FOMC Statement in Focus as Fed deals with Forecast Publishing Blunder

The U.S. economy will publish a several major economic indicators next week. After having a quiet week on the release front in a week that was defined by the Reserve Bank of New Zealand (RBNZ) and the Chinese flash manufacturing PMI the market will have plenty of fundamental data to guide the USD. The highlight comes with the release of the Federal Open Market Committee (FOMC) statement. The Fed’s benchmark interest rate is expected to stay untouched, but the statement will be analyzed for clues about an impending rate hike later this year.

The Federal Reserve disclosed on Friday that it had erroneously posted confidential data on June 29. The data included the economic projections by the Fed’s Board staff. The central bank is stressing that this is the work of staff members and not members of the FOMC. The projections show an average of 0.35 percent rate in the fourth quarter, which implies only one rate hike before the end of the year. The staff’s forecasts are below those that were published by the FOMC which implied two rate hikes and a 0.65 percent rate. The staff projections are normally published with a five year lag period.

The USD index will end the week lower as the traders viewed the U.S. currency levels as good for profit taking activity. The Greek debt drama seems to have subsided, although negotiations will continue for months to unlock the different tranches of aid. The U.S. jobless claims data which were better than expected with 255,000 new applications brought the figure to a four decade low. Employment continues to be the strongest pillar of the U.S. recovery. Questions remain about the real reason people are not filling jobless claims. Is a true recovery happening? If that is the case, where are the other signals and when will the American consumer start spending?

American core durable goods orders will be released on Monday, July 27. New purchases are expected to rise by 0.4 percent after a 0.5 percent figure last month that was revised down to 0.0 percent. This has been the second time that a positive orders is turned negative by a downward revision. On Tuesday, July 28 the Conference Board will release its consumer confidence survey of American households. The forecast is for a lower reading in July at 100.1 after a higher 101.4 in June. U.S. consumer confidence has improved but lacks consistency as macro economic headwinds cause ripples in the economy leading to uncertainty. A stronger consumer confidence is needed if the U.S. economic recovery is to show signs of sustainability.

After the disastrous first quarter gross domestic product (GDP) more is expected of the U.S. economy. The forecast for the second quarter GDP to be released on Thursday, July 30 calls for a 2.6 percent growth in the first of three releases of good and services production. The advance report which will happen on Thursday is often the one that shapes the expectations as it does not tend to deviate from the other 2 releases as it gets closer to the final release data point. The Fed will issue its statement a day ahead of this release. A combination of a strong signal of a rate hike combined with strong growth could propel the USD higher. Vice versa a dovish Fed and a missed 2Q GDP could further depreciated the USD.

USD events to watch this week:
Monday, July 27
8:30am USD Core Durable Goods Orders m/m
Tuesday, July 28
10:00am USD CB Consumer Confidence
Wednesday, July 29
2:00pm USD FOMC Statement
2:00pmUSD Federal Funds Rate
Thursday, July 30
8:30am USD Advance GDP q/q
8:30am USD Unemployment Claims

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza