Forex Weekly Outlook December 9-13

Currencies experienced a volatile week, with the euro enjoying the lack of action and commodity currencies remaining on the back foot. US retail sales and inflation data, rate decisions in New Zealand and in Switzerland are among the events awaiting us as we wait for the important FOMC decision in the following week. Here is an outlook for the main market moving events this week.

US Non-Farm Payrolls came out better than expected with +203K jobs and a drop of the unemployment rate to 7%. However, they left many unconvinced. The initial dollar strength was erased and the markets will probably continue digesting the implications. The US published stronger growth figures for Q3, 3.6%, but these were taken with a grain of salt. Nevertheless, most figures were positive. The ECB provided no new measures nor hints, and the euro enjoyed a big relief rally. With negative deposit rates discussed only briefly, Draghi’s main message was “happy holidays”. In the UK, almost all figures were positive, but the pound’s advance path is very rough, to say the least.

1. James Bullard speaks: Monday, 18:05.  Federal Reserve Bank of St. Louis President James Bullard is scheduled to speak in St. Louis. He will speak about economic outlook. Volatility could be expected as this member is neither an extreme dove nor an extreme hawk. His tendency could reflect that of Bernanke.
2. NZ rate decision: Wednesday, 20:00.  The Reserve Bank of New Zealand decided to keep the Official Cash Rate unchanged at 2.5%. Reserve Bank Governor Graeme Wheeler said economic recovery is fragile in the US and other leading economies but, world prices for New Zealand’s export prices remain very high which is a headwind to  NZ’ economic growth. Nevertheless, The New Zealand economy is projected to have grown by more than 3% in the year to September. Household spending increased, and the housing sector is on a growth trend due to evelopments in Auckland and other areas. Due to these encouraging signs a rate hike may be in order in early 2014. Will we get a hint about a rate hike in early 2014?
3. US Federal Budget Balance: Wednesday, 19:00. The U.S. budget deficit narrowed in more than expected in November reaching $91.6 billion. Economists expected a bigger deficit of $104.3 billion. Stronger job gain helped to narrow deficit.  US deficit is projected to drop further both in absolute terms and as a share of the economy. Receipts are growing thanks to increased employment and payroll tax rise. The government shutdown effect was surprisingly small since federal workers were paid in full for the days they didn’t work, reducing the possible negative impact on the US economy.
4. Australian employment data: Thursday, 0:30. The Australian job market rose marginally in October, growing less than projected, with a 1,100 job addition, maintaining unemployment rate at 5.7%.  Full time positions grew below expectations, but the RBA is not expected to cut rates again in the coming months. The Australian dollar fell to critical support.
5. Swiss rate decision: Thursday, 8:30.The Swiss National Bank decided to keep the Libor target rate at an ultra-low range of 0% to 0.25% in its September meeting, in line with market forecast. The Central Bank also stressed its intention to maintain the 1.20 CHF per EUR cap, to control the Swiss franc value. The Swiss service sector expanded following strong GDP results for the second quarter. The Bank expects exports will pick up in the second half of 2013 thanks to firmer global demand.
6. US retail sales: Thursday, 13:30. US retail sales edged up 0.4% during the shutdown period in October, signaling economic recovery is stronger than originally thought. The 0.4% gain followed a flat reading in September as the holidays shopping spree is gaining pace. Economists expected a minor climb of 0.1% in October. Meantime core sales increased 0.2% after gaining 0.3% in September but again posted a better reading than the 0.1% rise predicted by analysts. Real earnings, adjusted for inflation, increased mildly mainly because inflation fell.
7. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits unexpectedly plunged last week by 23,000, reaching 298,000, raising hopes for a solid recovery in the US job market. This was the third week of declines, pushing the four-week average down to 322,250. Analysts expected a slight rise to 328,000. However volatility is rising during the holiday season which could also impact job market readings. Nevertheless, the claims report showed the number of people still receiving benefits under regular state programs after an initial week of aid fell 21,000 to 2.74 million in the week ended Nov. 16. That was the lowest level since December 2007.
8. Stephen Poloz speaks: Thursday, 18:05. BOC Governor Stephen Poloz will hold a press conference in Montreal about risks to Canadian financial system and economy. The Bank of Canada warned about low inflation and USD/CAD reached the highest levels in three years.
9. US PPI: Friday, 13:30. Producer price inflation weakened at the headline level in October but edged up at the core due to energy prices. PPI declined 0.2% after dropping 0.1% the month before. The reading was in line with market consensus. However core rate, excluding food and energy, strengthened by 0.2 percent after rising 0.1% in September. The consensus forecast was for a 0.1 %. On a yearly base, PPI, remained unchanged at 0.3% in October. The core rate increased by 1.4% after rising 1.2% in September.