Weekly Trading Review – 17/05/2015

FMOC Meeting Minutes and Greek Debt Talks to Dominate Market Sentiment!

Weekly Trading Review – 17/05/2015

The main event for the US dollar and perhaps the entire forex market in this trading week is the release of the FOMC minutes. This report should shed more light on what the Fed thinks of the recent slump in economic data, particularly in employment and inflation. Recall that the actual FOMC statement indicated that the slowdown was probably just transitory, although market watchers would be interested to find out if all the FOMC members share this view. Hawkish remarks or a reiteration of their plan to hike interest rates sometime this year could renew demand for the US dollar while a significant shift to a more cautious stance could lead to more losses. Also lined up from the US economy this week is the building permits and housing starts data, Philly Fed index, and CPI readings.

The euro drew support from optimism surrounding the Greek debt talks and the country’s loan repayments last week, but it remains to be seen whether the shared currency could continue its climb in the next few days. The region is set to print another batch of PMI readings which could indicate whether or not a sustained recovery is taking hold as ECB Governor Draghi has claimed. Also lined up this week are a few testimonies by Governor Draghi himself during which he might add reassuring remarks that the economy is seeing green shoots. The German ZEW economic sentiment index is due earlier on in the week while the German Ifo business climate reading is up for release towards the end.

The pound managed to sustain its post-election rallies in the previous week, despite downbeat remarks during the BOE Inflation Report. More economic reports are lined up from the UK this week, including the latest CPI readings and the BOE minutes. This should provide more clues on when the central bank might actually tighten monetary policy, although the tone of their latest Inflation Report suggested that they might wait until next year. More downbeat remarks could force the pound to return its recent gains while reassuring comments could allow it to climb further.

Even though Switzerland barely released any economic figures in the past week, the franc managed to advance against its forex rivals thanks to optimism surrounding the euro zone. This week, there are still no economic events lined up save for a speech by an SNB official and the release of the Swiss ZEW economic expectations report.

The yen has been taking its cue from risk flows and may continue to do so, although economic reports could give traders a better idea on what the central bank might do next. On Monday, data on core machinery orders and tertiary industry activity are lined up, with strong data likely to spur risk appetite and push traders away from the lower-yielding yen. The country’s preliminary GDP release is up for release on Wednesday and might cause more action among yen pairs, especially if the actual reading misses expectations. On Friday, the BOJ will make its monetary policy statement and possibly spur volatility for the yen as well.

Commodity Currencies (AUD, NZD, CAD)
The comdolls could also be in for a volatile week, as the RBA will release its monetary policy meetings on Monday and explain if they will continue to cut interest rates in their next statements. New Zealand is set to print its quarterly inflation expectations data then and probably lead to more Kiwi weakness if the forecasts are weaker. The country is also set to have a dairy auction mid-week and expectations are lower, following the Fonterra downgrade on volumes of whole milk powder last week. Canadian banks are closed for a holiday on Monday and the only top-tier report due from this economy is its CPI on Friday.