The Forex Week Ahead

The Forex Week Ahead : Mon May 9th – 13th

Sun: CNY – Trade Balance
Mon: CHF – CPI
Tue: CNY – New Yuan Loans, CPI, CHF – Unemployment rate, EUR – German Trade Balance, GBP – Trade Balance
Wed: GBP – Industrial & Manufacturing Production, NIESR GDP Estimate, USD – Crude Oil Inventories & Monthly Budget Statement
Thu: JPY – Trade Balance, AUD – Consumer Inflation Expectations, EUR – EZ Industrial Production, GBP – BOE Rate Decision
Fri: EUR – German GDP, EZ GDP, USD – Retail Sales, U. of Michigan Confidence

Overview

USD – The US Dollar staged a recovery last week driven mainly by risk off flows amidst a retreat in risk-appetite fuelled by weak China data and renewed concerns for global oversupply in the Oil market.  USD remained bid throughout the week despite mixed data flow; ISM Manufacturing printed below expectations whilst the Non-Manufacturing index printed above expectations. On Friday the employment reports for April showed Non-Farm Payrolls were well below estimate whilst the Unemployment rate remained unchanged and average weekly earnings increased 2.5% YoY. Key domestic data focus this week will be on Retail Sales due on Friday.

EUR ECB’s latest economic bulletin reiterated concerns of low inflationary pressure, expected to remain negative in the coming months before picking up during the second half of the year on base effects. ECB has started to expand monthly asset purchases to € 80 billion and “intended to run until the end of March 2017 or beyond if necessary”, hinting that additional stimulus is still on the table. In June, ECB will conduct its first operation of targeted longer term refinancing operations (TLTRO II). EuroZone GDP is the key domestic data focus this week.

GBP Sterling action was weighed upon last week by a fresh round of domestic data weakness and a deterioration in the Brexit outlook. On the data front, a series of worse-than-expected PMI readings highlighted the UK’s economic weakness with both Manufacturing & Services falling to three year lows. These moves were compounded by reports that the most recent Brexit polls show a return to strength for the VoteLeave campaign which once again have a slight majority. Traders now await the BOE May meeting for the latest outlook from the BOE which will include updated quarterly inflation report.

JPY The Japanese Yen remained bid this week, extending gains from the recent BOJ meeting which saw the central bank surprise markets by refraining from further action. A retreat in risk-appetite over the week added further support for the JPY which is a traditional safe haven currency. Traders remain alert to possible official intervention midst reports midweek of GPIF selling. Trade Balance data will be the key domestic focus this week.

AUD The RBA cut rates to a record low of 1.75% at its May meeting citing continued low inflation and a deteriorating inflation outlook alongside a continued slow-down in growth for Australia’s main trading partner China. The central bank have also revised lower their 2016 inflation forecast which now sees inflation hitting just 1-2% year end versus 2-3% originally. Whilst the bank were keen to stress their concern for the inflation environment they remain optimistic about domestic economic growth and actually raised their 2016 GDP forecast by half a percent. Trades will be paying close attention to Key Chinese data this week which could affect AUD flows.

CAD The Canadian Dollar was weighed upon last week by heavy selling in Oil and weak domestic data. Rising output in the Middle East and North Sea has spark renewed concern for global oversupply in Oil markets taking Crude $3 lower on the week. Canada’s trade deficit in March unexpectedly widened to a record C$3.41 billion ($2.66 billion) as exports dropped for a second month on widespread weakness. Canadian Unemployment rate on Friday dropped back to 7.1% from 7.2% previous.