passion-trading.com Live

The ECB Interest Rate Announcement and US Non-Farm Employment Change look set to dominate this week's economic calendar with much volatility expected.

Last week we saw Dollar negative sentiment drag the greenback lower against the majors. This was after the FOMC seemed to distance itself from the need for an urgent rate hike. It seems that the negative pressure on the economy outweighs the need for commodity inflation controlling rate increases. Interest rate futures reacted accordingly with only a 25% chance of a rate hike in August (down from 40%).

Therefore, it stands to reason that this weeks NFP report will be very closely watched. We have been seeing US labor conditions deteriorate recently with a contraction in payrolls, a steadily rising trend in the number of Initial Jobless Claims and a rapid increase to 5.5% Unemployment Rate.  If the US labor market fails to show signs of improvement this week, and few economists are expecting that it will, then further US Dollar weakness is likely. The Non-Farm Employment Change, Unemployment Rate and Average Hourly Earnings data releases have all been moved to Thursday July 3rd because of the US Independence Day holiday on Friday July 4th.

Also due on Thursday is the ECB Interest Rate Announcement. Rates are expected to increase from 4.00% to 4.25% as the ECB looks to counteract increasing inflation. With the CPI Flash Estimate expected to increase to 3.9% YoY (release on Monday June 30th at 11:00 CET) the hike is almost a done deal. As usual traders will be watching the ECB commentary at the press conference held later in the day. It is due to take place at the same time as the US labor releases so extreme volatility is expected.

Elsewhere we have a busy week in store for the CAD, NZD, GBP and AUD.

Trading in the Canadian Dollar will be influenced by oil prices and also Gross Domestic Product (GDP) and the Ivey PMI. The latter may see slightly less volatility than normal as it falls on the US holiday. The week will be cut slightly short in Canada too because of the Canada Day holiday on Tuesday July 1st.

High volatility will be seen in the New Zealand Dollar at the beginning of the week with Building Consents and Business Confidence both due to hit the wire. Trading in the NZDUSD is likely to be dominated by US data arriving later in the week however.

The GBP benefited last week from BOE comments about inflation. This week we will see Nationwide House Prices, Manufacturing PMI, the Halifax House Price Index and Services PMI from the UK. Each of these releases is expected to create high market volatility.

Volatility in the Australian Dollar will benefit this week from the releases of the RBA Interest Rate Statement (expected to remain on hold at 7.25%), Building Approvals, Retail Sales and Trade Balance data.

This week's high volatility events are as follows (all events are London time, UK DST, GMT+1):

Sunday: New Zealand Building Consents (23:45)
Monday: New Zealand Business Confidence (04:00)
Canadian GDP (13:30)
Tuesday: Japanese Tankan Large Manufacturers Index (00:50)
RBA Interest Rate Statement (05:30)
Nationwide House Price Index (07:00)
UK Manufacturing PMI (09:30)
US ISM Manufacturing Prices (15:00)
Wednesday: Australian Building Approvals (02:30)
Australian Retail Sales (02:30)
US ADP Non-Farm Employment Change (13:15)
Thursday: Australian Trade Balance (02:30)
Swiss CPI (06:45)
Halifax House Price Index (NTS)
UK Services PMI (09:30)
ECB Interest Rate Announcement (12:45)
ECB Press Conference (13:30)
US Non-Farm Employment Change (13:30)
US Unemployment Rate (13:30)
US ISM Non-Manufacturing Composite (15:00)
Friday: Ivey PMI (15:00)

The US Dollar ended last week broadly lower against the majors on worse than expected economic data and reduced speculation of a Fed Interest rate hike. In fact the greenback traded lower against the Japanese Yen, Swiss Franc, Euro, GB Pound, Canadian Dollar and the Australian Dollar, as it was unable to hold on to all of the prior week’s strength.

On the data front the USD was not helped by Housing Starts falling to a 17 year low or the fact that the Empire State Business Conditions Index, Building Permits, Philly Fed Index, Industrial Production, Capacity Utilization, Current Account and Initial Jobless Claims all pointed towards economic slowdown.

Interest rate futures are now showing just an 8% chance that the FOMC will increase rates this month. As you would expect the FOMC Interest Rate Statement on Wednesday is the major focus for the week. Particular attention will be paid to the Fed’s views on inflation risk and economic slowdown. Remember that the Fed’s traditional tool for dealing with inflation is a rate hike. However, increased interest rates may put too much pressure on an already weakening economy.

The Federal Reserve Open Market Committee is expected to leave the Federal Funds Rate unchanged at 2.00% this week.

Aside from the interest rate announcement we have high volatility housing data from the US this week. On Wednesday, New Home Sales are expected to contract once more to 515K. This will be followed by Existing Home Sales data on Thursday that is expected to post an increase to 4.96M annualized.

The coming week promises to be fairly quiet from an economic news standpoint with the following high volatility events scheduled:

Monday June 23^rd - German Ifo Business Climate Index
Wednesday June 25^th - ECB President Trichet Speaks, US Core Durable Goods Orders, New Zealand Current Account
Thursday June 26^th - BOE MPC Treasury Committee Hearings, New Zealand GDP & Trade Balance

Visual Analysis & Historical Data

Once again our VA tool will be available for following major news releases. The US housing duo of New Home Sales and Existing Home Sales will both be featured.

The main topic of conversation this week will be if the USD can maintain its recent firm stance against the EUR, CAD, CHF and JPY amongst others.

The main contributing factor to the Dollar’s strength was increased speculation that the Fed will raise interest rates at the August FOMC Meeting. According to interest rate futures there is now a 60% chance of at least a 0.25% hike.

The Dollar closed higher on the week against the world’s majors in the face of better than expected retail sales and consumer inflation numbers. However, the data continues to be mixed with Initial Jobless Claims and the University of Michigan Consumer Sentiment both coming in worse than expected.

The US economic schedule for the coming week is a busy one. We begin on Monday with three high volatility events: Empire State Business Conditions Index, TIC Net Long-Term Transactions and Fed Chairman Bernanke’s speech at the Senate Finance Committee Health Reform Summit.

On Tuesday we will see the release of Housing Starts and the Producer Price Index. Both of these events promise to come with a high level of interest attached to them. At the same time we will also see the slightly less important Core PPI, Building Permits and US Current Account data.

Wednesday and Friday promise to be slightly quieter from the point of view of US economic releases. However, high volatility is likely when Fed Governor Kohn testifies before the Senate Subcommittee on Securities, Insurance and Investment. As usual we will also see Initial Jobless Claims. Traders will be keenly watching this data after last week’s 384K, with figures expected to fall slightly to 375K this week.

It is not just the US economic calendar that can set the tone for the trading week. We are due several high volatility events from other sources too.

On Monday we will see the highly anticipated release of the Eurozone Core CPI YoY. This is the benchmark figure that the ECB uses to set interest rates. There is speculation that the ECB will raise rates in the near future in the face of higher inflation. Core CPI is expected to climb to 1.8% and any surprises to the downside could open the door for further EUR shorting.

Further high volatility events this week are as follows:

Tuesday:
RBA Meeting Minutes - 02:30
UK CPI YoY - 09:30
German ZEW Economic Sentiment - 10:00

Wednesday:
BOE MPC Meeting Minutes - 09:30
BOE Governor King Speaks - 19:30

Thursday:
SNB Libor Interest Rate Announcement - 08:30
SNB Monetary Policy Assessment - 09:00
UK Retail Sales - 09:30
Canadian Core CPI - 12:00

Friday:
Canadian Core Retail Sales - 13:30

Visual Analysis

This week the visual analysis tool will be in use for the US PPI, BOE Meeting Minutes and the Canadian Core CPI.

Check out the full economic calendar and economic speeches.