Forex Weekly Outlook June 11-15 – Hectic week

The US Dollar was on the back foot as markets put on their rosy glasses and mostly ignored brewing issues. The upcoming week is a busy one featuring rate decisions from the Fed, the ECB, and the historic Kim-Trump Summit and more. Here are the highlights for the upcoming week.

The Trump Administration stuck to its protectionist policies on trade, aggravating relations with the EU and also its North American partners. The rising tensions were mostly ignored by markets that only began reacting to trade concerns late in the week. The US ISM Non-Manufacturing PMI came out above expectation and other figures were mostly positive. The euro got a boost from the reports that the ECB will discuss an exit from the QE program. The pound suffered from Brexit headlines that suggested that no real progress has been made. The Australian dollar enjoyed strong GDP growth of 1% while the loonie had mixed jobs numbers with a loss of jobs but a jump in wages.

1. Trump-Kim Summit: Tuesday, 1:00. The leaders of the US and South Korea will meet in Singapore for a historic Summit. The countries exchanged hostile messages several months ago before the peace process began, thanks in much to the efforts of South Korea. The primary issue is the denuclearization of North Korea which also wants guarantees to safeguard its regime. A successful meeting will be positive for markets and could send the safe-haven Japanese yen lower, while a failure could weigh on markets and boost the safe-haven yen. The world will be watching.
2. UK jobs report Tuesday, 8:30. The previous jobs report was a disappointment due to a jump in the number of jobless claims: the Claimant Count Change rose by 31.2K in April. An increase of 11.2K is on the cards now. More importantly, Average Hourly Earnings stood at 2.6% in March, showing that wages stood at 2.6%. A pickup in salaries is needed for the BOE to raise interest rates but expectations are for a deceleration to 2.5%. The unemployment rate stood at 4.2% in March and is expected to remain unchanged.
3. US inflation: Tuesday, 12:30. When Core CPI stalled in April and stayed pat at 2.1%, the US Dollar struggled. Coming just before the Fed decision, an acceleration in price rises is needed for a more hawkish statement. A lower rate of increases could influence the Fed to set a more cautious tone. Core CPI is projected to rise by 0.1% m/m in May, like in April. Headline CPI carries expectations for a repeat of the 0.2% m/m increase.
4. UK inflation: Wednesday, 8:30. The Bank of England may raise rates in August, but only if inflation rises. After slowing down to 2.4% in April, headline CPI is projected to repeat the same rate in May. Core CPI is also forecast to repeat the previous level that stood at 2.1% while PPI Input is predicted to jump by 1.8% after 0.4% last time.
5. US PPI: Wednesday, 12:30. The Producer Price Index is not as important as the CPI, but as it is the last inflation measure released before the Fed makes its decision known, it could cause some last minute jitters. Headline PPI is expected to rise by 0.3% in May after 0.1% in April. Core PPI is estimated to rise by 0.2%, repeating the previous level.
6. Fed Decision: Wednesday, 18:00, press conference at 18:30. The Federal Reserve will raise the interest rate for the second time this year, meeting expectations it had created. The bigger question is: how many more? The current dot-plot stands at only one more hike and this dot-plot will likely remain unchanged, with the fed signaling that the next rate increase will come only in December. An upgrade to two additional rate increases could boost the greenback. Another change could come from the statement. FOMC officials Brainard and Williams indicated that the language about an accommodative monetary policy may have become irrelevant and may be dropped. That would be a hawkish twist. Fed Chair Jerome Powell will need to clarify any changes to the FOMC Statement. Any shift in the Fed’s forecasts will also be noteworthy, but the changes are usually subtle.
7. Australian jobs report: Thursday, 1:30. After enjoying an upbeat GDP report, this week features another top-tier figure: the employment report. After reporting an increase of 22.6K in April, a similar gain of 19.2K positions is on the cards for May. The unemployment in the land down under is forecast to remain at 5.6%, a healthy level.
8. ECB rate decision: Thursday, 11:45, with the press conference at 12:30. Expectations are now much higher than they used to be after reports came out about a live discussion on the next steps in the Quantitative Easing program, a topic the Governing Council refrained from in previous gatherings. The current QE program runs through September and has a pace of 30 billion euros per month. Markets expect further bond buying at the three remaining months of the year, albeit at a slower pace, before purchases come to an end. An initial rate hike is projected for mid-2019. The ECB may indeed announce the reduction and end of bond buying, but the details are somewhat up in the air. A clear commitment to end QE with an end date could boost the euro while a more vague statement about future moves could weigh on it. If Draghi only says that a discussion was held but does not make any announcements, the drop could be sharper. The forecasts for inflation and growth could also have an impact.
9. US  Retail Sales: Thursday, 12:30. The US economy is centered around consumption and the monthly retail sales report is a key publication. Coming after the Fed, the impact may not be as strong. Nevertheless, some reaction is guaranteed. Headline retail sales are projected to rise by 0.4%, faster than 0.3% seen in April. May’s core retail sales are predicted to advance by 0.3%, the same rate as in the previous month.
10. Japanese rate decision: Friday, early morning. The Bank of Japan is not about to exit its stimulus anytime soon. Recent inflation figures have been downbeat and curbed any hopes for exiting stimulus in the Fiscal Year 2019. The current interest rate of -0.10% and the pledge to keep 10-year bond-yields at 0% are likely to remain intact. BOJ Governor Haruhiko Kuroda will likely be asked about recent slides in bond purchases, and will likely dismiss them.

*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/CADc forecast – Canadian dollar predictions

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