The Forex Week Ahead

The Forex Week Ahead: May 29th – 2nd June

Mon: EUR – German CPI, JPY – Unemployment Rate
Tue: EUR – German Unemployment rate, EuroZone CPI, USD – PCE, Consumer Confidence, CAD – GDP
Wed: CNY – Manufacturing & Non-Manufacturing PMIs, AUD – GDP, CHF – GDP, EUR – EuroZone Manufacturing PMI, GBP – Mortgage Approvals & Consumer Credit, USD – Manufacturing PMI, ISM Manufacturing, Fed’s Beige Book,
Thu: AUD – Trade Balance, Retail Sales, GBP – Construction PMI, EUR – ECB Rate Decision,
Fri: CNY – Services PMI, EUR – EuroZone Services & Composite PMI, USD – Non-Farm Payrolls, Unemployment Rate, Trade Balance, Services & Composite PMI, ISM Non-Manufacturing

Overview

USD – Weak US PMI data sets stalled the USD’s bullish advance midweek with the service sector reading falling back to 51.2 in May and manufacturing equally disappointing. Despite these soft reading, further Fed officials expressed support for the Fed’s proposed rate path of two hikes this year with market expectations now building ahead of the June FOMC meeting.GDP growth was revised higher for the 1q from 0.5% to 0.8% adding further support for the Dollar. Finally on Friday bulls were give the green light with Fed chair Yellen noting that a rate hike in the coming months is appropriate if economic data picks up.

EUR – ECB policymakers are echoing for governments to coordinate their economic strategies to shore up the region’s recovery prospects. French central bank chief Francois Villeroy commented that “monetary policy cannot be a substitute for economic policy coordination or the lack of reforms. One point of discussion that was previously raised whether a lack of economic reform by government is seen as disinflationary. Villeroy also added that there is a need for stronger governance of the euro area, as he opines that the Eurozone cannot afford another missed opportunity and will need to act swiftly without losing the long term view

GBP – Sterling remained supported this week as the latest polling data continues to show growing support for the Vote Stay campaign. Optimism regarding the likelihood of the UK staying the EU has seen markets disregarding weak data sets with Q1 GDP printing below expectations. S&P warns that the GBP may potentially lose its reserve currency status should Brexit becomes an eventuality. A vote to leave the European Union on June 23 may dethrone the GBP and may even threaten the nation’s AAA credit rating, warns S&P.

JPY – Japanese Finance Minister Taro Aso said on Wednesday he told his G7 counterparts at a finance leaders’ meeting last week that his country will proceed with a scheduled sales tax hike next year as raising the sales tax is a very important factor in maintaining trust in Japan’s finances. Aso also noted that Japan is not intending to devalue their exchange rate, despite having recently warned that they would take steps to counter any further JPY strength.

AUD – AUD hovered near three-month lows on falling iron ore prices and speculation that the Reserve Bank of Australia (RBA) will ease policy further. RBA Governor Glenn Stevens commented on Tuesday on uncertainties over the economic transition in China, Australia’s biggest export market, which weighed on the Aussie. Growing US rate hike expectations are also putting the antipodean currency under pressure much to the delight of the RBA.

CAD – CAD strengthened against the USD after the Bank of Canada’s statement was less dovish than some investors had expected. The Bank of Canada kept interest rates on hold at 0.50 percent, saying the economy would shrink in the second quarter because of the recent wildfires in Alberta.