Weekly outlook: 22-27 June 2008

Two factors could affect the currency market this week:

• Jeddah summit and its possible effects on the oil market
• FOMC rate decision on Wednesday

Jeddah summit: I am not even sure whether it could affect the market at all, but I think if there is anything in the summit, which might be invisible to me, its impact would be significant. The possibility of a 2 percent increase in production from Saudi Arabia has been in the news headlines at least for a week and it is unlikely to surprise anyone. The summit was divided on almost all issues such as the reasons behind the jump in oil price or the need to increase the production.

FOMC rate decision: It is almost certain that the Fed will keep rate unchanged this week, but how a certain event could affect the market. In Fact I see the Wednesday more important itself than the FOMC meeting! Because I think it is the day which separates two different participants in the market; dollar sellers and dollar buyers. But how:

1. Dollar sellers: Until Wednesday there would be sufficient data from Euro-zone and US to convince anyone who believes that the possibility of a wider interest rate differential makes sense to buy EURUSD.
2. Dollar buyers: Everyone who believes that the Fed will ultimately raise interest rate would find Wednesday a good time to buy dollar.

However it is a general view and doesn't dictate any specific trade or decision. For example, a depreciation of Euro before Wednesday could be an opportunity for buying Euro but it is unlikely to be bear trend.

Finally, I think just a significant deviation from actual economic data and market estimates could change this general view and minor difference could be ignored.