5 Key Events for the Forex Market This Week

US Dollar Could See Reversals on US Retail Sales, Speech by Fed’s Bernanke

The US dollar ended the week above its 2009 lows, and the release of US advance retail sales and a scheduled speech from Federal Reserve Chairman Ben Bernanke could help set the stage for a reversal. The British pound also faces serious event risk from the release of UK CPI and the minutes from the Bank of England’s November policy meeting.



• US Advance Retail Sales (OCT) – November 16, 8:30 ET
The Commerce Department is forecasted to report that US retail sales rose 0.9 percent in October, after tumbling by the most in eight months during September on weaker car sales. Likewise, the retail sales index excluding autos is projected to increase by 0.4 percent, but looking at MasterCard Advisors' SpendingPulse report, the results could be disappointing. The index showed that retail spending excluding autos went unchanged in October, and excluding autos and gas, spending plunged 2.3 percent. Indeed, advance retail sales index is not adjusted for inflation, so volatile gas prices can often play a big role on how the overall results fare, and based on the surge in average retail gasoline prices during October from $2.46/gallon up to about $2.69/gallon, there are upside risks to the headline result, and downside risks for the index excluding autos and gas.


• Fed’s Bernanke Speaks on Economic Outlook – November 16, 12:15 ET
Federal Reserve Chairman Ben Bernanke will be speaking about the US economic outlook from New York on Monday, but if his comments reflect a sentiment similar to that of San Francisco Fed President Janet Yellen, Atlanta Fed President Dennis Lockhart, Boston Fed President Eric Rosengren, and Richmond Fed President Jeffrey Lacker, interest rate expectations could fade further. The general sentiment in the other speeches made by central bank officials early in the week indicated that interest rates are likely to remain unchanged through much of next year, with Lacker saying that it was “too soon to say” if the Fed may consider raising rates in 2010. A reiteration of this sentiment by Bernanke could exacerbate US dollar weakness, but if his comments indicate disappointing prospects for growth, risk appetite could take the greater hit.


• UK Consumer Price Index (CPI) (OCT) – November 17, 4:30 ET
The UK’s consumer price index (CPI) reading for the month of October is expected to rise 0.1 percent, but the more important part of this report is that the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to climb up to 1.4 percent from 1.1 percent, keeping inflation within the central bank’s acceptable range of 1 percent - 3 percent, but below their 2 percent target. If CPI surprisingly falls, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further. On the other hand, if CPI holds strong, the currency could rally in response.


• Bank of England Meeting Minutes – November 18, 4:30 ET
The minutes from the BOE’s November meeting will be released on Wednesday, and while we already that they left rates unchanged at 0.50 percent and expanded their quantitative easing program by £25 billion to £200 billion, there are a variety of potential comments that could impact the British pound. First, the vote count may reflect some difference in opinion amongst the Monetary Policy Committee (MPC) members on the adjustment to the Asset Purchase Facility (APF), as BOE Governor Mervyn King has been more dovish in this regard in the past. Indeed, indications that some MPC members voted for a larger increase in the APF would likely lead to a steep drop in the British pound as it would cause traders to shift their expectations for interest rate decisions in 2010, with Credit Suisse overnight index swaps currently pricing in 75.5 basis points worth of rate hikes by the BOE over the next 12 months.


• Canadian Consumer Price Index (CPI) (OCT) – November 18, 7:00 ET
The annual rate of Canadian headline CPI growth for October is projected to bounce back up to 0.2 percent from -0.9 percent, while the Bank of Canada’s core measure is projected to rise to 1.8 percent from 1.5 percent. Such results would suggest that higher commodity costs are providing some support for the headline CPI measures, while improving domestic demand has lifted broader prices. The Bank of Canada said in their most recent policy statement that “overall risks to its inflation projection are tilted slightly to the downside,” but if we see both headline and core measures of CPI climb higher than expected, the Canadian dollar could rally.