Last week's weaker-than-expected US regional manufacturing indices and housing sector data coupled slightly dovish FOMC meeting minutes and not very disappointing Euro-zone's flash PMI figures pulled-down the US Dollar. Adding to the US Dollar weakness were upbeat UK labor market reports and hawkish Bank of England, signaling to a possible rate-hike later in 2015, as reflected from the minutes of its Feb. 5 meeting. However, Greek uncertainty extended some support for the US Dollar, helping the overall US Dollar index (I.USDX) to register its first weekly gains in last four.
Going forwards GDP estimates from the US and UK along-with speeches by the heads of two most influential central banks, US Fed and ECB, are likely to be the headline grabber for the upcoming week. Also US housing and durable goods orders, US and Euro-zone CPI print, and Chinese manufacturing PMI are few other economic data points that would be of interest for the Forex market participants. Let's have a brief outlook on some important market-moving events scheduled during the last week of February.
For a comprehensive list of the economic events, refer to Forex Calendar
This week's data from US housing market features the release of existing, new and pending home sales data, scheduled for release on Monday, Wednesday and Friday respectively. The US housing market data points will be looked for additional cues over the health of housing sector and are expected to continue reflecting positive momentum with existing home sales for the month of January anticipated to continue holding the 5 million units mark and come-in at an annualized rate of 5.03 million units while new home sales for the month of January are expected to reach seasonally adjusted annual pace of 477,000 units. Meanwhile, a forward-looking indicator, pending home sales, is expected to rise a rise of 2.5% in January after registering an unexpected decline of 3.7% in December.
Apart from the US housing market data, investors will also have the opportunity to gauge the health of US manufacturing sector from Durable Goods orders data for January and Chicago manufacturing PMI for February. Data pertaining to durable goods orders is scheduled for release on Thursday and Chicago PMI data is scheduled for release on Friday. Orders for durable goods, which also includes transportation items, is expected to rise by 1.7% while core durable goods (excluding transportation items) are predicted to gain 0.6%. Chicago PMI is expected to decline marginally to 58.4 from 59.4 registered in January.
On Tuesday and Wednesday, investors will be focusing on Federal Reserve Chair Janet Yellen's semi-annual testimony on monetary policy before the Senate Banking Committee and the House of Financial Services Committee respectively. The testimony is likely to reiterate the idea conveyed in the FOMC minutes. Investors, however, will closely scrutinize the question and answer session, to be held following the testimony, in order to seek clarity over the timing when the Fed begins to raise interest-rates.
Meanwhile, the key drivers from this week's US economic calendar would be latest reading on US headline inflation, consumer price inflation (CPI), and the release of preliminary (second estimate) of US GDP for the fourth-quarter of 2014. The US CPI, for January is scheduled for release on Thursday and is expected to continue sliding further to -0.6% following a decline of 0.4% in December. However, the Core CPI figure, which excludes the volatile food and energy prices, is expected to register a marginal increase of 0.1%. The second estimate of US GDP for the fourth-quarter of 2014 is scheduled for release on Friday. According to the Commerce Department's initial estimates, the US economy grew by 2.6% annualized pace in the fourth-quarter of 2014 but economists this time are expecting a tick-down, with the consensus estimating the data to show an annualized growth of 2.1%. However, weaker-than-initially reported growth is unlikely to disturb the steady growth trajectory, which seems more likely to be carried forward in 2015. Also watch out for Conference Board's Consumer Confidence index for the month of November, scheduled for release on Tuesday. Last week's Fed minutes seems to have turned cautious and any further dovish signals by the Fed Chairwoman Janet Yellen and (or) economic numbers, especially GDP data, falling short of market expectations is likely to trigger some near-term corrective move for the US Dollar.
From the Euro-zone, investors will closely scrutinize the final print of the January inflation data, which is scheduled for release on Tuesday. Ever since the ECB shifted its focus to defend the Euro-zone economy against the risk of deflation, the important of Euro-zone inflation data has risen. The Euro-zone final inflation data is likely to remain subdued with CPI for the month of January expected to remain at -0.6%. The Euro-zone deflationary concerns are likely to dominate ECB President, Mario Draghi's testimony in on Tuesday and Wednesday. A dovish economic outlook by the ECB President is more likely to force the Euro-zone common currency, Euro, to continue sliding in the near-term. Other key economic release featuring this week's Euro-zone economic calendar features the release of Gfk German Consumer Climate index for the month of February and is scheduled for release on Thursday.
This week's UK economic calendar highlights the release of second estimate of UK economic growth for the fourth-quarter of 2014 and is scheduled for release on Thursday. The Preliminary estimates for the fourth-quarter showed UK economy growing at the slowest pace in 2014 but continued indicating economic recovery. The second estimate of growth for Q4 2014 is expected to remain unchanged at 0.5%.
The flash version of HSBC's Chinese manufacturing data for the month of February is scheduled for release on Wednesday is expected to show contracting manufacturing activity for third consecutive month. Being the largest manufacturer of the world, Chinese manufacturing data bears some meaningful impact on the Forex market. Hence, deteriorating Chinese manufacturing activity is likely to boost demand for safe-haven currencies, especially against the Australian counterpart (AUD), China's largest trading partner.
Summing it up, any major divergence from this week's expected economic data points, especially from the US, is likely to fuel some additional volatility in the Forex market but the same is unlikely to distort the well-established medium-term bullish trend for the US Dollar.
Senior Market Analyst
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