Forex Yellow Pages

5 Most Important Events for the Forex Market This Week

Written by Terri Belkas, Currency Analyst

Following a week of major US economic indicators, the only significant release pertinent for the US Dollar specifically this week will be ISM Services, which could be surprisingly strong. Meanwhile, employment data out of Australia and Canada could shake up the commodity dollars, while rate decisions from the Bank of England and European Central Bank may not be as market-moving as usual.

1. Conditions in US non-manufacturing sector – which accounts for approximately 70 percent of total economic activity in the country and includes retail, services, and finance – are anticipated to remain contractionary in April, as the Institute for Supply Management index is estimated to fall to 49.5 from 49.6. However, there is a chance this figure could be a bit better than forecasted, as employment in the services sector surged during April. Indeed, according to both the ADP employment report and Non-Farm Payrolls, the services sector was one of the only areas to hire additional workers during that period, while goods producing companies are practically bleeding workers. If ISM Non-Manufacturing manages to jump above the 50 mark – signaling expansion – the news will only add to speculation that the Federal Reserve will leave rates unchanged when they meet again in late June.

2. The Australian labor markets have tightened substantially over the past few years, as the unemployment rate dropped to multi-decade lows of 4.0 percent in February. While this rate ticked up to 4.1 percent in March, conditions remain resilient and this has driven wages higher, boosted disposable income, increased domestic demand and economic growth in general, but has also fueled inflation. Indeed, the Australian labor markets are expected to add on another 10,000 workers in April, and like the US Non-Farm Payrolls release, the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 21:30 EDT.

3. The Bank of England is expected to leave rates steady on Thursday at 5.00 percent after cutting by 25bps during their last meeting. The rate decision will come at 7:00 EDT and since the Monetary Policy Committee is anticipated to leave rates unchanged, they are unlikely to issue a monetary policy statement which should leave the market’s reaction to the news very muted. Nevertheless, given the fact that the vote for the April rate cut included six in favor of the 25bp reduction, two votes for no change, and one vote for a 50bp cut, it’s clear that there is major disagreement amongst the Committee on what their next move should be. Inflation pressures in the UK have not been quite as strong as in the Euro-zone, though CPI is still above MPC’s comfort zone, and in the Bank’s Financial Stability Report they tried to put a positive spin on the credit crunch by saying it was “needed after the credit boom and was bound to have costs.” However, the MPC also noted major risks from a plunge in commercial property values, which could lead to significant losses for UK banks on losses related to commercial mortgage-backed securities (CMBS). This has stoked concerns that the UK is in for a US-style housing market collapse, or worse, an all-out recession. As a result, the risks are tilted very much to the downside for the British pound going forward.

4. Like the Bank of England, the European Central Bank is widely expected to leave rates steady at 4.00 percent for the eleventh consecutive meeting. The rate announcement will come at 7:45 EDT, but the big show is at 8:30 EDT when ECB President Jean-Claude Trichet will give his monthly press conference. Will he remain hawkish, or focus more on the instability in the markets? Estimates for Euro-zone CPI in April plunged to 3.3 percent from 3.6 percent, though this is still well above the ECB’s 2 percent target as energy and food costs remain high. On the other hand, the ECB has stepped in to inject liquidity into the money markets, as credit conditions remain tight. There’s little doubt ‘price stability’ will be the foremost concern for Trichet, but if he suggests that price pressures will moderate in the near-term or that feeble financial market conditions are threatening economic growth, the euro could actually sell-off across the majors.

5. The only significant event risk on Friday will be from the release of the Canadian net employment change at 7:00 EDT. This release is essentially “the other NFP” report, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. Lately, the net employment change has been lackluster, but a surprisingly strong figure will undoubtedly lead the USD/CAD pair to plunge sharply in the minutes after the news hits the wires. On the other hand, a disappointing net employment change could lead the pair to surge. However, follow-through during the rest of the day tends to be limited. Check in to see what other traders think about the USD/CAD pair and the Canadian data post-release in the DailyFX USD/CAD Forum.