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This week could be the key to setting the near to medium term sentiment in the USD. Highly anticipated economic data is due this week with the Advance GDP and Non-Farm Employment Change top of the list.

The US economic calendar begins the week slowly and we have to wait until 15:00 on Tuesday 29th for our first high volatility event. The Consumer Confidence Index has been falling consistently with economists expecting further declines this month. Consumer Confidence is seen as key to consumer spending. However, with global energy inflation driving domestic CPI its effects are hard to decipher.

Further high volatility will come from the US on Wednesday with ADP Non-Farm Employment Change due. This data acts as a preview to the official Non-Farm Payrolls news released later in the week. However, any correlation between the two sets of numbers is weak at best. Never the less, traders will be watching keenly at 13:15 on the 30th.

Thursday will be a busy trading period all-around but the main focus will be US Advance GDP. This data related to Q2 and is expected to show annualized growth of 2.2%. It should also be noted that the Employment Cost Index QoQ and Initial Jobless Claims are due at 13:30. Although they are not expected to be high volatility events themselves they will carry increased influence due to the employment data due the following day.

The first Friday of every month is always a big day due to Non-Farm Employment Change. This news carries arguably the most volatility to the market of any economic data. Coupled with the release of US Unemployment Rate (which is creating more volatility of late as economists watch the labor market show signs of economic recession) the early morning New York session promises to be a busy one. Payrolls are expected to show contraction of 75K for the month of June while Unemployment Rate probably increased to 5.6%.

It should not be forgotten that the ISM Manufacturing Index is also due on Friday. Traders are expecting the Index to show 49.4, a level that indicates contraction in the manufacturing industry.

Further high volatility events for this week are as follows:

Sunday July 27th
New Zealand Trade Balance

Monday July 28th
New Zealand Building Consents

Wednesday July 30th
Australian Building Approvals

Thursday July 31st
Australian Retail Sales
Australian Trade Balance
Swiss CPI
Nationwide House Price Index
Canadian GDP

Friday August 1st
UK Manufacturing PMI

As a side note it may be worth watching AUDUSD this week. With decent volatility expected in both currencies and price just below 25-year highs it could be a pivotal week.

This week the market awaits commentary from Fed speakers, including Bernanke, regarding future monetary policy. Economists are interested to see whether the Fed sees inflation as more of a risk than a weak economy ahead of future interest rate meetings. The question remains: can the US economy survive an inflation fighting rate hike without falling into recession.

This comes on the back of comments last week from the ECB. The Eurozone increased interest rates to 4.25% last Thursday but stated that they don’t expect any future need for further hikes. This resulted in ‘buy on rumour sell on fact’ trading in the EURUSD. Post data the currency pair fell from 1.5908 to a Thursday low of 1.5681.

Early focus in the new week will be on the reaction from US traders following the dismal US Labor market data. Non-Farm Employment Change was in negative territory once again (-62K), Unemployment Rate remained at 5.5% and Initial Jobless Claims climbed above 400K for the second time this year. US markets were closed on Friday for the Independence Day Holiday so it will be interesting to see how traders digest the news after the long weekend.

Monday, Tuesday and Wednesday this week will see a 3-day G8 meeting in Hokkaido, Japan. The meeting is expected to be dominated by climate change, food and commodity prices. There have been pre-meeting comments from Japan and the US blaming a weak US Dollar for inflated energy prices. Traders are waiting to see if G8 members’ comments are strong enough to support a dollar rally on speculation of central bank intervention.

In other news this week, high volatility economic data from the US takes a bit of a breather. The main events will be Fed Chairman Bernanke speech at 13:00 on Tuesday and his testimony before the House of Representatives Committee on Financial Services on Thursday at 15:00. Traders will be looking for hints as to the Fed’s concern over inflation.

The US is also due Pending Home Sales at 15:00 on Tuesday, Initial Jobless Claims at 13:30 on Thursday (more volatility than usual is expected due to the +400K reading last week) and the Trade Balance and Preliminary Michigan Sentiment at 13:30 and 14:55 respectively. The only data that is expected to show any improvement is Initial Jobless Claims where a slight moderation to 397K is expected.

Elsewhere the Canadian economy steels the spotlight with no fewer than five high volatility releases due. Monday will see Building Permits (13:30) and the BOC Business Outlook Survey (15:00). Following this we will see Employment Change and Unemployment Rate at 12:00 and the Canadian Trade Balance at 13:30 on Friday.

Additional high volatility events this week are as follows (all times are UK DST):

Monday
UK Industrial Production (09:30)
NZIER Business Confidence (23:00)

Tuesday
Halifax House Price Index (NTS)

Wednesday
Australian Home Loans (02:30)

Thursday
Australian Employment Change (02:30)
Australian Unemployment Rate (02:30)
BOE Interest Rate Statement (12:00)

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)