Forex Weekly Outlook July 22-26

The US dollar and the Japanese yen retreated as a risk on mood is affecting the markets in the summer. Elections in Japan, US housing data, durable goods orders and weekly jobless claims among other event, are expected to move markets this week.

Ben Bernanke  testified in Washington, repeating his stance that QE tapering will depend on how well the US economy is performing. Housing data as well as retail sales disappointed with lower than expected readings however, unemployment claims dropped unexpectedly to 334K and the Philly Fed Index soared.. Will we see a clear-cut recovery in the coming months? In China, the authorities eased the pressure a bit, and this also improved the atmosphere.Good news also came from the UK but not from the euro-zone. How long can the euro enjoy the sun? Let’s Start

1. Japanese Upper House Elections: Sunday. The ruling LDP party led by PM Shinzo Abe controls the lower house but not the upper one. It is now expected to win a majority also there, and have more powers to make economic reforms. A victory could provide a “shot in the Abenomics arm” and boost USD/JPY. However, there could be too much of a good thing, and a landslide victory with more than simple majority could enable Japan to change its constitution and boost its military – something that would not necessarily be positive. So, a simple majority would be best for USD/JPY.
2. US Existing Home Sales: Monday, 14:00. The annualized number of existing homes sold in May, edged up 2% to 5.18 million from 4.97 million in April. However the number of available houses is lower than the actual demand, causing price growth. Analysts expected a smaller rise of 5.01 million. Existing home sales are expected to improve further reaching 5.27 million. Recent building permits and housing starts numbers disappointed.
3. Chinese HSBC Flash Manufacturing PMI: Wednesday, 1:45 GMT. This key early and external figure for the economic giant is critical for the Australian dollar and also for the whole world. A strong showing will boost the “risk on” mood while a weak one would trigger worries and boost the dollar and the yen. After a reading of 48.2 last month, a rise to 48.6 points is expected now, still in contraction zone (under 50 points).
4. US New Home Sales: Wednesday, 14:00. Sales of new single-family homes edged up to their highest level in nearly five years in May, reaching 476,000 units after a 466,000-unit rate in the previous month, indicating the housing market is strong. Analysts expected a smaller gain of 462,000 units. However the shortage in houses raises pressure on prices, rising 0.3% from a year ago.  New home sales are expected to advance to 482,000 this time.
5. New Zealand Rate decision: Wednesday, 21:00. The central bank plans to maintain borrowing costs at a record low this year to keep  the kiwi subdued. The bank cut its growth forecast for the year through March 2014 to 3 % from 3.3 %, and left its projection for the following year at 2.8 %. No change is rates is expected now. The Chinese move regarding the lending floor gave a boost to NZD/USD.
6. German Ifo Business Climate: Thursday, 8:00. German business confidence rose for a second month in June reaching 105.9 from 105.7 in May, due to encouraging signs of  growth in Europe’s largest economy. The Bundesbank projected a significant acceleration in economic activity over the second quarter, but warned about downside risks from the slowdown in the Chinese economy. Another rise to 106.3 is anticipated this time.
7. UK GDP: Thursday, 8:30. The data for first quarter showed an expansion rate of 0.3% compared to the previous period and 0.6% rise from a year ago. The improvement was achieved mainly due to a 0.6% quarterly advance in services. Furthermore, the  avoidance of a triple-dip recession might have some positive psychological value for UK financial markets. An expansion rate of 0.6% is forecast now. Such a strong expansion will certainly limit the scope for QE.
8. US Durable Goods Orders: Thursday, 12:30. Orders for long-lasting U.S. manufactured goods increased more than expected in May, rising 3.6 % following a 3.5% climb in the previous month. Meanwhile Core durable orders, excluding transportation increased 0.7 % after advancing 1.7 % in April. These figures supported by earlier data indicate a pick-up in US economic activity. Durable goods orders are expected to leap 1.1%, while Core orders are predicted to advance 0.5%.
9. US Unemployment Claims: Thursday, 12:30. Initial jobless claims fell 24,000 last week to a seasonally adjusted 334,000, indicating hiring is strengthening.  The four-week average, dropped 5,250 to 351,000. The labor market condition is improving despite volatility in July. Employers added an average of 202,000 jobs a month through the first six months of the year, up from an average of 180,000 in the previous six months.  A small rise to 339,000 is anticipated now.