The euro and the pound continued grinding higher, while the yen and commodities continued retreating. And now, the US dollar returns to the limelight. A buildup of top tier US events builds up to the all-important Non-Farm Payrolls. In addition we have rate decisions in Australia, the UK and in the Eurozone. These are the major events on our calendar for this week. Here is an outlook on the main market-movers awaiting us.
Some pressure came off the ECB, as inflation numbers came out above expectations and helped the euro. In the UK, a confirmation of strong GDP helped the pound and cable challenged multi-year highs. US jobless claims fell for the sixth consecutive week indicating slightly stronger job market conditions. Claims dropped more than expected and fell to 316K. Non-Farm Payrolls can determine the outcome of the upcoming Fed decision. Will we see a “Dectaper”?
- Ben Bernanke speaks: Monday, 13:30. Federal Reserve Chairman Ben Bernanke is scheduled to speak in Washington DC. He may provide clues to the Fed rate hike intent as well as the tapering execution forecast. The Fed soon enters a “quiet period” before the Fed decision, adding importance to his speech.
- US ISM Manufacturing PMI: Monday, 15:00. The U.S. manufacturing sector advanced at its fastest pace in more than two years in October, reaching 56.4 from 51.8 in September, boosting the fourth-quarter manufacturing activity despite the government shutdown in first half of the month. Analysts expected the index to drop to 55.3 due to the shutdown. A small decline to 55.2 is expected this time.
- Australian rate decision: Tuesday, 3:30. The Reserve Bank of Australia maintained the cash rate at 2.5%, in line with market consensus. RBA governor Glenn Stevens remarked economic growth is still modest, but expects the economy to pick up next year. Domestic demand and household and business sentiment increased recently, but it is still too soon to mark an upward trend. Stevens noted the Australian dollar was still too high hurting the weaker parts of the economy. A further rate cut may be in order to further boost economic activity. No change in rates is forecast. Technical: AUD/USD: Faces Further Bearishness
- Australian GDP: Wednesday, 0:30. Australia’s economy expanded 0.6% in the second quarter pushing the annual GDP growth to 2.6% from 2.5% in the previous quarter. Analysts expected a smaller expansion of 0.5% and an annual rate of 2.4%. Economists believe GDP needs to reach 3.0% in order to keep unemployment in line. The second quarter results are not so far from this target, indicating improvement in the Australian economy. An expansion of 0.7% is predicted now.
- US ADP Non-Farm Payrolls: Wednesday, 13:15. According to ADP, the US private sector expanded less than forecast in October, adding 130,000 following a downwards revision to 145,000 in the previous month. Economists expected a rise to 151,000. Large and medium-sized businesses registered a rise of 81,000 and 13,000 workers, respectively, for the reported period, while small businesses added 37,000 workers. Service industries, trade, transportation and utilities recorded the highest increase, increased by 40,000 jobs. Professional and business services recorded a gain of 20,000 jobs, while construction added 14,000 jobs. The government shutdown and debt limit weakened job market in October pushing he average monthly growth down below 150,000. But this drop may be a temporary relapse. An addition of 174,000 jobs is forecast this time.
- US Trade Balance: Wednesday, 13:30. The U.S. trade deficit increased in September, reaching $41.8 billion from $47.4 billion the prior month, amid a rise in imports and a fall in exports. Trade contributed 0.31% to the economy’s 2.8% annualized growth pace in the third quarter; however the job market continued to suggest sluggishness whish also affected household spending. Trade deficit is expected to reach 40.3 billion.
- Canadian rate decision: Wednesday, 15:00. The Bank of Canada kept its key interest rate at 1.0% and cut its economic growth outlook to 1.6% this year, 2.3% in 2014 and 2.6% in 2015. The BOC forecasts growth will return to full capacity only in 2015. The statement also implied that the bank will probably cut rates rather than increase them in the coming months. No change is expected now. Canada reported better than expected growth in Q3.
- US ISM Non-Manufacturing PMI: Wednesday, 15:00. The US Service sector in the U.S. unexpectedly accelerated in October, reaching 55.4 following 54.4 in September, indicating the US economy got over the shutdown and the debt ceiling ordeal. The report indicated employment picked up in October, as sales increased and the economy is gaining momentum before the holiday season which is expected to boost market activity. Economists expected a weaker display of 54.2 due to the shutdown effect, but Retail and real estate were among 10 industries that reported growth in October. No change is expected now.
- US New Home Sales: Wednesday, 15:00. Sales of new single-family homes in America increased in August at a modest pace of 7.9%, reaching an annual pace of 421,000 units. The increase was the lowest this year, indicating the rise in mortgage rates had a negative effect on the market. The reading was in line with market forecast. The rising interest rates played a big role in the Fed’s decision to postpone tapering its bond buying program. The inventory of new homes for sale rose by 3.6% in August from July, leaving the stock of unsold new homes at its highest level since March 2011. Sales of new single-family homes is expected to reach 432,000.
- UK rate decision: Thursday, 12:00. The Bank of England kept its benchmark interest rate at 0.50% in its November meeting. Despite the recent upturn in UK’s economic activity, it is unlikely that the BOE will raise interest rates during the key pre-election year of 2014. Mark Carney fears an early end to the accommodative interest rates would hurt consumer confidence. The BOE expects unemployment rate would reach 7.0% by the final quarter of 2014 rather than early 2016 which is good news for the UK economy (supported also in the confirmation of strong growth). Rates are expected to remain unchanged.
- Eurozone rate decision: Thursday, 12:45, press conference at 13:30. After the surprising rate cut in November, the ECB is likely to leave policy unchanged in December. The rate cut has little impact on the economy and with the hindsight of a few weeks, it had no long lasting effect on the exchange rate: the euro is now stronger than before the move. Nevertheless, and despite fear of deflation, another move now would be problematic for the northern block and especially for the Bundesbank. So, Draghi is likely to emphasize that the ECB is considering more moves in the near future, hinting about setting a negative deposit rate already in January. A hint would hurt the euro, and a negative deposit rate would have a much stronger effect on the euro than cutting the lending rate.
- US GDP (second release): Thursday, 13:30. According to the first release, U.S. gross domestic product increased by 2.8% in Q3 on an annual basis. This came out above expectations, and now expectations are even higher: an expansion rate of 3.1% is anticipated now. While the Fed doesn’t focus on GDP growth, a strong growth rate is needed in Q3 in order to compensate for a probably weaker expansion in the last quarter due to the government shutdown.
- US unemployment claims: Thursday, 13:30. The number of Americans filing claims for initial unemployment benefits continued to drop last week, down by 10,000 to 316,000, much better than the 331,000 forecasted by analysts. The reading was released a day earlier due to the Thanksgiving holiday which may add volatility to the release. Nevertheless, the job market registered its sixth fall, indicating an ongoing improvement in the labor market conditions. A rise to 322,000 is predicted now.
- Canadian employment data: Friday, 13:30. Canada’s labor market gained additional 13,200 jobs in October managing to keep unemployment rate at 6.9% in October, the lowest level since 2008. Analysts expected unemployment to climb to 7.0%. Job gains continue despite lukewarm demand for exports which led the BOC to cut its growth forecast and imply on a possible rate hike. An addition of 7,600 jobs is expected and unemployment rate is predicted to climb 0.1% to 7.0%.
- US Non-Farm Employment Change and unemployment rate: Friday, 13:30. In October, U.S. nonfarm payroll employment expanded by 204,000 jobs , 53,000 above September reading. Job growth was widespread in October in October, excluding Federal government employment and the unemployment rate climbed mildly to 7.3% from 7.2% in September. The change in total nonfarm payroll employment for August was revised from +193,000 to +238,000, and the change for September was revised from +148,000 to +163,000. With these revisions, employment gains in August and September combined were 60,000 higher than previously reported, indicating an upturn in the job market. A job gain of 184,000 is anticipated, with a drop to 7.2% in unemployment rate.
- US UoM Consumer Sentiment: Friday, 14:55. U.S. consumer sentiment dropped unexpectedly in November, reaching a two-year low of 72.0 following 73.2 final reading of October. Lower-income households were worried about their future financial condition, while those with incomes above $75,000 felt more confident as stock prices increases boosted net wealth gains. The government debt ceiling crisis also lowered confidence, although the end of the shutdown increased optimism. Consumer sentiment is expected to rise to 76.2 this time.
- Haruhiko Kuroda speaks: Saturday, 2:00. BOE Governor Haruhiko Kuroda is scheduled to speak in Tokyo. Volatility is expected. Japan recently reported a positive “core core” figure, showing that the BOJ’s fight against deflation is gaining traction.
*All times are GMT.
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