Capital Properties FX
Capital Properties FX

Forex Trading Calendar for the Week Ahead


This week’s Forex trading calendar contains mainly U.S. and European data. Euro continues its aggressive move to the upside, eyeing the highs made during the U.S. presidential elections, around 1.13. The early surge in EURUSD had nothing to do with economic news. Instead, Angela Merkel’s words triggered the move as she complained that the euro is too weak. For now, the demand for the common currency remains solid. This weeks’ PMI’s should help the euro to gain more against the dollar.

“It seems a place of dreams, enchanted, legendary.” – Boston Globe, 4 June 1944

On Wednesday’s forex trading calendar, we have the minutes of the previous FOMC meeting as the main event. Usually, it should be considered as a high-risk event but not this time. Right now the markets’ focus is firmly on political aspects. FEDs’ policies play a secondary role as the market is only interested in the outcome of the next meeting on the 14th of June. A while back, we all agreed that the next rate hike is a done deal. Today, the tables have turned and the FED futures price in only around 60 percent probability that the FED will act during the next meeting.

Bank of Canada rate statement is also one highlight of the week. The overnight rate is expected to remain unchanged at half a percent. BOC’s report is most likely going to be cautious. Since Donald Trump became the president of the U.S. there has been a lot of talk regarding the NAFTA. Any change in that deal may hurt Canada quite a lot. The United States is by far the most important trade partner for the Canadians. Uncertainty regarding the trade agreement should keep the BOC rather cautious when it comes to changing monetary policy.

U.S. Preliminary GDP Release

The first release of the U.S. Q1 GDP disappointed. This week we’ll see the first revision and a slight improvement is expected. The forecast is that the Q1 GDP growth rate will be revised to 0.9 percent. However, it’s almost irrelevant as the underlying figure itself is already quite weak. Since the advance release, traders started to worry that the perhaps the June rate hike is not that certain after all. Last week, FOMC’s Bullard hinted that there’s a possibility that the FED has made a policy error.

Nevertheless, the release may bring some volatility into the USD. A negative surprise should have more impact on the dollar as then the rate hike odds should drop further as a result. A strong upward revision seems rather improbable right now. Most likely it will be close to the current forecast. Hence, it shouldn’t be enough to trigger any kind of meaningful recovery in the dollar.

In other words, this week’s FOREX calendar for the USD comes down to two events. The FOMC meeting minutes and the preliminary GDP. Everything else is more or less secondary. From that perspective, it’s not an ideal week for fundamental traders or news traders. But on the other hand, it’s a perfect week for those who rely heavily on technical analysis. Of course, there’s always a possibility that an unexpected political event may affect the price action but that is basically the new normal these days.

Forex Trading Calendar: U.S. Leading Indicators

Based on leading indicators, there are reasons to be a bit more optimistic. Both, the ISM Manufacturing and Non-Manufacturing PMI’s sit well above the 50 level. Especially the services sector seems to be in a good shape. The ISM non-manufacturing PMI surged to 57.5 indicating strong momentum.

Core Durable Goods come this week. It will be released on Friday, together with the Q1 GDP revision. Changes in the given indicator also reflect the overall health of the given economy. In Forex calendar, everything that is even remotely connected to inflation expectations, should not go unnoticed. An increase in core durable orders hints to demand for products. This, in turn, means that the consumers feel confident and want to spend.

In addition to core durable orders, we have two “hard data” releases as well. New Home sSales on Tuesday and Existing Home Sales on Wednesday. Both matter when it comes to the bigger picture of one’s economy. Economic activity in the real estate market gives clues about the overall economy. If consumers buy new homes or simply switch houses, it shows confidence. Often enough, if the labor market conditions should change negatively, then the real estate market is among the first to take the hit.

Week Filled with Speeches

In addition to some U.S. data releases this week, we also have plenty of speeches. On Monday, FOMC members Harker, Kashkari, Brainard and Evans speak. Right now, it’s important to keep an eye on such events. As the rate hike odds for June come down, every single clue regarding the potential outcome of the next meeting matters.  Hence the members of the FOMC may say something relevant regarding the subject.

On Tuesday FOMC Kashkari takes the stand twice and is later followed by Harker. However, when it comes to speeches, then perhaps the main event takes place on Wednesday. Mr. Mario Draghi will speak at the First Conference on Financial stability in Madrid. Lately, some European politicians have criticized the ECB because of its loose monetary policy. As the economic outlook improves in the entire Euro area, the necessity for the ECB’s QE program becomes questionable.

FX News Calendar: European Data

Europe and euro are constantly making headlines these days. Euro gained ground against the USD for the better part of this month. As the saying goes, “Sell in May and go away” worked perfectly in that currency pair. Those who understood that the euro is greatly undervalued against the dollar enjoy healthy profits by now.

The surge in the common currency was a long awaited event. The speculative positioning in EURUSD has been heavily on the short side for a very long time. From that perspective alone, euro can extend its gains against dollar considerably before any kind of reversal. The highs made during the U.S. presidential elections attract.

This week’s Forex trading calendar has European data in focus. The dance starts on Tuesday with the PMI releases. Both French and German PMI’s make new highs almost every month. This time we expect to see stronger figures. The forecast is that the French manufacturing PMI will increase slightly while the German manufacturing PMI should hold itself around current levels.

In addition, there’s also the German IFO. An increase might be in cards there as well. All that will keep the euro well bid into the release of the FOMC meeting minutes.

The Pressure is Building on ECB

On Monday, chancellor Merkel said in her speech that the euro is too weak. Keep in mind that the common currency is a political project. The moment the political support disappears, the euro will become a history. Eurozone data is on the path of recovery and many look towards the ECB to start normalizing the current monetary policy. However, Mario Draghi is not overly keen to change anything right now, even though the economic recovery seems solid right now.

Clearly, a question arises: how to trade Forex using fundamental analysis, under such conditions? In one hand we have the recovering European economy. On the other hand, we have the ECB’s QE program combined with ZIRP (zero interest rate policy). Which has more impact on euro? Given the recent price action, it’s clear that the market focuses on improving data. But that’s not all – market participants bet on the probability that the ECB may start changing its policy earlier than expected.

While those two conditions are enough right now to push the euro higher, caution is needed. It’s extremely important to keep an eye on the price developments in the EURUSD. It’s true that the Euro area’s economy is improving but there is still a big difference between the FED’s monetary policy and the ECB’s. One still uses unconditional monetary policy tools while the other one is looking to tighten further.

Conclusion

Forex trading calendar for the week ahead is busy enough to keep the markets moving. The main focus should be on the European and U.S. data releases. Those who prefer to trade commodity currencies are also in for a volatile week. Bank of Canada rate statement is by far the most important event but there’s more.

OPEC meetings start on Thursday and that should be enough to keep every oil trader busy until the end of the week. “Production cuts” is the keyword here. However, keep in mind that the OPEC doesn’t rule the oil world. Furthermore, Iran (OPEC member) announced on Monday that they look to boost oil production by 8 percent by March 2018.

And last but not least – let’s not forget politics. The surge in the euro and the selling of the dollar are heavily connected to recent events in the political landscape. Under such conditions, the traditional FOREX fundamental analysis is not enough to fully understand the price action. Selling of the dollar may accelerate due to the new U.S. administration.

President Trump is not overly modest in his statements and that can create unwanted volatility in the markets. Same applies to Europe, however not to the same degree since the French elections are now behind us.

Enjoy the trading week!
Capital Properties FX
May 22, 2017

Related Reading
Financial Accounts of the United States – Z.1
Federal Taxes Paid Vs. Spending Received By State” – Tax Policy Center, October 19, 2007