The forex markets opened the week rather steady, with some weakness seen in the Aussie and Kiwi. The dollar pared back some of last week's gain but lossed are limited so far. A rally in China shares lead Asian indices generally higher with Japan Nikkei 225 up 71.53 pts or 0.46% and Hang Seng up 267 pts or 1.1%. Gold struggled to take out the 1310 handle and is struggling in tight range. Crude Oil is also having some difficulty staying above 102 and is engaging in sideway trading. The economic calendar is rather light today with pending home sales from US featured only. Nonetheless, the week ahead is rather busy and full of market moving events.
The US will be a major focus this week. The FOMC is expected to continue tapering with another USD 10b reduction in asset purchases. The Fed will likely reiterate that tapering should end in October. We believe the statement will be similar to what Chair Yellen has said in the recent testimony before Congress. The annualized US GDP is expected to have expanded 3.2% q/q in 2Q14, following the -2.9% contraction in the prior quarter. Note that the government would also release revised readings of the past 3 years. That is, the first quarter contraction might be revised. If the 1Q14 reading was revised higher, then smaller than expected rebound in 2Q14 would be seen. The employment report due Friday would probably show a 230K addition in non-farm payrolls, down from previous increase of 288K. The unemployment rate probably stayed unchanged at 6.1%. Additionally, the ISM manufacturing index will also be released.
The EUR/USD took out 1.3476 key support level last week which suggests medium term reversal. Some solid economic data would be needed from US to push the pair away from this support level confirm the bearish case. Also, we will need some extra strength in the greenback against the pound and Swiss franc to confirm the broad based bullishness of the dollar.
Here are some highlights for the week:
- Tuesday: Japan retail sales, unemployment rate; UK mortgage approvals; US S&P Case Shiller house price index, consumer confidence
- Wednesday: New Zealand building permits; Japan industrial production; Swiss UBS consumption indicator, KOF leading indicator; German CPI; US ADP employment, GDP, FOMC meeting; Canada RMPI, IPPI
- Thursday: UK Gfk consumer sentiment; Australia building approvals; Japan housing starts; German retail sales, unemployment, Eurozone CPI, unemployment; US Challenger job cuts, jobless claims, Chicago PMI; Canada GDP
- Friday: China PMI manufacturing; Australia PPI; UK PMI manufacturing; US non-farm payroll, personal income and spending, ISM manufacturing