FOMC and GDP Releases to Determine Near-Term Direction

Last week’s lighter US economic calendar, featuring upbeat existing home sales data and a surprisingly multi-decade low jobless claims but disappointment from data pertaining to new home sales, restricted market participants from taking big bets in the Forex market. Various factors moved the greenback in opposite direction against other major currencies. Commodities sell-off supported the buck against commodity currencies like AUD and CAD while weak UK monthly retail sales data dragged GBP lower. Meanwhile, despite an interest rate cut by RBNZ, NZD rebounded from multi-year lows to finish the week higher against the dollar. Also, lighter but mixed US economic data triggered some USD profit taking move against EUR and JPY.Summing the US Dollar performance against a basket of major currencies, the overall US Dollar Index (I.USDX) finished the week with a loss of 0.65%.

Moving forward, investors will now focus on the FOMC decision and second-quarter GDP readings from the US and UK, which are likely to dominate this week’s economic calendar, along with some other economic releases in order to determine the near-term direction in the Forex market.Let’s have a brief overview of some important economic events lined up during the course of the week that could also provide the required momentum in the Forex market.

The US economic calendar begins with the release of data pertaining to durable goods orders, which will be watched keenly to support the optimistic views of a steady US economic recovery. Durable and core durable goods orders data for the month of June are scheduled for release on Monday. Following a sharper than expected drop in durable goods orders in May, economists are expecting a sharp recovery with consensus forecasting the orders to have risen by 3.2%. Meanwhile, core durable goods orders, which excludes transportation items, is also predicted to register a modest growth of 0.4%.

Outcome of the Federal Reserve’s two-day monetary policy meeting, starting Tuesday, happens to be this week’s most awaited event for the Forex market. Although, the FOMC is not expected to announce any major policy changes from this week’s meeting, scheduled on Wednesday. However, given the central bank’s projection to start normalizing its monetary policy in 2015, market participants expect the Fed to sound optimistic in its monetary policy statement, which would further strengthen the expectations of an eventual interest rate hike in its September meeting.

Meanwhile, the government is scheduled to release the first estimate of US economic growth for the second-quarter of 2015 on Thursday. Following a lacklustre growth of a mere 0.2% in the first-quarter of 2015, which was further revised to show a contraction of 0.2%, economists are expecting the growth momentum to resume with consensus estimating the advance estimates to show US economy growing by 2.6% in the second-quarter.

Other important economic data featuring this week’s US economic calendar also include Conference Board’s consumer confidence index, a leading indicator of consumer spending, for the month of July and is scheduled for release on Tuesday. Also watch-out for a forward-looking indicator of the US housing market, pending home sales, for the month of June, scheduled for release on Wednesday and Chicago PMI data for the month of July, scheduled for release on Friday.

Stronger US GDP print accompanied with this week’s positive economic data will add to the expectations of continuing the strong economic growth momentum in the second half of 2015. This would add on to the speculations that the Federal Reserve could be moving closer to the first rate-hike in over six-years, resulting into a strong US Dollar for medium to long-term.

From UK, market players will be looking for the first reading of GDP growth rate for the second-quarter of 2015. The data, which is scheduled for release on Tuesday, is expected to show UK economy regaining momentum after two quarters of softer-than-expected readings. For the second-quarter of 2015, UK economy is expected to have registered a growth of 0.7%.

Also in the list of GDP releases is the monthly Canadian GDP data, which is released on monthly basis rather than on quarterly basis, and is scheduled for release on Friday. The Canadian economy contracted for two consecutive months and this time too, falling commodity prices, especially a sharp fall in crude-oil prices, is expected to weigh on the growth number, which is expected to print a negative number showing yet another month of contraction in the economy.

Elsewhere, investors will closely scrutinize this week’s preliminary Euro-zone CPI data for the month of July and unemployment rate for the month of June, both scheduled for release on Friday. The flash version of Euro-zone CPI is expected to remain subdued at 0.2% in July while unemployment rate for June, although register a marginal drop, but is expected to remain elevated at 11.0%.In addition to this, traders will also watch for Gfk German consumer climate index, scheduled for release on Wednesday.

Meanwhile, the official Chinese Manufacturing PMI data for July is scheduled for release on Saturday. Chinese manufacturing PMI data helps investors to gauge economic health of the world’s second-largest economy and being World’s largest consumer of commodities, Chinese economic data is always in focus for any material impact on commodity currencies, especially the Australian Dollar (AUD).

Summing it all, hawkish Fed accompanied with positive US economic data and (or) disappointing data elsewhere has the potential produce a knee-jerk reaction in the Forex market and spark a renewed investor interest to buy the US Dollar.

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