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Week Ahead in FX: Greek Crisis Hangs Over Financial Markets

Another week in the forex markets and another Greece-Europe deal hangs in the balance. The schedule for next week is packed with indicator releases from all corners of the globe. When Monday’s market open comes, there will be a final answer to the question if a Greek debt agreement has been reached, or if the latest domino on the Grexit has fallen.

The biggest economic indicator in the forex market will be released a day earlier than usual to account for the Fourth of July holiday in the U.S. The nonfarm payrolls (NFP) will be published on Thursday, July 2 at 8:30 a.m. EDT.

The eyes of the market will shift from Europe to U.S. employment indicators that lead off with the ADP private payrolls number, building toward the NFP and the unemployment claims on Thursday. Global manufacturing and trade will be highlights, as purchasing managers’ indexes (PMI) will be announced in China, the U.K., and the U.S.

Monday, June 29

Tuesday, June 30

Wednesday, July 1

Thursday, July 2

Friday, July 3

Manufacturing Data to Guide FX Market

Once the situation between Greece and Europe has gained some clarity, market participants will once again return to looking at fundamentals. Global preliminary manufacturing data was mixed. France continues to be the surprising silver lining, while China continues to worry investors with its slowdown.

European manufacturing PMI posted a 52.2 flash reading beating expectations of 52. The above 50 reading means the industry is expanding, and that’s welcome news to the European Central Bank (ECB). The ECB can take some of the credit for that improvement thanks to its quantitative easing program.

Last HSBC PMI as Bank to Stop Sponsoring Markit Survey

Chinese manufacturing has shown a slight improvement, but it is still contracting after the preliminary data was published on June 22. The HSBC PMI was raised to 49.6 from last month’s 40.2, but it is the fourth release in a row that has fallen under 50. Chinese manufacturing as measured by the survey of purchasing managers has battled for the last two years to move into expansionary territory, but it has been kept in a range of 48.1 to 51.2 since the fall of 2013. The forecast calls for the final HSBC PMI to be unchanged from the flash reading of 49.6. An interesting side note is that the HSBC brand name will be dropped next month as the sponsorship deal with the independent survey company Markit will end its agreement. The official PMI data from China tends to be higher than the independent Markit releases, and it will be interesting if a global financial institution picks up the vacant marketing opportunity.

British Purchasing Managers Issue Slowdown Warning

The manufacturing and services PMIs were disappointments for the United Kingdom last month. Manufacturing narrowly missed expectations at 52 with a forecast of 52.7, but the services PMI came it at 56.5; well-below the expected 59.2. Domestic demand is seen as being the main driver for both manufacturing and services as exports continue to fall behind. Overall manufacturing, services, and construction continue to point to a strong pace of recovery for the economy of the U.K., but the lack of liftoff from Europe will continue to hurt British exports.

PMI events to watch this week:

Tuesday, June 30

Wednesday, July 1

Thursday, July 2

Friday, July 3

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

NFP to Validate Fed’s Powell’s Two Rate Hike Comments

The USD appreciated as Federal Reserve Governor Jerome Powell said that two interest rate hikes are possible before the end of the year. Mixed but net positive economic indicators in the United States plus the boost in confidence from the Fed lifted the dollar ahead of a crucial week. Employment has been the strongest pillar of the U.S. recovery and key to the Fed’s plans of a benchmark rate hike later this year. The ADP private payrolls on Wednesday, followed by the NFP and unemployment claims on Thursday can validate the central bank’s plans for higher rates and justify the USD strength.

Data dependancy has been a recurring piece of the Fed’s language and there is no data point that has as much impact as the NFP. The 4 of July holiday on Saturday means that the biggest indicator in FX will not be published on Friday as usual, but will be pushed one day earlier to Thursday, July 2 at 8:30 am EDT, the same time the unemployment claims will be published.

Employment data releases at the beginning of the month will be the start of a two week period that contains the minutes from June’s Federal Open Market Committee’s (FOMC) minutes and the Federal Reserve’s Chair Janet Yellen testimony before U.S. Congress. As it stands she has a compelling case to present to the Financial Services Committee on July 15, given the strong NFP report last month, but if the U.S. economy is able to meet or exceed expectations it will give Chair Yellen solid footing as she addresses Congress.

Last month both the ADP and NFP reports came in above expectations. Private payrolls measured by the private payroll company Automatic Data Processing (ADP) were 201,000, a small improvement over last months 198,000 on June 3. NFP was the big surprise two days later as the U.S. economy added 280,000 new jobs crushing the forecast of 222,000. Estimates for both employment indicators have been upgraded with the ADP at 216,000 and the NFP at 231,000.

Fireworks will start ahead of the Fourth of July celebration as the week will start on a fast and furious note in Europe and will have a congested agenda due to the earlier NFP report. Market action will be subdued on Friday as the U.S. will be on holiday leaving behind plenty of economic data to digest and whatever aftermath the Greece-EU outcome is earlier in the week.

US Employment events to watch this week:

Wednesday, July 1
8:15am USD ADP Non-Farm Employment Change

Thursday, July 2
8:30am USD Non-Farm Employment Change
8:30amUSD Unemployment Claims
8:30amUSD Unemployment Rate

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar [1]

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.

Alfonso Esparza

Alfonso Esparza [6]

Senior Currency Analyst at Market Pulse [7]
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 has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. 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