Despite being in the depths of summer this week promises to be seminal for both forex trading and the wider markets as Tuesday sees the FOMC statement and interest rate decision which sees the US economy precariously balanced between an anaemic recovery & the very real danger of tipping back into recession. For forex trading this will be focused on the US dollar which suffered once again last week as the usd index dropped sharply below the 200 day moving average. For the broader markets investors and traders will be watching treasuries and equities, with the yield in the former threatening to drop further while the latter may be heading for a severe pullback.
Meanwhile the forex trading week started overnight in Japan with three items of second tier economic releases of which the M2 Money Supply is probably the most interesting. This came in at 2.7% against a forecast of 2.9% and is a measure of the total quantity of domestic currency in circulation and on deposit in banks. Forex traders care about this number as it correlates positively with interest rates – during the early part of an economic cycle an increasing supply of money usually leads to additional spending and investment whilst during the later part of the cycle an expanding money supply is seen as inflationary. The problem for Japan is that it is still locked in a deflationary spiral and this data simply confirms that the BOJ will keep interest rates on hold at 0.10% at its meeting due to be held sometime on Tuesday.
Overnight also saw the release of the ANZ job advertisements, month on month, which came in at 1.3% against a previous of 2.8% and the Australian Home Loans figures which too came in worse than expected at -3.9% against a target of -2.1%. The final item of data came, once again, from Japan with the Economy Watchers Sentiment which did come in better than expected at 49.8 against a target of 48. This is a diffusion index and based on a survey of 2000 people who are asked to rate the relative level of current economic conditions. Any number of 50 is considered optimistic, below 50 pessimistic.
The European forex trading session saw the release of the German Trade Balance figure and the European Sentix Investor Confidence numbers, the former coming in at 12.3b while the latter at 8.5, way above the 2.1 target.
Market focus then shifts again to Japan and China where there are a number of items of fundamental news due for release during the week. As already mentioned later today sees the BOJ interest rate decision and monetary policy statement which is followed tomorrow by the BOJ Press Conference and preliminary machine tool orders. Of these it is the BOJ Press Conference that is likely to cause a reaction in both the forex and wider markets.
Tuesday starts overnight in the UK with the BRC retail sales & RICS house price balance data and the Australian NAB Business Confidence Number. The focus then moves back to Japan and China with a slew of data due for release over the next couple of days and with no firm time. The items of fundamental news include: the trade balance figures for China which are forecast at 19.6b against a previous of 20b, new loans data and the y/y M2 money supply figures.
Tuesday also sees the interest rate decision in Japan (as mentioned above), a BOJ press conference and the preliminary machine tool orders. Meantime in Europe the London forex trading session starts with German final CPI, expected unchanged at 0.2%, German WPI (wholesale price index) expected at 0.3% against a previous of -0.2% and the French industrial production numbers. These items are closely followed in the UK with the trade balance numbers, expected at -7.7b against a previous of -8.1b, the DCLG HPI (a minor house price index) and finally the m/m CB (Conference Board) index – a composite index based on 7 economic indicators relating to production, new orders, consumer confidence, stock prices and interest rate spreads which is intended to predict the direction of the economy.
The focus for Tuesday afternoon is, of course, the FOMC interest rate decision and statement which are preceded by the housing starts and NHPI in Canada as well as some level 2 releases in the US. These include preliminary unit labour costs, IBD/TIPP economic optimism, preliminary non farm productivity and the m/m wholesale inventories. However, it is the statement from the FED which is likely to cause the most reaction and impact the broader markets.
Wednesday too is a busy day and starts with the Nationwide consumer confidence number for the UK (released at 12.01 GMT) before moving onto Japan, Australia and China. The releases start with Japanese core machinery orders and the y/y CGPI before moving onto the Wespac consumer sentiment number from Australia. However, the markets will all be waiting for the key Chinese item of fundamental news, namely the y/y CPI number which is forecast to come in at 3.3% against a previous of 2.9%. This impact of this release cannot be underestimated as it carries not only economic, but also political implications for the Chinese government. Other Chinese numbers include the ytd Fixed Asset Investment which measures the change in total spending on major infrastructure projects, the y/y industrial production figures, y/y PPI, y/y retail sales & a press conference from the NBS (National Bureau of Statistics). The Asian session ends with the BOJ monthly report which covers recent economic and financial developments.
With most of Europe on holiday the London forex trading session only has some data from the UK to consider. These items include the claimant change count and unemployment rate, the quarterly average earnings index, a speech from BOE Gov Mervyn King and the all important BOE inflation report. The last of these likely to affect sterling both against the US dollar and the Euro.
The forex day ends with the trade balance numbers from both Canada and the US, the former expected to come in 0.4b against a previous of -0.5b while the number for the US is expected at -42.0b against a previous of -42.3b. The market will also be considering the crude oil inventories and the Federal budget balance report which confirms the difference in value between the federal government’s income and spending during the previous month.
Thursday starts in Australia with the M1 inflation expectations, unemployment change and the unemployment rate – all releases likely to impact the Aussie dollar. The Chinese ytd/y foreign direct investment figures as well as two items from Japan – m/m revised industrial production and the household confidence number.
The focus then shifts to europe where we have the ECB monthly bulletin, m/m industrial production and the Italian trade balance figures while in the US the market will be watching the unemployment claims expected at 465k against a previous of 479k, import prices, natural gas storage and a speech from FOMC member Duke.
On Wednesday and Thursday we also have some data from New Zealand of which the most significant item is the retail sales number expected at 0.6%, up from a previous of 0.4%.
The week ends with the monetary policy meeting minutes from Japan before moving to Europe for the German preliminary GDP q/q number expected to come in at 1.3% against a previous of 0.2%, French preliminary non farm payroll, French CPI and French preliminary GDP, also expected to come in better at 0.4% against a previous of 0.1%. The news in Europe ends the week with q/q flash GDP and the European Trade Balance numbers.
Friday afternoon ends with a further raft of data from the US which include core CPI, expected at 0.1% against a target of 0.2%, m/m core retail sales and m/m retail sales expected at 0.1% and 0.3% respectively. In the US we also have the preliminary UoM (University of Michigan) consumer sentiment number (expected up from 67.8 to 69.4), UoM preliminary inflation expectations, business inventories and a speech from FOMC member Hoening.
With so many key items of fundamental news due for release this week we can expect some lively trading session – across all markets – as well as some important clues as to the future direction of the broader markets.
