Following the EU summit, the first week of July will also key risk events mainly in the ECB meeting and US Non-Farm payroll. Let’s filter out some of the main risk events we should be prepared for. It should be noted that the most important ones are on Thursday and Friday, so you might want to look at those by scrolling down FIRST, before back tracking to see what else fills the week before that.
Monday July 2
European Session
3:45AM EDT (7:45GMT) Italian PMI for June – forecast 44.6, previous 44.8
5:00AM EDT (9:00GMT) Eurozone Unemployment Rate for May – forecast 11.1%, previous 11.0%
US Session
10:00AM EDT (14:00GMT) ISM Manufacturing PMI for June – forecast 52.1%, previous 53.5%
1:15PM EDT (15:15GMT) San Francisco Fed President Williams Speak
Main theme for Monday is manufacturing data. We have had a string of poor data from the eurozone while US manufacturing has been mixed.
This data comes after a EU summit risk rally, where initial pessimism due to bickering disagreements turned into optimism when the European leaders were able to come together for short-term solutions to the banking and sovereign debt crisis as well as steps toward the long-term development of a banking union.
Poor manufacturing data can serve as weight against this optimism. The poor data should not be enough to “shock” the market back into risk-off mode, unless the prevailing risk-off sentiment in May and latter part of June before the EU summit prevails.
In other words, if risk does revert back to aversion, it would mainly come from doubts regarding the eurozone “solutions”.
Tuesday July 3
We don’t have any significant data from the Eurozone.
US Session
10:00AM EDT (14:00GMT) US factory orders for May – forecast 0.1%, previous -0.6%.
Factory orders data have been poor. The reading has been negative 3 out of the 4 months to April.
Jan to Apr: -1.0%, 1.3%, -1.5%, and 0.6%. (source: Forexfactory)
The market is likely to start getting into anticipatory mode if not already for Thursday (July 5) ECB press conference and Friday (July 6) US Non-Farm Payroll data. Therefore, any reaction to factory orders data should be limited in scope.
Wednesday July 4
European Session
4:00AM EDT (8:00GMT) Eurozone Services PMI (final) for June – forecast 46.8, previous 46.8
5:00AM EDT (9:00GMT) Eurozone retail sales m/m for May – forecast 0.2%, previous -1.0%
The Services PMI data has already been released. This release just in case there are some minor revisions needed. Retail sales data has been mixed from average to poor and if the data is negative instead of the 0.2%, we might get some very short-term risk-off within the scope of what the market is anticipating for the ECB interest rate meeting.
US Session – Independence Day
Main Risk Events Are on Thursday and Friday
Thursday July 5
European Session
The key key risk events start on Thursday, and the market is likely to be less liquid ahead, especially with a US holiday the day before.
First we have the Spanish and French 10-yr bond auction.
Spanish yields have flirted several times with 7% in June, and yields have been rising for a few months now. If yields can go down below 6.0%, that would be wonderful news considering things.
However, if the trend of rising yields continue (above the previous 6.04%), AND/OR the bid-cover ratio is very low, like 1.5), the EUR/USD should be pressured.
Spanish 10-yr bond yields in 2012:
Source: Bloomberg
French yields have not been alarming. It went down from 2.96% in the May 3 auction to 2.45% in the June 7 auction, both with above 2.0 bid-to-cover ratio. The Spanish auction is likely to be main driver of any price action, unless we get a shock that for example sends French yields above 3.0% on the back of some very negative revelation about their banks/debts.
6:00AM EDT (10:00GMT) German Factory Orders m/m for May – forecast 0.2%, previous -1.9%
The effect of this risk event might be muffled between the Spanish auction and ECB meeting. But it should be noted that the strong German economy is like the glue holding together a frail european union. A string of poor German data can be cause for some serious risk aversion.
7:45AM EDT (11:45GMT) ECB interest rate policy meeting – forecast is a cut of 0.25% from 1.00% to 0.75% in the minimum bid rate.
The market should be expecting a cut, which might be the factor to cap last Friday’s EUR/USD rally. However the more likely market mover is what ECB Prez Mario Draghi says during the press conference that starts 8:30AM EDT, after the policy announcement.
Draghi had put the burden of crisis resolution on the shoulders of the European leaders. The EU summit did provide for the EFSF and ESM funds to be tapped for Italian and Spanish bonds and the market did rally, but a concerted effort by the ECB might be required to really convince the market that the debt/banking crisis can be contained at least in the short-term. If the language continues to shy away from these anti-crisis measures, the market has a higher likelihood of fading last the risk-on rally that pushed the EUR/USD to 1.2690 last Friday.
US Session
8:15AM EDT (12:15GMT) ADP Non-Farm Employment Change for June- forecast 101K, previous 133K
8:30AM EDT (12:30GMT) Jobless claims – forecast 385K, previous 386K
10:00AM EDT (14:00GMT) ISM Services PMI for June – forecast 53.1, previous 53.7
The employment data is a precursor to Friday’s US NFP for June. We are starting to build a trend of bad employment data after the year started with a positive couple of months. However, before the NFP, this data along with the Services PMI area likely to be muffled. The reaction the ECB/Draghi risk events should trump these economic releases.
Friday July 6
European Session:
6:00AM EDT (10:00GMT) German Industrial Production m/m for May – forecast 0.3%, previous -2.2%.
Not a very important release considering the key events surround it. But as mentioned above, if German data starts to disappoint, risk aversion may be right around the corner when it comes time to estimation Q2 GDP data to be released August 14. We had -0.3% estimated so far for Q1, another negative reading puts the euro area into technical recession.
8:30AM EDT US Non-Farm Payroll Employment Change data for June – forecast 92K, previous 69K.
Source: Tradingeconomics
The forecast may be higher than May’s reading, but still reflects a lowly expectation of employment data in June. This will not support a sustained recovery in the US economy. IF the data turns out to be weaker than May’s we can expect some risk-off trading.
However, the caveat is that a continuing trend of poor jobs data can actually increase expectation of QE3 rightfully or not. Basically, the market seems to be looking for central bank help whenever economic data becomes really bad. This might limit the negative pressure of a bad NFP release. A very positive release such as one close to 200K might give the markets a jolt.
Even though the NFP is traditionally the key market mover, the significance of the ECB risk event is still likely the top risk factor this week with NFP the main risk event to soften or accelerate the reaction to Thursday’s ECB policy announcement/press conference.
The unemployment rate for June is expected to be 8.2%, same as the number for May.
Trade well, trade safe, and be prepared for this week’s key risk events, especially on Thursday and Friday.
Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist of FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.
