Until Dollar Traders Take in the NFPs, the RBA, ECB and BoE will Guide the Market

There is a lot of data scheduled over the coming week; and much of it holds the kind of market moving impact that could trigger breakouts. This is fortunate for those that love volatility; because many of the majors are resting on major anti-dollar support levels. All these individual releases aside though, the dollar will be put on the spot light immediately upon the open of Monday’s session in the Far East.

The benchmark currency ended Friday with its lowest close since September 30th. Traders will demand either a retracement or breakout to relieve tension; but it is very likely that this may be based upon pure speculation or risk appetite. This means the US Non-Farm Payrolls report will not lead the symbolic breakout or reversal; but it will likely still have a considerable impact. Ensuring the dollar isn’t the only fundamental mover for the week, we will see two general themes from the calendar. In addition to US payrolls, there are employment change numbers scheduled for Canada, Australia and New Zealand. The other commonality will be rate decision. The RBA, BoE and ECB are all due to deliberate rates and offer statements; and each holds a significant sway over its regional currency…

[B]• RBA Rate Decision [/B] – Aug 4th (04:30 GMT)
The Reserve Bank of Australia’s rate decision is the first of the three policy announcements due over the coming week. Of the 19 economists polled by Bloomberg, all believe Governor Steven’s board will keep the benchmark unchanged at 3.00 percent. There is further little disagreement from the market as overnight index swaps are pricing in a negligible probability of any change. Considering previous central bank activity, this seems the likely outcome; but there is always room for surprise – and a hike or cut would be a major catalyst. However, the real influence from this event will likely come from the commentary that follows the announcement. Speculators are ready to believe the central bank is done easing and the next move will be a hike. Confirmation of these predictions (and more prominently, a time frame said hike) would go a long way in for Aussie strength.

[B]• Bank of England Rate Decision [/B] – Aug 6th (11:00 GMT)
There is almost no possibility of either a hike or cut from the Monetary Policy Committee next Thursday. Further cuts are naturally limited by the fact that the benchmark is already at 0.50 percent and further easing would essentially usher in a ‘zero interest rate policy.’ And, more to the point, an additional 25-50 basis points of easing would impart little, additional support to the economy. Instead, rate watchers will be looking for any changes to the central bank’s bond purchasing scheme. At the last meeting, the program was kept at 125 billion pounds, suggesting to some that they were not doing enough to revive the economy while others took it as a sign that they were taking the first step towards hikes. The latter prediction is a very long ways off; but the speculation stands. Prime Minister Brown authorized 150 billion; so there is an easy an easy buffer for expansion without sparking fear that the central bank is losing control of the situation. Alternatively, holding steadfast without the proper commentary may strike the market as foolhardy.

• [B]European Central Bank Rate Decision[/B] – Aug 6 (11:45 GMT)
Though it does not carry the rates of its Australian and New Zealand counterparts, the euro is backed by one of the highest interest rates among the majors. What’s more, speculation of near-term hikes has gained more traction with the ECB than with nearly every other central bank in this echelon. However, from a fundamental perspective; it would be very ambitious indeed if there was a move to hikes within the next few months. The Euro Zone’s largest economies (Germany and France) seem to be stabilizing; but many of its other members are still mired in recession. Without consumer spending to truly catalyze expansion, banks expected to deliver write downs over the coming year and Eastern Europe threatening to spark a wave of defaults that could swamp the broader credit market once again; there is a good argument for retaining a ‘wait-and-see’ approach.

• [B]Canadian Employment Change (JUL) [/B]–Aug 7 (11:00 GMT)
Over the past two months, the Canadian employment data has had a significant, absolute impact on the loonie. However, there are factors working against this release. The first issue to take account of is that it is released on a Friday. There are only a few hours of deep liquidity left before the market thins out for the weekend. This means a fundamental surprise needs to be significant enough to overcome the market’s summation that it is unlikely that a meaningful trend will be born from this individual release. What’s more, with the US labor statistics due out just an hour and a half later, the market often overlooks this indicator (especially for USDCAD) to see how healthy US consumer demand will be for Canadian exports. Nonetheless, this employment data will be vital for benchmarking Canada’s recovery; so expect a short-term and long-term impact.

• [B]US Non-Farm Payrolls (NFPS)[/B] (JUL) – Aug 12:30 (12:30 GMT)
While different indicators and events go in and out of fad as the markets change; the US payrolls report seems to consistently hold near the top of the market-movers list. The July release will be no different. Looking ahead to the week, the dollar is on the verge of a new trend; but it would be a long wait to hold out until Friday before direction can be found. The technical landscape will likely be very different by the time this event is released; but the impact will still be the same. This is a leading growth indicator; but it doesn’t have the same influence as say the 2Q GDP release in providing scope for how the US will further influence the global economy. This means, barring a major surprise (a reading 200,000 or greater above or below the consensus), this is likely to have a straightforward impact on price action. The consensus calls for a 345,000-person cut in payrolls for the month of July. This would be the smallest drop in 10 months and further expectations of stabilization and the fabled recovery. However, the devil is in the details; and an unemployment rate near 10 percent doesn’t point to growth.

[B]See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators[/B].

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