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    Possibly Another Week of Volatile Moves In the Forex Market

    Last week's disappointing US retail sales data, surprisingly higher uptick in weekly jobless claims coupled with improved growth forecast in Bank of England's quarterly inflation report, news of Russia-Ukraine cease-fire agreement and better-than-expected GDP print from the Euro-zone led to a third week of consecutive losses for the overall US Dollar Index (I.USDX). US retail sales declined for a second consecutive month, dropping by 0.8% in January following a 0.9% drop in December. Meanwhile, BOE's hawkish comments in its quarterly inflation, signalling to a possible interest-rate hike in 2016, and a stronger-than-expected 0.3% Euro-zone GDP growth in the last quarter of 2014 contributed towards the US Dollar weakness.

    Going forward the monetary policy meeting minutes from the Fed and BoE's last meetings along with employment data and retail sales data from UK stand out from this week's economic releases. Apart from the FOMC monetary policy meeting minutes, investors will also track the release of two regional manufacturing indices along with the housing data from this week's US economic calendar for fresh signs of strength in the US manufacturing and housing sector. Investors will also be focusing on the Bank of Japan's monetary policy decision and subsequent press conference along with the release of the flash version of manufacturing and services PMI data from Euro-zone. Here is a brief overview on some of the important market-moving events scheduled during the course of the upcoming week.

    For complete list of the economic events, refer to Forex Calendar

    From the US manufacturing sector, investors will confront the release of two regional manufacturing indices, namely - Empire State Manufacturing Index and Philly Fed Manufacturing Index are scheduled for release on Tuesday and Thursday respectively. Following a unexpected jump to 10.0 in January, the Empire State manufacturing index is expected to register a decline and reach 9.1 in February. Meanwhile, the drop for Philly Fed manufacturing index in January was sharper than expected and analysts this time are expecting a minor recovery to 8.8 in February. Moving on to the US housing market, the release of government's report on building permits and housing starts for the month of January are scheduled for release on Wednesday. Economists expect the number of building permits and housing starts to hold steady above the 1 million mark and come-in at 1.08 and 1.07 million units annualized rate respectively. Data from US manufacturing and housing sector will be scrutinized closely for fresh signs of strength in the ongoing US economic recovery, which would also be helpful in determining further strength for the US Dollar. 

    The key event from this week's US economic calendar, however, will be the minutes from the Fed's latest policy meeting, scheduled for release on Wednesday. The Fed remains optimistic over the pace of economic recovery. This accompanied with strong US labor market conditions has continued fueling speculations of an earlier-than-expected interest rate hike by the central bank. Hence, investors will continue watching the Fed meeting minutes keenly in order to determine the timing of the possible first rate-hike.  Should FOMC meeting minutes continue reiterate to maintain patience approach before kicking-off the rate-hike cycle, it could possibly lead to extension of the short-term corrective move for the US Dollar.

    ALSO READ: US Equity Indices - Technical Update

    From the Euro-zone, investors remain focused on the key developments on discussion over Greece bailout terms and a possible resolution to the Greek drama from the Euro-zone finance ministers meeting on Monday. Euro-zone ministers are working to reach an amicable deal that would help Greece to avoid a default on its debt. 

    Investors will also be focusing on the release of PMI data, a leading indicator of economic health, for both manufacturing and services sector from the Euro-zone. The flash reading of the PMI numbers from Euro-zone's two largest economies, France and Germany, along with the broader Euro-zone PMI for the month of February are scheduled for release on  Friday. The German manufacturing and services PMI are expected to show continuous expansion while the French PMI figures are expected to reflect contraction in both manufacturing and services sector. The overall Euro-zone PMI data, however, is expected to show activity in manufacturing and services sectors expanding at a slightly higher pace that in the previous month. Other key economic release featuring this week's Euro-zone economic calendar include German ZEW Economic Sentiment for February and is scheduled for release on Tuesday. After last week's slightly better-than-expected Euro-zone GDP print, improvement in PMI figures is likely to extend further support for the Euro-zone common currency, Euro.

    ALSO WATCH: Technical and fundamental analyses

    Dominant UK economic releases from this week's economic calendar consists of UK inflation data, employment reports, retail sales data and minutes from Bank of England's latest monetary policy meeting. UK inflation report, scheduled for release on Tuesday, is expected to remain subdued and come-in at 0.3%. The lower inflation expectations already seems to be priced in by the market and hence lower inflation seems unlikely to fuel expectations of a interest rate hike delay by BoE. 

    The UK labor market report and BoE monetary policy meeting minutes, scheduled for release on Wednesday, are likely to continue probing some volatile moves for GBP pairs. The UK labor market report is expected to show the number of people claiming unemployment related benefits declining by 25,200 and the unemployment rate holding steady at 5.8%. Despite a slowdown in inflation and concerns in the global economy, BoE, in its quarterly inflation report last week, remained upbeat on the inflation and economic growth projection. Hence, this week's minutes from BoE's latest policy meeting would help investors in determining the timing of a possible rate-hike by the central bank. 

    UK CPI - Inflation rate for the last 10 years: December 2004 to December 2014

     

    Meanwhile, consumer spending which remains supportive pillar of UK's economic recovery, is expected to have declined in January. Consensus forecast retail sales for January, scheduled for release on Friday, to have declined by 0.1% on a month-on-month basis. Relatively stronger retail sales data and (or) better-than-expected employment reports would eventually result into continuation of the near-term upward trajectory for GBP pairs.

    Elsewhere, this week's BoJ's monetary policy decision, scheduled to be announced on Wednesday is likely to prove a non-event for the Forex market. However, market player would be keen to see BoJ's evaluation of the latest economic conditions after the release of GDP data on Monday, that showed Japanese economy expanding at a slower-than-expected pace of 0.6% in the Oct. to Dec. 2014 period.  

    With the US Dollar already in short-term corrective mode, any positive developments from the Greek drama coupled with relatively strong fundamental data from other economics could possibly trigger extension of the near-term pull-back move for the US Dollar.

     

    Haresh Menghani
    Senior Market Analyst
    Admiral Markets
     
    At any use of the analytical material taken from the site of company Admiral Markets, and the secondary publication on any other resources, the rights to intellectual property for a dealing center «Admiral Markets», reference to the company site is obligatory.

    Follow me on twitter @Fx_Haresh for latest market updates


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