Forex - Weekly outlook: May 23-27
Forex Pros – Concerns over euro zone sovereign debt issues saw the euro fall sharply against the U.S. dollar on Friday, trimming the week’s gains after ratings agency Fitch downgraded Greece's credit ratings by three notches.
The single currency was already under pressure as fears that debt contagion would spread to Spain, the euro zone's fourth largest economy, pushed up the country’s borrowing costs.
The euro found support late Friday after the International Monetary Fund approved a EUR26 billion three-year loan to Portugal, as part of a bailout granted last year.
Elsewhere, the dollar edged higher against the yen last week as Japan slid into its third recession in a decade and Prime Minister Naoto Kan said he expects the central bank to maintain a flexible monetary policy.
Government data on Thursday showed that Japan’s gross domestic product contracted an annualized 3.7% in the first quarter, following a 3% drop in the preceding quarter.
The Bank of Japan kept monetary policy unchanged and held interest rates steady in a range of zero to 0.1% on Friday, as widely expected.
The pound ended the week largely unchanged against the dollar, despite official data showing that U.K. inflation jumped to a two-and-a-half-year high and retail sales surged last month.
The data did little to boost expectations that the Bank of England will raise interest rates this year, amid concerns that a rate increase would derail the fragile economic recovery.
Also last week, data showing a slowdown in manufacturing growth in the U.S. Mid-Atlantic region and an unexpected dip in existing home sales in April underlined the view that the Federal Reserve is unlikely to tighten policy for some time to come.
Looking ahead to the coming week, U.S. data on durable goods and a second look at first quarter GDP will be a focus of attention. The U.K. is also to publish revised data on first quarter GDP while the euro zone is to release a closely watched report on Germany’s business climate.
Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets.
Monday, May 23
The BoJ is to publish its monthly report, which outlines the data policymakers examined when making the latest interest rate decision.
The euro zone is to publish preliminary data on manufacturing and service sector growth while France and Germany are also to publish separate, individual reports.
Meanwhile, markets in Canada are to remain closed for Victoria Day.
Tuesday, May 24
New Zealand’s central bank is to publish a report on inflation expectations. Later in the day, the Ifo Institute for Economic Research is to publish a report on German business climate, a leading indicator of economic health. The euro zone is also to release official data on industrial new orders, a leading indicator of production.
The U.K. is to publish official data on public sector net borrowing, as well as an industry report on realized sales, a leading indicator of consumer spending.
In addition, the U.S. is to publish government data on new home sales, a leading indicator of economic health.
Wednesday, May 25
The BoJ is to publish the minutes of its most recent policy setting meeting. The minutes contain in-depth insights into the economic conditions that influenced the decision on where to set interest rates. Following the report, the bank’s Governor Masaaki Shirakawa is to speak. Japan is also to publish official data on its trade balance, the difference in value between imported and exported goods and services.
Australia is to publish two separate reports containing indexes of economic indicators designed to predict the future direction of the economy as well as official data on completed construction projects, which gives an insight into GDP data to be published the following week.
In the euro zone, research group Gfk is to publish a report on German consumer climate, while the U.K. is to release revised data on first quarter GDP, the broadest measure of economic activity and the primary gauge of the economy's health.
Also Wednesday, the U.S. is to publish official data on durable goods orders, a leading indicator of production, as well as a government report on crude oil stockpiles.
Thursday, May 26
Australia is to publish government data on private capital expenditure, a leading indicator of economic health. Elsewhere, Switzerland is to release official data on its trade balance as well as data on the country’s employment level.
In the euro zone, the President of the European Central Bank Jean-Claude Trichet is to speak; his comments will be closely watched for any clues to the future direction of monetary policy.
In addition, the U.S. is to publish revised data on first quarter GDP, the broadest measure of economic activity and the primary gauge of the economy's health. The U.S. is also to publish its weekly report on initial jobless claims.
Friday, May 27
In the U.K., research group Gfk is to publish a report on consumer confidence, while later in the day mortgage lender Nationwide is to publish a report on house prices, a leading indicator of the housing industry's health.
Meanwhile, Japan is to publish official data on consumer price inflation, which accounts for the majority of overall inflation as well as data on retail sales, the primary gauge of consumer spending, which accounts for the majority of overall economic activity.
In the euro zone, Germany is to publish preliminary data on consumer price inflation, while the ECB is to publish data on M3 money supply and private loans. Elsewhere, Switzerland is to publish an index of leading economic indicators, designed to predict the future direction of the economy.
The U.S. is to round up the week with a slew of economic data, including government reports on personal income and spending and industry data on pending home sales, while the University of Michigan is to publish revised data on consumer sentiment and inflation expectations.
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