As a summary of economic conditions throughout each of the 12 Federal Reserve districts, the Beige Book report – released at 14:00 EDT – will give key insight into how the FOMC views the economy. Some of the key factors to watch will be employment, consumption, and inflation data, especially as the US unemployment rate has rocketed to a four-year high of 5.5 percent.
[B]JUN 11[/B]
[B]Federal Reserve’s Beige Book (18:00 GMT; 14:00 EDT)[/B]
What Are The Markets Facing?
As a summary of economic conditions throughout each of the 12 Federal Reserve districts, the Beige Book report – released at 14:00 EDT – will give key insight into how the FOMC views the economy. Some of the key factors to watch will be employment, consumption, and inflation data, especially as the US unemployment rate has rocketed to a four-year high of 5.5 percent. However, comments by Federal Reserve Chairman Ben Bernanke last week have made it clear that the FOMC is done cutting rates for the time being. Indeed, we saw the US dollar rally as Mr. Bernanke said that “policy seems well positioned to promote moderate growth and price stability over time.” Nevertheless, though signs of bearish FOMC sentiment on the economy will not necessarily indicate potential for a rate cut at the end of the month, pessimistic views will still weigh on the US markets. In the last Beige Book report, 9 of the 12 districts reported weaker economic economy, so traders should watch for a higher number of districts reporting a slowdown. On the other hand, a pronounced focus on rising retail prices could lead the markets to continue pricing in some potential for a rate hike later in the month.
What other event risk should you be watching in the forex markets this week? Check out our Top 5 List.
Bonds – 10-Year Treasury Note Futures
US Treasuries continue to consolidate above the 50% fib of 104.55 – 121.81 at 133.18, as the contract remains weighed down by jawboning by US government and Federal Reserve officials. Indeed, the US dollar bullish commentary that has filled the news wires has done the trick, despite the fact that US data continues to point toward a weak economy. Look ahead to Wednesday, the release of the Fed’s Beige Book could shake Treasuries up, especially if many of the Fed’s 12 districts report accelerating price pressures. As a result, there is potential for the contract to tumble below near-term support. On the other hand, indications that the US economic slowdown is quickly worsening could lead Treasuries to bounce.
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FX – EUR/USD[/B]
EUR/USD continues to consolidate within a wide range, as the recent surge in the US dollar has led the pair to pull back sharply thanks to heavy verbal intervention by Federal Reserve and government officials. This sort of rhetoric may continue on Wednesday when FOMC voting members Donald Kohn, Randall Krozner, and Sandra Pianalto speak in the morning and is likely to override the market’s reaction to economic data. Nevertheless, it will be worth watching the release of the Fed’s Beige Book, as a pronounced focus on any specific factor – whether it be growth, employment, or inflation – could shake the US dollar up. The greatest risk lies in how the districts report the status of prices, as indications of increased pass-through from producers to consumers could send the US dollar surging and weigh EUR/USD below 1.5400. On the other hand, if more than 9 of the 12 Fed districts report slowing growth, bearish sentiment could take over the greenback once again and lead EUR/USD to bounce from near-term support at 1.5400/50.
Where will the US dollar go next? Discuss the topic with other traders in the EUR/USD Forum.
Equities – Dow Jones Industrial Average
Trading in the US stock markets continues to look jittery, as the Dow Jones Industrial Average consolidates just above support at 12,200 following last Friday’s massive decline. Given the extent of the move, this is not entirely surprising and this sort of trading could remain the norm in coming days. However, traders should keep an eye on financial market news, as indications of distress amongst financial institutions could trigger widespread sell-offs in the global equity markets (and for that matter, forex carry trades). Looking ahead to Wednesday, the Fed’s Beige Book may not have a large impact on the DJIA, but it will be worth checking out to see if there is a pronounced shift in sentiment.
[B]Written by Terri Belkas, Currency Analyst for DailyFX.com
Comments? Questions? E-mail <[email protected]>[/B]