Weekly outlook

Last week in review

Main theme driving the FX market: Concerns about slower global growth gained traction amid record weak U.S. housing data, pressuring chancy assets such as stocks and currencies like the euro and the Australian dollar. Safe havens turned in another solid week, highlighted by the yen’s rise to a new 15-year high on the buck and the Swissie’s fresh record peak on the euro.

U.S. Dollar: The bifurcated buck rose to a 6-week high on the euro but slipped to a fresh 1995 low against the yen, as record weak U.S. housing indicators stoked demand for investor refuge. However, the buck eased off its highs on the euro and gained on the yen after U.S. growth data and remarks from the Fed chair breathed new life into risky assets. The second look at Q2 GDP came out above forecast while Bernanke quelled talk of imminent aid from the Fed.

Euro: The euro ceded more ground to its safe-haven counterparts in the U.S. and Switzerland, hurt by the general reduction in market confidence and by renewed concerns about European fiscal deficits after S&P lowered Ireland’s sovereign credit rating.

Japanese Yen: The Japanese currency clocked a new ’95 high against the dollar and rose to its highest elevation in 9 years on the euro, as economic fears and record low yields on some U.S. Treasuries improved the appeal of yen-denominated assets. However, the yen gave back some of its gains amid worries that Japan, who finds a strong currency undesirable for its vital export sector, might take stern action to weaken it.

Canadian Dollar: The Canadian dollar fell to a 7-week low versus the dollar, weighed down by soft commodities and subdued investor sentiment. Crude oil slipped below $71 a barrel on Wednesday, its lowest since early June, pressuring commodity-based currencies such as the Canadian and Australian dollars.

Recent Key Releases

Indicator Actual Forecast Previous
CA Jun Retail Sales (m/m) 0.1% 0.4% -0.4%
US Jul Existing Home Sales (m/m) -27.2% -12.0% -7.1%
DE Aug Ifo Corporate Sentiment 106.7 105.7 106.2
JP Jul Unemployment Rate 5.2% 5.3% 5.3%
US Q2 GDP Revision (annualized) 1.6% 1.4% 2.4%

Highlights for this week

United States: A data-crammed U.S. week should speak volumes on the health of the recovery, with critical indicators due out on nonfarm payrolls, manufacturing, household spending and consumer confidence. Risk sentiment is sure to take its cue from the data. Any economic indicators that miss the mark, in particular the government jobs report Friday, would added to concerns about a slackening recovery and trigger demand for investor sanctuary in the dollar, yen and Swiss franc.

Euro-zone: Among the euro zone highlights this week will be a meeting of the bloc’s central bank on Thursday. Though no change to euro zone interest rates Thursday is forecast, market participants will closely follow the central bank president’s post-meeting news conference for his take on the outlook for the region’s economy.

Britain: The U.K. week gets under way Tuesday with a report on consumer credit, following a public holiday Monday. British data watchers will look to PMI surveys on manufacturing and the influential services sector, which should shed light on the pace of the U.K. recovery.

Japan: Local reports on retail sales and capital spending are on tap this week. However, the yen should take its immediate cue from the prevailing level of risk tolerance and find support if market confidence retreats, which would stoke demand for investor shelter.

Canada: For final clues on whether the Bank of Canada will boost its key interest rate on Sept. 8, market players will parse local data on wholesale inflation and second quarter growth. As a commodity-oriented currency, loonie sentiment will also be influenced by oil prices.

Date Indicator Forecast Previous
08.30 US Jul Personal Spending (m/m) 0.3% 0.0%
08.31 EU Jul Unemployment Rate 10.0% 10.0%
08.31 CA Q2 GDP (annualized) 2.5% 6.1%
09.02 EU Sep ECB Governing Council Meeting 1.0% 1.0%
09.03 US Aug Nonfarm Payrolls -100,000 -131,000