Last week until the release of NFP data on Friday, it looked like a corrective pull-back for the US Dollar might have just been triggered on the back of widening US trade deficit and modest pace of growth as reflected in ISM manufacturing PMI. However, Friday's jobs report, that surpassed even the most optimistic estimates, helped US Dollar to erase majority of its weekly loss. In the first month of 2015, the US economy created 257,000 jobs, while the unemployment rate saw a slight up-tick to 5.7% from 5.6% in December. The rise in unemployment rate could be because of higher labor market participation, which is a sign of healthy labor market. Another good sign from the jobs report was a 0.5% rise in average hourly wages, that saw a decline in December. In other important developments that surprised the market last week was the Australian central bank's decision to cut its key benchmark interest rate to a record low of 2.25%. The varying effect of various economic developments helped the overall US Dollar Index (I.USDX) to end the week on a flat note, nearly unchanged for the previous week.
Moving ahead, the Forex market will now look for additional cues to gauge the strength of broader US economic recovery from this week's monthly retail sales data from otherwise a tepid US economic calendar. The US monthly retail sales data is scheduled for release on Thursday and following a sharp drop in December, market participants are again expecting a subdued performance in January. Consensus estimates forecast the retail sales to have declined by 0.3% in January, while core retail sales are expected to drop further by 0.4%.
Along with the US retail sales data, preliminary University of Michigan's consumer sentiment index is scheduled for release on Friday. The Preliminary University of Michigan's Consumer Sentiment Index reading for the month February is expected to improve marginally to 98.2 from 98.1 in January.
For complete list of the economic events, refer to Forex Calendar
Apart from the US economic data, the political stand-off between Greece and Germany over extension of the current Greek bailout terms, agreed upon by the old government, will remain key concern from the Euro-zone. The Euro-zone finance ministers are holding an emergency meeting on Wednesday to discuss the possible resolution to the Greek drama. The current agreement expires at the end of February and a failure to negotiate an amicable deal would force Greece to default on its debt. This could trigger some additional volatility in the market and seriously deteriorate the value of Euro-zone common currency, Euro, against other major currencies.
Meanwhile, key economic releases scheduled in the upcoming week's Euro-zone economic calendar features the first release of the composite Euro-zone GDP data along-with Euro-zone's three largest economies, Germany, France and Italy for the fourth-quarter of 2014. The flash version of the 17-nation composite GDP, scheduled for release on Friday, is expected to show a dismal growth of 0.2%. Meanwhile, Euro-zone's two largest economies, Germany and France are expected to show a sluggish growth of 0.3% and 0.1%, respectively, while growth rate for Euro-zone's third largest economy is expected remain flat.
Dominant Australian data, that could materially impact the currency market include Australian employment report, scheduled for release on Thursday. After printing a surprisingly stronger-than-expected rise in the number of people employed for four months out of the past five readings, economists are anticipating a decline for the month of January. Consensus forecast the report to show a negative reading of 4,700 for the month of January and the unemployment rate is also expected to tick higher to 6.2% from 6.1% recorded in December. Also watch out for inflation data from China, Australia's largest trading partner, scheduled for release on Tuesday. Following the global trend, Chinese inflation has been trending lower in recent months. The trend is further expected to continue in January and drop to 1.1%, down from 1.5% recorded in December.
Elsewhere, the Bank of England's (BoE) is scheduled to release its quarterly inflation report on Thursday. BoE updates its forecasts for growth and inflation and forward guidance language on interest rates in its quarterly inflation report. Hence, the report would be keenly scrutinized by central bank watchers in order to evaluate the timing of a possible rate-hike by the central bank. This could materially impact and decide the near-term direction for GBP pairs.
Last week's strong NFP data seems to have convinced market participants that the Fed is more likely to hike rates sooner rather than later, possibly in the middle of this calendar year. Moreover, the ongoing Greek uncertainty, which could eventually lead to Greece exiting the Euro-zone, seems to continue supporting the US Dollar bullish trend into the second week of February.
Senior Market Analyst
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