Event risk for the US dollar, Japanese yen, euro, British pound, and Australian dollar will pick up at a gradual pace throughout the week amidst testimony by Fed Chairman Bernanke, UK and Australian employment reports, US retail sales, and an expected record drop in Euro-zone GDP.
Fed Chairman Bernanke Testifies on Fed Programs at House Panel - February 10
Federal Reserve Chairman Ben Bernanke is scheduled to testify in front of the House Financial Services Committee on the central bank’s lending programs at 13:00 ET, and this could prove to be one of the biggest market-movers of the week due to its potential impact on risk sentiment. If Chairman Bernanke is bearish on prospects for the financial markets and global economy, his comments could have very negative repercussions for the stock markets, and we could see flight-to-quality spark demand for Treasuries, the US dollar, and Japanese yen. On the other hand, if he announces a new type of policy action or if he manages to inspire confidence that conditions will not get significantly worse, risky assets could rally.
UK Jobless Claims (JAN), Bank of England Quarterly Inflation Report - February 11
Jobless claims in the UK are anticipated to rise for the twelfth consecutive month in January, adding to evidence that the combination of a slowing global economy, sharp declines in domestic consumption, and the continuous collapse of the UK housing sector are bound to make the UK economic contraction extend for a lengthy amount of time. Indeed, the jobless claims change is anticipated to rise by 88K, the largest single-month gain since 1991, and while this could impact the British pound upon release at 4:30 ET, the announcement of the Bank of England’s Quarterly Inflation Report may be more important. The BOE’s latest policy statement suggests that the Monetary Policy Committee may opt to leave rates unchanged at 1 percent going forward, but if the report shows that this isn’t the case, the British pound could sell-off.
Australian Employment Change (JAN) - February 11
The Australian labor markets started to deteriorate during the second half of 2008, and this is likely to continue through 2009. Indeed, the January unemployment rate is forecasted to rise to a more than two-year high of 4.7 percent from 4.5 percent, while the net employment change is anticipated to fall for the third straight month by 18,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 19:30 EDT.
US Advance Retail Sales (JAN) - February 12
The Commerce Department is forecasted to report that US retail sales fell negative for the seventh straight month in January, as even the most aggressive discounting wasn’t able to offset the impact of a deteriorating labor market, tighter credit conditions, and a year-long recession. More specifically, advance retail sales are anticipated to have contracted 0.8 percent during the month, and excluding auto sales are expected to have slumped 0.4 percent, initiating what may end up being a consistent trend through the first half of 2009 as well. As we saw with US non-farm payrolls, the impact of a disappointing result may be limited, as the Federal Reserve has already cut the fed funds target to a record low range of 0.0 percent - 0.25 percent and has no room to cut further.
Euro-zone GDP (4Q A) - February 13
In 2008, the release of Euro-zone CPI drew significant attention and sparked major volatility for the euro. However, indicators of growth have become more important, as the European Central Bank has shifted its focus away from inflation and on to the global and regional economic slowdown. As a result, the advanced reading of Q4 GDP and is forecasted to slump 1.5 percent from the previous quarter, marking the third consecutive period of contraction and the worst drop since record keeping began in 1995. Such data would only raise the odds that the European Central Bank will move to cut rates at their next meeting on March 5, which could trigger steep losses for the euro.
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