Week Ahead in FX March 23-27 PMIs and CPIs to Dictate FX Pace

After a week filled with central bank announcements and verbal intervention the forex market will enter a fresh week where data releases will drive most of the action. Advanced manufacturing data from around the globe will be published; the Chinese purchasing managers index (PMI) being the most anticipated. Inflation will be another factor at play this week with the United Kingdom and the United States both releasing their consumer price index (CPI) figures. The U.S. will close out the week with the final gross domestic product (GDP) release of fourth quarter of 2014.

Here is more information on the week’s top forex market events:

Monday March 23, China Flash PMI

China’s growth has been slowing down and its PMI has been a leading indicator as it has struggled to come in above 50 for the past two years. A reading under 50 indicates contraction, while a higher figure indicates expansion. Last month the PMI was 50.1 which was unexpected as the forecast was for 49.6. The flash PMI in February was the highest in four months. Exports disappointed with a 20 month low contraction. The flash PMI will also be impacted by the Lunar New year celebrations. The Chinese government will continue to explore avenues to boost growth. It has already signalled on various occasions that it could miss its 7% growth target this year and continues to increase liquidity to boost internal consumption. A slowdown in China will affect its trading partners as there will be less demand for their products.

Tuesday March 24 French and German Flash PMIs

Germany continues to be the engine of growth of the European Union. Last month France and Germany both missed expectations with their PMI releases. Germany missed slightly with a still expanding 50.9, but France was expected to be close to expansion only to register a 47.7. The much-awaited launch of the European Central Bank quantitative easing program is not expected to bear fruit so soon after it was only put in practice at the beginning of the month. The Greek debt negotiations have also enhanced the sensitivity of the market to European production data, in particular the German releases. The EUR/USD has had a volatile March as both the Federal Reserve and the ECB have had major interventions which have affected the currency pair.

Tuesday March 24U.K. CPI

Inflation in the United Kingdom hasn’t been above 1 percent since the end of 2014. Bank of England Governor Mark Carney still believes the current level of 0.3 percent is transitory and in about two years inflation will return to the central bank’s target of 2 percent. Like the U.S. Fed the BOE has mentioned that it can raise rates with current inflation levels (they are transitory after all) but this scenario appears unlikely at least until after the May’s general elections.

Tuesday March 24U.S. CPI

U.S. inflation is expected to remain below 1 percent in 2015 due to a strong USD and the low price of energy. The Fed has been more vocal about inflation after the employment component seems to have superficially recovered. Inflation is a more complicated matter for the Fed as the effects of cheaper imports and lower cost of energy have increased the deflationary fears as more countries engage in easing monetary policy resulting in lower currencies. The Fed has gone on the record to mention that an interest rate hike could occur with current levels of inflation but a lower than expected CPI reading could put in question if that rate hike is announced in June or September.

Thursday March 26 U.K.’s Retail Sales

Consumers in the United Kingdom did not spend enough on British retails to avoid a slowdown of 0.3 percent in January. Year over year data continues to be impressive but its the month to month that hints at a further slowdown unless retailers find a way to entice customers to part with their energy cost savings. This month’s data is expected to have shaken off some of the heavy discount hangover that the holiday season is known for and will post a positive 0.4 percent.

Friday March 27Final Fourth Quarter U.S. GDP and Janet Yellen Speech



U.S. growth in the third quarter was an impressive 5 percent. Fourth quarter figures have been lower but point to a positive 2.2 percent growth in the final quarter of 2014. The forecast is for the final GDP release to come in around 2.4 percent. The first quarter of the year is expected to have a lower growth indicator at 1.8 percent.

Federal Reserve Chair Janet Yellen will speak at aptly named “The New Normal for Monetary Policy” in San Francisco. After removing “patient” from the FOMC statement a lot of questions will be put to hear about the timing of the first interest rate hike, even though she has remarked time and time again that it all depends on the data. As she famously said this week “just because we removed the word ‘patient’ doesn’t mean we’re going to be impatient.”. The market continues to be divided on a June versus September rate hike with the latest FOMC statement, projections and press conference receiving a mixed reaction as the removal of “patient” was a hawkish sign, only to be smothered in dovish projections on growth and inflation. Traders will be looking for more details on this “new normal” from the Fed and the implications on the impending rate hike.