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Forex Major Currencies Outlook (May 16 – May 20)

This week we will have consumption data from the US, UK and China as well as inflation data from the UK and Canada and employment data from the UK and Australia.

USD 

Inflation data for the month of April came in at 8.3% y/y, down from 8.5% y/y, however the drop was smaller than expected (8.1% y/y). Shelter, food, airline fares and new vehicles were the biggest contributors. Gasoline fell 6.1% m/m followed by prices of used cars. Core CPI rose 6.2% y/y, down from 6.5% y/y the previous month. Core inflation rose 0.6%m/m, beating the estimates while core services prices rose at their fastest monthly pace (0.7% m/m) since 1990. At first, the fact that inflation did not fall as fast as expected brought strength to dollar, however very quickly markets reverted and reacted as too many rate hikes have been priced in and brought USD down. Later on, deleveraging in the markets continued and USD rallied again. If today’s reading should be interpreted as inflation peaking in March, then certainly it will take a long time for it to go back to the 2% target. 

The yield on 10y Treasuries started the week at 3.17% climbed to as high as 3.2%, then dropped below 3% on Tuesday and stayed there for the entire week. FedWatchTool sees probability of a 50bp rate hike at 87.2%. 

This week we will have consumption data, expected to show a slowdown. 

Important news for USD: 

Tuesday:

  • Retail Sales 

EUR 

A slew of central bank members spoke in favour of a July rate hike and ending of APP purchases in late June. Most of them were known hawks so markets were not phased by it. However, when President Lagarde hinted at possible July rate hike markets listened and EUR gained ground against weaker currencies, GBP and antipodeans. The tables have turned against EUR in the second half of the week and EURUSD fell to a new five-year low. 

GBP 

Preliminary Q1 GDP reading came in at 0.8% q/q vs 1% q/q as expected and 8.7% y/y vs 9% y/y as expected. ONS notes that the level of quarterly GDP in Quarter 1 2022 is now 0.7% above its pre-pandemic level (Quarter 4 (Oct to Dec) 2019). Personal consumption slipped to 0.4% q/q while business investment jumped 5.4% q/q. Government spending retreated -1.7% q/q and net exports were also a drag, with exports plunging and imports surging on rising energy prices.March GDP reading slipped into negative territory and came in at -0.1% m/m vs flat as expected as increases in cost of living hurt the growth. Both services and industrial output dropped in March -0.2%. 

This week we will have employment, inflation and consumption data. 

Important news for GBP: 

Tuesday:

  • Claimant Count Change
  • Unemployment Rate

Wednesday:

  • CPI

Friday:

  • Retail Sales 

AUD 

Trade balance data from China for April showed increase in surplus to $51.12bn, however exports slumped to just 3.9% y/y from 14.7% y/y in March while imports were flat. The continuation of lockdowns in China’s main cities is crushing the demand and it presents a huge problem for all countries exporting to China. Inflation data showed CPI rise to 2.1% y/y from 1.5% y/y in March (expectations were for a 1.8% y/y rise). PPI rose 8% y/y, down from 8.3% y/y the previous month, but not as much as it was expected (7.7% y/y). Transportation and communication category saw the largest increase in prices and there was also a food price increase, the first one in five months. PBOC has set the inflation target at 3% so there is more room for them to ease monetary policy. 

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

Important news for AUD: 

Monday:

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

Thursday:

  • Employment Change
  • Unemployment Rate 

NZD 

Electronic card retail sales for the month of April rebounded very nicely and came in at 7% m/m and 2.1% y/y. They make up to 70% of total retail sales so consumption in Q2 has started strong. Prime Minister Ardern confirmed that international borders will be reopened on July 31 which helped kiwi regain composure against other currencies. 

CAD

CAD did not manage to profit from increase in oil prices. USDCAD spent majority of the week above the 1.30 level as relentless dollar strength dominated across the markets. CAD managed to make gains against antipodeans.

This week we will have inflation data.

Important news for CAD:

Wednesday:

  • CPI

JPY

Wage data from March showed nominal wages increase 1.2% y/y, same as in February but with inflation rising it brought down real wages into negative territory (-0.2% y/y) for the first time in 3 months. Household spending declined -2.3% y/y as lower income and higher prices took their toll on the consumer. Final services PMI for April improved slightly to 50.7. New orders have been falling but activity, new export orders and business optimism all showed signs of improvement.

This week we will have preliminary Q1 GDP data.

Important news for JPY:

Wednesday:

  • GDP

CHF

SNB total sight deposits for the week ending May 6 came in at CHF750.9bn vs CHF744.4bn the previous week. This is a rather big jump as SNB is helping the markets push EURCHF pair over the 1.04 level.

You can follow all economic events on the Economic Calendar page on our Website. MT server time is set to GMT+3 and if you need assistance converting MT 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 our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.

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