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Next week, the US dollar will confront two major event risks. The Oil Summit in Jeddah and the FOMC rate decision. This weekend, in the city of Jeddah, Saudi Arabia will be hosting an Oil Summit. Executives from oil companies, leaders of nations and the world’s largest oil producers were invited to this Summit. The main problem today is oil price for the market and certainly everybody hopes for Saudi Arabia to drive down the price. But the truth is that the market has failed to respond to Saudi Arabia’s prior announcement about increasing production. We should not be optimistic with the fact that Venezuela, one of the most important members of OPEC will be absent from meeting. Most OPEC nations including Iran do not buy the idea that increasing supply is the solution because their belief is that oil is being primarily driven higher not by short supply but by speculation. The Saudi Arabia meeting will affect the oil trades after the meeting and therefore it will impact the US dollar. The Federal Reserve will be announcing a monetary policy statement on Wednesday. The Fed is most likely to pause after cutting interest rates by 325bp since August. Then the hawkish comment is expected to open the way for an interest rate hike before the end of the year. Now the markets are paying attention whether a rate hike will come before or after the US Presidential elections in November. Currently, Fed fund futures are pricing in a strong probability of a September rate hike and the tendency of the FOMC statement should shed more light on the Fed’s urgency to contain inflation. Hawkish comments will be positive for the US dollar while neutral comments will be negative. Other than the FOMC rate decision, consumer confidence, durable goods, new and existing home sales, the final release of first quarter GDP, personal income and personal spending are due for release. The week will be extremely important for the US dollar and the FOMC announcement will affect trading for weeks to come.
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Posted on Jun-22-2008
