The US dollar faces major event risk in coming days, especially as the Federal Reserve is expected to cut interest rates. While most of the news would typically be bearish for the dollar, risk appetite has been the primary driver of price action in recent weeks to the benefit of the currency. Will the trend continue?

US S&P/Case Schiller Home Prices, Consumer Confidence – October 28

On Tuesday, the release of US economic data may highlight some of the reasons why most believe the country is in midst of a recession. Indeed, at 9:00 ET, the August reading of the S&P/Case-Schiller index of home prices is likely to fall by 16.6 percent from a year earlier, marking yet another record decline. Later in the morning at 10:00 ET, the Conference Board’s consumer confidence index is forecasted to drop to 52.3 in October from 59.8. While this would still be above the June low, it would be a historically dismal number as the record low from December 1974 looms at 43.2 (records go back to 1967). These economic releases have the potential to weigh on the US dollar, as they will add to speculation that the Federal Reserve will cut rates sharply on October 29. However, if risk trends continue to dominate the markets, the greenback may brush off the data and gain on flight-to-safety.

Federal Reserve Open Market Committee Meeting – October 29

On October 29 at 14:15 ET, the Federal Reserve is widely expected to announce a 50bp cut to the fed funds rate. In fact, as of Friday afternoon fed fund futures are actually pricing in a 28 percent chance of a 75bp reduction, and while this is unlikely, it highlights just how dismal the outlook for the US has become. Indeed, during the last FOMC meeting, the Committee acknowledged cooling inflation pressures and significant downside risks to growth, all of which appears to be coming to fruition. The US dollar is likely to pull back on the announcement of a 50bp cut, especially if the news boosts investor sentiment and US stock markets rally. However, if the Fed surprises with a less aggressive 25bp cut, the US dollar could gain while equities plummet on the disappointing news.

US Gross Domestic Product (Q3 A)– October 30

The financial market collapse, the ongoing housing recession, mounting job losses, and indications of contracting consumer spending leads many to believe that the US economy is in the midst of a real economic recession, and the upcoming GDP report will go a long way to dispel or confirm such pessimistic sentiment at 8:30 ET. In fact, the advance reading of Q3 GDP is anticipated to fall to a 7-year low of -0.5 percent after surging 2.8 percent in Q2 on robust export growth. However, with global growth slowing, foreign demand for US goods is simply not there. Add to that the sharp pullback in consumption and the outlook for the US is not good. Looking at the Bloomberg News poll of 51 economists, consensus forecasts range from -1.9 percent to 0.6 percent, but with the majority calling for a negative result, there are potential downside risks for the figure.

Euro-zone Consumer Price Index Estimate, Unemployment Rate – October 31

Eurostat estimates for Euro-zone CPI are projected to show at 6:00 ET that inflation growth eased to a 3.2 percent pace in October from 3.6 percent. Given European Central Bank President Jean-Claude Trichet’s more bearish stance on economic growth and the bank’s participation in the October 8 coordinated rate cuts, a weaker-than-expected CPI reading could exacerbate the market’s speculation that the central bank will cut rates again soon. We also have to consider that the Euro-zone unemployment rate will also be released at the same time and is forecasted to hold steady at 7.5 percent. Considering the dismal conditions plaguing the region’s economies, there is a risk that the unemployment rate will tick higher, and combined with a drop in CPI, the euro could plunge.

US Personal Income, Personal Spending – October 31

On October 31 at 8:30 ET, personal income and personal spending numbers for the month of September are likely to reflect something we’ve been saying for a while: slowing growth, a deterioration of the labor market, and tight credit conditions are bound to lead to a contraction in consumption. Indeed, personal income is forecasted to rise a tepid 0.1 percent while personal spending is anticipated to fall 0.2 percent, marking the first negative reading in two year. This sort of trend could easily continue given the drop in US advance retail sales for the third consecutive month, and if the data happens to be even weaker than forecasted, the US dollar depreciate.

Antonio Sousa is a Currency Analyst for FXCM.