FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, reviews the day ahead, outlining the US GDP and FOMC as the key events to watch.

Key Quotes

At 11:45am Syd/9:45am local we see the July Westpac-MNI China consumer sentiment survey. The headline reading slumped -7.1% m/m to 112.6 in June. This month’s survey includes new questions on the motivation of consumers to save and their preferred investment options. Japan releases June IP data, a series that has frequently disappointed in recent months. Consensus is -1.2% m/m, 5.2% y/y.

Ahead of Thursday’s keenly watched ‘flash’ July reading on Eurozone CPI, we will see the key input of Germany’s CPI, with consensus for a softening to 0.2% m/m, 1.0% y/y. German regional CPIs are due just ahead of the national reading.

The very crowded US calendar kicks off with July ADP private payrolls data. Expectations are around 230k. There will be a little extra interest in the ADP report this month, after the comparative accuracy of the June estimate, 281k versus the official readings of 262k private jobs and 288k total. Q2 GDP is primed to rebound from the Q1 slump of -2.9% annualized, the weakest quarter since Q1 2009. The GDP report often surprises so forecasts range widely, from 1.9% to 5.2% in the Bloomberg survey, with a +/-1 SD range of 2.6% to 3.6%. Westpac is on 2.7% and we warn of benchmark revisions.

Attention then turns to the FOMC statement, rather than the decision, which seems almost 100% certain to be a further $10bn reduction in QE to $25bn per month, split between $15bn in longer dated treasuries and $10bn in mortgage-backed securities. There is no press conference or update of forecasts so the main focus will be on language on the recent healthy pace of job creation and the inflation outlook. The hawkish FOMC members seem unlikely to formally dissent while tapering continues. Even the seemingly most predictable FOMC statements often produce at least passing gyrations in markets.

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