A Full Calendar Should Awaken the Sleeping Forex Market

Greg Michalowski  |

This week's economic and event calendar should stir the hibernating forex market which barely moved through the July 28 session. The high to low trading ranges for all the major currency and cross currency pairs, were well below the averages over the last month's worth of trading. The EURUSD - normally one of the most active pairs against the US dollar - could only muster a range of 18 pips for the entire day.  Not much meat on the trading bone, but we have the future to look forward to now.

Below is a list of the major events and releases and the expected impact for the currency markets this week.

European Morning Session, Wednesday, German CPI Estimate for July

The German preliminary CPI data will be released during the European morning session. The estimate is for a 0.2% gain for the month of July. The year on year reading is expected to show a 0.8% gain, which is less than the 1.0% gain recorded last month. This should be negative for the Euro as the ECB targets 2.0% for inflation. Having the regions strongest economy - Germany -  showing a 0.8% gain should keep the Euro from advancing.

US Economic Data

8:15 AM ET, Wednesday, ADP Employment Report

There are a number of key events releases in the US this week, starting with the ADP Employment Change report for the month of July. This release is a proxy for the Labor Department's payroll estimate. Last month, the report showed a 281,000 job gain. This was better-than-expected and foreshadowed the better-than-expected Labor Department payroll report, which came in at 288,000 for the change in Nonfarm Payroll.

8:30 AM ET, Wednesday: US GDP 2Q Advance 

The advanced US GDP report for the 2nd quarter will be released with a quarter on quarter change expected to show a 3% gain. This offsets the 1st quarter loss of -2.9%. The 1st quarter was influenced by the harsh winter weather in the US, and the 2nd quarter was to be the bounce back quarter.Personal Consumption, a key component of the US GDP, is expected to rise by 1.9% vs. a 1.0% gain in the 1st quarter. A stronger number will likely be needed to push the dollar higher.  Anything weaker and the markets perception of a Fed that might be inclined to tighten sooner rather than later, will be tarnished.

2 PM ET, Wednesday, FOIMC Interest Rate Decision and Statement (10 Billion taper expected)

The FOMC interest rate decision is due out at 2 PM ET.  The Fed will taper by an additional 10 billion, bringing QE3 bond purchases to a monthly pace of 25 billion (15 billion of treasuries, 10 billion of mortgage-backed securities). The Fed will debate the merits of tightening policy after the taper is complete. There will be no press conference at the conclusion of this meeting. There only be the statement from the FOMC. Traders will be looking for any specifics about tightening plans.  If there are more details, it would be an indication that the Fed is transitioning toward a more tightening bias.  If so, expect the dollar to move higher.

5 AM ET, Thursday, EU CPI Flash Estimate, 

The EU CPI flash estimate for the month of July will be released at 5 AM ET. The estimate is for a 0.5% YoY change. Once again, with the ECB targeting 2% for CPI inflation, a 0.5% reading is not supportive for the Euro.  Only a surprise to the upside should help the currency.

8:30 AM ET, Friday. US Employment Report for the month of July

The monthly US employment report will be released on the 1st day of August at 8:30 AM ET. The estimate is for the unemployment rate to  remain steady at 6.1%. The Change in Nonfarm Payrolls is expected to show a gain of 231,000 vs. 288,000. This would be the 6th straight month with job growth over 200,000. The average over the last 5 months has been 248K.  This is much better than the average for 2013 of 194,000. Private-Sector Payrolls are expected to show a gain of 230,000 vs. 262,000. Manufacturing Jobs are expected to rise by 14,000 vs. 16,000. Average hourly earnings are expected to rise by 0.2% and 2.2% year on year.
The market has been getting used to better jobs data. This could create a vulnerability for the dollar if the report comes out weaker than expectations (job growth sub 200,000 and a tick up in the unemployment rate). Market risk, liquidity risk, and event risk will all be elevated just prior to, and immediately after, the report.

Other Key Events to Monitor

Thursday: German unemployment change, 3:30 AM ET
Thursday, China PMI, 9:45 PM ET'
Friday, UK Manufacturing PMI, 4:30 AM ET.


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