After last week’s crazy price action, I thought I’d give ya’ll a little preview of what we can expect this week. In this edition of Piponomics, I’ve outlined the top 3 events that could have a significant impact on the dollar.
At 9:00 pm GMT, Federal Reserve President Ben Bernanke will be speaking at the University of Michigan about the state of the U.S. and the global economy. Market participants will be very keen on what he’ll be saying after the very surprising FOMC meeting minutes.
If you recall, the most recent FOMC meeting minutes revealed that some central bank officials think that they should start withdrawing their asset purchases before the year ends. Even though it didn’t quite last, the minutes led to a small dollar rally.
It’s going to be interesting to see whether Bernanke flip flops and tapers down any expectations of the Fed withdrawing stimulus later this year. Some analysts predict that Bernanke will back away from the Fed’s dovish tone in the meetings and reaffirm the central bank’s loose monetary policy stance. This could be bearish for the dollar.
U.S. Retail Sales
Tomorrow, January 15, 2012, at 1:30 pm GMT, we’ll get our second potential market mover in the form of the U.S. retail sales report. Expectations are that the core version will clock in to show monthly growth of 0.2%, while the headline report is seen at 0.2%.
Looking back at the previous releases, you’ll notice that the report has failed to hit forecast the last FIVE times. This means that there is a good chance that tomorrow’s version will also miss its targets, and we may just see a spike upon the release.
Based on our statistics, we normally see a directional move of about 25-30 pips on both EUR/USD and GBP/USD following the release, which is good enough for a trade-the-news strategy. If you don’t have a particular bias towards the scrilla, you can consider playing the release and going with the initial direction. Just don’t be greedy and make sure to close your trade within an hour, since both EUR/USD and GBP/USD tend to fade the whole move about an hour after the release candle!
Lastly, on Thursday, January 17, 2013, at 1:30 pm GMT, we’ll be getting another round of housing figures in the form of building permits and housing starts.
Building permits are seen to rise from a yearly pace of 900K to 910K, while housing starts are projected to have jumped from 860K to 890K.
Over the past year, we’ve seen the housing market shown great improvement, with the last six months in particular showing better-than-expected results. It seems that more and more people have taken advantage of aggressively low interest rates to purchase and begin building their homes.
Take note that the U.S. financial markets pay very close attention to the housing market, as it is normally an early indicator of how the U.S. economy will perform.
If we see another round of upside surprises tomorrow, it could spark a risk rally across the board, which could force the dollar to lag behind its higher-yielding counterparts.