Forex Weekly Outlook November 11-15

The US dollar enjoyed a second strong week, riding on better than expected data. Will it take a break now, or continue climbing? Inflation and employment data in the UK, Ben Bernanke’s speech, US Trade Balance and unemployment claims are the highlights of this week. Here is an outlook on the main market-movers ahead.

The all-important NFP posted a strong gain of 204K jobs more than doubling expectations. The figures may have been distorted by the government shutdown but the Fed will find it hard to disregard this high reading and the strong Q3 GDP report, in its next rate decision on December 18^th. Will we see tapering before the end of 2013? In the euro-zone, the ECB surprised with a rate cut, and this sent the euro tumbling down. Mario Draghi made it clear that he still has more tools in his shed.

Updates:

1. UK inflation data: Tuesday, 9:30. The consumer price index in the UK remained unchanged in September at 2.7%. Prices of energy products fell but were offset by an increase in air fare prices. The Bank of England’s promised to maintain rates, supporting the fragile employment recovery; however inflation remains above the BOE target of 2.0% which nay compel the bank to raise rates in 18 months to two years’ time. A drop to 2.5% is forecast.
2. UK employment data: Wednesday, 9:30.  A major improvement occurred in UK’s job market during September, when the number of unemployed plunged 41,600, the biggest fall in more than 16 years, following a 32,600 decline in the previous month. This decline was far better than the 24,300 drop anticipated by analysts. Meantime, unemployment rate remained unchanged at 7.7%. The BOE announced it will not raise rates before unemployment rate drops to 7.0%. Another drop of 30,200 unemployed is expected while unemployment rate is predicted to remain unchanged at 7.7%.
3. UK Inflation Report: Wednesday, 10:30.In this quarterly event in August,  BOE Governor Mark Carney revealed his Forward Guidance program. Will he change policy now? Carney will speak in London about the inflation report. Mark Carney does not wish to raise rates before the economy gains strength. He may also discuss the continuous improvement in UK’s job market.  The BOE left rates unchanged as expected.
4. US Federal Budget Balance: Wednesday, 19:00. The U.S. narrowed its budget deficit to the smallest rate in five years, amid stronger hiring. A surplus of $75.1 billion was recorded in September nearly unchanged from the same month last year. The major revenues came from higher payroll taxes. A deficit of $104.3 billion is expected this time.
5. US Trade Balance: Thursday, 13:30. The U.S. trade deficit widened mildly in August, reaching $38.6 billion, following $39.15 billion in the previous month. In light of these figures it is unlikely that trade will boost GDP in the third quarter. Economists expected a bigger deficit of $39.4 billion. The three-month average of the trade deficit, fell to $37.3 billion in the three months to August from $39.0 billion in the prior period.  A smaller deficit of $38.7 billion is forecast.
6. US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits fell 9,000 to a seasonally adjusted 336,000 last week, rebounding to pre-recession levels. The reading was in line with market forecast, lowering the four week average by 9,250 to 348,250. The low level applications, indicate fewer layoffs, but hiring slowed in recent months instead of accelerating. A further drop to 331,000 is expected now.
7. Ben Bernanke speaks: Thursday, 0:00. Head of the Federal Reserve Ben Bernanke will speak in Washington DC. His words will cause volatility in markets following the unexpectedly strong US data and its possible effect on the Fed’s tapering decision.
8. Euro-zone GDP: Thursday, France at 6:30, Germany at 7:00, Italy at 9:00 and all the euro-zone at 10:00. The euro-zone officially exited the recession in Q2, enjoying a growth rate of 0.3%. This was mostly led by strong German growth: 0.7%, as well as French growth of 0.5%. Both core countries are expected to experience a slowdown in growth. While Spain already reported growth in Q3, Italy isn’t expected to get out of the woods just yet. Germany’s growth rate is expected to stand at 0.3%, France at 0.1% and the euro-zone at 0.2%.
9. Janet Yellen speaks: Thursday, 15:00. Yellen will take over the Fed in January, and will now testify before the Senate Banking Committee. She will have an opportunity to express her vision and will probably be asked some tough questions. Any tapering or no tapering hints will rock the markets.