ECB Testimony & US GDP In Focus Now
September 21, 2015
Even after FOMC officials failed to lift the Fed rate during its much awaited September monetary policy meeting, the US Dollar Index (I.USDX) couldn't reflect the pessimism and closed in a positive territory as some of the policy makers, in their public speeches during weekend, remained optimistic for the first interest rate hike since 2006 to take place during the current year. The Federal Reserve, in its quarterly economic projections, lowered growth and inflation forecasts together with cutting down longer-term interest rate path; however, 13 out of 17 policy makers still expect rates to increase in 2015, strengthening the chances of December rate hike. The Euro closed in negative region against majority of its counterparts as weaker inflation mark kept favoring the extended QE while the GBP liquidated some of its early week gains, mainly fueled by upbeat labor market details, as one of the BoE policy makers, the chief economist, Andy Haldane, said that the next move by the BoE could be an interest rate cut rather than a hike. Uncertainty in the global market kept favoring the JPY while Gold rallied to three week hike on safe haven demand. Moreover, the commodity currencies, namely the AUD, NZD and CAD, remained positive as commodity basket halted its decline.
After the September FOMC proved less harmful to the USD, market players would closely examine the US economics in order to determine the chances of December rate hike as fewer people expect any moves by the Fed in October. Hence, this week's final reading of Q2 2015 US GDP, coupled with the US Durable Goods Orders and some of the housing market numbers, will be of higher importance. Moreover, testimony by the ECB President and Flash readings of Manufacturing & Services PMIs, for EU and Germany, are some other details that could continue making Forex traders busy during the rest of the week. It should also be noted that Japanese markets will be observing holidays through Wednesday and has only Inflation figures on the plate to release while there isn't anything important scheduled to publish from the UK in the upcoming week.
US GDP, Durable Goods Orders And Housing Market Numbers To Determine USD Moves
Having witnessed a cold reaction to the recent FOMC interest rate decision and economic projections, it becomes more important to closely examine the front-line US economics to determine chances of the Fed's interest rate hike during the current year. Hence, the Final version of Q2 2015 GDP, scheduled for Friday release, together with the monthly details of Durable Goods Orders, scheduled to release on Thursday, and figures relating to Existing and New Home Sales, to be published on Monday and Thursday respectively, are some of the stats that could help determine near-term USD moves; however, US GDP will gain more attention amongst all the details.
Given that the recent market turmoil, triggered by China, caused the FOMC to stand pat on its current monetary policy, figures relating to the Q2 2015 GDP growth rate would be of utmost importance during the week. The growth number is expected to match its second estimation of 3.7% rise as compared to the previous quarter expansion of 0.6% on an annual basis. However, the monthly Durable Goods Orders, which also aptly describes the US economics, is likely to register a negative mark, with 2.0% contraction compared to its upwardly revised prior reading of +2.2% while the Core Durable Goods Orders are also bearing weaker growth consensus to 0.2% from previously downgraded number of +0.4%.
Should the US growth figures, coupled with the durable goods orders, disappoint the market, speculations concerning the global economic slowdown hurting the world's largest economy strengthens that in-turn pushes away the chances of December rate hike and can provide near-term downside to the US Dollar. However, alternatively upbeat readings could support the FOMC hawks that still favor 2015 as a trigger to interest rate hike and could restrict the US Dollar downside.
In addition to the mentioned top-tier economics, figures relating to Existing Home Sales and New Home Sales are also important to forecast intermediate USD moves. While the Existing Home Sales are likely to tick down a bit to 5.50M compared to its previous 5.59M, the New Home Sales can reimburse that loss with a three month high figure of 516K versus its 507K prior.
Euro Move Depends On ECB President's Testimony And PMIs
Recent comments from the ECB President, Mario Draghi, during the monetary policy meeting, revealed that the Euro region is facing troubles due to the Chinese action and the central bank stands ready to alter its 1.1 trillion QE, if needed. Moreover, the final reading of Inflation, released last week, printed a slower than expected price rise, favoring some of the ECB policy makers that support the QE extension. Hence, testimony by the ECB President, scheduled for Wednesday, becomes an important event to determine the central banker's intention relating to the QE future. Should the President conveys a dovish message and a need to either stretch the QE timeline beyond September 2016, which is more expected, or to increase the spectrum of bond buying, the regional currency is likely to witness further downside.
Moreover, monthly readings of Flash Manufacturing and Services PMIs, from EU and Germany, scheduled for publish on Wednesday as well, could provide additional details to determine whether the regional economy, together with the strong economic player, Germany, is in need for further monetary easing or not. Given these PMIs match their downbeat forecasts, chances are higher that the Euro could continue extending its recent downward trajectory.
Rest of the Globe Details
Other than the US GDP and ECB President's testimony, Chinese Caixin Flash Manufacturing PMI, Trade Balance numbers from Switzerland and New-Zealand, coupled with the Canadian Retail Sales and Japanese Inflation figures, are rest of the globe details that could help determine near-term Forex moves.
Flash reading of Chinese Caixin Manufacturing PMI, scheduled to release on early Wednesday, could become yet another Chinese detail to favor commodity decline and spread pessimism as the consensus favors one more below 50 reading, 47.6 versus upwardly revised prior of 47.3.
Swiss and New-Zealand Trade Balance details, scheduled for publish on Tuesday and Thursday, favor further downsides of the CHF and NZD respectively. The Swiss Trade surplus is likely funneled down to 2.97B against 3.74B previous while the New-Zealand trade deficit bears the consensus of marking the lowest level last seen in November 2014, to -875M versus -649M prior.
Moreover, the Wednesday's Canadian Retail Sales and the Friday's Japanese Inflation figures are some of the numbers to foresee near-term respective moves of the CAD and the JPY. Even if the recent Canadian retail sales figures have been weaker, the Core retail sales numbers can limit further downside of the Canadian Dollar, CAD. The Retail Sales previously grew 0.6% compared to the upwardly revised 0.9% prior while the Core number matched its downwardly revised 0.8% previous mark. Further, the Japanese National Core CPI y/y is expected to plunge negative for the first time since April 2013 while the Tokyo Core CPI y/y bears the consensus of marking the lowest reading since March 2013. Hence, weaker retail sales may continue dragging down the CAD; though, bounce in crude prices may help forecast further moves of the Loonie, as it is nicknamed, while the deflation marks in the Japanese economy favor the need of extra loose monetary easing and can force the JPY liquidate some of its recent gains.