US Dollar to Face Surge in Volumes, Fed Meeting Minutes, & Non-Farm Payrolls

•    US ISM Manufacturing (DEC) – January 4, 10:00 ET
The December reading of ISM manufacturing is projected to rise to 54.0 from 53.6, indicating an expansion in US business activity for the fifth straight month. Indeed, production, new orders, and export orders have steadily gained throughout Q3 and Q4, highlighting how the manufacturing sector has been key to recovery in the US. Furthermore, the employment component may help to serve as a gauge of how US non-farm payrolls will fare on January 8. That said, manufacturing-specific reports like the Dallas and Richmond Fed indicators have signaled deteriorating conditions during December, creating some downside risks for ISM manufacturing.

•    US ISM Non-Manufacturing (DEC) – January 6, 10:00 ET
The release of ISM non-manufacturing is projected to show that business activity expanded during December, as the index may rise to 50.5 from 48.7. This report has shown a pretty solid improvement from its November 2008 low of 37.4, but through the second half of 2009, it has teetered around 50, the point of neutrality for the index. This suggests that any growth has been mild at best, but given the surprisingly strong Chicago Purchasing Managers Index (PMI) for December, there is potential for ISM non-manufacturing to reflect a sharper-than-expected increase in activity.

•    Federal Open Market Committee (FOMC) Meeting Minutes (DEC 15-16) – January 6, 14:00 ET
In addition to the ISM non-manufacturing report, traders will also need to keep an eye on the release of the minutes from the Federal Reserve’s last meeting on December 15 and 16. Following that meeting, the US dollar initially fell as they announced that they had left the fed funds rate unchanged at 0.25 percent, as expected, and stated that rates were like to remain “exceptionally low” for an “extended period.” However, a statement that “economic activity has continued to pick up and that the deterioration in the labor market is abating,” along with fairly clear deadlines for the central bank’s liquidity programs ultimately led the US dollar higher against the euro and some of its other major counterparts. If the minutes from this meeting continue to reflect a focus on more positive outlook for growth and exit strategies, there is potential for the greenback to rally, but if the FOMC members prove to be uneasy about recovery prospects or the need to expand quantitative easing down the road, the currency is likely to tumble.

•    Bank of England Rate Decision – January 7, 7:00 ET
The Bank of England (BOE) is anticipated to leave rates unchanged at 0.50 percent on Thursday at 7:00 ET, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement. This has consistently been the prime “news event” of recent rate decisions. Last month, the BOE indicated that they would likely wait until their February meeting before considering any changes to the Asset Purchase Facility (APF), which is currently aiming to purchase £200 billion worth of high quality assets. With no program changes expected this time around, there is potential for the British pound to gain on neutral news as traders will price in an end to the BOE’s quantitative easing program.

•    Canadian, US Employment Report Day (DEC) – January 8, 7:00 ET and 8:30 ET
At 7:00 ET, the Canadian net employment change for the month of December may rise for the second straight month, this time by 20,000 following an increase of 79,100 in November. However, the unemployment rate is anticipated to hold steady near the 11-year high of 8.7 percent at 8.5 percent. Nevertheless, since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a surprise drop likely to weigh on the currency and an unexpectedly strong result likely to push it higher.

At 8:30 ET, the US non-farm payroll index (NFP) is forecasted to show that the labor market neither lost nor gained any jobs during December, which would be the best result since December 2007. At the same time, the unemployment rate is projected to remain just below its 26-year high of 10.2 percent at 10.0 percent,  but ultimately, the NFP result will be the event to watch as it is extremely volatile and is one of the sole reports that impacts the US dollar from a pure fundamental point of view. A better-than-anticipated result is likely to provide a boost to the US dollar, but it will be interesting to see the impact of disappointing results as weak US data tends to weigh on risky assets and push the greenback higher amidst flight-to-quality.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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