Week in FX Americas – USD Recovers Ahead of EU Stress Tests and FOMC

• US Unemployment claims increase but job market resilient
• New home sales reach six year high
• Bank of Canada holds rates as expected

The USD continues to strengthen this week versus major pairs even though there was limited economic evidence as few indicators were released. The unemployment claims were higher than previous weeks coming in at 283,000, but not enough to continue talking about a sustained job market recovery. New home sales slowed down to 467,000 units annualized rated in September. This is still the highest reading since July 2008.

The EUR/USD started the week at 1.2758 and positive PMI in Germany and Europe overall boosted the pair above 1.28 only to start giving away those gains as the week bore on. Rumors on ECB corporate bond buys as well as bank stress test… stress deflated the EUR. Test results will be published on Sunday and on Wednesday the FOMC statement could push the pair further down towards 1.25 if the US third quarter GDP comes above expectations and there is further pressure on the ECB from lower inflation numbers in Europe.

Canadian Retail Sales, the primary gauge of consumer spending, looked weak in September, posting a decline of 0.3%. This marked a second straight decline and was the weakest showing since January. The markets had anticipated a gain of 0.1%. Retail Sales also came in at –0.3%, shy of the estimate of +0.1%. The markets then shifted their attention to the BOC, which maintained rates at 1.0%, as expected. However, the central bank did remove the word “neutral” from its statement, which was used in the September statement with regard to the BOC’s stance on a rate hike. This helped the loonie recover from sharp losses sustained after the soft Retail Sales Report.

Next Week For Americas:

This week will kick off on Sunday as the European Central Bank (ECB) will release the results from the Bank Stress Test results. Reports emerged today that as many as 25 banks will fail the tests. Earlier articles singled out 11 banks. The ECB has declined to comment until the actual test results are released.

The biggest event next week will be the US Fed’s Federal Open Market Committee (FOMC) interest rate decision on Wednesday. There are no rate change expectations, but there is a lot of anticipation as this will mark the final bond-buying cycle as the Fed positions itself to raise rates in 2015.

The final USD Gross Domestic Product figure will be reported on Thursday. The expectation is for a drop in the rate from the impressive Q2, but still a strong 3.0%. The trends that emerge after the FOMC will be validated or netted versus the US Economy’s GDP final number in the third quarter.

Later in the week inflation becomes a major trend to watch as the German Consumer Price Index, Japan’s National Consumer Price Index and the Euro-Zone Consumer Price Index Estimate are released in the final two days of the week.

WEEK AHEAD