Sunday, February 15, 2009

US Dollar, Japanese Yen to Remain Volatile Ahead of Key GDP, CPI Reports

Risk trends remain a prominent driver of price action for the US dollar and Japanese yen, and next week may not be any different as Japanese GDP, Canadian CPI, US CPI, and meeting minutes from the Federal Reserve and Bank of England will all be released.

Japanese Gross Domestic Product (GDP) (4Q P) - February 15

On February 15 at 18:50 ET, Japan's Cabinet Office will release preliminary growth readings, and after two consecutive quarters of contraction in Q2 and Q3, the outlook doesn't look good. There are signs that businesses are suffering considerably at the hands of waning domestic and foreign demand. Consumers have very little to work with these days, as the jobless rate has been climbing slowly, and perhaps even worse, pre-tax earnings growth has actually fallen negative compared to a year earlier, according to the latest figures. Meanwhile, Japanese exporters have had to grapple with not only slowing global growth, but also the appreciation of the Japanese yen, all of which has led foreign-bound shipments to tumble a whopping 23.1 percent in Q4 2008, according to preliminary figures published by the Ministry of Finance. As a result, a Bloomberg News poll of economists shows expectations for GDP to fall 3.1 percent in Q4, with the annualized rate forecasted to plummet by the most since 1974 at a rate of 11.7 percent. This could hurt risk appetite during the Asian trading session, lead the Nikkei lower, and thus push the Japanese yen higher amidst deleveraging.

Bank of England Meeting Minutes (FEB 5) - February 18

The Bank of England's meeting minutes tend to be a huge market-mover for the British pound upon release at 4:30 ET, and this time is unlikely to be any different. During the February meeting, the BOE's Monetary Policy Committee (MPC) slashed the Bank Rate by 50 basis points to yet another record low of 1.00 percent, as expected. However, the British pound subsequently rallied as the MPC suggested that they may not cut rates again on March 5. Since then, though, BOE Governor Mervyn King's comments have signaled otherwise and if the MPC's comments and outlooks signal that the central bank will reduce the Bank Rate further, the British pound could pull back.

Federal Open Market Committee (FOMC) Meeting Minutes (JAN 27-28) - February 18

In January, the Federal Open Market Committee (FOMC) left the fed funds target range at 0.0 percent - 0.25 percent, and the minutes from the meeting will likely add to indications that they will leave the target unchanged throughout much of 2009. In fact, the FOMC said in their post-meeting statement that their focus had shift to “support the functioning of financial markets and stimulate the economy through open market operations and other measures that are likely to keep the size of the Federal Reserve's balance sheet at a high level.” The minutes may have an impact on risk trends if the Committee's outlook proves to be more bearish than currently perceived. However, if the news happens to be positive for the stock markets, it may also be negative for the greenback, which has been trading solely as a safe-haven asset lately.

Canadian Consumer Price Index (CPI) (JAN) - February 20

In January, the Bank of Canada issued forecasts for sharp declines price growth this year, making the February 20 release of the Canadian Consumer Price Index (CPI) quite important. At 7:00 ET, CPI for January is anticipated to contract for the fourth straight month at a rate of 0.3 percent while the annualized pace is forecasted to slip to a 2-year low of 1.1 percent. Meanwhile, the Bank of Canada's core CPI measure may actually hold relatively high at 2.2 percent, though this would be down from a 1.5 year high of 2.4 percent. Given the sharp drop in commodity prices since the summer and slowing in the Canadian economy, there is potential for weaker-than-expected readings and thus, the Canadian dollar could pull back further.

US Consumer Price Index (CPI) (JAN) - February 20

At 8:30 ET, the release of the January reading of the US Consumer Price Index (CPI) could lead the term “deflation” to be used abundantly in coming weeks and months (one that became very popular in November, according to Google Trends). Indeed, CPI is forecasted to have edged a slight 0.1 percent higher during January, while the annual rate is anticipated to have fallen negative for the first time since 1955 by 0.1 percent. Excluding volatile food and energy prices, though, core CPI may have risen 0.3 percent during the month, leaving the annual rate to fall to a nearly 5-year low of 1.5 percent.



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