Ignoring disappointing US retail sales data and a drop in consumer sentiment index, the US Dollar last week resumed its broad based rally against other major currencies. Last week's rally helped the overall US Dollar Index (I.USDX), which measures the US Dollar strength against the basked of six major currencies, to test the 100.00 mark barrier.
Going forwards, outcome of the Federal Reserve's two-day monetary policy meeting, starting Tuesday, happens to be the most anticipated event for the Forex market this week. Market participants expect the Fed to sound optimistic in its monetary policy statement, which scheduled to be announced on Wednesday. The Fed is also expected to remove the phrase "patience" from its monetary policy statement, indicating that it remains on track for first interest rate hike sometimes during mid-2015. The FOMC statement this time will be accompanied with an update to the Fed's economic projection for inflation and economic growth over the next 2 years. This would be followed by a press conference by the Fed Chairwoman Janet Yellen, where Yellen's comments would be closely scrutinized in order to determine the strength of the overall US economic recovery and start of the rate-hike cycle.
Investors this week will also get an update on the US housing sector as the Commerce Department is scheduled to release reports on building permits and housing starts for the month of February on Tuesday. Continuing with the slow pace of recovery in US housing market, economists are expecting building permits in February to have grown to a seasonally adjusted annual rate of 1.07 million, while housing starts are expected to have slowed to a 1.05 million-units pace in February.
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, scheduled for release on Monday and Thursday respectively. Following a unexpected drop to 7.8 in February, the Empire State manufacturing index is expected to rise and reach 8.1 in March. Meanwhile, the drop in Philly Fed manufacturing index in last three months has been sharper than expected and analysts this time are expecting a minor recovery to 7.3 in March. Also watch out for industrial production data for the month of February, also scheduled for release on Monday.
For a comprehensive list of economic events, refer to Forex Calendar
From UK, minutes from Bank of England's (BoE) latest monetary policy meeting and UK employment report, both scheduled for release on Wednesday, are highlights from this week's UK economic calendar. Apart from US central bank, BoE is the only other central bank from major economies to have hinted towards the possibilities of a interest-rate hike, possibly in 2015. Forex market already seems to be pricing-in a unanimous vote for not raising near-term interest rate; however, should this week's minutes provide some clues over the timing of a possible rate-hike by the central bank, it could trigger a short-covering rally and boost near-term demand for GBP pairs. Meanwhile, the UK labor market report is expected to show the number of people claiming unemployment related benefits declining by 31,000 and the unemployment rate dropping to 5.6%.
UK Unemployment and Claimant Count Change
Source: Office for National Statistics, Department for Work and Pensions
Elsewhere, this week's BoJ's monetary policy decision, scheduled to be announced on Tuesday is likely to prove as 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 weaker-than-previously estimated GDP data, that showed Japanese economy expanding at a slightly slower pace of 0.4% in the last three months of 2014.
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In addition to this, traders will also watch for some meaningful releases from other parts of the world. Few of the releases include, German ZEW economic sentiment on Tuesday, monetary policy meeting minutes from RBA and BoJ's latest meeting on Tuesday and Friday respectively. New Zealand's GDP growth rate for the fourth-quarter of 2014 on Thursday. The Swiss National Bank (SNB) is scheduled to release its quarterly Monetary Policy Assessment on Thursday, which will be followed a press conference by SNB Chairman and Governing Board Members.
The recent surge in the US Dollar has been fueled on speculations that the Federal Reserve could be moving closer to the first rate-hike in over six-years. Moreover, dropping the phrase "patient" is more likely to spur further rally for the US Dollar. However, higher market expectations now seems to pose some near-term risk of a corrective move for the US Dollar, should the Fed hint towards holding the near-zero interest rate policy until the last quarter of 2015.
Senior Market Analyst
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