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U.S. ECONOMICS: MT Newswires Analysis - Next Week's Economic Data May Strengthen Case For Tapering

Now that the Fed has shown its hand regarding its impressions on the health of the economy, currency traders have ammunition to unload the dollar in favor of the yen and euro. Right?

Not so fast. St. Louis Fed President, and voting FOMC member, James Bullard today upset the apple cart by suggesting that the decision wasn't as unanimous as we think it was, and could just as easily be reversed at the end of October if the economic data warrants such a decision.

And looking towards next week's economic calendar, the case for a tapering might be strengthened. While there isn't a flood of data due out, there will be enough heavyweight data to possibly shift the selling bias towards the dollar.

First, there will be the typically bullish housing data, including home price numbers from Case-Shiller and FHFA. This will be followed later in the week by new home sales and pending home sales data. Even though rising mortgage rates have been impacting the housing data, homebuilders remain confident that the housing market is hitting a stride.

Personal income and spending could be more of a mixed bag - with spending figures expected to pale in comparison to wage increase figures. The 0.2% gain in hourly earnings from August non-farm payrolls should translate into a healthy 0.5% gain in personal income, but spending remains anemic with only a 0.2% increase forecasted, according to the National Bank of Canada.

For the dollar, this all means that the currency should make a serious bid to reach 100.00 against the yen, given not only bullish fundamentals but also bullish technicals as well. The 50 day moving average at 98.66 has supported USD/JPY for the past two days, and momentum indicators are pointing to a stronger dollar.

As for the dollar versus the euro, things get cloudier in respect of bullish European economic fundamentals. Next week there is manufacturing data from Europe's powerhouse Germany, and GDP from the UK. Both sets of data should provide fuel for additional gains in the euro. Add to that bullish technicals in the unit and the dollar could weaken back to 1.3600 against the Euro.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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