A Good Week To Be Bullish On The U.S. Dollar

Includes: UDN, UUP
by: Investor Aide

By Maheswaran Ramasamy

There will be four news reports out this week that will be a must-watch for forex traders to make some money on U.S. dollar currency pairs regardless of which way the pips go. So, let's take a look at these news reports.

1. U.S. Existing Home Sales

Why is this important?

Technically, it can be defined as the number of previously constructed homes, condominiums and co-ops in which a sale closed during the month.

You can think of Existing Home Sales as a gauge of economic momentum as much as it is a good measure of the demand for housing. The housing recovery is playing a crucial role in the rebound of the U.S. economy. So it will be interesting to see if the steadily rising interest rates will hurt this housing recovery.

When will it be out?

The United States will release its Existing Home Sales report for July on Wednesday at 10:00 am ET. Analysts are forecasting a value of 5.150M; an increase from the previous value of 5.08M. This is very encouraging for the U.S. economy.

Effect on USD?

If the numbers come in better-than-expected, it will likely be good for the U.S. dollar, as the existing homes sales data has a strong multiplier effect through the U.S. economy. When a home is bought, there are also other things consumed by the buyer such as fridges, furniture, washers and dryers.

So it says a lot about consumer confidence, and when a lot of people are feeling comfortable enough to purchase a house then the U.S. economy is okay. At the same time, worse-than-expected figures will result in another dollar sell-off.

Options Trading?

This is a good week to enter into a weekly call on the PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP) and a put with a similar timeframe on the PowerShares DB US Dollar Index Bearish (NYSEARCA:UDN).

2. FOMC Meeting Minutes

Why is this important?

The meeting minutes offer the public a close look at the process by which the FOMC decides interest rates. Investors can see what was said in the meeting, including the economic factors that were mulled over in making the interest rate decision. Investors and traders look for discrepancies between the meeting minutes and the earlier interest rate announcement that occurred three weeks ago. Any differences can be market-moving, as traders will then look to change their positions accordingly.

When will it be out?

It is due at 2:00 pm ET on Wednesday.

Effect on USD?

With the tapering of the bond purchases on the table, it looks like we could see more hawkish comments from Fed Chairman Ben Bernanke. As the outlook for growth and inflation improves, central bankers will prefer a highly accommodative stance to encourage a stronger recovery.

This is all going to be bullish for the USD.

3. U.S. Weekly Jobless Claims

Why is this important?

This is the highly influential event that forex traders are always going to look to make money off week after week. It always has the potential to set off hundred-pip moves across the charts. Jobless claims reflect the number of individuals who filed for unemployment insurance for the first time. Therefore, it is an important barometer of the U.S. labor market. Additionally, it is also a leading indicator for consumer spending.

If average Joes and Janes can hold onto their jobs, they will now have more money to spend. They will not think twice to swipe their credit cards, and as a result overall economic activity improves.

When will it be out?

It will be released at 8:30 am ET on Thursday.

Effect on USD?

The best way to determine the U.S. dollar's direction in the near term is to keep an eye on the weekly jobless claims report. If the actual report comes in much better-than-expected, this could verify that the U.S. economy is doing fine. Encouraging jobs growth will provide the Fed with enough reason to begin scaling back the stimulus program, and this is dollar positive.

4. Canadian Retail Sales

Why is this important?

Retail sales take into account the full amount of store receipts (both durable and nondurable goods). Retail sales have a big impact on exchange rates, because they are considered by many analysts as a pre-inflationary indicator.

When will it be out?

It will come out at 8:30 am ET on Thursday. Retail sales get a lot of media attention. The data is adjusted seasonally, monthly and for holiday differences every month.

Effect on USD/CAD?

A robust Canadian retail sales report will be a catalyst for the CAD. The USD/CAD should weaken after the data comes out highlighting the strengths of the Canadian economy. We expect a slight Loonie appreciation to follow. However, a forecast miss will probably lead to a stronger USD/CAD currency pair.

And that is a wrap for this week. Market-moving releases happen every day, and the volatility that ensues is what forex traders need to capitalize on. But they have to be ready to handle these fireworks, and it always helps to keep a directional bias in mind when trading.

It is not uncommon to see the currency pairs going up and down in the hours and minutes leading up to the actual releases.

Disclosure: I am long UUP.

Business relationship disclosure: This article was written by a research analyst at Investor Aide. Investor Aide is not receiving compensation for it (other than from Seeking Alpha). Investor Aide has no business relationship with any company whose stock is mentioned in this article.

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