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5 Most Important Events for the Forex Market This Week

Monday, 02 June 2008 07:24:22 GMT  |  Terri Belkas, Currency Analyst

Event risk for the forex market lies primarily on the US dollar side, as the ISM reports for the manufacturing and services sector and Non-farm Payrolls will all be released. Meanwhile, the British pound and euro may face volatility thanks to rate decisions by the Bank of England and the European Central Bank, though the latter announcement and subsequent press conference will likely be the bigger market-mover.

•    US ISM Manufacturing – June 2
The Institute for Supply Management is expected to report at 10:00 EDT that their survey of conditions in the manufacturing sector eased back to hold near a five-year low of 48.5 in May from 48.6. Data from the Philadelphia and Richmond Federal Reserve regions showed a continued deterioration during the month, as both remain in contractionary territory. That said, these are both very volatile reports, but given broadly weak domestic demand in the US, the risks are tilted to the downside for the ISM manufacturing release. The employment component will also be watched carefully as a gauge for Friday’s Non-farm Payroll report.

•    US ISM Non-Manufacturing – June 4
Conditions in US non-manufacturing sector – which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance – are anticipated to worsen slightly in May as the Institute for Supply Management index is estimated to fall to 51.0 from 52.0. Indeed, consumer confidence remains exceptionally weak, as the Conference Board’s measure fell to a 15 ½ year low during the same month. The key thing to watch is to see if ISM Non-Manufacturing falls below the 50 mark – signaling contraction – the news will only add to bearish sentiment on the US economy. On the other hand, if the index actually improves, speculation will mount that the Federal Reserve will leave rates unchanged when they meet again in late June.

•    Bank of England Rate Decision – June 5
The Bank of England is expected to leave rates steady on Thursday at 5.00 percent for the second month in a row as rocketing inflation pressures prevent the Monetary Policy Committee from focusing on tighter credit conditions and the collapse of the UK housing sector. The rate decision will come at 7:00 EDT and since the MPC is anticipated to leave rates unchanged, they are unlikely to issue a monetary policy statement which should leave the market’s reaction to the news very muted. Nevertheless, if UK economic indicators released earlier in the week prove to be very disappointing and weigh on the British pound, the currency could actually surge on the rate announcement on Thursday.

•    European Central Bank – June 5
Like the Bank of England, the European Central Bank is widely expected to leave rates steady at 4.00 percent for the twelfth consecutive meeting. The rate announcement will come at 7:45 EDT, but the big show is at 8:30 EDT when ECB President Jean-Claude Trichet will give his monthly press conference. Will he remain hawkish, or focus more on the instability in the markets? Estimates for Euro-zone CPI in May rebounded to 3.6 percent from 3.3 percent, which is well above the ECB’s 2 percent target as energy and food costs remain high. There’s little doubt ‘price stability’ will be the foremost concern for Trichet, but if he suggests that price pressures will moderate in the near-term or that feeble financial market conditions are threatening economic growth, the euro could actually sell-off across the majors. Nevertheless, the odds are in favor of hawkish commentary.

•    NFP Day! – June 6
When we refer to Non-farm Payrolls (NFPs), we are typically talking about the US labor market report. Indeed, this news release at 8:30 EDT is a known market-mover since the number is notoriously difficult to handicap, and traders should keep an eye out for the NFP Preview on Thursday in order to get a sense of how the data will fare. Our bias as of Monday: NFPs could fall negative for the fifth consecutive month. However, if the data proves to be better than expected, the US dollar could rally significantly, particularly if NFPs actually rise.

However, there’s another labor market report to watch before US NFPs: the Canadian net employment change at 7:00 EDT. This release is essentially “the other NFP” report, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. Last month, the net employment change proved to be much better than forecasts and led the USD/CAD pair to plunge sharply in the minutes after the news hits the wires. Traders should expect to see similar volatility this time around, though they should keep in mind that follow-through during the rest of the day tends to be limited. Check in to see what other traders think about the USD/CAD pair and the Canadian data post-release in the DailyFX USD/CAD Forum.

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

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