The US dollar and Japanese yen took a beating over the past week amidst renewed risk appetite, but the euro and British pound may both face bearish news from the release of Euro-zone GDP and the Bank of England’s Quarterly Inflation Report. On the other hand, optimism could grow further as Fed Chairman Bernanke is due to speak and US retail sales have the potential to improve.
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[li][B]Fed’s Bernanke Speaks About Bank Stress Tests – May 11[/B][/li] The release of the US government’s stress test on the 19 biggest financial institutions offered a significant boost to risky assets, including FX carry trades and equities, while weighing on the US dollar and Japanese yen. On May 11 at 19:30 ET, Federal Reserve Chairman Ben Bernanke will speak on the topic, and regardless of the subject, his comments tend to be highly market-moving. Indeed, words that reiterate the positive sentiment gleaned from the official report has the potential to provide yet another boost to risk appetite.
[li][B]Bank of England Quarterly Inflation Report, UK Jobless Claims (APR) – May 13[/B][/li] Jobless claims in the UK are anticipated to rise for the fourteenth consecutive month in April, adding to evidence that the combination of a slowing global economy, sharp declines in domestic consumption, and the continuous collapse of the UK housing sector are bound to make the UK economic contraction extend for a lengthy amount of time. Indeed, the jobless claims change is anticipated to rise by 85,000 and while this could impact the British pound upon release at 4:30 ET, the announcement of the Bank of England’s Quarterly Inflation Report may be more important. The BOE’s latest policy statement indicated that they decided to expand their quantitative easing program by 50 billion pounds to 125 billion pounds, suggesting that this inflation report could reflect steep downward revisions to growth and inflation forecasts. If this is indeed the case, the British pound could pull back very sharply.
[li][B]US Advance Retail Sales (APR) – May 13[/B][/li] The Commerce Department is forecasted to report that US retail sales slipped 0.1 percent in April, after tumbling 1.2 percent in March, and excluding autos retail sales are anticipated to stagnate. However, there is potential for a better-than-expected result, as the latest ICSC chain store sales numbers show that consumption rose 0.7 percent in April from a year ago, marking the first increase since September 2008. Furthermore, initial estimates of US Q1 GDP showed that personal consumption rose 2.2 percent during the quarter, suggesting that aggressive discounting by retailers has been able to offset some of the negative impact of deteriorating labor markets, tight credit conditions, and a lingering recession. As we’ve seen with reports like US non-farm payrolls, the impact of a disappointing result may be counterintuitive as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further. As a result, traders should keep risk trends in mind, as increase in risk appetite tends to hurt the US dollar, even if the US fundamental picture improves.
[li][B]Euro-zone GDP (1Q A) – May 15[/li] [/B]In 2008, the release of Euro-zone CPI drew significant attention and sparked major volatility for the euro. However, indicators of growth have become more important, as the European Central Bank has shifted its focus away from inflation and on to the global and regional economic slowdown. As a result, traders should keep an eye on the advanced reading of Q1 GDP, which is forecasted to contract for the fourth straight quarter, this time at a rate of -2.0 percent, compared to -1.6 percent in Q4 2008, while the year-over-year rate could fall by a whopping 4.1 percent. Such data would indicate that the Euro-zone’s recession deepened into the start of 2009, and would only raise the odds that the European Central Bank will consider cutting rates further or will need to take more drastic steps than their current plan to buy 60 billion euros worth of covered bonds, and the news could trigger steep losses for the euro.
[li][B]US Consumer Price Index (APR) – May 15[/B][/li] At 8:30 ET, the release of the April reading of the US consumer price index (CPI) is likely to highlight the ultra-slow pace of price growth in the US economy. Indeed, CPI is anticipated to have stagnated during the month, bringing the annualized pace to -0.6 percent – the lowest since January 1955 - from -0.4 percent. On the other hand, the core measure – which excludes volatile food and energy costs – is anticipated to rise 0.1 percent, leaving the annualized rate at 1.8 percent. Overall, the news is likely to add to concerns that the US is on a one-way track to deflation, a concern that has been cited by “a few” Federal Open Market Committee (FOMC) members, according to the latest FOMC meeting minutes. However, the markets may only respond to the news if core CPI starts to fall dramatically.
[/ul] [B]See the [/B][B]DailyFX Calendar[/B][B] for a full list, timetable, and consensus forecasts for upcoming economic indicators.
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