5 Key Events for the Forex Market This Week 10-12-08

Forex traders have found that the global financial crisis has served to benefit those bullish the US dollar and Japanese yen, but will this trend continue over the next week?

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Forex traders have found that the global financial crisis has served to benefit those bullish the US dollar and Japanese yen, but will this trend continue over the next week? This will depend very much on upcoming event risk, including the release of inflation figures from the UK, Euro-zone, and US. However, the biggest market-movers tend to be the unexpected events such as commentary from high-ranking officials, and with central bank and government officials like Fed Chairman Bernanke and ECB President Trichet scheduled to speak many times through the week, traders should keep a close eye on the news wires.

 

·         Central Bank, Government Officials Comment All Week Long – October 12-17

First and foremost, traders need to watch for commentary by central bank and government officials throughout the week, as bearish statements tend to weigh on risky assets like the US stock markets, but benefit low-yielding currencies like the US dollar and Japanese yen. Indeed, with various officials - including Fed Chairman Bernanke and ECB President Trichet -scheduled to speak multiple times during the week, volatility should remain high.

 

·         UK Consumer Price Index – October 14

The September reading of the UK Consumer Price Index is forecasted to accelerate to an annual rate of 5.0 percent from 4.7 percent, as is also anticipated by the Bank of England. Nevertheless, these expectations did not stop them from cutting rates on October 8 by 50bps to 4.50 percent in a coordinated effort with central banks like the Federal Reserve, European Central Bank, and Bank of Canada, among others. Indeed, the credit crisis and the sharp economic slowdown in the UK have taken the spotlight from inflation fears, but if UK CPI proves to be even stronger than forecasts, the British pound could rise. On the other hand, a weaker than expected result could weigh on the currency.

 

·         Euro-zone Consumer Price Index – October 15

Indicators of price growth in the Euro-zone have pulled back in recent months after CPI hit a high of 4.0 percent in July, as commodity prices have cooled significantly. The European Central Bank stated that this was one of the key reasons why they were able to go with the October 8 coordinated rate cut, but unlike the central banks of the US and UK, the ECB’s subsequent press release had very little substance. Indeed, the ECB simply said that “upside inflation risks” had decreased, but jumped right back into hawk mode when they said that by keeping inflation expectations in check and “securing price stability” would be supportive of economic growth and financial stability. The September reading of Euro-zone CPI is expected to slip to 3.6 percent from 3.8 percent, but if this actually holds steady or falls less than forecasts, the euro could gain. The odds may be in favor of a more euro-bearish result though, as CPI could actually slip a bit more than anticipated, which would support the case for additional rate cuts by the ECB going forward.

 

·         US Advance Retail Sales – October 15

Advance Retail Sales are expected to fall for the third month in a row in September, with consensus forecasts by Bloomberg News calling for a 0.6 percent decline. According to the latest report from the International Council of Shopping Centers (ICSC), sales slowed to a 1.0 percent annual pace in September from 1.7 percent in August thanks to a pullback in spending on discretionary items such as apparel and furniture. Interestingly enough, spending at discount and wholesale clubs slowed as well, suggesting that deteriorating labor market conditions and plunging assets prices are taking a hefty toll on consumption patterns. Clearly, there’s quite a bit of downside risk for this particular report, with disappointing readings likely to lead the US dollar lower for at least a brief time.

 

·         US Consumer Price Index– October 16

The Federal Reserve has made it clear that they are willing and ready to cut interest rates, given Fed Chairman Ben Bernanke’s comments on October 7 and their participation in the coordinated rate cuts on October 8. Furthermore, fed fund futures are fully pricing in a 25bp cut to 1.25 percent on October 29, and a slight chance of a 50bp reduction. Upcoming inflation figures are likely to support the market’s expectations, as US CPI is anticipated to fall to an annual rate of 5.1 percent from 5.4 percent, though core CPI is forecasted to hold at an annual rate of 2.5 percent. If the data suggests that price growth is slowing faster than expected, the news could help to cool the US dollar's rally. On the other hand, readings right in line with forecasts are unlikely to have much impact on the forex markets.

 

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

 

Questions? Comments? E-mail: tbelkas@dailyfx.com