Soft inflation and dovish FOMC minutes dragged the US Dollar Index (I.USDX) down for the second consecutive week during past five trading-days. The same helped safe-havens, like Gold and JPY, and some counter currencies, like EUR, to trade positive. The EUR and the GBP got additional help on positive comments from the ECB, saying further monetary policy easing isn't a guarantee, and strong UK job numbers respectively. Further, the AUD couldn't enjoy strong job numbers as comments from the RBA minutes favored lose monetary policy but NZD and CAD maintained their up-moves on rising commodity prices. Moreover, the Crude rallied towards marking the best week in five months due to speculations concerning global oil-producers might succeed in Crude production-freeze talks during the next month's meeting. Moving on, the Monday offered positive start to USD traders as comments from San Francisco Fed President John Williams and Fed Vice Chairman Stanley Fischer, during late last week, favored a need for September rate-hike.
Alike last week, the present week also has fewer economics scheduled for release. Notable amongst them are second estimates of UK & US GDP numbers, coupled with headline PMIs from EU and US Durable Goods Order. Though, annual meeting of global financial leaders at Jackson Hole Symposium will become an important event for the greenback traders to examine as the Fed Chair might signal the strength of US central bank to announce the much awaited rate-hike.
US GDP & Jackson Hole Speech Will Be Crucial For The Greenback
Even if the FOMC minutes threw cold water on the face of those who eagerly awaited clues for the Fed's 2016 rate-hike, Friday becomes a crucial day for the USD traders as second estimation of the Q2 2016 US GDP and the Fed Chair's Jackson Hole speech are scheduled for release on that very day.
After the Advance estimate of Q2 2016 GDP growth disappointed greenback traders during late-July, with 1.2% mark against 2.6% expected and 1.1% prior, Friday's second forecast figure is likely to spread the same pessimism with 1.1% number. However, the previous two quarters were quite weaker and hence chances of a surprise hike to fuel the US Dollar can't be denied.
On the very same day, the Federal Reserve Chair, Janet Yellen, is scheduled to confront a press conference at an annual meeting of global financial leaders at the Jackson Hole Symposium. The meeting has been quite popular because majority of US central bankers, including the present one, have signaled crucial measures to safeguard the US economy at the same meeting in past and propelled the US Dollar volatility. The present Fed Chair has also signaled the first-rate hike of the US Federal Reserve in almost a decade during the same meeting in the year 2015 and fueled the greenback rally.
Though, the scenario is quite different this time with recently weaker data-points signaling more of the dovish statement from the Chair than the otherwise case. Yellen has been very neutral off-late and kept avoiding to signal the rate-hike in her recent FOMC meetings or giving statements that threatens the rate-hike outlook. Hence, her speech will be closely examined on Friday by some of the analysts who still believe US central banker has the capacity to announce a rate-lift in 2016.
Additionally, New and Existing Home Sales figures, up for Tuesday and Wednesday respectively, followed by Thursday's Durable Goods Orders, are some intermediate US details that could help forecast the US Dollar moves. While housing figures are likely to keep disappointing the greenback traders, with New Home Sales signaling 575K print against 592K prior and the Existing Home Sales expected to show 5.55M figure versus 5.57M previous, the Durable Goods Orders might please the USD players with +3.5% mark compared to -3.9% prior. Further, the Core Durable Goods Orders are also forecasted to help the greenback up-move with +0.4% mark against -0.4% noted in July.
Hence, while a better print of Durable Goods Orders can trigger the US Dollar up-move, a surprise positive outcome of the GDP and a hawkish statement from the Fed Chair's Jackson Hole speech, considering the improvement in job market, is more likely to reverse the greenback's near-term losses.
EU PMIs And German Figures Are For The EUR Traders To Watch
While recent statement from the ECB minutes stated that the Brexit isn't a guaranteed force that can keep forcing the central banker further towards monetary easing, Tuesday's headline PMIs from EU and Germany, followed by Thursday's German Ifo Business Climate, can help the EU central bank back its argument and help the regional currency to justify near-term strength.
Looking at the forecasts, the German Manufacturing & Services PMIs are expected to register softer prints of 53.7 and 54.3 against 53.8 and 54.4 respective priors while the EU readings could compensate those losses with 52.1 and 53.00 marks as compared to previous releases of 52.0 and 52.9 for Manufacturing and Services PMIs respectively. Further, German Ifo Business Climate, a key gauge to analyze the Business Confidence in EU's largest economy, is also expected to please the EUR traders with 108.5 figure as compared to the previous reading of 108.3.
Given the EU figures keep flashing good numbers, chances of the ECB to deliver another hawkish statement and provide additional strength to the EUR can't be denied. However, downbeat German figures might restrict excessive gains of the regional currency.
UK GDP, New-Zealand Trade Balance and Japanese Inflation
At last, second estimate of UK 2016 GDP, monthly Trade Balance figure from the New-Zealand and Japanese Inflation stats are some second-tier data-points that could continue market momentum during the upcoming week.
Wednesday's New-Zealand Trade-Balance might reverse the recent NZD strength as the figure is likely to drop towards testing the lowest level of 2016 with -320M of deficit as compared to the +127M surplus marked in the previous month. The Japanese CPI and the UK GDP, up for Friday release, are more likely to re-print their prior stats of -0.4% and the +0.6% respectively. However, recent trend of the upbeat UK stats, if repeated by the GDP number, can propel the GBP further towards north while weaker than forecast inflation number from Japan can provide additional push to the Bank of Japan (BOJ) towards announcing another round of monetary easing to drag the JPY to south.
Cheers and safe trading,
Anil Panchal