Personal Spending (SEP) (12:30 GMT; 08:30 ET)
Expected: 0.4%
Previous: 0.6%

ISM Manufacturing (OCT) (14:00 GMT; 10:00 ET)
Expected: 51.5
Previous: 52.0

How Will The Markets React?

While price action throughout the markets will likely remain skewed this week by the FOMC’s rate decision, important US economic data on Thursday may signal that Q4 expansion will slow dramatically from the robust Q3 GDP figures released recently. At 8:30 ET personal spending is anticipated to ease back to a 0.4 percent pace of growth in September, down from 0.6 percent during the month prior, suggesting that consumers are still loosening the purse strings but not as readily as in previous months. On the other hand, personal income is forecasted to rise to 0.4 percent from 0.3 percent, indicating that consumers do not have to rely as much on borrowing to support their spending, and instead can rely more on their own wages. As the Q3 GDP report showed, personal consumption growth was resilient, but this says very little about how household spending will fare in coming months, particularly during the holiday shopping season. At 10:00 ET, ISM manufacturing is expected to fall to a seven-month low of 51.5 after Chicago PMI unexpectedly fell below 50 (signaling contraction), but traders will be watching the subcomponents carefully as well. With non-farm payrolls scheduled to be released on Friday, the employment index will be eyed, as this number has barely managed to hold above 50 (signaling expansion) over the past year. If it falls below the critical level as it did in March, estimates for the labor market report at the end of the week will be cut back from current expectations for a reading of 80K. Traders will also be watching the prices paid component, as the index is predicted to jump to 63 from 59 on the back of surging commodity prices, signaling that inflation pressures are mounting and increasing the likelihood that the FOMC will leave rates steady through year-end.

Bonds – 10-Year Treasury Note Futures

The bearish action in Treasuries today eliminates the bullish pennant formation we noted yesterday, leaving the contract likely to target the 50 percent retracement level at 109-23. Price action in US equity markets may weigh on Treasuries as well, but traders should still be aware of upcoming event risk. Thursday’s personal spending report may help lead the contract lower, however, if ISM manufacturing dips below 50 – signaling contraction in the sector – Treasuries could remain propped above the 110-00 level for the time being.

FX – EUR/USD

Market-wide weakness in the greenback and a rate cut by the FOMC has allowed EUR/USD to continue its ascent towards 1.4500, though the pair paused after hitting that level on Wednesday. Neither the Euro or the US dollar trade at extreme levels anymore, allowing further upside potential for the EUR/USD pair. US data on Thursday is likely to highlight weakness in the economy, as personal spending and ISM manufacturing figures are both expected to fall back. However, given the extent of the recent EUR/USD move, the pair may simply consolidate around the record highs over the next two days and as a result, any weakness in the greenback that ensues as a result of the data may only be short-lived.

Equities – Dow Jones Industrial Average

The Dow broke above resistance at the 13,896 level after the FOMC cut rates by 25bp, as was widely anticipated. Equity traders in particular had been counting on the policy move and may continue to rally until the Fed says “stop” and leaves rates unchanged. However, what the equity markets may not be considering is the fact that the policy statement gave indications that the central bank isn’t likely to cut rates again in the near-term. As a result, traders should watch price action on Thursday in case of a correction lower. Meanwhile, US economic data is anticipated to highlight softer spending growth and deteriorating manufacturing conditions, which could weigh on the Dow as well. However, if the figures post surprises to the upside, the index could target a break above 14,000.

Terri Belkas is a Currency Strategist at FXCM.