In a dramatic week, the US dollar suffered huge losses as Ben Bernanke launched QE3 and as more good news came out of Europe. US housing, manufacturing and employment data are the major events this week, alongside a Japanese rate decision. Here os an outlook on the main market movers ahead.
Last week the Federal Reserve announced QE3 in light of the weakening US job market. Monthly bond buys worth $40 billion will be carried alongside Operation Twist until its expiry by the end of this year. Further stimulus was also discussed. These measures aim to reduce unemployment (a “grave concern”) as well as support the mortgage markets and pull the US economy out of this recession. Will Bernanke’s moves help the US market? Also the German court ruling was in favor or “risk currencies” – the constitutional court allowed the ESM bailout fund to pass through. A Spanish decision to take the aid is still pending.
- UK inflation data: Tuesday, 8:30. The UK’s Consumer price index climbed unexpectedly in July, to 2.6% after posting a 2.4% reading in the previous month, amid higher transportation prices, clothing and footwear. Despite this rise analysts believe this is only a temporary rise which will not cause an upward trend. A decline to 2.5% is expected now.
- Euro-Zone German ZEW Economic Sentiment: Tuesday, 9:00. The Centre for European Economic Research measuring economic sentiment for Germany continued to decline in August, down 5.9 points to -25.5 points, the lowest reading in 2012. Analysts believe German economy will slowdown in the coming months. Economic expectations for the Eurozone remained the same in August. An improvement to -19.7 is expected this time.
- Japanese rate decision: Wednesday. The Bank of Japan decided to keep the benchmark rate between 0 to 0.1% in light of growing uncertainty in global markets. The BOJ remarked the steady rise of domestic demand centered on reconstruction activity. CPI is expected to remain 0% on a yearly base and fighting deflation still remains top priority for the BOJ. No change is forecasted this time. However, warnings about currency interventions cannot be ruled out.
- US Building Permits: Wednesday, 12:30. Residential construction permits issued in July edged up to a four year high, reaching an annual rate of 812,000 from754,000 in the previous month indicating an improvement in the housing sector, However the US economic recovery is yet to be seen as consumer confidence is rather low, in light of the global slowdown. A decline to 790,000 is predicted now.
- US Existing Home Sales: Wednesday, 14:00. Sales of existing homes rebounded in July from an eight-month low of 4.37 million in June to a 4.47 million annual rate in July, beating analysts’ predictions of 4.52 million. This rise indicates a stronger housing market striding in the right direction. A further improvement to 4.59M million is anticipated.
- NZ GDP: Wednesday, 22:45. New Zealand’s economy expanded at the fastest rate in five years rising 1.1% in the first quarter after a 0.4% growth rate in the fourth quarter of 2011. The rise was well above the 0.5% increase predicted. However global economic slowdown is bound to weigh on New Zealand’s export-driven economy. A growth rate of 0.4% is expected this time.
- US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits edged up to the highest level in two months, reaching 382,000 claims, way above forecasts. The sharp rise of 15,000 claims was partly due to Hurricane Isaac, however this rise was worrisome enough for the Federal Reserve to warrant an open ended QE of $40 billion in Mortgage backed securities per month and low rates until 2015. A drop to 370,000 is forecasted now.
- US Philly Fed Manufacturing Index: Thursday, 14:00. The Philadelphia area manufacturing sector improved to -7.1 in August following -12.9 the preceding month. Economists expected the index to reach -5. Weaker demand from the EU and China as well as lower investments, hurt US factories. Another improvement to -4.1is anticipated this time.
- Mario Draghi speaks: Wednesday, 16:00. Mario Draghi, the ECB president is scheduled to speak at the European Systemic Risk Board Meeting, in Frankfurt. He has recently declared that the ECB will purchase unlimited quantities of government debt from Spain and Italy to promote stability and raise confidence. This speech can create volatility in the market and may offer clues concerning the ECB’s next moves.
*All times are GMT.
That’s it for the major events this week. Stay tuned for coverage on specific currencies
- 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 the New Zealand dollar (kiwi), read the NZD forecast.
- For USD/CAD (loonie), check out the Canadian dollar
- For the Swiss Franc, see the USD/CHF forecast.