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The US dollar was beaten by major currencies in a week that saw extreme volatility, especially around the yen. Rate decisions in Japan and NZ, and US Federal Budget Balance, Retail Sales and inflation figures are the top events this week. Will this kind of market action continue? Here is an outlook on the main market-movers awaiting us.

The US economy gained 175K jobs in May,  exceeding Analysts’  Forecast of    a 167,000 job addition , following a series of weak readings. Furthermore, this was the third straight month that payrolls increased less than 200,000, indicating the US job market is not strong enough to be turning the corner, especially in light of the government’s austerity measures, weighing in the economy.  This enabled only a partial recovery of the US dollar after a major crash, following the mediocre US data and the ECB decision: Draghi practically put the negative deposit rate on the backburner. Standing out from the crowd were the New Zealand and Australian dollars. The Aussie is getting close to critical support. Let’s start:

  1. Japan Rate decision: Tuesday. Japan’s central bank officials were content with the pace of recovery, at their May meeting, saying that economic conditions in Japan are improving thanks to the ambitious reforms and monetary policy enacted Prime Minister Shinzo Abe. The central bank promised to continue its QE to help boost the economy and maintained rates at 0%-0.10%. No change in rates is forecast. An intervention by the BOJ cannot be ruled out  after the recent falls.
  2. UK Employment data: Wednesday 8:30. The number of Britons claiming unemployment benefit, plunged way beyond expectations in April, down 7,300 following a 9,900 fall in the previous month. Analysts expected a smaller drop of 3,100. These are encouraging signs of recovery in the UK economy. The jobless rate reached 4.5%, the lowest since April 2011. However the job growth came at the expense of pay rises. Average weekly earnings increased by a mere 0.4%, the lowest since September-November 2009. Another drop of 6,800 is expected now.
  3. US Federal Budget Balance: Wednesday, 18:00. Income taxes in April boosted the US Federal Budget balance to $112.9 billion, following a deficit of $106.5 billion in March.   Meanwhile spending remained flat with total outlays down 0.6 % year-to-date at $2.09 trillion. Up until now, fiscal 2013 show an improvement in the government’s deficit, down 23% six months into the year. A deficit of $110.2 billion is expected now.
  4. NZ Rate decision: Wednesday, 21:00. The Reserve Bank of New Zealand maintained its Official Cash Rate at 2.5% in line with market expectations, saying it plans to preserve it till the end of 2013. On the same time the bank issued a warning regarding a boost in house prices and a stronger than expected kiwi. However the bank did not mention policy changes in case the kiwi continues to strengthen. No change in rates is expected.
  5. Australian Employment data: Thursday, 1:30. In April, The Australian labor market increased by 50,100 jobs during April, beating predictions for a 12,000 rise. The job surge came after a contraction of 31,100 jobs in March. The main contributor to this rise was a strong pick-up of 34,500 full-time positions. The high reading pushed unemployment rate from 5.6% in March to 5.5% in April. Despite volatility in recent months, the Australian job market is on a growth trend. A contraction of 9,800 jobs is anticipated, while unemployment rate is expected to reach 5.6%.
  6. US Retail sales: Thursday, 12:30. Retail  sales in the US surprised with a 0.1% gain in April, following a 0.5% drop in March while analysts expected a 0.3% fall. The reading indicates the US economy is strong enough to withstand the government’s massive spending cuts, and still continue to grow. Meanwhile, core sales, excluding automobiles, gasoline and building materials, rose 0.5% after an upwardly revised 0.1% gain in March. Retail sales are expected to gain 0.4% while core sales are predicted to increase 0.3%.
  7. US Unemployment claims: Thursday, 12:30. The number of initial claims for U.S. unemployment benefits fell last week to 346,000 in line with market expectations, following 354,000 claims reported for the previous week. The four-week average dropped to 2.952 million from the preceding week’s revised level of 3.004 million. A rise to 365,000 is anticipated now. The mediocre numbers served as an excuse to sell the greenback, big time.
  8. US PPI: Friday, 12:30. Producer Price Index fell slightly more than expected in April, down 0.7%, following a 0.6% drop in March. Analysts expected a 0.6% fall in April. The main reason for this decline is a drop in gasoline and food prices. On a yearly base, PPI, weakened to 0.7% in April from 1.1% the month before. The slow inflation at the producer level justifies the continuation of Fed’s QE. A rise of 0.1% is forecast.
  9. US Prelim UoM Consumer Sentiment: Friday, 13:55. Americans’ confidence in the economy improved in May to the highest level in almost six years, reaching 83.7 from 76.4 in April, amid a rise in real estate values and record stock prices boosting household capital. The increase indicates Americans are overcoming the effects of higher taxes and federal spending cuts ending up with increased spending power which will hopefully lead to economic expansion later this year.  A further rise to 84.9 is expected now.

*All times are GMT.

That’s it for the major events this week. Stay tuned for coverage on specific currencies

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