Forex Weekly Outlook Sep. 14-18

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The dollar was on the back foot in the week preceding the Fed. Rate decisions in Japan, Switzerland and the long awaited FOMC meeting are the highlights. These are the main events on Forex calendar. Here is an outlook on the market movers awaiting us.

Last week’s jobless claims release showed continuous improvement in the labor market as the number of claims fell by 6,000 from the prior week. This was the 27th straight week that claims remained below the 300,000 threshold, giving the Fed further backing for their rate hike move. Also JOLTs, a Fed favorite jobs indicator beat expectations. Despite subdued inflation, the steady job growth and low unemployment rate boost expectations for a hefty wage growth, which will hopefully, raise inflation toward the central bank’s 2% target. But it seems that there is a lack of full confidence, within the Fed and also within consumers about the economy. Will the Fed make the move? Let’s start:

Updates:
  1. Japan rate decision: Tuesday. The Bank of Japan kept its monetary policy unchanged during its meeting in August, maintaining the massive stimulus program in belief it will accelerate inflation toward the 2% target. Kuroda noted that the weak dollar is positive for exports but at the same time hurts households and small firms due to rising import costs. Consumer sentiment continues to improve and household spending remains strong.
  2. UK inflation data: Tuesday, 8:30. Consumer price index inched 0.1% in July after remaining nearly flat for the past six months and turning negative in April. The prices of clothing declined less than anticipated prompting the small rise in CPI. Analysts forecast inflation will remain in low levels due to the drop in oil prices. Despite rising speculation over the Central Bank’s rate hike timetable, it seems that the BOE will raise rates only on the second half of 2016. UK inflation is expected to decline once again to 0.0%.
  3. German ZEW Economic Sentiment: Tuesday, 9:00. German analysts’ sentiment continued to fall in August, reaching 25.0, after posting 29.7 points in July, and 31.5 in June. This was its fifth consecutive decline. German economy remains strong, however, current geopolitical and global economic circumstances cloud economic outlook. However, other data suggest a temporary slowdown with the economy, suggesting a lower than expected growth rate. German investor’s mood is expected to plunge to18.3 in September.
  4. US Retail sales: Tuesday, 12:30. US Retail sales rebounded in July, rising 0.6% on growing demand, suggesting consumer spending contributes to growth. The reading was in line with market forecast. Rising employment, better wages and cheap fuel increased consumers’ activity. Stronger household spending, is one of the main reasons for the Federal Reserve plans to raise interest rates this year. Retail sales, excluding autos increased 0.4% in line with forecasts after a 0.1% contraction in the previous month, showing a healthier picture for consumer spending. Economists expect retail sales to rise 0.4% while core sales to increase by 0.1%.
  5. UK employment data: Wednesday, 8:30. The number Britons claiming unemployment benefits declined unexpectedly in July, falling 4,900, while the country’s jobless rate remained steady, near a six-year low. Economists expected a 1,400 rise in the number of jobless claims. The unemployment rate remained at 5.6%, in line with forecasts. The number of jobless claims is expected to decline by 5,100 this time.
  6. US Inflation data: Wednesday, 12:30. U.S. consumer prices increased mildly in July as airline fares recorded their biggest decline since 1995. Consumer Price Index inched 0.1%. July’s rise registered the sixth consecutive monthly increase. Despite low inflation levels, the Federal Reserve is confident that inflation will pick-up and reach the 2% target. Fed officials made clear that they do not need to see higher inflation before hiking and that lack of inflation is no reason to delay the raise. Also, core CPI, excluding food and energy costs, rose only 0.1% mainly because of the 5.6% decline in airline fares. CPI is expected to decline by 0.1% and Core inflation is predicted to rise 0.1%.
  7. Switzerland: Rate decision: Thursday, 6:30. Swiss National Bank maintained rates during its meeting in June, in line with market forecast. Economists expect the SNB to keep key rates at -0.75% in the near. The Central Bank raised its inflation projections for 2015-16, but lowered its forecast for 2017. Policy makers announced the Bank would leave the current interest rate level for now and monitor its effects closely. The Central Bank is expected to maintain the negative rates at -0.75%.
  8. US Building Permits: Thursday, 12:30. US housing starts edged up to  near eight-year high of 1.21 million units in July, but the number of Building permits fell 16.3% in July to a 1.12 million-unit pace, after three straight months of substantial increases. The decline is attributed to the expiration of the tax incentives in New York and is likely to be temporary. The number of permits is expected to increase to 1.15 million unit-pace.
  9. US Unemployment claims: Thursday, 12:30. Fewer Americans filed applications for unemployment benefits last week, providing further support for the Fed’s rate hike decision. Initial claims for state unemployment benefits fell 6,000 to a seasonally adjusted 275,000, posting the 27th straight week that claims remained below the 300,000. The four-week moving average of claims inched up 500 to 275,750 last week. However, low inflation, in the face of a tightening labor market and strengthening economic growth, poses a challenge for the Fed’s policy-setting committee. The number of new jobless claims is expected to reach 276,000.
  10. US Philly Fed Manufacturing Index: Thursday, 14:00. Manufacturing activity in the Philadelphia-region accelerated more than expected in August, posting 8.3 points compared to 5.7 in July. The positive reading boosted optimism over the U.S. economic outlook. Analysts expected the index to rise to 6.9 in August. New orders increased compared with the prior month and the six- month outlook predicts a continuation of growth. Manufacturing activity in the Philadelphia s expected to reach 6.1 this time.
  11. US FOMC Economic Projections and rate decision: Thursday, 18:00 with Yellen’s press conference at 18:30. Economists debate over the chances the Fed will start tightening its monetary policy and raise interest rates for the first time since 2006. August jobs report showed that nonfarm payrolls grew by 173,000 while the unemployment rate fell to 5.1%. Furthermore, August retail sales also support the view is time for the Fed to raise rates. In regards to inflation, the Fed’s vice chair Stanley Fischer noted “there is good reason to believe” inflation will move higher, suggesting inflation will not be a crucial factor in the Fed’s decision. Analysts expect the Fed to raise rates to 0.50%. Follow everything related to the Fed decision here.

*All times are GMT.

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

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About Author

Anat Dror – Senior Writer

I conceptualize, design and create multi-lingual websites. Apart from the technical work, my projects usually consist of writing content for these sites in English, French and Hebrew.

In the past, I have built, managed and marketed an e-learning center for language studies, including moderating a live community of students.

I’ve also worked as a community organizer

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