Forex Weekly Outlook September 23-27

The surprising decision of the Fed not to taper QE sent the dollar plunging, but reactions were quite different among different currencies. German Federal Elections, Draghi’s speech, German business sentiment, US industrial and housing data, as well as US unemployment claims are the highlights of this week. Here is an outlook on these important events on our weekly calendar.

Last week, the highly anticipated FOMC meeting caught markets by surprise revealing the Fed will not start QE tapering as projected. As a result, the US dollar crushed. FOMC members were concerned about future economic outlook and the labor market claiming tightening of financial conditions will badly affect the US economy and could slow the pace of improvement. The Fed needs further proof for recovery before deciding to cut its $85 billion worth of treasury bonds. However, indicators released after the big decision were quite positive, and QE tapering could be seen in October. Will expectations of an “Octaper” support the dollar, or will it remain depressed? Will the US economy provide the requested “evidence” for the Fed to start tapering? Let’s Start

Updates:

1. German Federal Elections: Sunday. A German federal election will determine the 598 members of the 18th Bundestag, the main federal legislative house of Germany. Germans pick a constituency candidate with their first vote, and the second vote determines the relative strength of the parties in the Bundestag. Angela Merkel, whose conservative bloc constitutes around 40% seats, needs the FDP to do well in the federal vote to avoid having to turn to the opposition Social Democrats (SPD). A grand left-right coalition is desired by many voters, but such a government could prove unstable.
2. Mario Draghi speaks: Monday, 13:00.  ECB President Mario Draghi is scheduled to speak at the Committee on Economic and Monetary Affairs, in Brussels. His words will cause volatility in the markets.Draghi recently expressed caution about the recovery, and called it “green”.
3. German Ifo Business Climate: Tuesday, 8:00. German survey of 7,000 companies on its business climate edged up better than expected to 107.5 in August following 106.2 in July, beating forecast for a 107.1 reading. This was the fourth consecutive rise, indicating German economy is picking up rapidly as Companies are more satisfied with their current business situation. A further rise to 108.4 is expected this time.
4. US CB Consumer Confidence: Tuesday, 14:00. Consumer confidence advanced to 81.5 in August thanks to increased optimism about employment opportunities and the outlook for the economy. The reading was above market predictions of 79.6. Rising real-estate prices and stock-market returns increase income expectations which will maintain strong consumer spending. A small drop to 80.7 is forecasted.
5. US Durable Goods Orders: Wednesday, 12:30. US durable goods Orders disappointed in July, declining 7.3% from 3.9% gain in the previous month. The sharp decline occurred amid plunging demand for commercial aircraft, computers and electrical equipment. This was the biggest drop since August 2012. The reading was below market consensus of minus 4%. However this is a highly volatile measure unlike core orders, excluding aircraft and transportation equipment components which declined 0.6% after a 0.1% gain in June. Durable goods Orders is expected to remain unchanged while Core durable goods Orders is expected to climb 1.2%.
6. US New Home Sales: Wednesday, 14:00. Sales of new homes in the US plunged in July to 394,000, their lowest level in nine months, raising concerns over the US housing recovery. The reading was well below forecasts of 487,000 units. Pending US tapering program adds further worries of higher mortgage rates which will slow down the housing sector even further. A rise to 427,000 is expected now.
7. US Unemployment Claims: Thursday, 12:30. The number of Americans seeking U.S. unemployment benefits edged up 15,000 last week to a seasonally adjusted 309,000. The rise was well below market consensus of 331,000, but was distorted for the second straight week by reporting delays from California and Nevada. However, the broader picture indicates fewer layoffs. The four-week average declined 6% in the two months before the computer upgrades distorted the figures, showing a favorable trend in the US job market. An increase of 319,000 claims is expected now.
8. US Pending Home Sales: Thursday, 14:00. Pending Homes Sales declined unexpectedly by 1.3% to 109.5 in July, following a 0.4% drop in the previous month. The reading missed predictions for a 0.25 gain. This decline is related to concerns of tapering which will reduce the bond-buying economic stimulus program. Analysts forecast sales of previously owned homes will reach 5.20 million units in the third quarter, and climb to a 5.24 million unit pace in the final three months of the year. Another decline of 0.9% is anticipated.

*All times are GMT.