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European Data Set to Improve, Central Banks to Stand Pat

This is a preview for the forex week starting Monday, August 4th 2014. After last week’s bombshell of US data (NFP, FOMC and ISM Manufacturing just to name a few) this week is all about Europe. European data is expected to improve and both the Bank of England and the European Central Bank should stand pat next week.

European Data Set to Improve

Market forecasts are pinned on a European recovery next week. The Spanish Services PMI, European Retail Sales, German Factory Orders and French Industrial Production are just some of the reports that, according to analysts, should come in higher this week. On Monday at 3 AM EST (9 AM CET) Spanish data is expected to show that the number of unemployed in the country decreased by 116,000 in July. While this is a smaller number then the -122,000 figure in June, it is still positive for the Spanish economy. The good news from Spain is forecasted to continue on Tuesday when the Spanish Services PMI will print at 55.1, an improvement from last month’s 54.8. Figures above 50 indicate industry expansion. Later in the day at 5 AM EST (11 AM CET), the European Retail Sales for June will grow by 0.4%, analysts say. Retail Sales were flat the month prior. 1)

Early on Wednesday at 2 AM EST (8 AM CET), the German Factory Orders will swing into positive territory by 0.5%, reversing some of last month’s losses of 1.7%. 2) Two hours later the Italian Industrial Production is also forecasted to go into the green by printing at +0.9% versus the previous month’s fall of 1.2%. One hour after that at 5 AM EST, the preliminary figures for the second quarter Italian GDP should come in at +0.1%. Italian first quarter GDP declined by 0.1%. The country’s economy has been on the verge of recession since November of last year, printing alternating gains and losses of 0.1% each quarter. 3)

ECB Expected to Stand Pat

The most important Euro news item next week will undoubtedly be the ECB meeting on Thursday. Most market participants think that the European Central Bank will stand pat (not do anything) at this meeting. A major part of the reason why is the improving economic picture across the continent. The Bank will not introduce new monetary policy easing but it will keep the dovish tone. The next risk events to watch out for after the ECB will be the start of the September TLTRO and the October Stress Tests. Forty-five minutes after the ECB, we will have President’s Draghi press conference at 8:30 AM EST (14:30 CET). Again we may get a lot of volatility around these news events but at the end of the day the Euro should stay pretty much unchanged (barring any surprises from the ECB of course).

More Green on Friday

European data is forecasted to end the week on a good note. The German Trade Balance released this coming Friday will show a surplus of 19.8 Billion Euros, 1 Billion over last month’s 18.8 Billion. 4) The French Industrial Production for the month of May is also expected to record gains of 1.1%, beating last month’s negative -1.7 percent. 5) All in all, things are looking up in Europe. Will this put an end to the Euro’s decline versus the US Dollar? The single currency has lost over 600 pips since reaching a swing high of 1.3993 on May 8th. The EUR/USD closed last week at 1.3421. Or will the data disappoint and push the common currency into another leg down?

Slow News Week Coming up in the States

Compared to last week, the upcoming 5 trading days in the States should be relatively calm. The first important US news event comes on Tuesday at 10 AM EST (16 CET). The ISM Non-Manufacturing PMI is forecasted to print at 56.6, a slight uptick from last month’s 56 figure. 6) The June Factory Orders, released at the same time, will come in at + 0.6%, analysts say. On Wednesday at 8:30 AM EST (14:30 CET), the US will yet again record a trade deficit, this time of $44.2 Billion USD, almost the same as last month’s $44.4 Billion shortfall. 7) On Thursday the Weekly Unemployment Claims will rise slightly from last week’s 302,000 to 305,000. Friday’s preliminary figures for Nonfarm Productivity are forecasted to grow by 1.4%, beating the 3.2% recorded earlier. Labor costs (released at the same time 8:30 AM EST) are set to go down to 1.3% from 5.7%. And that’s pretty much it in terms of notable US reports next week. While this is a far cry from last week’s news bonanza of FOMC+NFP, to counter balance this we have a lot of important news from Europe and the UK!

BOE Rates on Hold, UK Manufacturing to Tick Up

On Monday at the usual time for most UK releases (4:30 AM EST, 10:30 AM CET), the Construction PMI for the month of July will print at 62.1. 8) Numbers above 50 indicate expansion in the sector. On Tuesday at the same time, its sister report the Services PMI will tick up from 57.7 to 58.1, forecasts say. Completing the picture of the UK economy, on Wednesday at (you guessed it!) 4:30 AM EST the Manufacturing Production for the month of June will reverse some of May’s losses and come in at +0.7%. 9) The Industrial Production figures, released at the time same time, will also reverse last month’s loss of -0.7% by printing at +0.6 percent.

Thursday will undoubtedly be the most important news day for the Pound this upcoming week. At 7 AM EST (13 AM CET), the Bank of England will release its latest monetary policy statement. Analysts are betting on no change in the bank’s interest rates or in the size of the Asset Purchase Facility (£375 Billion). Rates have been stuck at the 0.5 percent level since March of 2009. The size of the APF hasn’t been changed in over two years. A surprise by the BOE, while highly unlikely, will have dramatic consequences for Cable. An unexpected rate rise or a cut in the Asset Purchase Facility will instantly propel the Pound higher by 100-200 pips or more. Again this is a very low risk scenario but as traders we have to be prepared for every possibility.

No New Easing from the Bank of Japan

The first major Japanese news item next week comes on Thursday at 7:50 PM EST (1:50 AM CET). According to forecasters, the June Current Account figures for the country should come in at + 110 Billion Yen (this is barely above zero at only around $1.1 Billion USD). The Current Account is a broad measure of imported and exported goods, services and income flows. At the same time, a smaller news report, the annualized Bank Lending numbers for July will be released. No forecasts are available for this report.

No new easing is expected from the Bank of Japan. While the data in the aftermath of the April tax hike has been particularly awful, with Japan’s currency exchange rate more or less stable against the Dollar and continuing high inflation, the Bank has little reason to press on the accelerator. The BOJ will release its decision on Thursday night / Early Friday (depending on where you live). If you feel like staying up, the statement is usually published around 11 PM EST (5 AM CET) +-1 hour. The BOJ Governor Haruhiko Kuroda will hold a press conference few hours later, usually around 2 AM EST (8 AM CET).

RBA Forecasted to do Nothing Despite Improving Data

Continuing the pattern we’ve been seeing so far, yet another central bank, the Reserve Bank of Australia, is expected to keep interest rates unchanged. This is despite some improving data from the island nation lately. Most of the AUD reports coming up this week are also forecasted to show gains. On Monday the Retail Sales for June are set to gain 0.3%, completely reversing the 0.3 percent decline in the month prior. 10) The country’s Trade Balance will once again show a deficit of around 2 Billion AUD, analysts estimate. We saw a similar shortfall in the May data. 11) The Reserve Bank of Australia will keep rates at the 2.5% level, say all 32 economists surveyed by Bloomberg news. The last major rates reshuffling happened on July 2nd last year when the RBA dropped the main interest rate by 25 basis points. The decision and the statement will be posted on the bank’s website on Tuesday at 12:30 AM EST (6:30 AM CET). 12)

One day later on Wednesday at 9:30 PM EST (3:30 AM CET), we have another potential Aussie mover, the Employment Change report. The data will show that in July, the number of employed people in the country increased by 13,500. We saw similar gains in June at +15,900. This is both very important and potentially highly volatile data point that can deviate significantly from the median forecast. Last week wasn’t kind on the Aussie as the currency lost over 80 pips versus the US Dollar. A significant miss below 15K or a negative number may result in more losses for the currency. If you have AUD positions open on Wednesday, stay up to watch the market reaction or tighten those stops!

Chinese Data Neutral

The Chinese data coming up this week is forecasted to more or less print neutral. On Friday, the country’s Trade Balance for the month of July will show another surplus, this time of 26 Billion Yuan. Later in the day inflation figures will come in mostly unchanged, point forecasts. The CPI will stay at 2.3 percent and the PPI will tick up slightly from -1.1% to -1%.China is Australia’s biggest trading partner and largest export market. News from the country often cause volatility in the Australian Dollar.

New Zealand Unemployment to Decline

A slow news week is coming up for the Kiwi. The single major news event next week will come on Tuesday at 6:45 PM EST (12:45 AM CET). The quarterly release of the Employment Change report is forecasted to show a 0.7 percent gain in the number of employed people. This is a small decline in gains from the previous + 0.9%. The country’s Unemployment Rate will tick down from 5.9% to 5.8 percent, analysts estimate. 13)

Canadian Trade Balance Still in the Red, Employment at +25K

The Canadian data will come in mixed. The country’s Trade Balance will continue to show a small shortfall of just below 1 Billion CAD. The median forecast is centered around -0.1 Billion this month versus -0.2 Billion last month. 14) On Thursday, Building Permits will move into the red by – 1.8 percent, a complete reversal from May’s 13.8% gain. Later in the day at 10 AM EST (16 CET), the Ivey Purchasing Manager’s Index will come in at 54.1. This compares to last month’s 46.9. Figures above 50.0 indicate industry expansion, while numbers below indicate contraction. The most important CAD news event next week will be Friday’s Employment Change report. Analysts are placing their forecasts on job gains in July. A sizeable gain of 25,400 is estimated, a sharp departure from June’s 9,400 loss. 15) The country’s Unemployment rate will move back lower from 7.1% to 7 percent. The rate ticked up 0.1% in the month prior.

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