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Currency and Stock Markets Weekly Outlook

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U.S unemployment and ECB's decision

Mon, Jun 30 2008, 10:03 GMT
by Adam Narczewski

X-Trade Brokers, XTB

The upcoming week will decide on the direction of the main currency pair in the world – the Eurodollar. The news investors are waiting for will be published on Thursday. The European Central Bank (ECB) is expected to hike interest rates by 25 basis points to 4.25%. Such move would have been a big surprise a couple of weeks ago but recent reports revealed the inflation is increasing quickly in the Euro zone and the ECB needs to take steps to fight it. As important as the decision itself will be the press conference afterwards. Investors expect Jean-Claude Trichet, ECB’s President, to reveal the direction of the future monetary policy of the European central Bank.

The Euro has been discounting ECB’s decision but what can strengthen the common currency even more can be bad news from the U.S. On Thursday, the American labor market report will be published. The data will be released a day earlier than usual due to the U.S holiday (Independence Day) on the first Friday of the month. The market expects that unemployment in the nonfarm sector will fall confirming the tough situation of the U.S labor market that is slowing down the economy. Later on that day the ISM non-manufacturing report will be published. It will certainly be important since services account for 2/3 of the American economy.

Till Thursday markets should not be very volatile. Only a couple of reports can cause bigger movements. On Monday, the Canadian GDP will be released and this publication can certainly have an impact on the CAD. Tuesday will bring us the American ISM Manufacturing report, which is expected to remain under 50 points, indicating recession. Investors playing on the AUD will follow the Australian Central Bank’s decision regarding interest rates. No change from the current 7.25% is expected. On Wednesday, worth attention will be Trichet’s speech in Paris and the U.S ADP Employment report. We will also follow the Crude oil inventories report since can have a big effect on oil prices, as it had last week.

After this week we will have the answer to many questions. The U.S labor report will reveal in what condition is this sector of the economy. If the situation is pretty bad, an interest rate hike by the Fed in the near future will be very questionable. We will also have more information about the ECB’s monetary policy. Inflation is becoming a danger to global economy and the ECB might be the first “big” central bank to react. Investors with great attention will also be listening to the words of Trichet on the press conference following the decision. If the speech will be interpreted as “hawkish”, the EURUSD will be attacking the 1.60 level, trying to reach a new all-time high.

Published on  Mon, Jun 30 2008, 10:04 GMT

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X-Trade Brokers Dom Maklerski SA  | Robert.kosowski@xtb.pl; 00-876 Warszawa
http://www.xtb.com/ | Robert.kosowski@xtb.pl