Forex Weekly Outlook June 4-8 – Trade war looming

Markets experienced quite a bit of action with the Italian crisis, looming trade wars, and abnormal action around the NFP. What’s next? The US ISM Non-Manufacturing PMI stands out in the first full week of June. Here are the highlights for the upcoming week.

Italy grabbed the headlines after the President rejected a Euroskeptic finance minister. The move triggered worries that new elections would serve as a plebiscite  on euro-zone membership. Worries sent stocks down and money away from the euro and the pound and into the safety of the yen. The Italian crisis then had a positive twist as a compromise was found. However, Italy’s populist government will still cause headaches. The political changes in Spain had little impact. The Trump Administration implemented tariffs on Canada, Mexico, and the EU which sparked anger and retaliatory tariffs. This also weighs on markets and is set to continue looming in the upcoming week. Progress in the negotiations between North Korea and the US provided some relief. In the euro-zone, data was finally positive with inflation on the rise. Canada enjoyed a hawkish statement from the central bank, but weak GDP and the US tariffs weighed. The US Non-Farm Payrolls report came out above expectations with 223K jobs gained and +0.3% in monthly wages. However, President Trump stole the show by hinting about a good report 69 minutes before the publication. This triggered a “buy the rumor reaction” and muted response later on. In any case, the Fed remains on course to raise rates later this month.

1. Australian Rate Decision: Tuesday, 4:30. The Reserve Bank of Australia has not changed its interest rate since mid-2016. This time is unlikely to be different with Phillip Lowe and his colleagues expected to hold the Cash Rate at 1.50%. The RBA has recently raised its growth forecasts but remains in rush to increase rates. It will be interesting to see if the Bank mentions global trade tensions in its statement.
2. UK  Services PMI: Tuesday, 8:30. The last purchasing managers’ index published in the UK is also the most important one, for the services sector, Britain’s largest. The score disappointed in April with 52.8 points, still reflecting a modest growth rate that spills into the second quarter. The figure for May is published now. A drop to 52.9 is on the cards.
3. US ISM Non-Manufacturing PMI: Tuesday, 14:00. This forward-looking gauge of the US economy dropped in April by 2 points to 56.8, but this is still an upbeat level. This time, the publication will get its own attention and will not serve as a hint to the Non-Farm Payrolls report which is already out. A rise to 57.9 is projected.
4. US  JOLTS Job Openings: Tuesday, 14:00. The report is lagging: only now will we receive the data for April while the jobs report was for May. Nevertheless, the Federal Reserve shows a lot of interest in this publication. In March, the annualized level of job openings jumped to 6.55 million, a multi-year high. Apart from the headline, any change in the number of quits is eyed as it reflects the level of confidence that workers have in finding a new job. Job openings are projected to stand at 6.49 million.
5. Australian  GDP: Wednesday, 1:30. Australia publishes its GDP report late, but only once, unlike the US with two revisions. The economy of the land down under disappointed with a slow growth rate of 0.4% q/q in the last quarter of 0.4%. A pickup in activity is likely for the first quarter of 2018. A considerably stronger growth rate is forecast now: 0.8%.
6. Canadian jobs report Friday, 12:30. Canada’s labor market report will be in the limelight, having an exclusive influence on USD/CAD as the US Non-Farm Payrolls report has already been published. Back in April, Canada lost 1,100 jobs, a disappointing outcome. A bounce back is likely now. The unemployment remained at 5.8% for the third month in a row.

*All times are GMT

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Further reading:

• EUR/USD forecast – for everything related to the euro.
• GBP/USD forecast – Pound/dollar analysis
• USD/JPY forecast – the outlook for dollar/yen
• AUD/USD forecast – projections for the Aussie dollar.
• USD/CAD forecast – Canadian dollar predictions

Safe trading!