Last week, Janet Yellen took center stage of the week’s scheduled fundamental events. Her 2-day QA session in front of congressional members did not really shed any light on when the Fed will raise rates. Without any hints that the FOMC has changed it’s course, the market should be projecting a rate hike mid-2015. Any change to push back the hike should soften the USD, while consideration to raise rates ahead of the current projection should strengthen the greenback.
This week, we have mostly second-tier fundamental risks for the majors – second-tier in terms of impact on the FX market. While central bank announcements and happenings should have the most impact on the currency market, economic data such as retail sales, or manufacturing PMIs, have an indirect impact on currencies through their implications toward monetary policy.
Let’s take a look at what we should expect to move the markets at least within this week:
Monday starts the week off void of key fundamental releases. Being light on fundamentals, the German Bundesbank Monthly Report can have some intra-session impact on the euro. Its assessment of current and future economic conditions can have some monetary policy implications for the ECB because Germany has been a key engine in the Eurozone’s recovery.
RBA Governor Stevens is due to speak at the Anika Foundation Luncheon, in Sydney. Traders will try to gauge any changes in his views on the economy that might have monetary policy implications. However, this is not a speech that was scheduled for discussing monetary policy, so the impact is likely to be limited.
US CPI inflation data for June is expected to be around 0.3% on the month after a 0.4% reading in May. The core reading ,excluding food and energy components, is forecast to be around 0.2% after a 0.3% reading. A slower inflation rate can allow the FOMC more time to keep interest rates low, and therefore could weigh on the USD.
US Existing Home Sales reading for June is forecast to be around 4.98M in annualized terms, slightly higher than the 4.89M reading in May. This would reflect a trend of improving housing data and can positive for the USD if the reading beats forecast and is above 5.00M.
Australian CPI inflation for Q2 is forecast to be around 0.5%, after a 0.6% reading in Q1. While the headline reading is expected to hold and possibly edge lower, the Trimmed Mean CPI reading for the quarter is expected to rise to a 0.8% reading after a 0.5% reading in May. The trimmed mean CPI refers to the inflation data excluding the most volatile 30% of items.
The BoE Meeting Minutes can reveal some clues on whether a rate hike will happen in 2014. Ahead of the August Inflation Report, the voting members are likely to keep a hold and see approach, so don’t expect too many clues from these minutes. After a couple months of strengthening, the sterling pound might need a hawkish tone to keep going. Otherwise, it might need to consolidate due to short-term overbought conditions.
On a separate event, the BoE governor, Mark Carney is due to speak at the Commonwealth Games Trade and Investment conference in Glasgow. This is not a platform for him to discuss monetary policy per say, but traders sometimes will read into some subtle implications toward policy stance.
Canada’s retail sales reading for May is forecast to be 0.6% after a 1.1% for April. The core reading, which excludes auto sales, is expected to be around 0.3%, after a 0.7% reading.
The Reserve Bank of New Zealand (RBNZ) will release its monetary policy statement. The bank is expected to raise the Official Cash Rate (OCR) for 4th meeting in a row, from 3.00% to 3.25%. The NZD has been very strong recently, though it did give back some gains last week, perhaps consolidating ahead of the RBNZ meeting. If the bank raises rates as expected, the NZD should be at least neutral and possibly bullish. If there is no rate hike, NZD/USD likely going to be bearish, or at least consolidate in the medium term.
New Zealand’s trade balance data is forecast to show a shrinking surplus in June, from a 285M reading in May to 155M. This would reflect a trend of the trade surplus narrowing since March. If the RBNZ spoke of NZD’s strength as a concern for exports, a narrowing surplus can amplify the bearish impact that will have on the NZD at least within this week.
HSBC’s Flash Manufacturing PMI for China is expected to be around 51.2 in July, after a 50.7 reading in June. This would reflect a recovery from a brief economic contraction and can have positive impact on the AUD and NZD. However if the reading comes in below 50, which reflects contraction, there could be a bout of risk aversion, as well as downward pressure on the AUD and NZD.
There will be a slew of Manufacturing and Services PMI data coming out of the Eurozone for July. The overall Eurozone Flash Manufacturing PMI is forecast to 52.0, after a 51.8 reading in June. The Services PMI is forecast to be 52.7 after a 52.8 reading. Germany’s Manufacturing PMI is expected to edge up to a 52.2 from a 52.0 reading. German Services PMI is expected to be 54.7 following a 54.6 reading in June. The euro has been weak, and if the manufacturing and services PMIs beat expectations and help the euro in the short-term, watch out for a fade back into its downtrend.
UK retail sales for June is forecast to be 0.2% on the month, a rebound from the -0.5% reading in May. Traders are looking for consistency in economic data that will point to a 2014 rate hike. Avoiding a negative retail sales reading for June could help keep the pound buoyant.
US Jobless claims is expected to be 310K after a 302K reading last week. This reading keeps pace with recent readings. A reading below 300K might be needed to give the USD a jolt. Jobless claims numbers have been below 320K for a couple of months, so a reading above 320K might weigh on the USD in the short-term.
US Flash Manufacturing PMI is forecast to be 57.5 in July after a 57.3 reading. Manufacturing data has been improving, but will it be enough to convince the FOMC to raise rates before mid-2015? Probably not, unless we get a few months of above 60 reading along with hot inflation, housing, and jobs data.
US June New Home Sales data is expected to be 485K, down from the 504K reading in May. A low inventories of homes has been the theme cited in 2014 to be the limiting factor on an improving housing sector. However, housing data has improved in May, but is expected to level out a bit in June.
New Zealand Business Confidence reading will be released. June’s reading was 42.8, and an improvement would help strengthen the NZD especially if the RBNZ raised rates earlier in the week,.
German Ifo Business Climate is expected to stay around June’s reading of 109.7. The GfK German Consumer Climate index is also expected to hold at June’s reading of 8.9.
The preliminary GDP reading for the UK for Q2 is expected to be 0.8%, same as the 0.8% reading in Q1. The annual rate is expected to be the same as well at 3.1%. The forecast suggests similar reading since Q2 2013. A reading above 0.8% or below 0.7% can shake up the pound.
US Durable Goods Orders for June is expected to have grown 0.4% on the month, following a -0.9% reading in May. The core reading, which excludes transportation items, is expected to bounce to 0.6% from a flat reading in May. For the USD, this and the inflation data on Tuesday are the 2 main fundamental factors this week.
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