Forex Weekly Outlook Jan. 13-17

The US dollar had a tough week, mostly due to the surprisingly disappointing Non-Farm Payrolls. Will this set the trend for the rest of the month, or is it just temporary? US retail sales, PPI , inflation and employment data, Ben Bernanke’s speech and consumer sentiment are the main events on our calendar. Here is an outlook on the main market-movers this week.

The US Non-Farm Payrolls posted a disappointingly small job gain of 74K in December, the lowest since October 2011. The unemployment rate fell 0.3 percentage points to 6.7%, mainly due to a 0.2% drop in the labor force participation rate. The unemployment rate becomes confusing. However, this release conflicts the recent flow of positive data from the US job market showing fewer layoffs and steady job gains, indicating a solid recovery. Therefore, the setback could be temporary or weather related due to winter storm Hercules. Will this reading prove false in the coming weeks? In the euro-zone, Draghi strengthened his forward guidance regarding rates, and this weighed on the euro, albeit temporarily. A big mover was the Canadian dollar, which fell to a 4 year low against the greenback. Let’s start,

Updates:

• Weak payrolls report may stop further tapering: Idea of the Day After the much weaker than expected US jobs report on Friday, the dollar is on the...

1. US Federal Budget Balance: Monday, 7:00. The Federal Government increased its budget deficit in November to $135.2 billion from $91.6 billion in October. The reading was better than the %142.6 billion projected by analysts. US budget balance improved in 2013 by 10.2% y/y, due to a rise in total revenues. Corporate income taxes edged up 44.1% y/y while Social Security receipts climbed 19.7% y/y. Individual income taxes advanced 2.7% y/y though excise taxes fell 5.3% y/y. Meanwhile expenditures fell 4.7% compared to 2012, led lower by a 10.0% y/y drop in defense spending. Income security payments dropped 5.0% y/y with the improvement in labor markets and Medicare payments fell 1.8% y/y. Interest payments also were off 16.2% y/y. To the upside this fiscal year, veterans benefits grew 6.9% y/y, Social Security outlays rose 5.2% y/y and outlays on health programs advanced 3.6% y/y. a surplus of $44.3 billion is expected this time.
2. UK inflation data: Tuesday, 9:30. The UK’s consumer prices, fell to a four-year low of 2.1% in November, following 2.2% in the previous month, caused by a milder increase in food and energy prices. Analysts expect inflation would edge up in December due to an increase in energy prices. Meanwhile, core inflation, excluding food and energy remained subdued below 2%. The Bank of England intends to keep annual inflation close to their 2% target, but the rate has been above this level since November 2009. Inflation rate is expected to remain unchanged at 2.1%.
3. US Retail Sales: Tuesday 13:30. U.S. retail sales increased handsomely in November, climbing 0.7% amid a boost in automobile sales and a range of other goods. This strong performance was another sign for the Fed to start its tapering move and prompted analysts to raise their fourth quarter consumer-spending projections. The strong figure was preceded by a 0.6% gain in October. Meantime, core sales gained 0.4% after a 0.5% increase in the prior month. Retail sales are expected to gain 0.2% while core sales are expected to advance 0.4%.
4. US PPI: Wednesday, 13:30. U.S. Producer Price Index for finished goods dropped 0.1% in November, down for the third consecutive month, while economists expected a flat reading. Energy prices led this decline for the second month in a row. Core prices excluding energy and food products increased 0.1%. Over the last 12 months, PPI declined six times while the average gain was less than 0.1%, indicating weaker demand. A rise of 0.5% is anticipated this time.
5. Australian employment data: Thursday, 00:30.  Australian labor market beat expectations in Novemberwith the biggest job gain in seven months, adding 21,000 new positions instead of the 10,300 increase anticipated by analysts. This increase was preceded by a contraction of 700 jobs in October. However this nice gain did not stop unemployment from rising to 5.8%, as more people entered the labor force. This positive release came a day after General Motors announced it would stop its car production by the end of 2017, which will result in a 2,900 job loss as well as more in supporting industries. Nevertheless, Australian manufacturers are optimistic regarding future conditions in 2014. A job gain of 10,300 is expected while unemployment rate is predicted to remain at 5.8%.
6. US inflation data: Thursday, 13:30. U.S. consumer prices remained unchanged in November, held back by declines in gasoline and natural gas prices, while analysts expected a 0.1% rise. The low inflation including October’s reading of minus 0.1% does not go hand in hand with the general signs of improvement in the US market. Meanwhile, core CPI edged up 0.2% after increasing 0.1% in October posting the third consecutive increase averaging 1.7% over the past 12 months, a bit lower than the Fed’s 2.0% inflation target. CPI is expected to reach 0.3% while core CPI is expected to increase 0.1%.
7. US Unemployment Claims: Thursday, 13:30. The number of Americans applying for unemployment benefits edged down by 15,000 last week to a seasonally adjusted 330,000, beating predictions for a 337,000 rise. The ongoing recovery process in the US job market continues with a steady job gain and fewer layoffs. The less volatile four-week average dropped 9,750 to 349,000. Job creation is picking up indicating economic activity is gaining momentum. Furthermore, the Q4 growth projections have largely improved amid a flow of positive data released in recent weeks. Another drop to 327,000 is expected now.
8. US Philly Fed Manufacturing Index: Thursday, 15:00. Factory activity in the U.S. mid-Atlantic region increased mildly in December, reaching 7.0 after posting 6.5 in the previous month. However the reading was below the 1.0 points projected by analysts. Nevertheless, the index showed an expansion trend for seven straight months. The new orders index edged up to 15.4 from 11.8 in November, while the employment component climbed to 2.2 from 1.1 the prior month. The six-month business conditions index declined to a four-month low of 44.0 from 45.8 in November.  A rise to 8.8 is forecast.
9. Ben Bernanke speaks: Thursday, 16:10. Federal Reserve Chairman Ben Bernanke will speak in a live webcast event in Washington. Bernanke will be asked about the Federal Reserve past, present and future. This is the first appearance after the Non-Farm Payrolls. Market volatility may be expected.
10. US Building Permits: Friday, 13:30. The number of building permits issues in the U.S. declined to a seasonally adjusted 1.007 million in November  below market consensus of 0.990 million, remaining at their highest level since January 2008. Likewise, U.S. housing starts edged up 22.7% in November reaching a seasonally adjusted 1.091 million from 0.890 million in October, beating predictions for an increase to 0.950 million. The seasonally adjusted  building permits are expected to remain unchanged at 1.01 million.
11. US UoM Consumer Sentiment: Friday 14:55. UoM’s index of preliminary consumer sentiment reading surged to 82.5 for December, following the final reading of 75.1 for November. This was the highest release since July, beating analyst forecasts for a reading of 76.2. The improvement occurred among households with incomes below $75,000 focusing mainly on future economic outlook for the year ahead. Current economic conditions jumped to 97.9 from 88.0 in November, beating expectations for a reading of 90, while its gauge of consumer expectations rose to 72.7 from 66.8, above the 68 expected. Another rise to 83.4 is expected this time.