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Forex Major Currencies Outlook (May 18 – May 22)

Preliminary PMI data from the EU and UK along with news regarding easing of restrictions will draw the most interest in the week ahead.

USD 

CPI for the month of April came in at 0.3% y/y for the lowest reading since October 2015. Food inflation has risen in April, however that rise was dwarfed by the drop in energy prices of -10.1% m/m. Apparel prices also weighed down on inflation coming in at -4.7% m/m. Core CPI, excluding food and energy, came in at 1.4% y/y vs 1.7% y/y as expected. Initial jobless claims added almost 3 million new requests (2981k) bringing total amount to over 36.5 million requests in 2 months while continuing claims hover around 23 million. Retail sales came in at -16.4% m/m vs -12% m/m as expected with control group coming at -15.3% m/m vs -5% m/m. Given that the American consumer constitutes almost 70% of GDP this reading puts additional downward pressure on Q2 GDP. 

Fed chairman Powell stated in a video interview that additional policy measures may be needed to avoid lasting damage. The unemployment may peak in the next month or so before dropping significantly but still staying above the number prior to the outbreak. He then reiterated that Fed’s policy on negative interest rates has not changed and that they are not looking in that direction. Powell also called for more fiscal policy measures. 

This week we will have housing data and continuation of initial jobless claims and their run toward 40 million. 

Important news for USD: 

Tuesday:

  • Housing Starts
  • Building Permits

Thursday:

  • Initial Jobless Claims
  • Existing Home Sales 

EUR 

Industrial production in March showed the pain caused by the virus outbreak. It came at -11.3% m/m and -12.9% y/y. The numbers were included in past week’s Q1 GDP report so they did not cause a stir in the markets but the mere sight of the numbers is devastating. April numbers will be even more terrifying as the entire continent was under lockdown. The Italian government has signed off a new stimulus bill worth €55bn. 

Preliminary German Q1 GDP came in at -2.2% q/q as expected and with 2019 Q4 GDP being revised to -0.1% q/q technical recession is official. German economy minister Altmeir stated that deepening of recession is expected in Q2 and that the low point should have been reached in April. Q2 GDP is forecast at -10%, however the real number will depend in part on the easing of restrictions. Second estimate of the Eurozone Q1 GDP came in as preliminary at -3.8% q/q. 

This week we will have sentiment, final April inflation and preliminary May PMI data. 

Important news for EUR: 

Tuesday:

  • ZEW Economic Sentiment (EU and Germany)

Wednesday:

  • CPI

Thursday:

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

GBP 

GDP figure for March came in at -5.8% m/m, a staggering drop but better then the dire expectations. Manufacturing and industrial production as well as construction output also beat  expectations but all came in deep into negative. Q1 GDP fell -2% q/q while yearly figure dropped -1.6%. Government spending was the main drag. Net exports plunged thanks to a drop of -10.8% in exports while private consumption fell -1.7% q/q. Business investment improved compared to the Q4 2019 but it only came flat in Q1 2020. Numbers in April will be more horrendous and with Brexit negotiations looming UK economy is in grave condition. BOE governor Bailey ruled off negative interest rates but hinted that they may increase their asset purchase program in June. 

This week we will have employment, inflation, consumption and preliminary May PMI data. Brexit trade negotiations will continue this week. 

Important news for GBP: 

Tuesday:

  • Claimant Count Change
  • Unemployment Rate
  • Average Weekly Earnings

Wednesday:

  • CPI

Thursday:

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

Friday:

  • Retail Sales 

AUD 

Employment change in April came in at -594.3k. The unemployment rate rose to 6.2% while participation rate plunged to 63.5% from 66% the previous month. Participation is now the lowest in 15 years. Full-time employment change came in at -220.5k while part-time employment change was -373.8k. This painful picture of jobs market was due to the state wide shutdown for the month. 

Inflation data from China for April show headline number at 3.3% y/y, dropping from 4.3% the previous month while PPI fell to -3.1% y/y from -1.5% y/y the previous month. The drop in PPI will have a negative impact on already declining company profits and may lead to further easing from PBOC. China has ramped up its trade war tactic by banning imports from four meat works from Australia stating that beef products from those firms have violated inspection requirements. Industrial production came in at 3.9% y/y doubling the expectations but retail sales came in at -7.5% y/y vs -6% y/y as expected indicating growing issues with domestic demand. These numbers show that while it may not be hard to restart the supply after the virus outbreak, it will be much harder to revive demand. 

NZD 

Electronic retail sales for April were horrendous, -46.8% m/m and -47.5% y/y. This is yet another chart that will never be the same again. Preliminary business survey in May showed some hope rebounding to -45.6 from -66.6 the previous month with all of the forward-looking activity indicators being up compared to the previous month. 

RBNZ has left the cash rate unchanged at 0.25% as widely expected. They have decided to expand their QE program, almost doubling it, to the limit of NZD60bn. Apart from government and local government agency bonds, the program will now include purchases of government inflation-indexed bonds. Members stated that RBNZ is prepared to add other assets in their QE program. Annual inflation is forecast at -0.4% in Q1 2021 while they see Q2 2020 GDP dropping -21.8%. The board stated their preparedness to cut cash rate if need arises but as for now, they see it at 0.25% level through Q1 of 2021. The government approved a NZD50bn stimulus package projecting that debt to GDP ratio will rise over 53%. 

This week we will have Q1 consumption data. 

Important news for NZD: 

Friday:

  • Retail Sales 

CAD 

Manufacturing sales in March slumped -9.2% m/m, more than double than the expected -4.5% m/m. This is the largest monthly decline since December of 2008 and it was led by drop in New orders (-11.3%). Canadian economy was shutdown only in the second half of the March and these numbers show a deeply concerning picture about the state of the economy. Needless to say that April numbers, when the entire economy was shutdown, will be much worse. 

Canada's Ministry of Finance launched a new loan facility called "The Large Employer Emergency Financing Facility" which will provide loans to non-financial companies and not-for-profit businesses. 

This week we will have inflation and consumption data. 

Important news for CAD: 

Wednesday:

  • CPI

Friday:

  • Retail Sales 

JPY 

The virus outbreak has weighed heavily on Japan’s economy, lowering both consumer demand and capital expenditures. Expectations are for second consecutive drop in GDP of -1.3% q/q and -5% annualised. In the light of those grim projections BOJ governor Kuroda ramped up its rhetoric vowing to do whatever the bank can do to support lending to the real economy. They continue to examine new lending facility. PM Abe has announced decision to lift the state of emergency in 39 prefectures leaving Tokyo, Osaka and Hokkaido from the list. 

This week we will have preliminary Q1 GDP data as well as core machinery data, preliminary May PMI data and national inflation data. 

Important news for JPY: 

Monday:

  • GDP

Wednesday:

  • Core Machinery Orders

Thursday:

  • Trade Balance
  • Markit Manufacturing PMI
  • Markit Services PMI
  • Markit Composite PMI

Friday:

  • CPI 

CHF 

Total sight deposits for the week ending May 8 jumped to CHF669.1bn vs CHF663.8bn the previous week making it eleventh consecutive weekly increase. SNB governor Jordan came out over the weekend and spoke about their commitment to further FX intervention in order to stave off Swissy’s strength. SNB has also further expanded their virus refinancing facility. Now it includes cantonal loan guarantees as well as joint and several loan guarantees for startups. They are taking a page from the Fed’s book in order to prop the economy.

You can follow all economic events on the Economic Calendar page on our Website. MT4 server time is set to GMT+3 and if you need assistance converting MT4 server time to your local time you can use some of the online time converters such as WorldTimeBuddy.

Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that MT4.VAR. and MT4.ECN. accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.

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