Forex Weekly Outlook July 4-8

3 July 2016, 09:32
Sherif Hasan
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Markets continued to wobble in the post-Brexit week, with recoveries seen in many currencies. The first full week of July features the buildup to the US Non-Farm Payrolls, the Fed’s meeting minutes and key speeches among other events. These are the market movers on forex calendar. Here is an outlook on the major events of this week.

The UK’s Brexit vote has rattled markets and its aftershocks are expected to continue for years to come. The pound traded at lower ground while other currencies certainty lifted their heads. In the meantime, US economic data suggest a positive trend with  a better than expected annual growth rate of 1.1% for the first quarter and a rise in consumer confidence during June, rising to 98 from 92.4 in May. Consumers were less negative about current conditions and the employment situation, but only moderately, suggesting a slight improvement in economic conditions. Will the Brexit have a negative bearings on the US economy? Let’s start:

Updates:
  1. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia kept its monetary policy unchanged in June signaling they are in no hurry to cut interest rates any time soon. RBA governor Glenn Stevens stated that the decision to keep rates unchanged supports growth and inflation.  Consumer confidence increased as well as the number of job openings. Economists still expect the RBA’s move will be postponed to a later date such as June 2017.
  2. Mark Carney speaks: Tuesday, 9:30. BOE Governor Mark Carney is due to speak in London about the Financial Stability Report. Carney will probably address the Brexit issue and may provide clues as to the BoE’s next steps. Market volatility is expected.
  3. ISM Non-Manufacturing PMI: Wednesday, 14:00. The ISM non-manufacturing index has lost ground in May reaching 52.9 vs. 55.7 posted in April. Analysts expected a reading of 55.4. The production index declined from 58.8 to 55.1, new orders fell to 54.2 from 59.9 in April. 14 of the non-manufacturing sectors reported expansion, while 4 claimed that activity had declined. However, overall demand weakened. US non-manufacturing PMI is expected to climb to 53.5 this time.
  4. US FOMC Meeting Minutes: Wednesday, 18:00. These are minutes from the Fed’s decision in June, in which it was mostly dovish. The minutes, which are edited until the very last moment, are expected to follow a similar line, especially as the final touch is given after the Brexit vote. No rate hike are on the cards in the next year or so following the latest developments.
  5. Haruhiko Kuroda speaks: Thursday, 0:30. BOJ Governor Haruhiko Kuroda will give a speech in Tokyo. Kuroda says that the BOJ does not need to give up its target of  2% inflation despite economists’ criticism that the target is too ambitious to achieve in a short period. The BOJ was unsuccessful in achieving its original goal of turning years of deflation into a stable 2% inflation in about two years, but Kuroda does not believe the Bank should change its monetary policy regarding quantitative easing.
  6. US ADP Non-Farm Employment Change: Thursday, 12:15.  The U.S. private sector added 173,000 jobs in May, a bit lower than estimated. Private payroll gains for April were revised up to 166,000 from an originally reported 156,000 increase. The ADP figures come before the U.S. Labor Department’s major non-farm payrolls report, which includes both public and private-sector employment. ADP non-farm payrolls is expected to reach 151,000 in June.
  7. US Unemployment Claims: Thursday, 12:30. US initial claims for unemployment benefits increased by 10,000 last week to 268,000, but remained below the 300,000 line, indicating healthy labor market. The reading was broadly in line with market forecast. The four-week moving average of claims, considered a more stable measure of labor market trends, was unchanged at 266,750 last week. Although analysts forecast a rise in hiring during June, UK’s Brexit may spoil this assessment, prompting companies to delay hiring amid the new political and economic constellation. The number of new claims is expected to reach 272,000 this week.
  8. US Crude Oil Inventories: Thursday, 15:00. Crude oil inventories plunged last week by more than 4 million barrels, posting the sixth-straight week of declines. The continues decline may be associated with fears that the U.S. was running out of room to store all the crude being pumped. Oil inventories soared to 543.3 million barrels in April, the highest level in 86 years. Every summer oil inventories shrink as the summer driving season begins. Crude prices soared 3.5% to $49.50 a barrel, recuperating from the Brexit market turmoil earlier last week.
  9. Canadian employment data: Friday, 12:30. Canada’s economy added 13,800 positions in May, exceeding economists’ forecasts for a gain of just 3,100 jobs. The central bank remained cautious despite the positive reading saying the report can be volatile from one month to another. The Housing sector added 18,600 jobs, while manufacturers added 12,200 positions. The unemployment rate dropped to its lowest since July at 6.9%, but the participation rate also declined. Canadian labor market is expected to expand by 6,900 positions while the unemployment rate is estimated at 7.0%.
  10. US Non-Farm Payrolls: Friday, 12:30. US job growth halted unexpectedly in May, with a disappointing gain of 38,000 positions, raising concerns over US economic recovery and the planned rate hike in the summer. Analysts expected a job increase of 159,000. The reading followed a 160,000 rise in the previous month. Meanwhile the unemployment rate declined to 4.7%, the lowest level since November 2007, from 5% in April, but this low reading was due to a 458,000 decline in the number of Americans searching for employment. Nevertheless, the fed still expects to raise rates this year and is closely monitoring the rate of job gains in the coming months. US monthly jobs report for June is forecast to show a 181,000 jobs gain, while the unemployment rate is estimated to rise to 4.8%. Also note wages, that were the sole bright point in May’s report with 2.5% y/y and 0.2% m/m. Another rise of 0.2% m/m is expected.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

*All times are GMT.

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