The Forex Week Ahead

The Forex Week Ahead: June 11 – 16th
USD What global markets need to know about the US’s contributions to the global market tone over the coming week all arrives on Wednesday and all in the span of about seven hours. The two day FOMC meeting that culminates in a statement on Wednesday accompanied by forecasts and followed by Chair Yellen’s press conference that will likely end after 3:30pm ET. A 25bps rate hike and further discussion of details surrounding reinvestment plans is expected, consensus continues to anticipate that a reduction of reinvestment of Treasuries and MBS will be announced and implemented at the December meeting. If the Fed is truly data dependent and not stubbornly committed to a forecast bias, then next week’s universally expected hike is likely to be accompanied by fairly dovish guidance on balance. Released earlier on the same day as the Fed, CPI and retail sales for May are unlikely to influence the meeting’s outcome but they could well reinforce a moderately dovish day. US retail sales will require spending on things other than vehicles and gasoline to post any growth.
EUR France’s first round of parliamentary elections will be on Sunday as the follow up to the Presidential election won by Emmanuel Macron and this is likely to be the main source of potential European risk to global markets over the coming week. The second round will be the following Sunday. A much quieter week in the euro zone will be headlined by Germany’s closely watched ZEW economic sentiment index and industrial production in the 19-member bloc. Following the previous week’s still cautious ECB language, any softness in euro zone data would likely add to the single currency’s heavier tone.
GBP No policy change is expected from the Bank of England on Thursday. The BoE is expected to continue to guide that it is looking through near-term upside risks to inflation readings as being driven by transitory considerations. Next week’s CPI print for May (Tuesday) is expected to continue the upward march and consensus expects inflation to peak just shy of 3% before year-end. Much of this transitory argument is rooted in the belief that pound sterling depreciation is motivating a one-off bout of inflation pressure while depressing inflation-adjusted wages. The next day’s retail sales figures for May are likely to give back some of April’s large 2% m/m rise in sales volumes ex-fuel.
JPY The debate going into the Bank of Japan’s latest policy pronouncements and guidance toward the end of the week is whether the central bank is lessening bond purchases in a mini-taper of sorts. Governor Kuroda’s very recent guidance sounded committed to extended policy supports. He remarked that “Japan is no longer experiencing deflation in the sense of a sustained decline in prices” but “The rate of change in the consumer price index recently has been around 0 percent and there is still a long way to go until the price stability target of 2 percent is achieved.”  Such guidance counsels expectations for no further stimulus but that it would be premature to expect monetary policy to become less easy. Also note that Kuroda recently forecast growth of about 1½% in each of this year and 2018 which is little changed from the April forecasts for 1.6% growth this year and 1.3% next year.

Posted in Forex Analysis, tagged with on