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FOMC Headlines Week Front Loaded with Market Moving Data

FOMC Headlines Week Front Loaded with Market Moving Data

2012-03-12 20:08:00
Christopher Vecchio, CFA, Sr. Currency Strategist

The second full week of March won’t have the same fireworks as last week, though there are still some key data and events on the horizon that are worth taking note of. Aside from the events listed below, also of note are the Bank of Japan rate decision on Tuesday, the Euro-zone and German ZEW surveys on Tuesday, the Euro-zone consumer price index reading on Wednesday, and the U. of Michigan confidence reading for the United States on Friday.

03/13 Tuesday // 12:30 GMT: USD United States Advance Retail Sales (FEB)

According to a Bloomberg News survey, retail sales are forecasted to have risen in February by the most in five-months in the United States. On the back of the strongest demand for automobiles since 2008, projections have sales up by 1.1 percent from a 0.4 percent gain in January. The continued uptick in jobs data in the United States could be providing the additional confidence American consumers need to continue spending despite elevated inflationary pressures and a diminishing real wage. Recent U.S. data has been beneficial to the U.S. Dollar, and another robust reading could prompt a rally by both the world’s reserve currency and equity markets.

03/13 Tuesday // 18:15 GMT: USD Federal Open Market Committee Rate Decision

At his semi-annual testimony in front of Congress on February 29, Federal Reserve Chairman Ben Bernanke offered a cautiously optimistic on the direction of the American economy. However, it was what the chairman left absent from his testimony that proved to be market moving: Chairman Bernanke made no mention of a third round of quantitative easing. In recent weeks, Federal Reserve officials have made waves with their differing views on the effectiveness of quantitative easing, and now market sentiment is leaning towards no such stimulus being offered up. With that said, it became apparent last week that the Federal Open Market Committee is considering another “Operation Twist” like effort.

Whereas the U.S. Dollar strengthened after the chairman’s testimony on Capitol Hill lacking mentions of QE3, the world’s reserve currency depreciated immediately last week when it was leaked that the FOMC would consider another “Twist.” With the Fed Funds rate on hold indefinitely, market participants will look for rhetoric from the Fed about more easing. If the statement accompanying the rate decision shares the same tone that Chairman Bernanke’s testimony to Congress did, then the U.S. Dollar will likely find support. A weaker U.S. Dollar will only come if the FOMC takes a dovish stance accompanied by more promises of central bank intervention.

03/14 Wednesday // 09:30 GMT: GBP United Kingdom Jobless Claims (FEB)

The unemployment rate in the United Kingdom is expected to remain steady at 8.4 percent for the third consecutive month, according to a Bloomberg News survey. The February jobs report is forecasted to show a slight uptick with the jobless claims reading of 5.0K versus 6.9K in January. Likewise, the claimant count rate, the number of people claiming unemployment-related benefits, is expected to hold at 5.0 percent. As the labor market plateaus (is this the bottom?), the British Pound could be lifted as any strong data out of the United Kingdom is bullish at this point.

Although recent data has been improving, the fact remains that the British economy could very well be stagflating with meager growth rates accompanied by higher inflation (albeit somewhat subdued relative to price pressures just six-months ago) and high unemployment (the highest since January 1996). A poor reading will boost prospects of more easing by the Bank of England, a measure that is ultimately dilutive to the domestic currency, in the case the British Pound. It is worth noting that BoE policymakers have been relatively more hawkish in recent weeks.

03/15 Thursday // 08:30 GMT: CHF Swiss National Bank Rate Decision (1Q)

At their first quarterly meeting of 2012, the Swiss National Bank is expected to leave rates on hold at 0.0 percent, the lowest such rate employed by the central banks backing the globe’s major currencies. The key event will be whether or not the SNB decides to raise the currency floor under EURCHF at 1.2000. The SNB implemented the EURCHF floor on September 6. Currently, the SNB doesn’t have a fulltime president, with former Vice-President Thomas Jordan filling the shoes on an interim basis. Interim President Jordan was one of the architects of the currency floor and has vowed to defend it “at all costs.”

Political pressure to raise the floor is high, but market participants seem to think such an event is unlikely, considering the EURCHF has traded closer to 1.2000 than 1.2500 in 2012 thus far. It is worth noting that amid rumors that the SNB would raise the floor back in December, the EURCHF traded upwards of 1.2300. If the floor is raised, it will catch market participants off guard, and while it will devalue the Swiss Franc, it will boost the U.S. Dollar. Since September 6, the EURUSD and USDCHF have held a significant -0.91 daily correlation; if the SNB moves to raise the EURCHF floor, the USDCHF will rally while the EURUSD falls. If the floor is held, we could be in store for the first ‘true’ test of the 1.2000 floor in EURCHF soon after.

03/16 Friday // 12:30 GMT: USD United States Consumer Price Index (FEB)

In what has become an increasingly ignored yet increasingly relevant report, the monthly inflationary gauge for the United States is due on Friday. According to a Bloomberg News survey, prices grew 0.4 percent on a monthly basis in February, a slight acceleration over the 0.2 percent clip from January. On a yearly basis, prices are expected to have held stable at 2.9 percent. The core reading, the more important measure as it is one of the gauges the Federal Reserve tracks, is expected to decline to 2.2 percent from 2.3 percent on a yearly basis. If the print is less than the forecast, the U.S. Dollar will likely depreciate while higher yielding currencies find bids. On the other hand, if the print meets or exceeds the forecast, the U.S. Dollar could find strength, as higher price pressures will dampen future prospects of easing by the Federal Reserve.

Rate Hike Probabilities / Basis-Points Expectations

FOMC_Headlines_Week_Frontloaded_with_Market_Moving_Data_body_Picture_7.png, FOMC Headlines Week Front Loaded with Market Moving Data

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

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com

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