Forex Weekly Outlook Sep. 30- Oct. 4

Markets were looking for a direction after the FOMC decision. As a new quarter begins, the calendar is packed with important events. In the US, we PMIs and employment indicators culminating in the Non-Farm Payrolls on Friday, Ben Bernanke’s speech and rate decisions in Australia, the Eurozone and Japan are are also key events.  Here is an outlook on the major events ahead.

Last week, new concerns about the impending debt ceiling imposed on the greenback’s gains as Republicans in the US House of Representatives refused to okay raising the debt ceiling limit, unless Obama delays the full implementation of the national healthcare law known as “Obamacare”. An ongoing standoff could lead to a government shutdown on October 1 and a default in mid-October. Will the repeated crisis be resolved in time? Markets seem calm and perhaps complacent for now, but the clock is ticking. Economic data seems mediocre, apart from jobless claims, which provide hope for some, and confusion for others. In the euro-zone, Draghi floated the option of a new LTRO, while Britain’s Carney seemed to close the door on new QE.  Let’s start:

1. Canadian GDP: Monday, 12:30. Real GDP by industry declined 0.5% in June due to severe flooding in southern Alberta affecting many sectors of the economy.  Economists expected a smaller decline of 0.4%. This was the weakest reading since March 2009. However the impact of the flood is likely to be short-term since growth is expected to improve in the third quarter, at around 2-2.5 %. GDP is expected to expand by 0.6%.
2. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia (RBA) maintained its official cash rate at the historically low of 2.5 % despite calls for further rate cuts. The  Housing Industry Association asked for further reductions in order to stimulate growth and residential development. No change in rates is expected this time. Technical:  AUDUSD downwards correction could be near completion.
3. US ISM Manufacturing PMI: Tuesday, 14:00. The U.S. manufacturing sector expanded at its fastest pace in more than two years in August, rising to 55.7 from 55.4 in the previous month, indicating a solid improvement in the US manufacturing activity. However, employment, declined to 53.3 from 54.4. Demand picked up in the U.S. manufacturing sector in August, and a drop in inventories pointed to faster growth in the coming months. A drop to 55.3 is anticipated now.
4. Eurozone: rate decision: Wednesday, 11:45, press conference at 12:30. The ECB will probably leave policy unchanged at the upcoming meeting. Changing the forward guidance at this point would be pre-mature and would undermine the credibility of the central bank. Draghi could repeat the forward guidance pledge and express caution about the recovery, like in the previous meeting. In his recent testimony in the European Parliament, Draghi clearly left the door open for another LTRO. While he is unlikely to introduce one at this moment, repeating the LTRO option could weaken the euro as it reflects economic weakness that calls for action. If he dismisses this option in the near future, the euro could benefit.
5. US ADP Non-Farm Employment Change: Wednesday, 12:15. US private sector increased by 176,000 jobs from July to August, according to the August  ADP National Employment Report, broadly in line with market expectations, following 198,000 gain in the preceding month. In light of this reading, the US job market is advancing steadily. US private sector  is expected to add 177,000 jobs this time.
6. Ben Bernanke speaks: Wednesday. 19:30. Federal Reserve Chairman Ben Bernanke is scheduled to speak in St Louis. He will probably refer to the renewed Debt Ceiling crisis causing volatility in the markets. Will he release hints about future policy?
7. US Unemployment Claims: Thursday, 12:30. Americans filed fewer claims for  unemployment benefits  in the preceding week, dropping 5,000 to 305,000, indicating the labor market continues to strengthen. Employers are confident sales will continue to increase sustaining growth in the US economy despite budget cuts in Washington. A rise of 315,000 claims is expected.
8. US ISM Non-Manufacturing PMI: Thursday, 14:00. The US service sector advanced in August at the fastest rate in almost eight years, reaching 58.6 from 56 in July, amid a spike in demand which boosted hiring in the non – manufacturing sector. This rise indicates the US economy is marching forward and it raised expectations for the NFP – expectations that didn’t materialize. A small decline to 57.2 is predicted.
9. Japan rate decision: Friday. The Bank of  Japan  maintained its monetary policy unchanged in September and revised up its assessment of the economy, amid growth signs resulting from its stimulus policy. The BOJ announced Japan’s economy is recovering moderately and will continue to grow in the coming months.rates are expected to remain unchanged.
10.  US Non-Farm Payrolls and Unemployment rate: Friday, 12:30. The US economy added 169,000 jobs in August, missing predictions for a larger gain of 178,000 and following a downgraded 104,000 increase in the previous month. Unemployment rate declined to 7.3% for the wrong reasons, due to lower participation rate. The number of people unemployed in August declined to 11.3 million. But about four in 10 were ranked long-term unemployed – people officially seeking jobs who had been jobless for at least 27 weeks. US job market is expected to grow by 179,000 positions, while unemployment rate is predicted to remain unchanged at 7.3%.    After the No-taper decision in September, the bar is higher for such a move in October, and despite the possibility of calling an unscheduled press conference in October, there are better chances that the Fed will wait until December. It seems that only an outstanding NFP report showing gains of more than 200K and significant positive revisions can convince markets that tapering is coming in October. The improvement in jobless claims provides hope, but this number could certainly be an outlier.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies. In addition, see the 5 most predictable currency pairs for Q4 2013.

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