Jobs growth in the world’s largest economy is picking up, and the resulting upward pressure on US Treasury yields (lower bond prices) has been the main catalyst for the US Dollar’s turnaround in 2013. With the June labor market report showing faster than expected headline NFP growth alongside a slight uptick in the Participation Rate, the US labor market continues to inch ahead in the right direction, at least one that would warrant consideration from the Fed to wind down its QE3 program beginning as early as September.
Elsewhere, the European currencies will remain under fire following the shifts in both BoE and ECB policy last week, in which both central banks will utilize “forward guidance” henceforth as a way to keep expected future interest rates tethered to the zero-bound. With this new form of easing taking shape and in context of the June US labor market print, both the GBPUSD and the EURUSD are likely to face headwinds over the coming weeks, with rallies looking to be sold from a fundamental perspective.
The week ahead promises fewer data- or event-driven opportunities for major volatility like the week past, but there are still several figures on the calendar that warrant our attention. Of note, Chinese data directly relating to the recent liquidity crisis is due, which could help drive swings in the Australian Dollar.
Rate Hike Probabilities / Basis-Points Expectations
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
07/09 Tuesday // 01:30 GMT: CNY Consumer Price Index (JUN)
Investors will continue to scrutinize major Chinese data for clues as to the health of the Chinese economy. Many are worried about a “hard landing” for China especially in light of the recent credit crunch during which Overnight SHIBOR rates rose to highs uncommon during non-crisis periods. Analysts surveyed by Bloomberg News expect yearly inflation to hit+2.6%, an increase over May’s +2.1% reading. Typically inflation closer to 2.0% is more desirable; however, investors may interpret lower inflation as a confirmation of a slowing Chinese economy.
CONSENSUS: 2.6% y/y
PRIOR: 2.1% y/y
The Fed will release its Minutes from its June meeting this upcoming Wednesday, in what will be a highly anticipated event as investors seek further clarity on monetary policy. Recall that during the June meeting, the Fed surprisingly announced that it is looking to scale back asset purchases contingent upon economic data. FOMC Chairman Ben Bernanke stated that asset purchasing will end when the Unemployment Rate nears 7%; this is a hawkish shift as the previously understood measuring stick was 6.5% per “The Evan’s Rule.”
The key pairs to watch are EURUSD and USDJPY.
07/11 Thursday // 02:00 GMT: JPY Bank of Japan Rate Decision
The BoJ will give important clues as to the direction of Japanese monetary policy amidst investor skepticism over “Abenomics,” although with the Japanese diet elections still ahead, no new measures are likely. This is further confirmed by the calming of Japanese financial markets, which didn’t garner a BoJ reaction either. BoJ Governor Haruhiko Kuroda will also hold a press conference at 02:30 EDT / 06:30 GMT commenting on the BoJ meeting. While the USDJPY is back above ¥100.00, there doesn’t seem to be any major Japanese catalyst pushing the pair significantly higher. The USDJPY has been moving in accordance with US fundamentals and risk sentiment in recent trading.
CONSENSUS: key rate on hold at 0.10%, no new stimulus
PRIOR: key rate on hold at 0.10%, no new stimulus
The key pairs to watch are AUDJPY and USDJPY.
07/11 Thursday // 01:30 GMT: AUD Employment Change (JUN)
On Thursday, Australia will release its June labor market report. The labor market in Australia has been struggling due to poor commodity prices and dampened Chinese demand, and generally speaking, weaker emerging market growth in 2013. Australians are growing weary of subpar domestic conditions and consequently the Labor Party ousted now former Prime Minister Julia Gillard ahead of September elections. The AUDUSD has declined sharply this year and Thursday’s employment figures will add context to this trend of AUD weakening. However note that the last two employment prints beat Bloomberg news survey expectations.
CONSENSUS: 0.0K; Unemployment Rate at 5.6%
PRIOR: +1.1K; Unemployment Rate at 5.5%
The key pairs to watch are AUDUSD and AUDNZD.
07/12 Friday // 13:55 GMT: USD U. of Michigan Consumer Confidence (JUL P)
The University of Michigan will release a preliminary report on consumer confidence in July, which will be a timely barometer of the US economy. Consumption spending is roughly 70% of US GDP so any readings on US consumption trends are important. Recent private gauges of sentiment data indicate consumer resilience in recent months. U. of Michigan Consumer Confidence figures have not missed Bloomberg News survey expectations since December; we’re in the midst of six consecutive better-than-expected releases. With stocks near all-time nominal highs and jobs growth accelerating, there’s little reason to believe a miss will transpire.
The key pairs to watch are EURUSD and USDJPY.
--- Written by Christopher Vecchio, Currency Analyst and Kevin Jin, DailyFX Research
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