Forex Weekly Outlook Apr. 30 – May 4 – Can the Dollar continue rising?

The US Dollar extended its gains as bond yields moved higher. Can this continue? A packed week features the all-important Fed decision and Non-Farm Payrolls. Here are the highlights for the upcoming week.

US 10-year Treasuries finally broke above the magical 3% level. Yields did not stay there for too long but the rise of yields in all maturities sent the US Dollar to new highs. US GDP rose by 2.3% annualized, better than expected even though it was weaker than in Q4 2017. The Korean Summit improved the mood in markets. The pound fell sharply after UK GDP badly disappointed with 0.1%. q/q in Q1. EUR/USD fell to the lowest since January on a mixed message from Draghi, that acknowledged the downturn but saw it as temporary. The elevated action is set to continue.

1. US  Core PCE Price Index: Monday, 12:30. This is the favorite measure of inflation by the Federal Reserve and has a different formula than the CPI. The Cor CPI rose in March to an annual rate of 2.1% from 1.8% beforehand as base effects were removed. Therefore, a rise in the y/y level of the Core PCE is likely from 1.6% previously. A more modest advance to 1.8% is likely. Month over month, a repeat of 0.2% is expected. The Fed’s target is 2%.
2. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia is expected to leave the interest rate unchanged at 1.50% once again. The institution led by Governor Phillip Lowe has not changed the rates since 2016 and has said it is firmly on hold for the time being. The RBA will likely be delighted with the recent slide in the A$ but disappointed with the unimpressive quarterly inflation and the not-so-great jobs report. The message may be somewhat more concerned, but a rate cut is not on the cards.
3. Canadian GDP: Tuesday, 12:30. Canada is unique in publishing monthly GDP reports. The economy surprisingly shrank in January by 0.1% and is now expected to rebound in February by 0.3%. The Bank of Canada expects slow growth in Q1: 1.3% annualized according to the latest forecasts.
4. US ISM Manufacturing PMI: Tuesday, 14:00. The manufacturing sector is doing quite well according to the forward-looking purchasing managers’ index. A score of 59.3 in March is significantly above the 50-point threshold that separates expansion from contraction. A slide to 58.6 is on the cards for April. The publication also serves as a hint towards Friday’s jobs report.
5. New Zealand jobs report Tuesday, 22:45. New Zealand publishes labor statistics only once per quarter, giving the publication a strong impact. After a rise of 0.5% in employment in Q4 2017, a gain of 0.6% is on the cards for Q1 2018. The unemployment rate is projected to remain unchanged at a low of 4.5%.
6. Euro-zone GDP: Wednesday, 9:00. Euro-zone growth has slowed down or “moderated” according to ECB President Mario Draghi. After some of the bigger countries have reported mixed figures, the euro-zone as a whole is forecast to show a quarterly growth rate of 0.4% q/q in the first quarter of 2018 after a more robust 0.6% in Q4. A further slowdown may slow the ECB’s exit from the QE program.
7. ADP Non-Farm Payrolls: Wednesday, 12:15. The ADP report from the private sector is not always well-correlated with the official figure coming out two days later. This was the case in March when ADP published a gain of 241K private sector positions and the official NFP badly disappointed. This time, a more average gain of 194K is expected for April. Despite the lack of consistent correlation, the figure is always a market mover.
8. Fed Decision: Wednesday, 18:00. The Federal Reserve is expected to leave the interest rate unchanged at a range of 1.50% to 1.75% this time. This FOMC meeting does not include a press conference nor new forecasts. Nevertheless, the Fed publishes a statement and given the recent data, it may be quite upbeat. A rate hike in June is firmly on the cards. Jerome Powell and his colleagues will likely cement the June hike by dropping thick hints about such a move.
9. UK Services PMI: Thursday, 8:30. The services sector is the largest in the UK as in other developed economies. Markit’s forward-looking index has a significant impact on the pound. The figure fell to 51.7 points in March, indicating a major slowdown. A bounce back to 53.3 points is on the cards for April.
10. Euro-zone inflation: Thursday, 9:00. The ECB has a “single needle in the compass” – headline inflation. As of March, it stands at 1.3% y/y and is expected to remain unchanged in the preliminary read for April. However, core inflation is projected to drop from 1% to 0.9%. This may weigh on the euro and slow down the ECB’s exit from bond-buying.
11. ISM Non-Manufacturing PMI: Thursday, 14:00. The report for the services sector is the final hint towards Friday’s big event. The figure remained at a robust 58.8 points score in March, indicating further solid growth. A minor slowdown to 58.1 points is on the cards. The employment component provides further insight into hiring.
12. US Non-Farm Payrolls: Friday, 12:30. The jobs report in the world’s No. 1 economy always stirs financial markets. In March, the headline figure disappointed with a modest gain of 103K, well below expectations and the average 200K levels but it came after a big gain beforehand. A bounce back with 185K positions in April. The focus is set to remain on wages. Month over month, a rise of 0.2% is expected after 0.3% beforehand. Yet year over year, the same 2.7% pay raise is on the cards. Any rise towards 3% can send the US Dollar shooting higher while a deceleration towards the stubborn average of 2.5% may weigh on the greenback.

*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!