Has the dollar turned the corner? The notable point about Friday’s market was that the dollar managed to gain against most of its G10 counterparts and a good number of EM currencies despite mixed numbers for the durable goods data and a decline in both Fed Funds rate expectations (-2 bps) and bond yields (-4 bps in the 10yrs). The euro meanwhile weakened throughout the day and is trading this morning about where it finished US trading – the lows of the day. The Commitment of Traders report showed that speculators increased their long dollar positions to the highest since Nov. 2012. We may be seeing the start of the long-awaited USD rally. Then again, it could just be the aggregate effect of so many risky events around the world causing a “flight to safety” into USD. But gold, although doing well this morning, is still down on the week, suggesting that there’s more to it than that.
Today: On Monday, we have a relatively light calendar compared to the rest of the week. We have no major data or events scheduled during the European day.
In the US, the preliminary Markit composite and service-sector PMIs for July are released but no forecast is available. The Dallas Fed manufacturing activity index for July is estimated to have slightly increased, while pending home sales for June are expected to have slowed in pace on a mom basis.
Rest of the week: Wednesday is a huge day! The big event of the week will be the FOMC meeting on Tuesday and Wednesday. However, there is no press conference nor updated forecast materials scheduled after the meeting, so the only pointers the market will get from the meeting will come from the statement following it, and I expect little change there – just some editing to bring the first paragraph up-to-date with developments in the economy since the last meeting. The key points would be if they either a) changed the balance of risks to the outlook from “nearly balanced,” the view that they’ve held since March, or b) if they made any change to the phrase that they anticipate the Fed Funds rate will remain unchanged for a “considerable time after the asset purchase program ends.” But the likelihood of a change to either of those phrases is small. We’ll know more about what happened at the meeting when the minutes are released on Aug. 20th. Also coming out Wednesday from the US are the ADP employment report and first estimate of Q2 GDP. The ADP report, two days ahead of the NFP release, is expected to show that the private sector gained fewer jobs in June than it did last month. Q2 GDP is forecast to show a turnaround from the final Q1 figure of -2.9% qoq SAAR, adding support to the nation’s economic recovery.
Elsewhere on Wednesday, Japan’s preliminary industrial production for June is coming out and New Zealand’s building permits for the same month. During the European day, we get the preliminary German CPI for July, an important indicator of Eurozone inflation a week before the ECB meeting.
On Tuesday, we get Japan’s jobless rate and retail sales figures, both for June. In the UK, mortgage approvals for June may show that buyers are starting to balk at paying the current record prices, which could hurt GBP. From the US, consumer confidence index for July is expected to print to the upside. On Thursday, the Eurozone CPI estimate for July is forecast to stay at the record low of 0.5% yoy. Any decline from that could increase speculation about further ECB action. However, unless the EU is on the brink of deflation, I think the ECB is likely to wait at least until they’ve implemented both their targeted long-term refinancing operations in December before trying anything else. German unemployment for July and Eurozone unemployment for June are also coming out. From Canada, the GDP for May is expected to rise, giving a boost to the yoy rate.
Finally on Friday, the major event will be the US non-farm payrolls for July. The market consensus is for a rise of 230k, down from 288k in June. That would be a slowdown in hiring from the previous month, but not a cause for concern as it would be exactly in line with the average for the last six months. At the same time the US unemployment rate is forecast to have remained unchanged at 6.1%. Further in the US, the ISM manufacturing index and the final Markit manufacturing PMI, both for July, are coming out. Also to be released are the final manufacturing PMIs for July, from Japan, China, France, Germany, the UK and the Eurozone.
Sometime during the week, the EU is expected to announce tougher sanctions against Russia. That could heighten the geopolitical risks and hurt RUB, other Eastern European currencies and perhaps EUR as well.