Daily Market Outlook by Kate Curtis from Trader's Way

[katetrades]

Forex Major Currencies Outlook (Apr 5 – Apr 9)

A calm week ahead of us with thin liquidity on Easter Monday will bring RBA meeting, ISM Non-Manufacturing PMI and employment data from Canada. Vaccine roll-out developments and covid related news will be on the minds of investors.​

USD

President Biden announced new infrastructure plan worth $2.25 trillion which will be funded fully by tax hikes. Infrastructure building will be done solely by the US corporations. Tax rate on corporations is proposed to rise to 28% from 21% currently. This will lead to lower issuance of government bonds, treasuries, and assuming demand for bonds stays the same, it should lead to rise in treasury prices, drop in treasury yields and consequently lower USD.

ISM Manufacturing PMI for March beat expectations and came in at 64.7 for the highest reading since 1983! New orders rose to astonishing 68 from 64.8 in February thus making the highest reading since 2004. Employment sub index rose to 59.6 from 54.4 in February. A small dent in otherwise great reading is that prices paid sub index dropped less than expected. It came in at 85.6 from 86 in February. The report shows booming demand for manufacturing products.

Headline NFP number for March came in at 916k vs 660k as expected. The unemployment rate was pushed down to 6% as was expected from 6.2% in February while participation rate ticked up to 61.5%. The underemployment rate continued to drop and now came in at 10.7%. The drop in average wages is a result of lower paying workers returning to work as the leisure and hospitality sector led the way. Overall, a very strong reading that leaves potential for equally strong readings in the months to come.

This week we will have ISM Non-Manufacturing PMI and data from the latest Fed meeting.

Important news for USD:

Monday:

• ISM Non-Manufacturing PMI

Wednesday:

• FOMC Minutes

EUR

Sentiment data in March surpassed expectations. Economic sentiment rose to 101 from 93.4 in February while industrial sentiment went into positive after more than 14 months. It came in at 2 vs -3.1 the previous month. Optimism is prevailing as economic rebound should pick up from Q2 and especially from H2.

After higher-than-expected jumps in German and Spanish inflation preliminary March Eurozone inflation came in at 1.3% y/y vs 1.4% y/y as expected. The rise is mostly due to the rising energy prices compared with March of 2020. When we take away energy, we see that core reading came in at 0.9% y/y vs 1.1% y/y as expected due to a drop in goods inflation. Considering constraints on supply chains we can see this drop in goods inflation only as transitory and we expect it to pick up in Q2. ECB is prepared to look-through overshooting inflation and this weak reading will be easily dismissed by them.

German authorities have banned the use of AstraZeneca's vaccine for people under 60 due to new cases of blood clots.

GBP

Final reading of Q4 GDP showed an improvement to 1.3% q/q vs 1% q/q as preliminary reported. The increase was due to the strong rise in business investment (5.9% q/q vs 1.3% q/q in the first reading) and modest rise in government spending (6.7% q/q vs 6.4% q/q in the first reading). Private consumption, on the other hand, dropped -1.7% q/q vs -0.2% as preliminary reported.

AUD

JobKeeper, an employment subsidy introduced to help mitigate effects of pandemic, ended on March 28. Westpac estimates that it puts 100k people at the risk of losing jobs. They expect that these loses will be spread over the coming months pushing the unemployment rate up. Retail sales in February dropped -0.8% m/m but came in at 9.1% y/y.

Official PMI numbers from China easily beat expectations with manufacturing coming in at 51.9 and services jumping to 56.3 from 51.4 in February. Those numbers pushed composite reading to the very healthy 55.3 level. Within manufacturing reading both new orders and new export orders rebounded. New orders category posted a stronger reading indicating that domestic demand is leading the recovery. Within services, construction measure hit 62.3 level, it shows infrastructure investment that was announced in the Two Sessions. Caixin manufacturing reading showed a different picture as it fell to 50.6 while rise to 51.4 was expected. Rising input costs have impeded manufacturing activity. Although it is in the expansion for almost a year it is getting dangerously close to dropping below the 50 level.

This week we will have RBA meeting. No changes to cash rate and monetary policy are expected

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

NZD

ANZ survey of the business confidence in March show the reading drop to -4.1 from being flat the previous month. ANZ noted that “All forward-looking activity indicators were lower in the second half of the month. The preliminary results would not have captured the full lockdown impact”. They also added that “as the demand overshoot wanes and the tourists are missed more and more, the economy will go largely sideways this year”.

CAD

GDP for the first month of 2021 came in at 0.7% m/m vs 0.5% m/m as expected. Healthy beat indicating that Canada will post a positive Q1 GDP reading. Wholesale and manufacturing led the way and were the biggest contributors while retail was a drag, dropping for the third time in last 4 months.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

February employment report showed that the unemployment rate remained at 2.9% while expectations were for it to tick up to 3%. Retail sales for the same period crushed expectations and came in at 3.1% m/m vs 0.8% m/m as expected. BOJ Tankan survey showed improvement for both large and small manufacturing and non-manufacturing business. Capex is now seen rising 3% instead of -1.4% as was expected. Businesses reported that they see USDJPY at 106.71 in 2021 and EURJPY at 123.1. These are average values for 2021 fiscal year, from April 2021 to March 2022. CPI is seen at 0.4% for 2021, 0.8% in 3 years’ time and 1% in 5 years’ time. Nowhere close to BOJ’s 2% target level.

CHF

SNB total sight deposits for the week ending March 26 came in at CHF702.7bn vs CHF702.9bn the previous week. SNB is on the cruise control as markets keep Swissy subdued. Inflation in March missed expectations. Headline CPI came in at -0.2% y/y while core CPI plunged deeper into deflation with -0.4% y/y. Retail sales in February showed a big drop of -6.3% y/y vs -0.7% y/y in January. Both inflation and consumption affirm the need for SNB’s accommodative monetary policy.

 

[katetrades]

Forex Major Currencies Outlook (Apr 26 – Apr 30)

The week ahead of us will have Fed meeting and BOJ meeting. This will be followed by preliminary Q1 GDP from the US and EU and finally on Friday inflation data from both the US and EU. Data on personal spending and personal income from the US will also be announced on Friday.​

USD

President Biden spoke about increasing tax on capital gains for wealthy investors earning more than $1 million. Proposed tax increase should be toward 39.6% from 20% previously. This led to the unease in the markets with S&P500 dropping almost 1% on the release. Biden campaigned on the promise of capital gains tax hike, however there is a long road ahead for it to pass through the Congress.

This week we will have preliminary Q1 GDP data, Fed’s preferred inflation PCE data combined with personal spending and income data as well as Fed meeting. After BOC hawkish move toward a rate hike in H2 of 2022 chairman Powell will be pressed to express Fed’s stance on why they do not see rate hikes until 2024.

Important news for USD:

Wednesday:

• Fed Interest Rate Decision

Thursday:

• GDP

Friday:

• PCE

EUR

ECB has kept key rates unchanged at their meeting as was widely expected. The size of PEPP programme stays at the €1.85 trillion level with monthly asset purchases at the pace of €20bn. They are prepared to step up purchases if the need arises and purchases in Q2 will be higher than those in Q1. ECB President Lagarde stated that vaccine optimism underpins expectations for an economic recovery. Inflation has picked up due to the base effects but overall price pressures remain low and unsatisfactory. Economic data indicate a resumption of growth in Q2. The governing council has basically reaffirmed their stances from March meeting and with the next meeting coming on June 10 they are prepared to wait and take clues from the incoming economic data. Preliminary consumer confidence for the month of April came in at -8.1 vs -11 as expected for the lowest reading since February of 2020 and thus indicating optimism around consumers that vaccine rollout will lead to lifting of restrictions soon which will in turn release pent-up demand.

This week we will have preliminary Q1 GDP, which is expected to show a negative reading as well as preliminary April inflation reading.

Important news for EUR:

Friday:

• GDP
• CPI

GBP

Claimant count change in March came in at 10.1k and pulled down the rate to 7.3%. The official unemployment rate in February ticked down to 4.9% from 5% in January. The numbers are helped by the furlough scheme that is set to go on until September. It will keep the rate subdued in the meantime, after which it may jump toward 7%. Headline inflation for the same period rose to 0.7% y/y from 0.4% y/y in February with core reading coming in at 1.1% y/y from 0.9% y/y the previous month. Inflation readings are very much influenced by the base effect and we can expect inflation to continue to rise in the coming months. Lifting of certain restrictions in early March led to retail sales more than tripling the expectations (5.4% m/m vs 1.5% m/m as expected) and 7.2% y/y vs 3.5% y/y as expected. Non-food store provided the biggest boost with 13.4% rise in March while clothing sector also contributed with amazing 17.5% rise. These are additional indicators of pent-up demand that will be released as more and more restrictions are lifted and will have a positive impact on Q2 GDP growth.

AUD

RBA monetary policy minutes for April showed the bank’s stance to continue providing “highly supportive” monetary policy until employment and inflation goals are achieved. The possibility of a rate hike is highly unlikely until 2024 as board members do not see employment and inflation targets converging to their levels, inflation within 2-3% target range. During the week AUDUSD has rose over the 0.78 level on the back of weak USD.

This week we will have Q1 inflation data from Australia as well as official PMI data from China.

Important news for AUD:

Wednesday:

• CPI

Friday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

NZD

Headline inflation for Q1 2021 came in at 0.8% q/q as expected and 1.5% y/y vs 1.4% y/y as expected. RBNZ sees inflation in the range of 2-3% for this year due to the transitory factors before dropping down in 2022. Core inflation came in at 1.9% y/y and is in line with the bank’s 1-3% target range. GDT price index came in basically unchanged at -0.1% while NZDUSD enjoyed a strong start to the week, climbing toward the 0.72290 level before backing down.

CAD

At their April meeting BOC has left the rate unchanged at 0.25% as expected but took a much more hawkish tone. First, QE was tapered from CAD4bn/week to CAD3bn/week. Additionally, GDP forecast has been revised up to 6.5% from 4% in January. Bank members stated "We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. Based on the Bank's latest projection, this is now expected to happen sometime in the second half of 2022". This is a huge event as it moves chances of potential rate hike and monetary policy normalization toward H2 of 2022 from 2023. Governor Macklem stated bank’s confidence in underlying economic strength adding that forward guidance is 'outcome based'. USDCAD plunged almost 150 pips after the announcement.

Headline inflation in March doubled to 2.2% y/y from 1.1% y/y in February. The main culprit was rising energy prices and ; if they were deducted headline CPI would have come unchanged at 1.1% y/y. Core readings were all up with Trim and Median being over 2%. BOC sees inflation hovering around the upper bound of their 1-3% range in the coming months as a result of base effects. However, “inflation should return to 2% on a sustained basis sometime in the second half of 2022”.

JPY

Trade surplus in March jumped to JPY663.7bn on the back of surging exports that rose 16.1% y/y thanks to the rise in exports to China (37.2%). Preliminary April PMI data showed manufacturing rise to 53.3, highest value in over 3 years, while services remained unchanged at 48.3. Composite was pushed to 50.2 for the first expansionary reading since January of 2020. Prefectures of Tokyo, Osaka, Hyogo, and Kyoto are looking for at least three weeks of state of emergency measures to be implemented in order to try to subdue the spread of the virus. With new measures being implemented, the services sector will soon be hit hard again and we may see a decline in services in the May PMI reading.

This week we will have BOJ meeting as well as inflation data for Tokyo area. No changes in the monetary policy are expected, however with prefectures entering new state of emergencies we could see more dovish tone being struck.

Important news for JPY:

Tuesday:

• BOJ Interest Rate Decision

Friday:

• CPI

CHF

SNB total sight deposits for the week ending April 16 came in at CHF701.5bn vs CHF701.3bn the previous week. With markets making EURCHF hover around the 1.10 level SNB sees no reason to step up their intervention. Trade balance data in March showed a surplus of CHF5.82bn on the back of rebound in exports 4.5% m/m.

 

[katetrades]

Forex Major Currencies Outlook (May 3 – May 7)

BOE and RBA meetings coupled with NFP on Friday will be the highlights of the upcoming week.​

USD

FOMC meeting failed to deliver any news on the tapering of the QE program. The Fed funds rate and QE of $120bn/month were unchanged as was widely expected. The rise in inflation was attributed to transitory factors. Fed Chairman Powell stated that it will take “some time” for substantial progress to be achieved adding that the economy is a “long way” from the Fed’s goals. Inflation expectations will likely move up with a tighter labour market. Overall a dovish message from the Fed that pushed the USD lower. Some positives from the statement include the assessment of impact of the vaccination program combined with fiscal support on the economic recovery. Statements like “indicators of economic activity and employment have strengthened” and “sectors most adversely impacted by the pandemic have improved” also add small positives.

Preliminary March durable goods improved from February but heavily missed expectations. Headline number came in at 0.5% m/m vs 2.5% m/m as expected while capital goods reading came in at 0.9% m/m vs 1.8% m/m as expected. Shortages in semi-conductor chips were the main culprit for the reading as they had a big influence on the transportation section (-1.7%). Advanced Q1 GDP reading came in at 6.4% annualised. Personal consumption increased 10.7% vs 10.5% as was expected, contributing with more than 100% and giving even more power to the reading. Business investment was also very strong, coming in at 9.9%. Drags on the reading were inventories and net exports.

On the inflation front, headline PCE came in at 2.3% m/m vs 1.5% m/m in February while core PCE rose 1.8% m/m vs 1.4% m/m the previous month. Core reading returned to the pre-pandemic level of February 2020 indicating mounting inflation pressures. Fed Chairman Powell has reiterated numerous times that they are prepared to look through any overshoot in inflation and will characterize the rise in prices as transitory. As stimulus cheques fully kicked in, personal income came in at 21.1% m/m which in turn pushed personal spending to 4.2% m/m.

President Biden has unveiled his $1.8 trillion dollar plan that will focus on education and childcare. The entire plan will be financed by raising taxes. The maximum tax rate on capital gains will be 39.6% and it will be applied only to those within top one percent of earners.

This week we will have ISM PMI data coupled with NFP on Friday. Headline number may be well over a million according to some analysts while the unemployment rate should drop toward the 5.8% level.

Important news for USD:

Monday:

• ISM Manufacturing PMI

Wednesday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

German government has raised its GDP forecast for 2021 to 3.5% from 3% in January citing the lifting of restrictions as the positive sign for the economy. They see a “bigger-than-expected” recovery in Q4 and expect the economy to reach pre-pandemic levels in 2022, projecting GDP of 3.6% for the year.

Preliminary Q1 GDP reading for the Eurozone came in at -0.6% q/q vs -0.8% q/q as expected. Germany reading came in at -1.7% q/q pulling the reading down, although France positively surprised with 0.4% q/q reading. With vaccination program continuing at the current pace and restrictions being lifted across the continent, pieces are in place for a rebound in H2 of 2021. Preliminary April inflation reading saw headline inflation jumping to 1.6% y/y vs 1.3% y/y which is be attributed to the rising energy prices on the back of base effects, while core reading dropped for the fourth straight month and came in at 0.8% y/y vs 0.9% y/y in March. This indicates that sustained price pressures are still missing.

GBP

Covid-19 cases have continued to decline, putting the UK on a course to move successfully to the third stage of Prime Minister Johnson’s four-stage reopening plan on May 17. This next phase will see indoor hospitality and professional sporting venues reopen to the public. However, the insensitive statement attributed to the Prime Minister, that he would rather see dead bodies pile up than instigate another lockdown is preventing the pound from rising.

This week we will have BOE meeting. No changes in policy and rate are expected, however we could see more hawkish stance from the bank pushing the pound up.

Important news for GBP:

Thursday:

• BOE Interest Rate Decision

AUD

Inflation data for Q1 came short. Headline number came in at 0.6% q/q vs 0.9% q/q as expected and as was in Q4 of 2020 with 1.1% y/y vs 1.4% y/y as expected. Automotive fuel saw the biggest rise in prices (8.7% q/q). Trimmed mean core measure came in at 0.3% q/q vs 0.5% q/q as expected and 1.1% y/y vs 1.2% y/y as expected and as was in Q4 of 2020. RBA targets y/y trimmed core in the 2-3% range and with reading coming in at measly 1.1% we can expect bank to continue their loose monetary policy without indications for tightening in 2021. Official stance is that there will be no rate hikes until 2024. We can also see inflation picking up in Q2 due to the “base effect”, however this will be characterized as transitory by the monetary authorities and overlooked.

Official PMI numbers for April from China showed readings still in expansion but slowing down from the March. Manufacturing came in at 51.1 with new export orders dropping down to 50.4 indicating waning demand most likely due to Covid-related disruptions, so we may expect this sub index to pick up in May as reopening around the World continues. Services came in at 54.9 and composite was at 53.8. Caixin manufacturing PMI, on the other hand, continued its rise and came in at 51.9 vs 50.6 in March. Output and new orders rose at the fastest pace this year and were coupled with increases in input costs.

This week we will have RBA meeting from Australia. No changes in policy and rate are expected, progress on employment and assessment of the inflation figures will be watched. China will report Caixin PMI data and trade balance.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision

Friday:

• Caixin Services (China)
• Caixin Composite (China)
• Trade Balance (China)

NZD

RBNZ policymaker Peter Harris stated that they are still not reaching employment objectives and that monetary stimulus is still needed. Signs of wage inflation are missing and unemployment remains “relatively high”. NZD may finish as a top performer from G10 currencies in April however May is usually bad month for it so we can see some downward pressure on it in the coming month.

This week we will have employment data for Q1.

Important news for NZD:

Wednesday:

• Employment Change
• Unemployment Rate

CAD

BOC Governor Macklem stated that they expect to see a strong growth led by consumption in the H2 of 2021. He added that inflation reading influenced their decision to lower QE to CAD3bn/week. USDCAD was trying to stay below the 1.24 level at the start of the week and then it was pushed down to the 1.23 level on the back of the dovish Fed and stayed below it. Retail sales in February came in at 4.8% m/m vs 4% m/m as expected. Data shows that 9 out of 11 sub-sectors showed an increase in sales and were led by motor vehicles. Clothing and accessories as well as furniture made significant gains compared to January. This is rather old data point since we are already in May, however this was a very strong report and one of the reasons for BOC’s hawkish stance at their last meeting. Advanced estimates of March reading are for a 2.3% m/m rise giving more fire power to already strong Q1.

This week we will have employment data.

Important news for CAD:

Friday:

• Employment Change
• Unemployment Rate

JPY

BOJ made no changes to their monetary policy as was widely expected. The rate is still held at -0.10%, targeted yields on 10y JGBs are still around 0% and cap on ETF purchases is at JPY12 trillion. The bank made upgrades to the economic forecasts and now sees GDP in 2021 at 4% vs 3.9% in January. For 2022 GDP even bigger upgrade has been made as it is now seen at 2.4% vs 1.8% in January. On the other hand, inflation expectations are downgraded to 0.1% for core inflation in 2021 vs 0.5% expected in January. BOJ quarterly report shows that pace of the economic recovery will be moderate and that risks are skewed to the downside. They have assessed the financial system as stable which may give JPY some love. However, reimposed states of emergency in three largest prefectures combined with very low vaccine admissions, only 1.4% of the population has received at least one dose, will keep JPY subdued.

CHF

SNB total sight deposits for the week ending April 23 came in at CHF701.7bn vs CHF701.5bn the previous week. A rather negligible change as EURCHF is safely hovering over the 1.10 level and is on its way to the 1.11 level. Retail sales in March rebounded tremendously from poor February reading indicating pent-up demand. The reading came in at 22.6% m/m vs -6.6% m/m the previous month.

 

[katetrades]

Forex Major Currencies Outlook (May 10 – May 14)

Inflation and consumption data from the US coupled with preliminary Q1 GDP reading from the UK will be the highlights of the week.​

USD

ISM manufacturing PMI in April came in at 60.7 vs 65 as expected and down from 64.7 the previous month. New orders and employment sub indices came in weaker than in March, however they are still at a very high levels indicating strong manufacturing sector. Semi-conductor chip shortages are the main culprit for the drop from the previous month. One thing that is concerning is that prices paid index continued to rise and came in at 89.6 vs 85.6 in March. This is a 13-year high. Rising input prices will be transferred to consumers at some point which would lead to higher consumer prices, inflation. ISM Non-manufacturing PMI also eased coming in at 62.7 vs 63.7 in March. New orders and production sub indexes were down from March reading, but still in the 60s. New export orders and employment sub indexes both improved. A matter of concern is the rise in prices paid and supply deliveries sub indexes. Prices paid also rose to a 13-year high and in combination with elevated supply deliveries it indicates shortages and supply constraints raising changes for disruptions in the future.

Dallas Fed president Robert Kaplan talked about tapering and adjusting bond purchases. He stated historically elevated stock prices, tight credit spreads and surging housing prices. As we get closer to the June meeting we could see more members start to talk about lowering the bond-buying in the future. That could give USD a nice boost. US Treasury Secretary Janet Yellen, former chairman of the Fed, stated that due to the expected success of fiscal stimulus “interest rates will have to rise somewhat to make sure our economy doesn’t overheat”. This have sent shivers down the spine in the market with equities dropping quickly. Later during the day, she clarified her statement saying that it is “not something I’m predicting or recommending”. Fed chairman Powell and NY Fed president Williams came out with statements reiterating their dovish view of the economy.

Nonfarm payrolls for April heavily missed expectations. The report showed 266k jobs added vs 1000k as expected. March reading was revised down for almost 150k jobs. The unemployment rate ticked up to 6.1% from 6% in March, expectations were for it to drop to 5.8%. The participation rate ticked higher to 61.7% from 61.5% the previous month indicating more people returning to workforce and taking a sting out of the rise in the unemployment rate. Questions about the pace of recovery will be raised. Fed will continue to reiterate that economy still has a long way to go.

This week we will have inflation and consumption data. Headline inflation should shoot close to 4%.

Important news for USD:

Wednesday:

• CPI

Friday:

• Retail Sales

EUR

Final services PMI in April for Eurozone was unchanged at 50.3 thanks to the strong reading from Spain while German and French readings saw small downward revisions. German reading even dipped into contraction with 49.9. Composite PMI was revised up to 53.8 from 53.7 as preliminary reported. Markit states that "April's survey data provide encouraging evidence that the Eurozone will pull out of its double-dip recession in the second quarter”. Retail sales continued to rise in March coming in at 2.7% m/m vs 1.6% m/m as expected. There were also upward revisions to February reading giving more strength to the report. Non-food products contributed the most (4.6% m/m) while automotive fuels decreased (-2.9% m/m). Continuation of the consumption trend coupled with easing of restrictions will have a positive influence on Q2 GDP.

GBP

Final manufacturing PMI for April improved to 60.9 from 60.7 as preliminary reported thus making it the record reading in almost 27 years. Output and new orders continued expanding at an increased rate. Markit notes that "The sector also remains beset by supply-chain issues and rising inflationary pressures. Disruption following Brexit and COVID-19, especially at ports, caused a further near-record lengthening of supplier delivery times. The resulting input shortages kept producer price inflation among the highest over the past four years.” Final services PMI was revised up to 61 from 60.1 as preliminary reported which pushed composite to 60.7 from 60 as preliminary reported. Services reading is highest in 8 years and it reflects loosening of restrictions in the UK. With all three reading into 60s there is a reason to be optimistic about the UK economy.

BOE has left both bank rate and total amount of purchases unchanged. They are at 0.10% and £895bn respectively. MPC members do not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. GDP forecast for 2021 is now at 7.25% while GDP for 2022 is seen at 5.75%. Inflation is seen at 2.31% in one year’s time. In the statement, MPC members have stated that pace of asset purchases would be slowed down. The pound dropped first on the news that there will be no changes to asset purchases and then rebounded when the statement came.

This week we will have preliminary Q1 GDP data.

Important news for GBP:

Wednesday:

• GDP

AUD

RBA has left cash rate unchanged at their May meeting as widely expected. Targeted yield on 3-year bonds was also unchanged at 0.10%. At the July meeting, RBA will consider future bond purchases following the completion of the second AUD100 bn of QE purchases as well as whether to change 3-year targeted bonds from April 2024 to November 2024. The bank assessed economic recovery as stronger than expected and they see that trend continuing. There will be a small, modest pick-up in wages and inflation. They have reiterated their stance not to increase the cash rate until inflation is sustainably within the 2-3% target range, which is forecast for 2024 at the earliest. GDP for 2021 has been revised up to 4.75% and 3.5% in 2022. The unemployment rate should hover around 5% at the end of 2021, falling to 4.5% at the end of 2022. Underlying CPI to be at 1.5% this year, rising to 2% in mid-2023 with CPI to be temporarily above 3% in the Q3 of 2021.

Caixin services PMI jumped to 56.3 from 54.3 in March on the back of expanding new orders. Rising input costs, labour and raw materials, indicate that inflation pressures are building. Composite PMI came in at 54.7 vs 53.1 the previous month for the highest reading in 2021. Trade continued to bloom in April. Trade surplus was $42.85bn and it was achieved on the back of exports increasing 32.3% y/y while imports rose 43.1% y/y. China’s economic planning agency (NDRC) is going to halt activities under the China-Australia Strategic Economic Dialogue ‘indefinitely’. With China being Australia’s largest trading partner this decision could seriously impede Australia’s economy and push AUD down.

This week we will have inflation data.

Important news for AUD:

Tuesday:

• CPI (China)

NZD

Employment report for Q1 was a strong one. Employment change was unchanged on q/q basis and came in at 0.6%, however expectations were for a 0.3% rise. The true shine of the report can be seen in the unemployment rate which fell to 4.7% from 4.9% in Q4 of 2020. At the same time, participation rate rose to 70.4% from 70.2% the previous quarter. Preliminary business confidence for May came in at 7, back into positive after -2 reading in April. Finance Minister Robertson stated that economic recovery has exceeded every forecast, adding that fiscal spending will carry on to support the economy.

CAD

Employment report in April was plagued by renewed lockdowns, however it painted the worse picture than expected. Headline number came in at -207.1k vs -150k as expected. Majority of jobs lost were full-time jobs (-129.4k). The unemployment rate rose to 8.1% from 7.5% in March while participation rate dropped to 64.9% from 65.2% the previous month. USDCAD dropped below the 1.22 level during the week and is fighting to stay there. With weak NFP reading we could see USD weakness due to Fed not rushing to taper or raise rates, which opens up a potential for selling the rallies in USDCAD.

JPY

Final services PMI for April saw improvement to 49.5 from 48.3 as preliminary reported. This is the highest reading since January of 2020 and very close to expansion. The reading also showed fastest job creation in two years. Composite PMI was pushed upward thanks to services and came in at 51 vs 50.2 as preliminary reported. Wages data showed earnings rise 0.2% m/m vs -0.2% m/m as expected for a first rise since March of last year. The Government is considering extending state of emergency until the end of the month, possibly going into the June as well, while easing some of the restrictions.

CHF

SNB total sight deposits for the week ending April 30 came in at CHF701.4bn vs CHF701.7bn the previous week. Although EURCHF has dropped below the 1.10 level SNB does not see it as a threat and continues to ease its actions in the market. Inflation in April came in at 0.3% y/y as expected, thus climbing from 14 months of deflation. It is attributed to the base effects due to the wreck pandemic made in the economy a year ago. Core inflation came in flat vs -0.1% y/y as expected.

 

[katetrades]

Forex Major Currencies Outlook (May 17 – May 21)

Preliminary PMI data from the EU and the UK combined with first reading of Japan’s Q1 GDP, employment report from Australia as well as production and consumption data from China will be the highlights of the week.​

USD

Inflation data in March posted some concerning numbers. Headline reading printed 4.2% y/y vs 3.6% y/y as expected with core reading rising 3% y/y vs 2.3% y/y as expected. Prices of used cars were the biggest contributor to the rising inflation jumping 10% m/m. Rising commodity prices in combination with supply chain disruptions and base effects all led to the rise in prices. Additionally, the shortage of labour caused by need for parents to stay at home due to the home schooling of children coupled with generous unemployment benefits led to companies needing to offer higher wages in order to attract workers. Inflation should continue to run hot until we enter Q3. It will be interesting to see how Fed members will react to the data and if they will still continue to characterize inflation as “transitory”. Higher than expected inflation caused investors to give higher probability to QE tapering. Wages declined by -3.7% for hourly earnings and -1.4% for weekly earnings. This drop can be attributed to reopening and rehiring among low income jobs. Retail sales in April came in unchanged from March, however previous month’s reading was revised higher to 10.7% m/m, thus making this another decent report. Retail sales rose 51.4% y/y showing the adverse impact on the economy that first lockdown had.

EUR

ECB member Martin Kazaks stated last week that ECB may consider slowing down the pace of PEPP purchases at their June meeting. ECB chief economist Philip Lane stated that they will assess PEPP program in June and it can lead to either raising purchases or cutting purchases. ZEW survey for May showed current situation measure of German economy improving to -40.1 from -48.8 in April. Expectations category had more impressive jumps with German expectations coming in at 84.4 vs 70.7 in April and EU expectations at 84 vs 66.3 the previous month. Expectations reading indicate an overwhelming optimism regarding reopening and mass vaccination among investors. European Commission has raised GDP forecasts for 2021 and 2022. GDP in 2021 is now seen at 4.3% vs 3.8% previously while GDP in 2022 is expected to be at 4.4% vs 3.8% as previously stated. Inflation still poses a big problem and is seen at 1.7% in 2021 and then dropping to 1.3% in 2022.

This week we will have a second estimate of Q1 GDP as well as preliminary May PMI readings.

Important news for EUR:

Tuesday:

• GDP

Friday:

• Markit Manufacturing PMI (EU, Germany, France)
• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)

GBP

SNP, Scottish National Party, pro-independent party, failed to secure majority at the last week’s election. They will form a majority government with Greens, also a pro-independent party, however markets are not seeing independence referendum being held in the near future. Additionally, Conservative party managed to win in Hartlepool, a Labour constituency since its creation in 1974, thus making the victory in by-election even more impressive. Markets have reacted to both events by boosting the GBP and sending GBPUSD pair almost 160 pips up at the start of the week. Prime Minister Johnson stated that England will move to Step 3 of lockdown easing on May 17. This includes reopening of indoor hospitalities while cinemas, pubs, restaurants and hotels will reopen with some capacity limits.

First estimate of Q1 GDP showed the economy contracting by -1.5% q/q vs -1.6% q/q as expected and -6.1% y/y vs -7.3% y/y as expected. Real GDP Q1 2021 was 8.7% lower than where it was at the end of 2019, before pandemic caused disruptions. Household consumption declined by -3.9% q/q vs -1.7% q/q the previous quarter. The drop was led by spending in restaurants and hotels, which fell by -26.4% due to the covid related restrictions. Business investment plunged -11.9%, government spending rose 2.6% and net exports were positive contributor since imports fell by more than exports (-15.6% vs -11.6%). We are already mid-May, mid-Q2, so the Q1 GDP data will not have impact on the pound. One very encouraging data for Q2 GDP was March GDP data. It showed an increase of 2.1% m/m and with reopening combined with mass vaccination it will lead to strong April as well Q2 reading.

This week we will have employment, inflation and consumption data as well as preliminary May PMI readings.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales
• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

AUD

Business confidence in April boomed. It came in at 26 vs 17 in March while business conditions came in at 32 vs 24 the previous month. They are both record highs and indicate great optimism about the economy moving further and getting out of the lockdown. All sectors are well into positive territory with services and mining leading the way of gains. High capacity utilisation indicates expansion in business investment and hiring. Final retail sales for March came in at 1.3% m/m vs 1.4% m/m as preliminary reported. For Q1 the reading came in at -0.5% q/q vs -0.4% q/q as expected.

Inflation report for April from China showed CPI rising to 0.9% y/y from 0.4% y/y in March, but the real inflation jump can be seen in the PPI number. It jumped to 6.8% y/y from 4.4% y/y the previous month. The rise in iron ore prices as well as in non-ferrous metal (aluminium, copper, lead, nickel, etc.) prices contributed most to the rise in producer price index. ING analysts note that “semiconductor chip shortage is going to bring us chip inflation”. Expectations are for producers to pass on the burden of rising input costs to consumers, thus increasing inflation (CPI).

This week we will have employment data from Australia as well as production and consumption data from China.

Important news for AUD:

Monday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Finance minister Robertson stated that economic recovery was better than expected. There is a scope to lower debt levels after the recovery is secure. At the moment, monetary and fiscal policies will remain accomodative. Card spending in April rose 4% m/m with astonishing rise of 108.7% y/y showing just how devastating the first lockdown was.

CAD

USDCAD dipped below the 1.21 level at the start of the week and stayed below it for the first part of the week. Combination of weaker USD caused by disappointing NFP report and rising oil prices due to the Colonial Pipeline disruption led to drop. The pair has dropped below levels seen in September of 2017 and it was at the lowest levels since May of 2015. Once Colonial Pipeline restarted mid-week, oil prices tumbled, the pair reversed and breached the 1.22 level before dropping back again at the 1.21 level where it finished the week.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

BOJ summary of opinions from April policy meeting stated economy is likely to recover, mainly on external demand, but the outlook remains highly uncertain with risks skewed to the downside due to uncertainties caused by the pandemic. Household spending for March rebounded to 6.2% m/m from -6.6% m/m in February. This is the first positive reading in 3 months and although it is very welcoming it may be considered an anomaly. With reimposed state of emergency and falling income we cannot see consumption continuing to rise in the coming months.

This week we will have preliminary of Q1 GDP and May PMI readings.

Important news for JPY:

Tuesday:

• GDP

Friday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

CHF

SNB total sight deposits for the week ending May 7 came in at CHF705bn vs CHF701.4bn the previous week. This is a significant jump in sight deposits considering the trend from the past month and may indicate that SNB wishes to push EURCHF closer to the 1.10 level.

 

[katetrades]

Forex Major Currencies Outlook (May 24 – May 28)

RBNZ meeting along with inflation data from the US will be most watched economic events in the quiet data week ahead of us.​

USD

Housing starts in April surprised to the downside coming in at 1569k vs 1702k as expected. Building permits also missed but on a much smaller scale, they came in at 1760k vs 1770k as expected. Recent surge in material costs, particularly lumber, led to a slower supply of houses. Demand seems to be unaffected and this seems to be just a bump in a rising trend.

April’s FOMC minutes showed members feeling that economy still has a long way to go toward the recovery. The statement that caught the most attention was: “A number of participants suggested that if the economy continued to make rapid progress toward the Committee's goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.” Although the wording is very carefully constructed and contains many conditions, markets took it as hint that QE taper can come sooner than expected which pushed USD higher. We need to consider that the meeting took place before the latest weak NFP report. Additionally, we do not expect any serious talk from the Fed about tapering before Jackson Hole meeting, scheduled to take place in August.

This week we will have second estimate of Q1 GDP, durable goods orders for April so we get a glimpse in how Q2 is starting and Fed’s preferred inflation measure PCE along with personal spending data.

Important news for USD:

Thursday:

• GDP
• Durable Goods Orders

Friday:

• PCE
• Personal Spending

EUR

Preliminary May PMIs for the Eurozone showed manufacturing ticking down to 62.8 from 62.9 in April due to a drop in German reading. Still it is a very healthy reading indicating that manufacturing sector is going strong. Services showed impressive rebound coming in at 55.1 vs 50.5 in April. German services returned to expansion after a small dip down the previous month. Composite reading was also elevated and came in at 56.9 vs 55.1 as expected. Markit noted that: "Demand for goods and services is surging at the sharpest rate for 15 years across the eurozone as the region continues to reopen from covid-related restrictions. Virus containment measures have been eased in May to the lowest since last October, facilitating an especially marked improvement in service sector business activity, which has been accompanied by yet another near-record expansion of manufacturing. Growth would have been even stronger had it not been for record supply chain delays and difficulties restarting businesses quickly enough to meet demand, especially in terms of re-hiring.”

Second reading of Q1 GDP came in unchanged at -0.6% q/q and -1.8% y/y. After two consecutive quarters of negative growth reopening of economies is giving boost to services sector, as can be seen in May services PMI, which would in turn boost GDP and return it back into positive territory. Final inflation data for April showed headline reading unchanged at 1.6% y/y while core reading slipped to 0.7% y/y vs 0.8% y/y as preliminary reported.

GBP

Employment report for April shows positive impacts of reopening. Claimant count, unemployment claims, fell -15.1k. Official ILO unemployment rate ticked down to 4.8% from 4.9% in March while employment change for the previous three months came in at 84k vs 50k as expected and up from -73k measured the previous month. Inflation came in on par with expectations, headline 1.5% y/y and core 1.3% y/y. Energy prices contributed the most with a 9% increase in gas and electricity while clothing and footwear rose by 2.4%. As reopening continues, we are sure to see inflation readings in the coming months printing higher numbers.

Retail sales in April were impressive. Headline reading came in at 9.2% m/m vs 4.5% m/m as expected. Retail sales ex autos, fuel came in at 9% m/m vs 4.4% m/m as expected. Yearly figures came in at 42.4% y/y and 37.7% y/y respectively showing the stark contrast from year ago when the lockdown was first introduced. Clothing/footwear sales were the biggest contributor. This makes it a third consecutive month of rising retail sales indicating strong domestic demand. Additionally, this more than double beat on expectations, will revise Q2 GDP projections higher.

Preliminary PMI numbers for May show manufacturing at 66.1, services at 61.8 and composite at 62. This is the fourth consecutive month with all three PMI readings rising. Overall business activity is expanding at a on record level pace led by pent-up demand and loosening of restrictions. Strong PMI numbers add to the story of firm Q2 GDP reading.

AUD

Employment report was a mix of positives and negatives. On positive side we have the unemployment rate ticking down to 5.5% and full-employment rising 33.8k. On the negative side we have employment change dropping -30.6k vs 20k as expected, participation rate dropping to 66% from -66.3% in March and part-time employment falling -64.4k. RBA stated that the return to full employment is a high priority for monetary policy. A drop in the unemployment rate will be welcomed, but there is still a long way to go until it reaches the levels needed for rate hikes. Markets were not moved by the release as more data is needed to assess the employment picture.

Industrial production for April came in at 9.8% y/y vs 10% y/y as expected for a slight miss while retail sales came in at 17.7% y/y vs 25% y/y as expected for a large miss. Production of passenger cars was the biggest drag on the industrial production and it was caused by chip shortages while integrated circuits production showed the biggest rise. Regarding retail sales ING notes possibility that “this reflects postponed consumption to save for discounts in the Golden Week holiday in May, during which sellers offer more discounts on online shopping platforms. So, this could be a temporary slowdown, and if so, we should see a moderate rebound in May.”

NZD

GDT auction showed the price index coming in at -0.2%. This is the third auction in a row of falling prices, however all three drops were less than 1%. It is interesting that in times when almost all commodity prices are booming milk is staying almost flat.

This week we will have Q1 consumption data as well as RBNZ meeting. No changes in the rate are expected, however we may see the members hinting at lowering of QE programme, which in turn would give NZD a boost.

Important news for NZD:

Monday:

• Retail Sales

Wednesday:

• RBNZ Interest Rate Decision

CAD

Inflation in April came in at 3.4% y/y vs 3.1% y/y, up from 2.2% in March. This is the highest reading almost 10 years, it comes after two consecutive 0.5% m/m increases. Energy prices and transportation prices have contributed the most to price rises indicating base effects. Core readings also showed increases with median and trim readings coming in at 2.3% y/y while common was at 1.7% y/y. BOC already announced tapering of QE to CAD3bn/week and is on the way to raise rates next year. However, inflation is creeping in faster than they will react, so the question remains will they follow in footsteps of other central banks and label this inflation as transitory?

Retail sales in March showed another increase with headline reading coming in at 3.6% m/m vs 2.3% m/m as expected and ex autos category at 4.3% m/m vs 2.3% m/m as expected. Unfortunately, this will be the last month of positive readings in a while as during April Canada was under severe lockdown which inevitably curtailed retail sales. Advance estimate of April’s reading shows a -5.1% m/m print. Consumption component should not have a big contribution to Q2 GDP.

JPY

PPI data for April showed an increase of 3.6% y/y vs 3.1% y/y and up from 1.2% y/y in March. This reading confirms what we have seen in other countries, rising input prices. The 'domestic final goods prices' index, an index that has some measure of correlation with CPI, comes in at 1.7% y/y. BOJ may be happy to see some sign of inflation, although it is caused by supply-side issues. National inflation data show inflation reversing recent trend and plunging deeper into negative with headline reading coming at -0.4% y/y vs -0.2% y/y in March. Almost entire drop in headline reading can be attributed to drop in cell phone fees, which dropped 26.5% y/y. Preliminary May PMI showed declines with manufacturing coming in at 52.5 vs 53.6 in March and services coming in at 45.7 vs 49.5 the previous month. Services were hit hard by the reimposed states of emergency and it pulled composite down to 48.1 from expansionary 51 in March.

Preliminary Q1 GDP came in at -1.3% q/q vs -1.1% q/q as expected. A small miss due to the drop in business investment which came in at -1.4% q/q vs 0.8% q/q. Personal spending contracted less than expected and came in at -1.4% q/q vs -1.9% q/q as expected. Restrictions imposed by the state of emergency pushed GDP into negative territory. Considering current covid situation and extended states of emergency around the country it is likely that Q2 will also print negative reading. GDP for the fiscal year, March to March, fell -4.6% for the biggest drop ever recorded.

CHF

SNB total sight deposits for the week ending May 14 came in at CHF707.7bn vs CHF705bn the previous week. SNB is stepping up their game in the markets as EURCHF slides away from the 1.10 level.

 

[Forexathome]

Nice rundown, following thread

 

[katetrades]

Nice rundown, following thread

Thank you very much for the kind words and follow!

 

[katetrades]

Forex Major Currencies Outlook (May 31 – June 4)

RBA meeting, followed by preliminary Eurozone inflation data and NFP on Friday will be the highlights of the data filled week ahead of us. US and UK markets will be closed on Monday which will lead to lower liquidity in the markets.​

USD

Consumer confidence in May dropped to 117 from downward revised 117.5 in April. Expectations were for a 119 reading. Present situation improved while expectations category seriously deteriorated. This indicates that short-term outlook is positive but long-term there are concerns among consumers. Three major categories, homes, automobiles and major household appliances, all showed declines in the long-term revealing unease among consumers regarding inflation effects down the 6-months period. New home sales in April came in at 863k vs 950k as expected. With the average sale price rising 20.8% y/y consumers are right to be concerned about what the future brings.

Preliminary April durable goods orders missed expectations and came in at -1.3% y/y. Headline reading was terrible, however core reading was the start. It rose 2.3% y/y vs 1% y/y as expected indicating that Q2 had a strong start. Additionally, March core reading was revised up to 1.6% y/y from 1% as previously reported. Q1 GDP reading was unchanged at 6.4% annualized. Personal consumption was higher at 11.3% vs 11% as preliminary reported with business investment now showing 10.8% vs 9.9% in the first reading.

Fed’s preferred inflation metric PCE for April came in at 3.6% y/y, up from 2.4% in March. Core PCE came in at 3.1% y/y vs 1.9% y/y the previous month. Base effects are the main culprits for such a jump in inflation. Fed members’ comments will be closely watched. Will they continue with their assessment of inflation as transitory or will they show some concern regarding high numbers? Personal spending dropped to 0.5% m/m from 4.7 m/m in March while personal income plunged -13.1% m/m due to government cheques being handed the previous month.

This week we will have ISM PMI data as well as NFP on Friday. After a weak April reading expectations are for headline number to print over 600k with the unemployment rate dropping to 6%.

Important news for USD:

Tuesday:

• ISM Manufacturing PMI

Thursday:

• ISM Non-Manufacturing PMI

Friday:

• Nonfarm Payrolls
• Unemployment Rate

EUR

Final reading of German Q1 GDP came in at -1.8% q/q vs -1.7% as preliminary reported with -3.1% y/y vs -3% y/y as preliminary reported. Final reading provided us with more information about the components of the GDP. The main drag was private consumption which came in at -5.4% q/q. With Germany being heavily under lockdown during Q1, the drop is completely justified. Net exports also contributed to the drop while government consumption and capital expenditure had positive impacts on the GDP. Markets are looking ahead toward H2 and with ongoing vaccination and reopening as well as low Q1 reading we can see a bigger rebound in Q2 and beyond. Ifo data for May showed all components rising indicating growing optimism among managers regarding Q2 and H2. A small concern is that raw material prices are rising rapidly and that producers are planning to shift increasing costs to consumers, thus leading to inflation.

Economic sentiment continues to improve. It has now risen to 114.5, propelled by the rise in services sentiment. Services rose to 11.3 from 2.2 in April due to reopening and loosening up of restrictions. They are now at their pre-pandemic levels. Final consumer confidence came in at -5.1, up from -8.1 the previous month. This is the highest consumer confidence reading since 2019 indicating growing optimism among consumers going into the summer.

This week we will have preliminary inflation data for the month of May.

Important news for EUR:

Tuesday:

• CPI

GBP

Concerns regarding covid variant first identified in India were dragging the pound down in the first half of the week. France and Germany are now demanding quarantine for people arriving from the UK. Vaccination is progressing at high speed, however there is increase in cases for people younger than 30 years. BOE policy maker Vlieghe stated that the better view of slack in economy will be available once the furlough scheme ends. He also added that if there is a smooth transition from the furlough scheme early rate hike is possible. Hawkish comments gave boost to the pound up in the second half of the week.

AUD

Q1 capex data smashed expectations coming in at 6.3% q/q vs 2% q/q as expected. Equipment and machinery led the way with 9.1% q/q increase followed by buildings and structures with 3.8% q/q. Next week we will have Q1 GDP reading and these numbers showed a strong investment in the first quarter and will surely push it higher than expected.

This week we will have Q1 GDP data and RBA meeting. No changes in rate or policy are expected, however there may be a change in tone after their neighbours, RBNZ, came up with a hawkish stance. We will have both official and Caixin PMI data from China.

Important news for AUD:

Monday:

• Manufacturing PMI (China)
• Non-Manufacturing PMI (China)
• Composite PMI (China)

Tuesday:

• RBA Interest Rate Decision
• Caixin Manufacturing PMI (China)

Wednesday:

• GDP

Thursday:

• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

Q1 retail sales printed another strong reading for the New Zealand economy. The reading came in at 2.5% q/q up from -2.6% q/q in Q4 and 6.8% y/y up from 4.6% in the previous quarter. Electrical and electronic goods were the biggest contributor, closely followed by recreational goods.

RBNZ has left cash rate, Funding for Lending and LASP programmes unchanged as was widely expected. The tone of the statement was decidedly hawkish and it shows bank’s projection that hikes of the cash rate may come in H2 of 2022, if data continues to be strong. This is similar to BOC’s timeframe for rate hikes. They have acknowledged that economic activity returned close to its pre-pandemic level. NZDUSD has jumped almost 80 pips after the statement was released and passed the 0.73 level. Some local New Zealand banks even see rate increases coming in May of 2022. Governor Orr stated that potential rate hikes are heavily dependent on the path of the economic recovery in New Zealand, adding that recovery is still highly uncertain, although downside risks have lessened.

CAD

BOC Governor Macklem stated that he is comfortable with lowering stimulus extended during the pandemic due to the domestic economy's resilience. He assessed tapering to be the right move for the economy and added that the economy still needs considerable monetary support. CAD gained against USD at the start of the week but then USD strength, due to the month-end rebalancing, caused the pair to rise above the 1.21 level.

This week we will have Q1 GDP and employment data.

Important news for CAD:

Tuesday:

• GDP

Friday:

• Employment Change
• Unemployment Rate

JPY

Japan’s issues with the COVID outbreak continue to mount with the US issuing a “do not travel to Japan” advisory. The opening ceremony for Summer Olympic Games is approaching fast, it is scheduled for July 23, while state of emergency in Tokyo area and other prefectures was extended until June 20. Vaccination rate in Japan is around 7%, well below the average for developed countries. The wages subsidy programme has been extended till the end of July in order to help economy cope with the pandemic.

CHF

SNB total sight deposits for the week ending May 21 came in at CHF709.6bn vs CHF707.8bn the previous week. With EURCHF staying below the 1.10 level SNB is increasing their activity in markets.

 

[katetrades]

Forex Major Currencies Outlook (June 7 – June 11)

ECB and BOC meetings coupled with inflation data from the US will dominate this week that will have EURO 2020 finally start on Friday.​

USD

ISM manufacturing PMI for May came in at 61.2 vs 60.9 as expected. The reading is still well in expansion with new orders continuing their rise and coming in at 67 vs 64.3 the previous month. The employment component fell to almost 50 due to labour shortage. Component shortages were reported by almost all of manufacturing sectors and they are restraining recovery. ISM services PMI came in at 64 vs 63.2 as expected and up from 62.7 in April. A new record high for the reading as production, new orders and new export orders all improved. Order backlog also improved indicating strong demand. Low points of the reading are drop in employment component and rise in prices paid component (over 80). Supplier delivery times rose over 70 indicating supply congestions.

Fed announced that it plans to wind down on their pandemic induced Corporate Credit Facility. Their holdings are small, around $5bn in bonds and $8.6bn in ETFs, especially compared to Fed’s total balance sheet where assets are standing at $7.9 trillion, however this could be the potential sign of incoming tapering. They may opt to take things slowly and gradually, to ease the investors and avoid unwelcome market movements.

NFP for May missed expectations for the second month in a row. Headline number came in at 559k vs 675k as expected. The unemployment rate dropped to 5.8% from 6.1% in April, but the drop was achieved on the back of falling participation rate which came in at 61.6%. The underemployment rate dropped to 10.2% from 10.4% the previous month. Fed’s focus has shifted solely to employment numbers and although this reading has some positives they will not feel pressured to taper soon. Wages showed a small increase, 0.5% m/m and 2% y/y. Continuous rise in wages should lead to sustained inflation pressures.

This week we will have inflation data. With reopening of the economy, combined with base effects from last year some analysts see headline number rising to 4.7% y/y with core printing 3.2% y/y.

Important news for USD:

Thursday:

• CPI

EUR

Preliminary inflation data for May saw reading come in at 2% y/y, up from 1.6% y/y in April. Rise in energy prices is the dominant factor in headline reading. Core reading came in at 0.9% y/y, up from 0.7% y/y the previous month, but still below 1%. That fact should keep ECB calm and allow them to characterize the rise in headline number as “transitory”. Final manufacturing PMI was upgraded to 63.1 from 62.8 as preliminary reported on the back of improvements in both German and French readings. Services and composite slightly improved to 55.2 and 57.1 respectively, staying well into the expansion territory, with German and French reading being unchanged. Another set of positive data raising expectations for Q2 GDP.

This week we will have final Q1 GDP estimate and ECB meeting. There will be no changes in the rate and we expect members to leave out talk about slowdown in PEPP as to prevent bond yields from rising. Rising yields could potentially weaken the recovery in the Eurozone. ECB will publish new staff projections.

Important news for EUR:

Tuesday:

• GDP

Thursday:

• ECB Interest Rate Decision

GBP

Services were revised up to 62.9 from 61.8 as preliminary reported and pulled with them composite also to 62.9 from 62 as preliminary reported. With reopening and loosening of restrictions employment conditions improved significantly. ONS notes that, as of mid-May, only 8% of workforce are furloughed. This will give more credibility to incoming employment reports.

This week we will have GDP data for April showing us how strong was the start of Q2.

Important news for GBP:

Friday:

• GDP

AUD

RBA has left the cash rate and 3-year bond target yield unchanged at 0.10% as was widely expected. They stated that economic recovery was stronger than expected and they see 2021 GDP at 4.75% and 2022 at 3.5%. Potential virus outbreaks, such as one seen in the state of Victoria, have been characterized as sources of uncertainty, but they should be contained as more people receive the vaccine. Statement shows a positive on the employment front: “Progress in reducing unemployment has been faster than expected with the unemployment rate declining to 5.5 per cent in April. Job vacancies are at a high level and a further decline in the unemployment rate to around 5 per cent is expected by the end of this year. There are reports of labor shortages in some parts of the economy.” The meeting showed barely any changes from the one in May, July meeting has potential to bring changes to the monetary policy.

Q1 GDP came in at 1.8% q/q vs 1.5% q/q as expected. Adding to the beat was the fact that Q4 GDP was revised up to 3.2% q/q. Household consumption came in at 1.2% and was led by spending on services, recreation and culture. Private investment came in at 5.3% with machinery and equipment investment had the biggest impact due to sustained improvement in business confidence and Government tax incentives. Imports rose faster than exports thus making net exports a drag on the GDP.

Official PMI data from China for the month of May showed manufacturing dipping slightly to 51 from 51.1 in April. Expectations were for a small rise, however semi-conductor chip shortage and input costs rising to the highest level in a decade contributed to a slight decline. Non-Manufacturing PMI improved to 55.2 from 54.9 the previous month due to increased spending during the Golden Week holidays. Composite PMI was pushed up to 54.2 from 53.8 the previous month. Caixin manufacturing PMI came in as expected at 52. Total new orders index climbed to the highest level in 2021 due to strong export sales. Employment index was slightly over the 50 level. Report states:” Rapidly rising commodity prices began to disrupt the economy as some enterprises began to hoard goods, while some others suffered raw material shortages. Supply chains were also significantly affected.” Caixin services came in at 55.1 and composite at 53.8. Both experienced drops but both are in the expansion territory. New export orders component dropped into contraction indicating fall in global demand.

PBOC raised FX reserve requirement ratio from 5% to 7% as a way to fight ongoing yuan strength. New requirement will be implemented on June 15. During the week they have set USDCNY level at 6.3572, the lowest level for the pair in over 3 years. However, after those levels the pair has gained strength as we moved towards the end of the week with Friday set at 6.4072.

This week we will have trade balance and inflation data from China.

Important news for AUD:

Monday:

• Trade Balance (China)

Wednesday:

• CPI (China)

NZD

Final business confidence in May came in at 1.8 vs 7 as preliminary reported. It is a big downgrade of the preliminary reading, however it is an improvement from April’s -2 reading. RBNZ Assistant Governor Hawkesby put a brakes on potential NZD upside with his comments that next year’s rate hike is dependent on underlying economic assumptions. GDT price index came in at -0.9% making it the fourth consecutive auction of falling dairy prices. RBNZ Governor Orr stated that dairy exports are supporting the economy. Although the prices are steady or slightly dropping, global demand for dairy products is very strong which in turn gives strength to New Zealand’s terms of trade.

CAD

Employment report for the month of May showed employment change dropping -68k vs -25k as expected. The unemployment rate ticked up to 8.2% while participation rate dropped to 64.6%, which is concerning. Wages continued to decline coming in at -1.4% m/m while both full-time and part-time employment showed declines. The province of Ontario remained under lockdown in May with few other provinces increasing restrictions in May which led to weaker employment reading. GDP in March came in at 1.1% m/m and helped Q1 rise to 5.6% q/q annualized, however expectations were for a 6.8% q/q annualized growth. We have entered into the last third of Q2 so this data point will be of interest mainly to economists while markets will ignore it.

This week we will have BOC meeting. After last month’s meeting there will be no changes in monetary policy or rate and the tone of the statement should remain upbeat.

Important news for CAD:

Wednesday:

• BOC Interest Rate Decision

JPY

Industrial production in April came in at 2.5% m/m vs 3.9% m/m as expected and 15.4% y/y vs 16.9% y/y as expected. Yearly figures are inflated due to base effects since April of 2020 was horrendous month for producers. Still, figures are softer than expected indicating slack in the economy. Retail sales for the same period are adding to the economic woes. They came in at -4.5% m/m vs -1.7% m/m as expected and 12% y/y vs 15.2% y/y as expected. Reimposed states of emergency around the country heavily impacted consumer activity. Q1 capex data came in at -7.8% q/q vs -6.8% q/q as expected indicating lower business investment which may lead to weakness in Q2 GDP. On the positive side, May manufacturing PMI was upgraded to 53 and it showed expansion in output and new orders categories with employment continuing its rise. Additionally, services reading was upwardly revised to 46.5 and propped composite reading higher to 48.8. The good news stop there as when we dig into the services reading we see drops in ouput and new businesses. Business optimism drops to four-month low. With state of emergency prolonged until June 20, services reading next month may drop even lower continuing the trend of sixteen consecutive months below the 50 level.

CHF

SNB total sight deposits for the week ending May 28 came in at CHF710.5bn vs CHF709.6bn the previous week. A slight increase in the sight deposits indicating that SNB is standing ready to push EURCHF over the 1.10 level. SNB Chairman Jordan reiterated bank’s stance that Swissy remains highly valued and added that inflation risk is modest. Inflation was negative in Switzerland, excluding April, since January of 2020. Additionally, strong currency will have negative impact on inflation. Q1 GDP came in at -0.5% q/q vs -0.4% q/q with prior quarter being revised down to 0.1% q/q, thus making the reading even weaker.