The US dollar has been on the back foot, mostly due to the stormy end of month corrections. Is it now ready to resume its big rally? Rate decisions in Australia, the UK and the Euro-zone, as well as buildup of key US figures culminating with the big Non-Farm Payrolls are on the top of our list this week, that start a new week. Here is an outlook on the major market movers coming out way.
When will QE be tapered? There is a growing notion it will happen this year, but the timing is unclear due to mixed signals. US pending home sales increased 0.3% in April, below expectations. Also jobless claims rose unexpectedly and GDP was revised to the downside. However, consumer confidence is on the rise, and also manufacturing shows positive signs. Jobs remain the key. Will the coming data show a substantial advance in the coming months? In Europe, the question of a a negative deposit rate (or hints of) weigh on the euro, as employment and prices are weak. The Draghi show could provide answers. The yen doesn’t always drop, but the lack of a break below 100 also shows that the rises could resume in USD/JPY. Let’s start.
- Ben Bernanke speaks: Sunday, 18:00. Just before trading starts, the markets will have a chance to react. Ben Bernanke, chairman of the US Federal Reserve will speak at the Graduation Ceremony at the Princeton University, in New Jersey. He may further explain his position regarding cutting short his monthly $85 billion quantitative easing program in the near future, despite the recent pick-up in the US economy. His unwillingness to taper, followed by a hint about tapering in the next few meetings rocked markets.
- US ISM Manufacturing PMI: Monday, 14:00. US manufacturing growth weakened in April showing a modest expansion of 50.7, down 0.6 points from March, indicating a slowdown in the beginning of the second quarter. Economists expected a higher figure of 50.9. US ISM Manufacturing PMI is expected to reach 50.this time.
- Australian rate decision: Tuesday,4:30. The Australian central bank unexpectedly cut rates by 0.25 percentage points to 2.75% on is May meeting. RBA governor Glenn Stevens claimed low inflation spurred this reduction in order to boost economic growth. Some economists believe there are risks in cutting rates to generational lows but the Reserve Bank believes it is a risk worth taking. No change is rates is expected.
- US Trade Balance: Tuesday, 12:30. The U.S. trade deficit narrowed more than expected in March amid record low imports, indicating slowing domestic demand. The trade gap contracted to $38.8 billion, the second smallest since January 2010. Analysts expected a $42.1 billion gap. Trade deficit is expected to widen to$41.1 billion.
- Australian GDP: Wednesday, 1:30. The Australian economy expanded by 0.6% in the fourth quarter of 2012, in line with market predictions, but lower than the 0.7% expansion registered in the third quarter. The major mining sector showed signs of weakness due to lower global demand. An expansion rate of 0.8% is forecast. The Aussie dollar suffers from loads of bad press.
- US ADP Non-Farm Employment Change: Wednesday, 12:15. ADP’s National Employment report showed a jobs addition of 119000 in April, lower than the 154,000 rise anticipated by analysts, down 12,000 from March. A higher job creation of 171,000 is predicted this time.
- US ISM Non-Manufacturing PMI: Wednesday, 14:00. The ISM non-manufacturing survey showed a reading of 53.1 in April, below the 54.4 registered in March, down for the third consecutive month. However this result still indicated expansion in the services sector. Analysts expect ISM non-manufacturing report to reach 53.4 this time.
- UK rate decision: Thursday, 11:00. This rate decision by the BOE will most probably be a total “non-event”. The outgoing governor has seen his influence drop in recent decisions, and isn’t expected to lead any policy changes in his last decision. Mervyn King has already left a farewell gift: a relatively upbeat inflation report, in which growth prospects were raised for a change. The big event will be in Carney’s first decision in July..
- Eurozone rate decision: Thursday, decision at 11:45, press conference at 12:30.
Given the comments from various ECB members regarding a negative deposit rate, the internal debate about the next policy move will likely be “lively”. However, after cutting the main lending rate last month, the ECB might pause for now, despite falling inflation, an ongoing recession and a relatively strong currency that impedes export growth. We have a better chance of seeing Draghi making thick hints about a policy change in the next meeting: making it clear that a negative deposit rate is high on the agenda. This could significantly weigh on the euro during June.
- US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for unemployment climbed 10,000 last week to a seasonally adjusted 354,000, above economists’ predictions. However, the reading is consistent with the steady hiring and remains near a five-year low. A smaller addition of 345,000 is forecast.
- Canadian employment data: Friday, 12:30. The Canadian job market gained a modest 12,500 new jobs in April while the unemployment rate remained steady at 7.2%. The increase in hiring, was a bit lower than 14,800 addition expected by analysts, indicating Canada recovered only a part of the 54,500 jobs lost in March. This goes in line with the lower than expected growth in Canada’s economy. Job creation is expected to reach 17.3K while unemployment rate is predicted to improve to 7.1%.
- US Non-Farm Payrolls: Friday, 12:30. The US market gained 165,000 jobs in April, much better than the 146,000 predicted by analysts. Together with the big revisions, the data was certainly encouraging. Meanwhile, the unemployment rate remained dropped to 7.5% The strong set of numbers indicate that the US economy is not falling back as was earlier suggested. A nearly similar increase of 163,000 is forecast, while unemployment rate is expected to remain steady at 7.5%.
*All times are GMT.
That’s it for the major events this week. Stay tuned for coverage on specific currencies