5 Most Important Events for the Forex Market This Week

The majority of forex market-moving economic indicators will be contained to Wednesday, as the Bank of England's May meeting minutes, Canadian CPI, and the Federal Reserve's April meeting minutes will all be released. However, traders should also keep an eye on Tuesday's German ZEW survey of investor sentiment and Thursday's release of UK retail sales.

German ZEW Survey - May 20

Sentiment amongst Germany's investors is expected to improve slightly in May, according to the ZEW survey. The figure is scheduled to be released at 05:00 EDT, and this release tends to be a significant market-mover for the EUR/USD pair on a very short-term basis. Given the instability in the financial markets over the survey period along with signs that the European Central Bank will not even consider cutting rates, there is a risk that the ZEW reading could actually be a bit disappointing.

Bank of England Meeting Minutes - May 21

The release of the minutes from the Bank of England's May meeting - when they left rates unchanged at 5.00 percent - presents major event risk for GBP/USD, as they are likely to reflect much of the hawkish sentiment in the Quarterly Inflation Report, as BOE Governor Mervyn King said "it is likely that, with inflation above 3 percent for several quarters, I will be required to write a number of open letters to the Chancellor over the next year." However, downside risks for the economy loom large as the same report said, "rising energy and import prices will almost certainly push inflation up further, possibly significantly, in the coming months. As those price increases feed through to household bills, they will lead to a squeeze on real take-home pay which will slow consumer spending and output growth, perhaps sharply. So the balancing act faced by the Monetary Policy Committee is even more challenging than it was in February." However, It will be important to watch not only where the BOE's concerns lie, but also the vote count. The May rate decision likely had at least one vote from über-dove Blanchflower for a 25bp rate reduction, and the more votes in favor of a more accommodative monetary policy, the more the markets will sell off the British pound.

Canadian Consumer Price Index - May 21

The release of Canadian CPI data is likely to remind the markets of the Bank of Canada's dovish bias following their 50bp rate cut in April, as the headline CPI reading is expected to hold steady at 1.4 percent, though the Bank of Canada's core CPI measure is anticipated to rise to 1.4 percent from 1.3 percent. Nevertheless, this is still well below the central bank's target, and with many economic indicators out of Canada continuing to deteriorate, the odds remain in favor of another rate cut in June. In fact, the Bank of Canada's monetary policy statement in April noted that "some further monetary stimulus will likely be required to achieve the inflation target over the medium term." However, there is some potential that the surge in oil over the course of April will buoy the headline figure, but either way, if this inflation data proves to be unexpected, the Canadian dollar is likely to respond immediately.

FOMC Meeting Minutes - May 21

On Wednesday, the minutes from the Federal Open Market Committee's April 30 meeting will be released at 14:00 EDT. During that meeting, the Fed cut rates by 25bps, though indications that the Federal Reserve would pause at their next meeting led the US dollar to rally the following day. The key thing to watch for in the release of the minutes is the commentary amongst the FOMC members regarding inflation, especially given the rocketing energy and food prices raise. Currently, fed fund futures are betting that the Fed will leave rates unchanged in June, and are only pricing in a 10 percent chance of a 25bp cut. However, if the FOMC members brush off the inflation factors and focus instead on shaky financial market conditions and the significant US economic slowdown, futures may start to become more aggressive in pricing in a June rate cut, which could weigh heavily on the US dollar.

UK Retail Sales - May 22

Retail spending in the UK is anticipated to slow for the second consecutive month during April and fall 0.5 percent from March to help drag the annual rate of growth down to 4.2 percent. The data would be in line with the British Retail Consortium's (BRC) April survey, which indicated that consumers tightened their purse strings and led same-store sales to tumble 1.5 percent from last year. Furthermore, labor market conditions have started to deteriorate as jobless claims have risen during the past three months, suggesting that consumption growth may have peaked long ago.

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