Forex Weekly Outlook November 4-8

The US dollar soared on a not-so-dovish FOMC statement and the euro fell on a big drop in inflation in a very volatile week. The action is expected to continue in very busy week that starts the new month. Rate decisions in Australia, UK and the Eurozone, Employment figures in NZ, Australia, Canada and the US, including the all-important Non-Farm Payrolls are the main events on our calendar. Here are the market movers to dominate the forex market this week.

The Federal Reserve maintained its “no-taper” policy as widely anticipated but didn’t alter the timeline for tapering and even removed the worrisome phrase about tighter financial conditions. Together withwhat seemed as a preparation for QE tapering by Bullard, the dollar made a huge comeback. The government shutdown aftermath weighs on the US economy as well as skews economic data. While some data points are weak, others remain solid. We will now get top tier figures. In the euro-zone, a long list of economic disappointments culminated in annual inflation standing at 0.7%, far away from the ECB’s target. EUR/USD plunged and dipped below long term support. Will Draghi change policy, or only express worries. Let’s start:

Updates:

1. Australian rate decision: Tuesday, 3:30.  Australia’s central bank maintained its cash rate at a record low of 2.5% amid a sharp increase in home prices. RBA Governor Glenn Stevens stated that the central bank will continue to monitor future developments and adjust policy accordingly. He also stated that the RBA is on hold this year with the risk of a rate cut next year. No change is expected now.
2. Haruhiko Kuroda speaks: Tuesday, 5:30. BOJ Governor Haruhiko Kuroda is scheduled to speak in Osaka, market volatility is expected. The Bank of Japan hasn’t changed its policy, but could add more stimuli if the tax hike hurts the economy.
3. US ISM Non-Manufacturing PMI: Tuesday, 15:00. The U.S. services sector increased less than expected in September, reaching 54.4 from 58.6 in August. Analysts expected a stronger reading of 57.2. However, the majority of the respondents were still positive, despite an increase in the rate of uncertainty in future business.  A small decline to 54.2 is forecast.
4. NZ employment data: Tuesday, 21:45. NZ unemployment rate increased to 6.4% in the second quarter from 6.2% in the first quarter amid a rise in the participation rate. The reading was broadly in line with market expectations. Meanwhile, the job market increased by 0.4%. Wage growth remained subdued, but analysts believe labor costs will rise in the coming months. Employment Minister Steven Joyce called for a national plan to create new jobs. NZ job market is expected to increase by 0.5%, while the unemployment rate is predicted to decline to 6.2%.
5. Australian employment data: Thursday, 0:30. Australia’s unemployment rate declined unexpectedly from 5.8% to 5.6% in September, in light of a decline in workforce participation as well as modest job creation. The Australian economy added 9,100 jobs in September, 5000 of which were full time positions. The decline in participation may give the wrong impression about the job market condition. A job addition of 10,300 is expected this time and unemployment rate is expected to grow to 5.7%.
6. UK rate decision: Thursday, 12:00. No policy change is expected from the BOE. The current forward guidance policy is still young. Carney is likely to comment on this policy in the upcoming presentation of the quarterly inflation report. The interest rate in the UK will likely be raised during 2015, but the BOE will probably leave this declaration to the first half of 2014. The economy is certainly improving, but it seems that the official unemployment rate isn’t improving as fast as other indicators. A stronger pound would help curb the relatively high inflation, but Carney and co. aren’t expected to release a statement about this at this time.
7. Eurozone rate decision: Thursday, 12:45, press conference at 13:30. The ECB is likely to keep policy unchanged, but convey a message that it is ready to act in order to ease monetary conditions, perhaps in December. The euro area is still not out of the woods, and credit conditions are still tight. Inflation has been falling and it is now far from the 2% target. In addition, the exchange rate is not only weighing on inflation but also making euro-zone less competitive. Draghi already mentioned the exchange rate in October, and is likely to be more vocal about it this time. The euro could suffer from a worried appearance by Draghi in the press conference. A rate cut will hurt the euro, and a negative deposit rate will send it plunging. Opinion: Draghi could change expectations on rates and LTRO
8. US Advance GDP: Thursday, 13:30. The U.S. economy expanded at a better rate than initially thought in the second quarter. The gross domestic product increased annually by 2.5% from April through June. Early estimates showed 1.7% growth rate originally. Rising exports, consumer spending and real estate transactions helped boost the second quarter numbers. The government revises its GDP figure several times after the initial release. This is the second estimate for second quarter GDP. GDP is forecast to grow by 1.9% now.
9. US Unemployment Claims: Thursday, 13:30. The weekly number of new unemployment claimsdropped 10,000 last week, reaching 340,000, broadly in line with the 341,000 estimated by analysts. Despite the continuous drop in the number of claims, the figures are still high suggesting a sluggish labor market The ADP report released a few days earlier  backs this view with a smaller than expected addition of 130,000 jobs in the private sector during October. A drop to 332,000 is forecasted.
10. Mario Draghi speaks: Thursday, 7:00. ECB President Mario Draghi will speak in Hamburg. He may comment on the asset-backed security program. Market volatility is expected. In case he slips some unwanted comment in the press conference, he will have an opportunity to correct himself.
11. Canadian employment data: Friday, 13:30.  The Canadian economy added 11,900 jobs in September, and unemployment rate dropped to a nearly five-year low of 6.9%, largely due to lower participation rate among the youth. Canada had largely rebounded from the job lost during the 2008-09 recession, and is showing increasing signs of growth. An addition of 15,300 jobs is expected with unemployment rate reaching 7%.
12. US Non-Farm Payrolls and unemployment rate: Friday, 13:30.  U.S. economy added asignificantly lower number of jobs in September, indicating a setback in the economy that supported the Fed’s bonds purchases. Nonfarm payrolls increased 148,000 in September, lower than the 193,000 registered in the previous month and below forecasts of a 182,000 addition. Meanwhile, the unemployment rate fell to its lowest level since November 2008, reaching 7.2% from 7.3% in August as 73,000 people joined the labor force and 133,000 people said they found jobs. However the general picture is not clear due to the government shutdown issues which may still skew employment data in the coming months. A smaller gain of 126,000 is forecast now.
13. US UoM Consumer Sentiment: Friday, 14:55. Consumer sentiment in the U.S. declined in October due to the government’s partial shutdown and the debt-ceiling ordeal. Preliminary consumer sentiment index decreased to 75.2 in October from 77.5 in the previous month. Economists projected a small drop to 77.2. This may be a temporary setback since the job market continues to improve and household spending is strengthening. A further drop to 74.6 is expected.
14. Ben Bernanke speaks: Friday, 20:30. Federal Reserve Chairman Ben Bernanke will speak in Washington. He may address the recent government shutdown and the Fed’s recent decision to keep its asset purchase plan intact. The topic of the speech is related to policy, leaving room for action just before markets close down for the week.