After spending much of the February in consolidation mode, the US Dollar made a comeback in the last week, especially against Euro, helping the overall US Dollar Index (I.USDX) to register eight consecutive month of gains. On the economic front, last week's smaller-than-expected downward revision of US GDP growth rate for the fourth-quarter of 2014 and rebound in durable goods orders accompanied with unchanged Fed outlook on interest rate hike and upbeat tone on labor market conditions, as reflected in Federal Reserve Chair Janet Yellen's semi-annual testimony on monetary policy, extended support to the US Dollar. On the flip side, the fall in US headline CPI number was attributed to the drop in energy prices while slightly weaker home sales number signalled some cautiousness.
Moving forwards, a series of top-tier economic events scheduled at the beginning of a new month will keep investors engaged and has the potential to trigger some meaningful volatility in the Forex market. The key highlights, however, will be the most keenly watched economic indicator from the US, monthly jobs report, popularly known as Non-Farm payrolls data (NFP).
For complete list of the economic events, refer to Forex Calendar
This week's US economic calendar begins with the release of ISM manufacturing PMI data for the month of February on Monday. Following a larger than expected drop in January, the index is expected to come-in at 53.4 for February as compared to 53.5 recorded in January. Also the ISM non-manufacturing PMI for February, scheduled for release on Wednesday, is expected to show a minor drop to 56.5, from 56.7 recorded in the previous month. Following last month's lower-than-expected pace of expansion in the manufacturing PMI, any drop below this month's expected PMI figures would raise concerns over the health of the economy. This might eventually lead to some weakness for the US Dollar.
In the run-up to the NFP data, ADP report, which shows the number of private-sector jobs addition and provides an early estimate for the government's report. The ADP report, scheduled for release on Wednesday, is expected to show an addition of 214,000 new private-sector jobs in February. However, investors attention will remain focused on Friday's NFP data and is likely to overshadow other economic releases. US labor market reports is one of the most keenly watched economic data, known for generating substantial volatility in the financial markets, and this week's release would be no exception. After printing better-than-expected reading for three consecutive months, economists continue to remain optimistic over the strength in the US labor market and the pace of US economic recovery. After adding more than 300,000 new jobs for two consecutive months, consensus estimate this week's report to show an addition of 241,000 new jobs to the economy during the month of February. Meanwhile, the unemployment rate is expected to dip a bit to 5.6% from 5.7% recorded for January. Also watch out for the release of US trade balance data for the month of January, also scheduled for release on Friday.
Amid uncertainty surrounding the timing of the interest-rate hike by the US Fed, strong labor market report would undo any pessimism over the strength of the broader US economic recovery, eventually helping the US Dollar to build further on its gains.
Apart from the US releases, monetary policy decision announcements from Australia, Canada, UK and Euro-zone should provide adequate momentum for the market. Starting with the Reserve Bank of Australia (RBA), which surprised market by a rate-cut in February, is scheduled to announce its monetary policy decision on Tuesday. This time too RBA is expected to cut its benchmark interest by 25 basis points to 2.00%. Other economic indicators that could have a material impact on the Australian Dollar (AUD) includes Australian GDP print for the fourth-quarter of 2014 and is scheduled for release on Wednesday. Following a dismal 0.3% growth in the third quarter, economists forecast a 0.7% growth for the last quarter of 2014. Market already seems to be pricing-in Tuesday's RBA rate-cut announcement, and hence any surprise positive surprise from RBA or a better-than-expected GDP growth rate sets the stage for a sharp pull-back rally for the already slumped AUD. Adding to this, Australian trade balance and retail sales data, scheduled for release on Thursday are other events to watch from this week's Australian economic calendar and could contribute towards making the upcoming week an eventful week for AUD.
Meanwhile, the Bank of Canada, which also surprised markets in January by cutting its key lending rate to 0.75%, is scheduled to announce it monetary policy decision on Wednesday. A day later the Bank of England is scheduled to announce its monetary policy decisions. Market participants are not expecting any major announcements from both these central banks and hence are likely to prove as a non-events for the market. However, this week's important UK PMI readings, which includes Construction and Services PMI for the month of February, and Canadian GDP print for the last month of December, might trigger the required momentum for the respective pairs. UK construction PMI data is scheduled for release on Tuesday and release of UK services PMI is scheduled on Wednesday. The Canadian monthly GDP figure is scheduled for release on Tuesday.
Moving on to the Euro-zone, with the flash Euro-zone CPI print already published on Monday, investors will now focus on ECB monetary policy decision, which is scheduled on Thursday and where ECB is not expected to alter its current monetary policy stance. However, market will closely scrutinize the ECB press conference, which will be followed by the monetary policy decision announcement, and where participants will look for details on the central bank's one-trillion Euros of government bond buying program, which begins in March. Also, ECB President Mario Draghi's comments towards Greek uncertainty might trigger some volatile move for the Euro-zone common currency, Euro.
Summing it all, this week's important economic releases/events has the potential to trigger some meaningful volatility in the Forex market. Further, given that the US Dollar is already in a well-established strong up-trend, only a highly disappointing NFP reading or a substantial jump in unemployment rate could possibly trigger some near-term corrective move for the greenback.
Senior Market Analyst
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