Forex Forecast: 5 Key Events for the Market This Week 08-25-08

Monday, 25 August 2008

Previous Articles

• Aug 25 - Forex Forecast: 5 Key Events for the Market This Week 08-25-08
  
• Aug 22 - Forex Trading Weekly Forecast - 08.25.08
  
• Aug 22 - British Pound Vulnerable to Sharp Pullback Next Week
  
• Aug 22 - Pound Plummets As Growth Stalls, Euro Follows Suit
  
• Aug 22 - Euro Open: UK Gross Domestic Product to Print at 15-Year Low
  
• Aug 21 - Forex Emerging Markets Weekly - August 21, 2008
  
• Aug 21 - Forex Trading Forecast: US Dollar to Weaken Before Further Rallies
  
• Aug 21 - Euro Open: Will Switzerland Follow the EU into Recession?
  
• Aug 21 - Pound Reverses Despite U.K. Retail Sales Rebound, Euro Heavy As PMI Remains In Contraction
  
• Aug 20 - Can Chinese Demand Keep Japan Out of Recession?
  
• Aug 20 - Dollar May Drop Without Action From The Fed
  
• Aug 20 - Australian Dollar Could Fall Like a Rock
  
• Aug 20 - BoE Voted 7-1-1 to Leave Rates Unchanged, Besley Votes For Hike.
  
• Aug 20 - Euro Open: Is The Bank of England Closer to Cutting Interest Rates?
  
• Aug 19 - Forex Seasonality Update: We Forecast USDCAD Declines
  
• Aug 19 - Euro Falls As German ZEW Shows Current Conditions Worsening
  
• Aug 19 - A Drop in U.S. Housing Starts Would Validate EURUSD Technical Outlook
  
• Aug 19 - Euro Open: Will Producer Prices Help the ECB Cut Interest Rates?
  
• Aug 18 - Japanese Yen Forecast Ahead of BoJ Meeting
  
• Aug 15 - Forex Trading Weekly Forecast 08.18.08
  

Written by Terri Belkas, Currency Strategist

Forex traders should beware of event risk for the US dollar this week, as most economic releases will be out of the US. Indeed, house prices, consumer confidence, durable goods orders, and Q2 GDP will all hit the wires. However, the minutes from the Federal Reserve's August meeting may be the event to watch, especially if any commentary signals any sort of bias within the FOMC. The Euro will not be spared either, though, as Euro-zone CPI is on tap on Friday.

• US S&P/Case Schiller Home Prices, Consumer Confidence – August 26
On Tuesday, the release of US economic data may highlight some of the reasons why traders are ramping up speculation that the country is in midst of a recession. Indeed, at 9:00 EDT, the S&P/Case-Schiller index of home prices is likely to fall sharply for the twenty-first consecutive month in June. Later in the morning at 10:00 EDT, the Conference Board's consumer confidence index is forecasted to edge up to a reading of 53.0 in August from 51.9. While US economic conditions haven't improved in any way, shape, or form, we saw last month that a drop in oil prices helped to boost sentiment and lower inflation expectations. Since commodities plunged for much of August, there is potential for there to be a similar increase in confidence which would be bullish for the US dollar. However, since the US housing, services, and manufacturing sectors all remain weak while labor market conditions deteriorate, there is certainly downside risk for this release as well.

• FOMC Meeting Minutes from August 5 – August 26
The release of the minutes from the FOMC meeting on August 5 at 14:00 EDT. During that meeting the Fed left rates steady, though one member – Richard Fisher – dissented for the fifth consecutive time as he remains the most hawkish of the bunch. The key thing to watch for in the release of the minutes is the commentary amongst the FOMC members regarding inflation, especially in light of July's record oil prices. Currently, fed fund futures are betting that the Fed will raise rates by over 50bps within the next 12 months. However, if the FOMC members brush off the inflation factors and focus instead on shaky financial market conditions and the significant US economic slowdown, futures may start to become more aggressive in pricing in either steady rates or even a cut, which could weigh heavily on the US Dollar.

• US Durable Goods Orders – August 27
Can Boeing help the US durable goods orders figure to rebound? Unlikely, as airline orders only improved very slightly in July to 70, up from 62 in June. While the headline will have the most impact on forex trading, the markets should keep an eye on non-defense capital goods orders excluding aircraft, as this number serves as a leading indicator for business investment. The reading has fallen negative during 4 of the past 6 months, though it did rise 1.4 percent last month. Overall, though, durable goods are forecasted to rise a tepid 0.1 percent, which could ultimately lead the greenback lower.

• US Gross Domestic Product (2Q P) – August 28
On Thursday, the second reading of Q2 GDP for the US will hit the wires at 8:30 EDT. The figure is anticipated to be revised all the way up to a whopping 2.7 percent from initial estimates of 1.9 percent, thanks to stronger-than-expected exports in the month of June. Likewise, surprisingly large increases in wholesales and business inventories in June could provide a positive lift. While I remain skeptical of this sudden "rebound" in economic expansion in light of the contraction in business activity for the services and manufacturing sectors, along with the broad deterioration in the labor markets, a reading in line with or more than forecasts should ignite a US Dollar rally.

• Euro-zone Consumer Price Index Estimate – August 29
Eurostat estimates for Euro-zone CPI are projected to show at 5:00 EDT that inflation held at a 4.0 percent pace in August. Given European Central Bank President Jean-Claude Trichet's more bearish stance on economic growth, a weaker-than-expected CPI reading could exacerbate the market's speculation that the central bank will cut rates within the next year. On the other hand, a jump in CPI could be just the thing to get traders to remember just how hawkish Mr. Trichet can be and send the euro higher.