Japanese Q2 GDP to Reflect Health of Trade, Canadian and UK CPI to Fall Further

The source of economic news will be scattered around the globe this week as Japanese GDP, UK CPI, German investor sentiment, Canadian CPI, and US housing data will hit the wires. Much of the news should only have a direct impact on the Japanese yen, British pound, euro, Canadian dollar, and US dollar, but surprising Japanese or US data could potentially impact broad-based risk trends as well.

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[li][B]Japanese Gross Domestic Product (GDP) (2Q P) - August 16, 19:50 ET[/B][/li] On August 16, Japan’s Cabinet Office will release preliminary growth readings, and after four straight quarters of contraction and a record drop in GDP during Q1, the results could offer a boost to risk appetite. Indeed, improvement in foreign demand during Q2 has helped lift export demand, and may ultimately be the driving force behind and expected 3.9 percent annualized increase in GDP, following a record drop of 14.2 percent in Q1. Consumer spending, however, may prove to be a drag on growth as wages have fallen amidst mounting job losses. All told, FX traders may see a brief fundamental response from the Japanese yen following the release of Q2 GDP, where positive news pushes the currency higher and negative results lead the currency lower. As European traders start to come in to play, however, risk trends may resume their place as the primary driver of price action.
[li][B]UK Consumer Price Index (CPI) (JUL) - August 18, 4:30 ET[/B][/li] The UK’s consumer price index (CPI) reading for the month of July is expected to fall for the first time in six months at a rate of -0.3 percent. This may lead the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to 1.5 percent, the lowest since November 2004, from 1.8 percent, keeping inflation within the central bank’s acceptable range of 1 percent - 3 percent, but below their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further before year-end. On the other hand, if CPI holds strong, the currency could rally in response.
[li][B]German ZEW Survey (AUG) - August 18, 5:00 ET[/B][/li] A steady rally in European equities throughout July to the highest levels since Q3 2008 is likely to underpin the case for a rise in German investor sentiment for the month of August. The ZEW survey on the economic outlook is forecast to rise to a more than 3-year high of 45 from 39.5, while sentiment on current conditions is projected to edge up to 7-month high of -85.5 from -89.3. Surprisingly strong results could lead the euro to gain following the news on a very short-term basis, but disappointing data would likely have a greater impact, and could trigger sharp declines in the currency,
[li][B]Canadian Consumer Price Index (CPI) (JUL) - August 19, 7:00 ET[/B][/li] Headline CPI for July is projected to fall to an annual rate of -0.8 percent - the lowest since 1953 - from -0.3 percent, while the Bank of Canada’s core measure is projected to hold steady at 1.9 percent. Such results would suggest that any price declines are due purely to falling commodity costs, and as long as the core measures don’t fall sharply, the Canadian dollar shouldn’t react too strongly. However, if broader price pressures start to fall more steeply, concerns about deflation may arise and weigh on the currency.
[li][B]US NAR Existing Home Sales (JUL) - August 21, 10:00 ET[/B][/li] The most recent US housing market reports were generally optimistic, as NAR existing home sales, NAR pending home sales, new home sales, housing starts, and building permits all rose more than expected during the month of June. Now, the July reading of NAR existing home sales is projected to rise for the fourth straight month to an 11-month high of 5.0 million from 4.89 million. While there are many reasons why sales could increase, including the US government’s $8000 tax credit for some homebuyers, low interest rates, and cheaper prices, there are also reasons why recovery in the housing sector may take a while, namely: rising unemployment. As long as the unemployment rate continues to climb, there will be a perpetual downdraft on property sales, which means that growth in the housing market may be quite meager throughout the rest of the year.
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[B]See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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