Forex trading should remain volatile this week as event risk looms for the US dollar, Euro, British pound, and Canadian dollar. Given the sharp rally in the greenback over the course of last week, stronger-than-expected economic indicators for other regions could easily trigger reversals throughout the majors. Furthermore, Federal Reserve Chairman Ben Bernanke will speak on Friday on financial stability, and if the past is any indication of what could occur, his commentary should spark heavy volatility for the US dollar, Treasuries, and US equity markets.
• German ZEW Survey – August 19
Sentiment amongst Germany’s financial analysts is likely to turn more pessimistic in August, according to the ZEW survey. The figure is scheduled to be released at 05:00 EDT, and this indicator tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given persistent inflation pressures, the marked slowing in the Euro-zone’s economies, and the European Central Bank’s increasingly pessimistic tone during the survey period, the ZEW reading is likely to fall in line with – if not more than – expectations.
• Canadian Retail Sales– August 20
Consumer spending in Canada is expected to have held up at a solid 0.4 percent pace in June, and excluding autos, retail sales are forecasted to have jumped 0.6 percent. Traders should also watch the release of Canadian wholesale sales on August 19 at 8:30 EDT, as this tends to be a very good leading indicator for the headline retail sales report. While this is a particularly lagging indicator, the news still tends to have an impact on the Canadian Dollar upon its regularly scheduled 8:30 EDT release. The outlook for Canadian retail sale, though, is not as optimistic given the rapid deterioration in the labor markets and weakening in business activity in July.
• UK Retail Sales – August 21
Retail spending in the UK is anticipated to slow for the second consecutive month during July at a rate of -0.2 percent, helping to drag the annual rate of growth down to a more than 2-year low of 1.8 percent. The data would be in line with the British Retail Consortium’s (BRC) July survey, which indicated that consumers tightened their purse strings and led same-store sales to tumble 0.9 percent from last year. Furthermore, labor market conditions have started to deteriorate as jobless claims have risen during the past six months, suggesting that consumption growth peaked long ago. Regardless, this 4:30 EDT release tends to have a short-term impact on the British Pound, so traders should beware of the event risk especially as the data could surprise to the upside or downside.
• Canadian Consumer Price Index – August 21
The release of Canadian inflation data for the month of July is likely to remind the markets that the Bank of Canada has been somewhat hawkish in their rhetoric lately. Indeed, the latest Monetary Policy Report Update in mid-July noted that while the US economic slowdown and instability in the financial markets had progressed “roughly in line with expectations”, the surge in commodity prices was much stronger than anticipated, altering “the outlook for global and domestic inflation.” On Thursday at 7:00 EDT, headline CPI is forecasted to rise to an annualized rate of 3.3 percent – the highest since March 2003 – while the Bank of Canada’s core measure is expected to edge up to a 8-month high of 1.6 percent. The Canadian Dollar is likely to respond immediately, though the risks are greater for a strong CPI report to ignite a rally in the Loonie.
• Federal Reserve Chairman Bernanke Speaks on Financial Stability at Jackson Hole – August 22
On Friday at 10:00 EDT, Federal Reserve Chairman Ben Bernanke will speak on financial stability at the Kansas City Fed’s annual symposium in Jackson Hole, WY. His commentary tends to be extremely market-moving for not only the greenback, but also for US Treasury and equity markets (and thus, the Japanese yen crosses). Given the uncertainty surrounding the health of US financial institutions, commentary on the financial markets will be watched closely and bearish sentiment by Mr. Bernanke could weigh heavily on risk-appetite. On the other hand, if Mr. Bernanke signals optimism that the US economy and financial sector can weather the storm, the US Dollar and risky assets, in general, could gain.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
Questions? Comments? E-mail: tbelkas@dailyfx.com
