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The US dollar will encounter the most event risk compared to the rest of the majors next week, as US advance retail sales, the FOMC meeting minutes from September, and the University of Michigan's consumer confidence index will all be released.
Meanwhile, CPI from the UK and Canadian are both anticipated to reflect easing price pressures, which could ultimately weigh on the already-weak British pound and Canadian dollar.
• UK Consumer Price Index (SEP) - October 13, 4:30 ET
The UK's consumer price index (CPI) reading for the month of September is expected to rise 0.3 percent, but the more important part of this report is that the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to 1.3 percent, the lowest since October 2004 from 1.6 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 before year-end. On the other hand, if CPI holds strong, the currency could rally in response.
• US Advance Retail Sales (SEP) - October 14, 8:30 ET
The Commerce Department is forecasted to report that US retail sales slumped 2.1 percent in September, after jumping by the most since January 2006 in August at a rate of 2.7 percent. The decline is likely to be due primarily to a drop in auto sales relative to recent months. For example, spending on motor vehicles and parts rocketed 10.6 percent higher in August as the cash for clunkers program came to an end, and demand is likely to have fallen without the government-sponsored incentive. Furthermore, this index is not adjusted for inflation, so volatile gas prices can often play a big role on how the overall results fare, and based on the drop in average retail gasoline prices during September from $2.60/gallon down to about $2.47/gallon, there are additional downside risks. That said, better-than-expected results are likely to lead to at least a brief bout of US dollar strength, but as we saw with the last time this report came out on September 15, risk trends still tend to win out. Thus, after initially choppy price action, the US dollar could ultimately gain upon disappointing US retail sales data (risk aversion) or drop on positive numbers (risk appetite).
• Federal Open Market Committee (FOMC) Meeting Minutes - October 14, 14:00 ET
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 September 22-23. Following that meeting, the policy statement initially led the US dollar to sell-off against the most popular currencies as the central bank maintained a neutral tone and repeated that they would keep rates exceptionally low for an extended period. However, the currency subsequently bounced back as the overall sentiment of the statement was optimistic, with the FOMC saying that economic activity had picked up while conditions in the financial markets have improved further. As far as quantitative easing went, the central bank maintained that they would purchase a total of $1.25 trillion of agency mortgage-backed securities (MBS) and up to $200 billion of agency debt, which should be completed by the end of Q1 2010, while their purchases of $300 billion in Treasury securities will be completed by the end of October 2009. A reiteration of these statements has the potential to lift the greenback once again, but on the other hand, indications that FOMC members are feeling uneasy about the outlook for growth or the need to expand quantitative easing down the road could do quite the opposite.
• Canadian Consumer Price Index (SEP) - October 16, 7:00 ET
The annual rate of Canadian headline CPI growth for September is projected to slip down to -0.9 percent from -0.8 percent, while the Bank of Canada's core measure is projected to ease back to 1.3 percent, the lowest since July 2005, from 1.6 percent. Such results would suggest that both commodity costs along with downward pressures stemming from lackluster demand are starting to come into play for prices throughout the broader economy. The Bank of Canada said in their most recent policy statement that overall risks to its inflation projection are tilted slightly to the downside, and if we start to see even core measures of inflation fall toward zero, the Canadian dollar could pull tumble.
• University of Michigan Consumer Confidence (OCT P) - October 16, 9:55 ET
The preliminary reading of the University of Michigan's consumer confidence index is forecasted to go unchanged in October and hold at 73.5, which is the highest since January 2008. That said, it'll be interesting to see if the index can hold at such robust levels after the latest US non-farm payrolls results showed that the pace of job losses unexpectedly accelerated in September. The major issue we want to point out with this report is that the official time of release is 10:00 ET, but it typically hits the wires at 9:55 ET, which can exacerbate any surprise factor from the actual results.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
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