Forex Weekly Outlook Apr. 23-27 – Can the dollar continue higher?

The US dollar enjoyed a surge in the latter part of the week thanks to rising US yields. Will it continue higher? The upcoming week features the first read of the US and UK GDP as well as rate decisions from the euro-zone and Japan. Here are the highlights for the upcoming week.

US retail sales came out mixed, with a downgrade in the control group taking the sting out of the beat on the headline. Housing data was already better and Fed speakers also sounded optimistic about the economy. In the UK, stagnant wages took the air out of the pound’s rally and the euro-zone continues showing signs of a slowdown. The BOC was somewhat cautious, weighing on the loonie while a disappointing Australian jobs report hurt the A$. Towards the end of the week, US 10-year Treasury yields rose above 2.90% and carried the US Dollar with it. Optimistic talk by the Fed about interest rates contributes to this move.

1. US Existing Home Sales: Monday, 14:00. Most sales of homes in the US are of second-hand, existing homes. Back in February, they stood on a stable, annualized figure of 5.54 million. A similar level is likely in March: 5.55 million.
2. Australian inflation: Tuesday, 1:30. Australia releases its inflation figures only once per quarter, making each publication a bigger deal than in other countries. In the last quarter of 2017, headline inflation rose by 0.6% q/q, a solid and stable rate. The Trimmed Mean CPI (known as Core CPI in other countries) increased by 0.4%. The figures for Q1 2018 are expected to be 0.5% on the headline and also 0.5% on the core.
3. US  New Home Sales: Tuesday, 14:00. Sales of new homes comprise only a small part of sales, but they trigger wider economic activity. They reached an annualized level of 618K back in February and we may see a small rise now: 625K is expected.
4. US CB Consumer Confidence: Tuesday, 14:00. The Conference Board’s Consumer Confidence measure was a strong 127.7 in March. The survey of around 5,000 households may now slide from these levels, following the lead of the parallel UoM sentiment. A score of 126 points is forecast.
5. Euro-zone rate decision: Thursday, the decision is out at 11:45, press conference at 12:30. The ECB removed the potential for increasing the volume of bond buys in their last meeting back in March. This slightly hawkish shift was later downplayed by ECB President Mario Draghi who said it was only a confirmation of the previous data. This shrugging off was later repeated in the ECB’s meeting minutes. Since that decision in March, the economic data has somewhat deteriorated. Hard data such as industrial output and soft data like the forward-looking PMI all slipped and missed expectations. At this April meeting, the ECB does not release new forecasts and is unlikely to change its interest rates. However, the press conference by Draghi will surely move the euro. A focus on a potential slowdown may hurt the euro, especially if he says it has immediate implications on monetary policy. Optimism on current growth rates may boost the euro, preparing us for the next meeting. In June, the ECB may announce what happens after the current program of buying 30 billion euros worth of bonds expires in September. A tapering down until the end of the year and no more buys in 2019 is on the cards now.
6. US Durable goods orders: Thursday, 12:30. Headline durable goods orders jumped by 3% in February and may now slide. The focus is on core orders which rose by 1% according to the revised data. These numbers are eyed by the Fed and are an important part of GDP. The March figures will directly impact the GDP read on Friday. Headline orders \are projected to increase by 1.3% and core orders by 0.6%.
7. Japanese rate decision: Friday morning, press conference usually at 6:30 GMT. This decision marks five years since Governor Haruhiko Kuroda assumed his role and announced the QQE program that weakened the yen. Japan no longer suffers from deflation but reaching the elusive goal of 2% core inflation is a hard task. At this meeting, the BOJ will likely leave the Policy Rate at -0.10% and continue buying bonds in order to keep the 10-year yield at 0%. The extremely loose monetary policy contrasts other developed economies. Talk about potentially withdrawing some stimulus in the Fiscal Year 2019 were premature and not repeated by Kuroda. Any new policy will come as a surprise.
8. Euro-zone GDP data: Friday: France at 5:30 and Spain at 7:00. France, the second -largest economy in the euro-zone, has enjoyed an uptick in growth, partly attributed to confidence resulting in Macron’s presidency. According to the final data, the economy saw a growth rate of 0.7% q/q, above the average of the euro area. Spain, the fourth-largest economy, was powering forward in 2017, and the 0.7% growth rate in Q4 was relatively slow to its own self. Both countries may now see slightly lower growth rates according to all the signals of weaker growth seen in recent months. France is projected to see a slowdown to 0.4% and Spain to print another 0.7% q/q growth rate.
9. UK GDP (first read): Friday, 8:30. The British economy continued growing at a rapid pace in 2016, beating other developed economies while lagging behind them in the following year. Where is it heading in 2018? After enjoying an expansion of 0.4% q/q in the last quarter of 2017, a slowdown is on the cards for Q1 2018: 0.3% q/q.
10. US GDP (first read): Friday, 12:30. The US economy grew by rates of around 3% annualized in Q2, Q3, and Q4 of 2017. Yet as it often happens with the American economy, the first quarter is slower. According to the closely watched estimates from the Atlanta Fed, the economy slowed to a pace of around 2% in Q1 2018 after 2.9% in the final read for the final quarter of 2017. Year over year, the US economy grew by 2.3% in the whole of 2017. A growth rate of 2% annualized is on the cards now.

*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!