Greece First and then the FED

The turmoil in the Euro-zone is nearing fever pitch. Europe’s escalating debt crisis is emerging as a top concern for both Governor Carney at the BoC and the Fed. Thrown in data showing that the euro-zone and US economies are slowing, which means fears of global contagion are real, could be pushing the Fed closer to more bond buying or extending “operation twist”. Despite a sluggish US recovery and still high unemployment, the Fed had looked odds on to to keep monetary policy on hold for a prolonged period and that next weeks FOMC meet was suppose to provide little drama. The market has been adding risk ever so delicately on the assumption the FED will stimulate growth. The rumored announcement on Thursday that “Central banks from major economies stand ready to take steps to stabilize financial markets by providing liquidity and preventing a credit squeeze if the outcome of Greek elections on Sunday causes tumultuous trading” has been aiding this sentiment. Now we wait for Sunday.

Below are some other highlights of the week:


  • The dollar’s was and has been trumped by other global events rather than its own domestic data this week.
  • USD: US import prices sank -1% last month and came in bang on market expectations. Most of damage came directly from the aggressive drop in fuel prices. Their impact solidified the biggest single-monthly drop in nearly two years. Analysts note that in the context of global growth slowing and stronger dollar, import prices are not expected to be a source for inflation.
  • USD: Producer prices on the other hand fell a bit more sharply, down -1% last month vs. a market consensus of a -0.6% fall. Breaking it down, core-prices managed to rise +0.2% as expected. Again, most of the weight came from the drop in energy pricing (-4.3%-largest drop in three-years). Most of the major categories saw weaker prices.
  • USD: The US’s first big report of the week did not disappoint. The US retail sales report was nothing else but dour, falling -0.4% vs. +0.1%, m/m. Dealers are already revising future growth forecasts down, expecting retail sales to have a sour effect on Q2.
  • USD: Does dismal US data open up QE3? Increase in initial jobless claims (+6k to +386k) and a decline in consumer prices opens the door wider for more Fed QE.
  • USD: Weekly claims (+6k to +386k) has moved solidly back into the higher end of the relatively narrow range of this year. The market had expected a small decline. Not helping was the prior numbers also being revised higher to +380k from +377k. The trend is still worrying, the last think a sluggish US economy needs is a rise in layoffs. Continuing claims dropped -33k to +3.278m, but the prior week was revised up from +3.293m to +3.311m.
  • USD: Consumer prices fell in May for the first time in two years on plunging gas costs. It decreased a seasonally adjusted -0.3% from the prior month. Ex-food and energy, consumer prices rose +0.2% from April and +2.3%, y/y. Modest inflation gives the Fed room to act further. FOMC meet next week.
  • CAD: New house prices advanced in April (+0.2%), albeit at a slower pace than the previous month. Governor Carney continues to harbor concerns about the state of the red hot condo market in Toronto.
  • CAD: Industrial Capacity climbed slightly in Q1 (+0.2% to +80.7%) to the highest level in more than four years, as a strong performance by manufacturing offset weakness in electricity and mining sector.
  • USD: Weaker Friday US data adds to the global slowdown view. The Empire State’s business conditions index declined to just 2.29 this month from 17.09. It is the lowest reading in seven months. Some notable sub-indexes plummeted. The shipment index plummeted to 4.81 after hitting a year high of 24.14 last month. More importantly, labor conditions also worsened, slowing to 12.37 from 20.48. Optimism about the future also eased last month.
  • CAD: Canadian manufacturing shipments unexpectedly declined in April (-0.8% to +CAD$49.11b), as a four-year plus high in motors sales was offset by weak demand for aerospace and some temporary shutdowns at some oil refineries.
  • USD: US IP unexpectedly fall last month (-0.1%), with a slump in manufacturing activity providing another sign of concern for economic recovery.



ASIA Week in FX



  • All currency positions await the Greek election outcome on Sunday
  • USD has the Fed to contend with midweek. Hints of QE3?
  • G20 meetings will monitor this week’s global events
  • GBP has Claimant count changes, CPI and MPC meeting minutes to contend with
  • Sales data is delivered from GBP and CAD
  • EUR is expected to be influenced by German economic and business sentiment
  • USD has weekly claims, existing home sales and Philly Fed Manufacturing to digest
  • Midweek has CNY flash manufacturing and NZD growth numbers to deliver
  • Core CPI rounds off the event risk week for CAD


This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell