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5 Key Events for the Forex Market This Week 07.28.08

Monday, 28 July 2008 22:40:09 GMT

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Written by Terri Belkas, Currency Analyst

Forex traders should note that the majority of key economic indicators will be released on Thursday, July 31, starting during the European trading session as German labor market data and Euro-zone CPI estimates will both be released. However, the US dollar will also face Q2 GDP figures that same morning, and with expectations for this indicator ranging broadly from 0.9 percent to 4.2 percent (Bloomberg News consensus: 2.2 percent), this piece of news could prove to be the most important of the week. Nevertheless, traders should also keep an eye on US non-farm payrolls (NFPs) on Friday, as this is a tried-and-true market-mover for the greenback.

·          US S&P/Case Schiller Home Prices, Consumer Confidence – July 29                               
On Tuesday, the release of US economic data will likely highlight some of the reasons why traders are ramping up speculation that the country is in midst of a recession. Indeed, at 9:00 EDT, the S&P/Case-Schiller index of home prices is likely to fall sharply for the nineteenth consecutive month in May. Later in the morning at 10:00 EDT, the Conference Board’s consumer confidence index is forecasted to fall to a nearly 16-year low of 50.0 from 50.4, which won’t be entirely surprising as rocketing food and energy prices combined with the collapse of the US housing sector and tightening credit conditions have sparked widespread pessimism throughout the financial markets. Furthermore, the labor markets have started to deteriorate, as the unemployment rate has jumped higher in recent months and things are only expected to get worse. However, the final reading of the Reuters/University of Michigan consumer confidence survey was surprisingly revised last Friday up to a three month high of 61.2 in July from 56.6, as the index actually showed an improvement in sentiment not only on current conditions, but the outlook as well. Additionally, inflation expectations for a year ahead and five years ahead were revised lower, suggesting that the recent pullback in crude oil prices from the July record of above $145/bbl was encouraging to consumers. As a result, there is some potential that the Conference Board’s measure will actually show no change or rise slightly, which would be quite bullish for the US dollar.
 
·          German Unemployment Change – July 31
The German labor markets are expected to have improved in June, as the number of unemployed workers in the country is forecasted to fall by 38,000 after the index unexpectedly tumbled 38,000 last month and pushed the unemployment rate down to a nearly 16-year low of 7.8 percent. This report will hit the wires at 3:55 EDT, and the news tends to spark quite a bit of short-term volatility, especially if the unemployment change misses expectations by a large margin. As a result, those trading the euro, especially against the US dollar, during the European session should keep an eye on the indicator.
 
·          Euro-zone Consumer Price Index Estimate– July 31
Eurostat estimates for Euro-zone CPI are expected to show at 5:00 EDT that inflation accelerated at an even faster clip of 4.1 percent in July. If CPI is indeed confirmed at this pace, the figure would mark the highest level in more than 16-years and would be extremely bullish for the euro, especially since European Central Bank President Jean-Claude Trichet remains hawkish even after the Bank’s 25bp hike to 4.25 percent early this month. However, a weaker-than-expected reading could lead the euro to sell-off sharply, as angst regarding stringent monetary policy and an economic slowdown throughout the Euro-zone is now widespread amongst Europe’s politicians. As a result, a slowing in CPI growth will likely lead for calls by these officials for the ECB to consider cutting rates, and while this won’t be entirely effective given the central bank’s “independent” status, it will likely prevent Mr. Trichet from raising rates further.
               
·          US Gross Domestic Product (2Q A) – July 31
The ongoing housing recession, mounting job losses, and indications of slowing consumer spending leads many to believe that the US economy is in the midst of a real economic recession, and the upcoming GDP report will go a long way to dispel or confirm such pessimistic sentiment at 8:30 EDT. However, the median consensus forecast calls for the advanced Q2 GDP figure to actually jump 2.2 percent after rising 1 percent in Q1. There is a huge range when it comes to these forecasts, as the lowest estimate comes in at 0.9 percent while the highest comes in at a whopping 4.2 percent, and traders should note that not one of the 57 economists polled by Bloomberg News predicts a negative GDP release. Given this clear bias for a dollar bullish reading, a weaker-than-expected result is likely to have the greatest impact on the US currency, especially if GDP does show a surprise contraction. On the other hand, a strong GDP reading in line with or above expectations should lead to gains for the greenback.
 
·          US Non-Farm Payrolls – August 1
The US Non Farm Payrolls report is one of the most consistent market-moving economic releases on any calendar, and Friday’s result should be no exception. Indeed, this news is released at 8:30 EDT and the number is notoriously difficult to handicap, so traders should keep an eye out for the NFP Preview mid-week on DailyFX.com in order to get a sense of how the data will fare. Our bias as of Monday: NFPs could fall negative for the seventh consecutive month, which should subsequently lead the US dollar to fall.
 

See the DailyFX Calendar for a full list and timetable of upcoming event risks.

Questions? Comments? E-mail: tbelkas@dailyfx.com
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