While there will be event risk all around the forex markets this week, the Federal Reserve’s rate decision on Wednesday and speculation surrounding what they will do should be the primary driver of price action for the US dollar. As a result, traders should keep an eye on the US economic reports scheduled to hit the wires before the announcement, including home prices, consumer confidence, and durable goods orders. Meanwhile, German business sentiment could shake up the euro on a short-term time frame, and New Zealand GDP could determine the Kiwi’s next move.
• German IFO Survey– June 23
Sentiment amongst Germany businesses is likely to turn more pessimistic in June, according to the IFO survey. The figure is scheduled to be released at 04:00 EDT, and this release tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given the surge in oil, broad indications of mounting inflation pressures, slowing in the Euro-zone’s economies, and the European Central Bank’s staunchly hawkish bias over the survey period, the IFO reading is likely to fall in line with – if not more than – expectations. Furthermore, we saw that last week’s ZEW survey of German financial analysts slipped more than anticipated, weighing the risks for the IFO survey further to the downside.
• US S&P/Case Schiller Home Prices, Consumer Confidence – June 24
On Tuesday, the release of US economic data will likely 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 sixteenth consecutive month in April. Later in the morning at 10:00 EDT, the Conference Board’s consumer confidence index is forecasted to fall to a nearly 16-year low of 56.3 from 57.2, which won’t be entirely surprising as rocketing food and energy prices combined with the collapse of the US housing sector and tightening credit conditions have sparked widespread pessimism throughout the financial markets. Furthermore, the labor markets have started to deteriorate, as the unemployment rate has jumped higher in recent months and things are only expected to get worse.
• US Durable Goods Orders – June 25
Can Boeing help the US durable goods orders figure to rise further? They may help slightly, as Boeing reported 67 airplane orders during the month of May, up from only 58 orders in April. As a result, the headline reading of durable goods orders growth is anticipated to fall flat for the month, and excluding transportation, is actually expected to fall 1.0 percent. While the headline will have the most impact on forex trading, the markets should also keep an eye on non-defense capital goods orders excluding aircraft, as this number serves as a leading indicator for business investment. The reading rebounded last month following three months of declines, but a return to contracting spending will not bode will for US GDP in the second quarter, especially as consumption wanes.
• FOMC Rate Decision – June 25
Heightened uncertainty surrounding the US Federal Open Market Committee’s interest rate decision at 14:15 EDT virtually guarantees volatility across almost all asset classes - making it the most important event to watch in the week ahead. Economists overwhelmingly expect the Federal Reserve to leave rates steady at 2.00 percent for the first time since August 2007, putting an end to the FOMC’s aggressive rate-cutting cycle. In fact, fed fund futures are actually pricing in a whopping 60 percent chance of a 25bp rate hike to 2.25 percent in September. Indeed, hawkish commentary by various FOMC members and indications of rapidly building inflation pressures have led the US dollar to rally in anticipation of a change in the course of monetary policy going forward. However, the US economy is still facing a major slowdown, if not an all-out recession. Furthermore, US Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair have recently called for clear procedures for shutting down failed investment banks, suggesting turmoil in the financial sector is bound to get worse. As a result, the central bank is highly unlikely to raise rates quite yet. Traders should look for our FOMC preview on www.dailyfx.com on Tuesday for other factors to watch, such as wording in the policy statement.
• New Zealand Q1 GDP – June 26
Expansion in New Zealand is anticipated to contract for the first time in just over two years during the first quarter, as GDP is expected to fall 0.3 percent and drag the annualized figure down to 2.1 percent from 3.7 percent. The culprit? Record high interest rates. The Reserve Bank of New Zealand has left rates at a restrictive 8.25 percent since last summer in an attempt to fight rocketing inflation pressures in the economy. Indeed, a decline in GDP is essentially the intended result of these monetary policy actions, as weaker expansion will weigh on inflation pressures, and the news will likely lead the markets to continue speculating that the RBNZ will cut rates in the third quarter. As a result, there is massive downside risk for the New Zealand dollar this week.
[B]See the DailyFX Calendar for a full list and timetable of upcoming event risks.
Written by Terri Belkas, Currency Analyst for DailyFX.com
Questions? Comments? E-mail: <[email protected]>[/B]