Forex Forecast July 21-25

Geo-political issues, which attracted the most attention at the end of this week, lifted the dollar and the yen up. US housing and inflation data, British GDP are among the main events on the forex calendar this week. In the US, the Fed is seen as edging closer to tightening and the dollar responded positively. In Europe, issues in Portugal caused concerns, as well as deteriorating business confidence in Germany did. EUR/USD fell to 1.35 and eventually crawled back up. In the UK, another drop in unemployment was not sufficient as wages stayed behind. Also, the Aussie remained stable whilst the Kiwi suffered from low inflation. Towards the end of the week, political challenges took over with the crash of the Malaysian plane over Ukraine and offensive actions by Israel in Gaza. So, what are we expecting the next week?

1. US inflation data: Tuesday, 12:30. U.S consumer prices edged up 0.4% in May, amid  sharp rise in food prices. Economists expected a smaller increase of 0.2 %, getting close to the Fed’s target of 2.0%. Meanwhile, core prices also climbed more than expected, rising 0.3% from a 2.0% gain posted in April. In a yearly base, the core CPI increased 2.0 %, up from 1.8 % in April and the biggest gain since February of last year. The increase in prices, suggest the Fed may raise interest rates sooner than expected. U.S consumer prices are expected to gain 0.3% while core prices are predicted to increase by 0.2%.
2. US Existing Home Sales: Tuesday, 14:00. The number of pre-owned home sales edged up in May to a nearly three year high, reaching an annualized rate of 4.89 million from 4.66 million posted in the previous month. Analysts expected a lower rise to 4.74 million units. The housing recovery continues amid higher income and lower housing prices, which increase affordability. A further rise to 4.98 million is expected this time.
3. New Zealand rate decision: Wednesday, 21:00. NZ’s central bank announced a rate hike of 25 basis points in its June meeting, reaching 3.25%. This was the highest level since January 2009 and the third consecutive rise. The central bank said rates need to be higher as long as economic growth fuels inflation. Annual inflation slowed mildly to 1.5 % in the first quarter, while the RBNZ wants rates to be around 2 %, the mid-point of its 1-3 % target band. New Zealand’s central bank is expected to raise rates again to 3.50% but after the weak CPI figure, there is room for a downside surprise.
4. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment benefits declined 3,000 last week reaching 302,000, indicating the US labor market recovery is picking up. Analysts expected claims to reach 310,000 last week. The four-weak average fell 3,000 to 309,000, the lowest level since June 2007. Yellen warned that the Fed may kike rates sooner than planned in case the labor market continues to strengthen. The numer of claims is expected to rise to 310,000.
5. US New Home Sales: Thursday, 14:00.  Sales of new U.S.  homes climbed to a six-year high in May, reaching a seasonally adjusted annual rate of 504,000 units, 18.6% more than in the previous month, beating predictions for 442,000 units. The high mortgage rates seen in the second half of 2013 are beginning to settle increasing affordability. The median price of a new home increased 6.9% from May since inventory remained unchanged, but prices are beginning to settle and should help to stimulate demand for houses. Sales of new homes is predicted to reach 485,000.
6. German Ifo Business Climate: Friday, 8:00. German business climate index declined to 109.7 in June from 110.4 in May, posting its second consecutive monthly fall. Economists expected a minor drop to 110.3. German manufacturers fear the potential consequences of the crises in Ukraine and Iraq. More than 6,000 German companies are related to Russia and business and trade bodies have warned that further escalation in tensions over Ukraine may result in catastrophic losses for firms. Business sentiment is expected to edge down to109.6.
7. UK GDP: Friday, 8:30. In Q1 2014 the UK economy expanded by 0.8% q/q and by 3.1% when compared with 2013 Q1. This was the fifth consecutive rise, the longest growth period since the economic downturn reaching 0.6% below its pre-downturn peak in Q1 2008. The main contributor to growth was the services industry, which grew by 0.9% on the quarter. The labor market also performs well. UK economy is predicted to expand 0.8% in the second quarter.
8. US Durable Goods Orders: Friday, 12:30. Orders for U.S. durable goods fell 1 % in May amid a sharp decline in demand for military equipment. The reading was worse than the 0.1% drop predicted by analysts and lower than the previous release of 0.6%. However, excluding defense-related goods, orders actually rose, and orders in a key category that signals business investment also increased. Meanwhile core orders excluding transportation, declined by 0.1%, while expected to rise 0.3%. Durable goods orders are expected to rise 0.4%, while core orders are predicted to gain 0.6%.