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The euro recovered and the yen continued losing ground in a week that saw markets looking for a new direction. German business indicators, US inflation, retail sales, housing figures and the important FOMC Meeting Minutes are among the highlights on our calendar. Here is an outlook on the main market-movers this week.

In the US, Fed Chairperson Designate Janet Yellen managed to keep markets calm in her testimony before the Senate. Will the Yellen Fed be very similar to the Bernanke Fed? In the meantime, jobless claims dropped 2,000 last week, while predicted to slide further to 331K. The euro-zone continued growing, but no one is impressed with the poor 0.1% growth rate. In the UK, more encouraging employment numbers together with an optimistic central bank eventually helped the pound gain in a roller coaster week.  

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  1. German ZEW Economic Sentiment: Tuesday, 10:00. German analyst and investor climate increased unexpectedly in October, reaching 52.8 from 49.6 in September, in light of possible signs of recovery in the euro zone. Germany’s attitude towards the EU recovery has greatly improved, indicating the gap between Germany’s strong economy and the EU will narrow in the following quarters. Another rise to 54.6 is expected.
  2. Ben Bernanke speaks: Wednesday, 0:00. Federal Reserve Chairman Ben Bernanke will speak in Washington DC. He may refer to the Federal Reserve Chairperson-Designate Janet Yellen and the possibility of tapering. Market volatility is expected.  
  3. US inflation data: Wednesday, 13:30. U.S. consumer prices increased slightly in September. Consumer Price Index increased 0.2% following a 0.1% gain in the previous month, while Core CPI gained 0.1%, below the 0.2% projected and following the same increase in the prior month. On a yearly base, CPI increased 1.2%, which is the smallest gain since April and well below the Fed’s target of 2.0%. CPI is expected to gain 0.2%, while core CPI is predicted to climb 0.1%.
  4. US Retail Sales: Wednesday, 13:30. U.S. retail sales declined unexpectedly in September, down 0.1% for the first time in six months, due to a drop-off in auto sales. Despite this fall, sales in most businesses increased, suggesting consumers are continuing to spend at the same rate as before the government shutdown. Meanwhile, sales excluding automobiles edged up 0.4% as Americans continued to spend despite the approaching shutdown which lowered spending only temporarily. The fast approaching holiday season may have speeded purchases. Retail sales are expected to grow by 0.1%.
  5. US Existing Home Sales: Wednesday, 15:00. Existing U.S. home sales dropped more than estimated in September, the first decline in three months, reaching 5.29 million from 5.39 million in August. Higher mortgage rates reduced demand in the sector which boosted expansion last year. The median price of a house climbed 11.7% from 2012, pushing affordability to an almost five-year low. Another drop to 5.21 million is expected now.
  6. US FOMC Meeting Minutes: Wednesday, 19:00. In the October 30th meeting, the Federal Reserve left policy unchanged as expected. Nevertheless, the not-so-dovish tone of the statement, and the removal of the “tighter financial conditions” clause, opened a debate about QE tapering in December. The meeting minutes are expected to reveal more hints about the next move of the Fed.
  7. Japan Rate decision: Thursday. Bank of Japan raised concerns over the potential downside risks from the Federal Reserve’s decision not to taper its asset purchases during their own policy meeting in early October. Another concern discussed was the weakness in emerging countries, and its possible effects on exporters once a planned sales tax hike in April next year kicks in, battering domestic consumer spending. No change in rates is expected. USD/JPY finally broke above 100.
  8. US PPI: Thursday, 13:30. U.S. producer prices fell more than estimated in September, down 0.1% after a 0.3% gain in the previous month. Economists projected a price gain of 0.2%. In the 12 months through September, wholesale prices increased 0.3%, the smallest gain since 2009 after a 1.4 % increase in August. Food prices declined 1.0% as the cost of processed poultry registered its biggest decline since February 2011. A drop of -0.1% is forecasted.
  9. US unemployment claims: Thursday, 13:30. A drop of 2000 claims for U.S. unemployment benefits was registered last week. The seasonally adjusted 339,000 posted is the fifth straight decline, indicating businesses stopped layoffs and hiring continues to rise, meaning economy is improving. The four-week average fell 5,750 to 344,000. Another improvement to 333,000 is anticipated now.
  10. US Philly Fed Manufacturing Index: Thursday, 15:00. Factory activity in the mid-Atlantic region slowed less than expected in October, reaching 19.8 following 22.3 in September, however optimism about the future remained at a 10-year high. Economists expected a lower reading of 15.4. Optimism edged up to 60.8 in the six-month business conditions outlook the highest level since September 2003, from 58.2 in September. A decline to 15.1 is expected this time.
  11. German Ifo Business Climate: Friday, 9:00. German  business  sentiment dropped slightly for the first time in six months in October, reaching 107.4 following 107.7 on September. Analysts expected a pick-up in momentum; the reading fell short of consensus forecast of 108.2, however Germany’s recovery is expected to continue despite temporary setbacks. A rise to 107.9 is projected now.

*All times are GMT.

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

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