were 0.1% higher for this quarter. Construction was up 4.5% while Manufacturing was down 1.1%.  New Zealand economy is expected to expand by 0.9%. The kiwi is on the back foot after a dovish rate statement.
6. US Unemployment Claims: Thursday, 12:30. The number of Americans filing new claims for unemployment benefits dropped sharply last week   to 332,000 from 342,000 in the previous week. This is further evidence that the labor market is recovering. Analysts expected applications to rise to 348,000. The continuous improvement in job gains pushes up wages, strengthening consumer spending. A rise to 343,000 is predicted now.
7. US Existing Home Sales: Thursday, 14:00. U.S. existing home sales edged up in January to a seasonally adjusted annual rate of 4.92 million units, following 4.9 million-unit in December. The reading beat market forecasts for a 4.9 million-unit rate. The climb in sales left the supply of homes at its lowest level in 13 years. Another climb to 5.03 million is expected this time.
8. US Philly Fed Manufacturing Index: Thursday, 14:00. Manufacturing activity in the Philadelphia area plunged to minus 12.5 in February, a temporary setback amid uncertainty among manufacturers regarding unresolved fiscal policy negotiations and the January increase in payroll taxes. Economists expected a 1.1 reading this month.  However the general notion indicates that growth would pick up this year. An improvement to -3.1 is forecasted.
9. German Ifo Business Climate: Friday, 9:00. German February Business Confidence edged up to a 10-month high of 107.4 in February, after posting a 104.3 reading in January. Economists expected a minor improvement to 104.9. This is another indication that Germany’s economy is gathering strength. A further improvement to 107.8 is forecast.

*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