This is article is released weekdays under the heading Daily Fundamentals at 5pm EST on www.dailyfx.com
Forex traders may find that volatility will remain high throughout the next week as a variety of economic releases will hit the wires. The British pound, New Zealand dollar, and Canadian dollar will see inflation reports, while the US dollar will encounter retail sales and the minutes from the Federal Reserve's last policy meeting.
• UK Consumer Price Index (JUN) - July 14
The UK's consumer price index (CPI) reading for the month of June is expected to rise 0.3 percent, the fifth straight increase. However, the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to a nearly two-year low of 1.8 percent from 2.2 percent, keeping inflation within the central bank's acceptable range of 1 percent - 3 percent, but below their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further in August. On the other hand, if CPI holds strong, the currency could rally in response.
• US Advance Retail Sales (JUN) - July 14
The Commerce Department is forecasted to report that US retail sales rose 0.4 percent in June, which would mark the second straight improvement, and excluding autos, retail sales are anticipated to increase by 0.5 percent. However, there is potential for a worse-than-expected result, as the International Council of Shopping Centers (ICSC) said that same-store sales tumbled 5.1 percent in June from a year earlier, which was the sharpest decline since March. All told, a negative reading has the potential to stoke risk aversion in the markets, and thus, US dollar strength. On the other hand, surprisingly strong results could offer a boost to FX carry trades and equities.
• Federal Open Market Committee (FOMC) Minutes (JUN 24) - July 15
The main event risk for the US dollar on Wednesday will be the release of the minutes from the Federal Reserve's last meeting on June 24. Following that meeting, the markets saw no surprises from the Federal Open Market Committee (FOMC), as they left the fed funds target range at 0.0 percent - 0.25 percent and made no changes to their quantitative easing (QE) program. The status of QE is high on the minds of traders, so the comments contained within the minutes will be scoured for indications that they will increase their purchases of Treasuries, and if they are found, the US dollar could fall sharply. However, if QE isn't really mentioned but the sentiment amongst the FOMC members is judged to be somewhat pessimistic, the news could trigger risk aversion and increased demand for safe-haven currencies like the US dollar and Japanese yen.
• New Zealand Consumer Prices (2Q) - July 15
New Zealand's consumer price index is forecasted to have risen 0.5 percent during Q2, which could bring the annual rate down to a nearly two-year low of 1.8 percent from 3.0 percent. During Q4 2008, quarter-over-quarter prices contracted for the first time in two years and by the most in ten years, so unless we see another surprise contraction during Q1, the news may not add to speculation that the Reserve Bank of New Zealand will cut rates again during their next meeting on July 29. As it stands, Credit Suisse overnight index swaps are pricing in a slight 25 percent chance of a 25 basis point rate cut to 2.25 percent, but if the latest inflation results reflect a sharp drop in price growth, the odds could shift in favor of looser monetary policy and the New Zealand dollar could fall. On the other hand, if inflation pressures prove to be stronger than anticipated, the currency could rally.
• Canadian Consumer Price Index (JUN) - July 17
According to the Bank of Canada's last Monetary Policy Report in April, the Bank is open to quantitative easing (QE) and credit easing if nominal interest rates start to fall below zero. Indeed, the Bank stated that while they could cut rates to zero in theory, it would ultimately eliminate the incentive for lenders and borrowers to transact in markets, especially in the repo market. As a result, inflation reports will be key to gauging whether the Bank of Canada will go the route of QE, but upcoming results may suggest that there's little risk of such a move quite yet. While headline CPI is projected to have fallen to an annual rate of -0.3 percent, the BOC's core measure is projected to hold fairly steady at 1.9 percent, down from 2.0 percent. Ultimately, the data will likely show that the bulk of price declines is due purely to falling commodity costs, and as long as the core measures don't fall sharply, the Canadian dollar shouldn't react too strongly.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
Send questions or comments to email@example.com