Forex Weekly Outlook September 15-19

The dollar was king once again, but some currencies such as the euro fared better than the commodity currencies. The Fed decision and the Scottish Independence Vote stand out as the key events in a week that also consists of other important releases, and promises to be very interesting. Check out these events on our weekly outlook.

While the euro managed to stabilize after Draghi’s drag, other currencies began or continued retreating against the dollar. The pound suffered a big weekend gap that showed the race on Scotland is too close to call, but then recovered quite nicely. Commodity currencies were hit hard: USD/CAD topped 1.10 and AUD/USD reached the 0.90 handle, despite unbelievably strong employment figures.The kiwi remained in its misery. But also the yen continued free falling, with USD/JPY reaching deeper into levels last seen in 2008. Is 110 in sight?

1. Haruhiko Kuroda speaks: Tuesday, 5:30. BOE Governor Haruhiko Kuroda will  press conference in Osaka. Market volatility is expected, especially if he offers comments about the recent fall in the value of the yen or the weak GDP.
2. UK inflation data: Tuesday, 8:30. Annual inflation rate dropped more than expected in July, reaching 1.6% from 1.9% in June, lowering the chance of an interest rate rise in 2014. Economists expected a smaller decline to 1.8%. The main cause for the sharp fall was price reduction in summer clothing. Inflation was held below the BOE’s 2% target for the seventh consecutive month, indicating the UK economy is stabilizing. However, cost of living and income tax are still too high compared to wage growth. Annual inflation  is expected to reach 1.5% in August.
3. German ZEW Economic Sentiment: Tuesday, 9:00. German economic sentiment plunged in August to 8.6 from 27.1 in July. The 18.5 fall brought sentiment to its lowest level since December 2012. Analysts expected a more modest decline to 18.2 points. The Current Conditions Index dropped to 44.3 from 61.8 in July, missing predictions for a decline to 55.5. The ongoing geopolitical tensions are the main reason for the sharp decline. Economic climate is expected to decline further to 5.2.
4. US PPI: Tuesday, 12:30. U.S. producer prices inched marginally in July rising 0.1%, in line with market forecast, following a 0.4% gain in the previous month. The slow advance resulted from a decline in the cost of energy goods, lowering prices of finished goods. Despite the volatility in the PPI series, a trend of inflation is gathering pace, easing the Central Bank’s concerns. The government introduced three new indexes to the PPI series focusing on personal consumption. Personal consumption less food and energy rose 0.2% in July after a 0.3% gain in June. Excluding food, energy and trade services, the index increased 0.2% after a similar rise in June. Producer prices are predicted to gain 0.1% in August.
5. UK employment data: Wednesday, 8:30. The number of people claiming unemployment benefits in the U.K. contracted more-than-expected in July, declining a seasonally adjusted 33,600, after a 39,500 fall in the previous month, lowering the unemployment level to 6.4% in the three months to June. Economists expected a smaller decline of 29,700. Meanwhile, the average earnings index fell 0.2% in the three months to June after a 0.4% gain in the three months to May. The number of job seekers is expected to decline by 29,700 in August.
6. US inflation data: Wednesday, 12:30. U.S. consumer prices inched 0.1% in July, in line with market forecast, following a 0.3% rise in June. On a yearly base, consumer prices gained 2.0%, compared to June’s increase of 2.1%. Excluding the volatile food and energy costs, July core consumer prices gained 0.1% after posting the same gain in June. On an annual basis, core CPI rose 1.9%, unchanged from June. Economists expect core CPI to rise above the 2% target next year, prompting the Fed to raise rates in March. U.S. consumer prices is expected to grow by 0.1% whiel Core CPI is predicted to gain 0.2%.
7. Fed decision: Wednesday, 18:00, press conference at 18:30.. The Fed is expected to taper its bond buys for the 7th time to $15 billion, in the last taper before QE end in October. Some are expecting Yellen and her colleagues to alter the statement regarding the interest rates, removing the word “considerable” from the expected time frame. However, given the recent unexciting job data, there is a better chance that no change in tone will be seen. The economic forecasts could be upgraded and the general message could be somewhat more upbeat, but Yellen might want to keep the hints about the rates to another opportunity. This is a key event for the dollar. Every word in the statement and every word in the press conference will be scrutinized, and the full impact might take time be seen. A surprising removal of the word “considerable” will have a considerable positive effect on USD, while no change in the statement will shift the focus to the general tone and view of the economy by Chair Yellen.
8. New Zealand GDP: Wednesday, 22:45. New Zealand economy expanded 1.0% in the first quarter following a revised 1.0% in the last quarter of 2013. Construction sector was the main contributor to expansion, rising 12.5%, the largest since March 2000. Retail trade edged up 1.4% and 4.4% on a yearly base. Mining rose 6.3% in the first quarter. Household spending remained unchanged, despite the 7.3% gain in real gross national disposable income, the largest ever annual rise. Exports increased 3.1% for the quarter driven by an 18.6% rise in agriculture and fishing products.
9. Switzerland rate decision: Thursday, 7:30. The Swiss National Bank (SNB) is now “celebrating” three years to the EUR/CHF floor of 1.20, and there are no signs this will change anytime soon. The Swiss economy is still experiencing deflation. The bottom low interest rate is expected to remain unchanged, yet some speculate that the SNB might take a page from the ECB’s book and opt for a negative deposit rate. This would weigh on the franc and keep it away from the floor.
10. US Building Permits: Thursday, 12:30. US building permits surged 15.7% in July, reaching a seasonally adjusted annual pace of 1.09-million units. The rise came after two consecutive declines. Economists expected starts to rise to a 969,000-unit rate. The housing market softened after the rise in interest rates. The government reported last month that the homeownership rate hit a 19-year low in the second quarter, while the rental vacancy rate was the lowest in more than 19 years. The number of Building permits is expected to reach 1.04 million units this time.
11. US Unemployment Claims: Thursday, 12:30. The number of Americans seeking U.S. unemployment benefits increased by 11,000 last week to 315,000. However, the four-week average inched up only 750 to 304,000. The average remained 7.1% lower than last year. Unemployment benefits data can be volatile around holidays and could explain the 11,000 rise. Overall, the Us labor market continues to strengthen with a clear growth trend. Jobless claims are expected to grow by 312,000 this week.
12. Janet Yellen speaks: Thursday, 12:45. Federal Reserve Chair Janet Yellen will speak in Washington DC. She may talk about the US labor market and the prospects of a rate hike following the taper period. Market volatility is expected and she will have the chance to clarify anything that she says in the previous day.
13. US Philly Fed Manufacturing Index:  Thursday, 14:00. Business conditions in the Philadelphia area improved in August surging to 28 from 23.9 in July. This was the third consecutive rise and posting the highest reading since March 2011. Economists expected a more modest rise to 19.7 points.  However despite the less encouraging new orders index, the general tone is positive. Business conditions in the Philadelphia area  are expected to decline to 22.8.
14. Scottish Independence Vote: Thursday. In September 18, Scottish voters will decide whether to split from the United Kingdom or stay as one country with England, Wales and Northern Ireland. A YouGov poll conducted for The Sunday Times and released on Sunday showed the “yes” vote at 51% and “no” at 49% and that certainly hurt the pound, while a more updated poll already showed a 4% lead. There are many other polls that impact sterling. Scotland’s first minister and SNP leader Alex Salmond has been a vocal proponent of independence. British Prime Minister David Cameron wants Scotland to remain part of an undivided United Kingdom of Great Britain and Northern Ireland. Uncertainty over the outcome of the Scottish referendum weakened the pound. It’s important to note that the odds lean to a No vote, but nothing is priced in. So, a No vote would send the pound significantly higher, yet a Yes vote would be devastating for the pound, and it could test the 2010 levels.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.