Forex Weekly Outlook June 13-17

The US dollar was on the back foot, but the managed to recover some of the losses.  Inflation data in the UK and the US, Employment data from the UK and Australia, US retail sales and no less than 4 rate decisions,with the Federal Reserve standing out from the crowd. These are the main events for this busy week. Join us as we explore the market movers on Forex calendar.

At the beginning of last week Fed Chair Janet Yellen gave a positive assessment of the U.S. economic outlook saying rate hikes are likely but did not specify when. Employment growth and inflation are expected to strengthen further. However, Yellen named four main risks to the U.S. economy which could alter the Fed’s monetary policy; slower demand, productivity, inflation and overseas risks. Later this week US Jobless claims surprised with a lower than expected number of new claims, falling 4,000 from estimates posting a six-week low of 264,000. Will this trend continue?  Let’s start,

1. UK Inflation data: Tuesday, 8:30. The UK’s inflation rate declined to 0.3% in April amid cheaper air fares following Easter holidays. Air transport fell by 14.2% compared with a 4.5% gain in the same period last year since after the Easter holidays were over.   The BoE said it expects inflation to pick up in the second half of 2016. The governor of the Bank of England, Mark Carney explained inflation remained below the Bank’s 2% target since commodity prices fell sharply while the sterling strengthened. Economists expect inflation to remain subdued in the second part of 2016. A  monthly rise of 0.4% is expected.
2. US retail sales: Tuesday, 12:30. U.S. retail sales registered their biggest increase in a year, rising 1.3% in April. The big surge came after a 0.3% decline in the previous month. Americans bought more as well as a range of other goods, suggesting the US economy has rebounded after the first quarter. Core sales, excluding automobiles edged up 0.8%. This data supports those in favor of another rate hike in June. Economists expected a 0.3% dip in retail sales and a 0.6% gain in core sales. For the month of May, both headline and core figures carry expectations of a rise of 0.4%.
3. UK jobs report: Wednesday, 8:30. The UK labor market remains strong in April despite a lukewarm jobs creation ahead of the EU referendum.  The number of people receiving jobless benefits declined by 2,400 in April to 737,800. Unemployment dropped by 2,000 in the quarter to March to 1.69 million, 139,000 fewer than for a year earlier, maintaining the unemployment rate at 5.1%. Also note the wage data, which fell from the high rate of 3% y/y seen late in 2015 but remains solid.  Claimant Count Change is expected to rise by 0.1K in May. The unemployment rate for April is expected to remain at 5.1% and  average hourly earnings are predicted to rise 1.7%.
4. US PPI: Wednesday, 12:30. U.S. producer prices rose 0.2% in April along with a rise in energy prices. The increase was less than anticipated; indicating increased a moderate inflation in the coming months. This report followed a 0.1% decline in March. On a yearly base, PPI remained unchanged after dipping 0.1 percent in the previous month. In April, energy prices increased 0.2% after increasing 1.8% in March. Wholesale food prices declined 0.3% after a 0.9% drop in March. Headline PPI is expected to rise by 0.3% and core PPI by 0.1%.
5. US Fed decision: Wednesday, statement and forecasts at 18:00, press conference at 18:30.  The Federal Reserve kept interest rates unchanged in April, but left the door open to a rate hike in June. Fed officials acknowledged that economic growth seemed to have slowed despite the solid labor market, saying they are closely watching inflation and global economic headwinds. Household spending moderated, but their real income had risen at a “solid rate”. A rate hike is off the cards also for this June meeting. The specter of a Brexit as well as the poor jobs report means that the data dependent Fed will err on the side of caution. We could get hints about the decision in July. Assuming improving data and no Brexit, we could still have a mid-summer hike. Will Yellen provide hints? Perhaps she will be cautious in the press conference but the dot-plot could serve as a hawkish hint. If the Fed maintains a median forecast for 2 hikes this year and doesn’t cut it as it often does, this could keep July very alive. Growth, inflation and employment forecasts are not expected to be modified too much.
6. Australian employment data: Thursday, 1:30. Australia’s economy added 10,800 jobs in April and the unemployment rate held unchanged at 5.7%, its lowest level in more than two years. Full-time employment decreased 9,300, while part-time employment increased by 20,200. Economists expected the unemployment rate to rise to 5.8% while estimating a jobs gain of 12,000. The RBA suggested employment would continue to increase, but at a slower pace than over the previous year and that Australia’s unemployment rate is predicted to remain around 5.8% in 2016. A gain of 15.1K jobs is expected and the unemployment rate is unlikely to change.
7. Japan rate decision: Thursday. The Bank of Japan kept its monetary policy unchanged in April, failing to deliver expected stimulus measures. The bank maintained its negative 0.1% deposit rate and its 80 trillion yen base money target, but leaving the door open to additional easing measures and loans to areas impacted by the   Kyushu earthquakes.  BOJ Governor Haruhiko Kuroda said that the central bank remained committed to achieving its 2% inflation target in about two years. Kuroda dismissed the possibility of the BOJ directly financing the government but said he did not see any problem in the BOJ’s plan to buy government bonds.
8. Swiss rate decision: Thursday, 7:30. The Swiss National Bank is not expected to change the Libor Rate in its quarterly monetary policy meeting. The deep negative rate of -0.75% and the pledge to intervene in foreign exchange markets when deemed necessary will probably remain  unchanged. Since surrendering on their EUR/CHF peg on January 15th, the SNB seems to support the cross from time to time.  Even lower negative rates could hit the franc, but it seems unlikely at the moment.
9. UK rate decision: Thursday, 11:00. The Bank of England left its base interest rate at 0.5%, noting that Britain’s European Union  referendum poses a real risk for economic stability and may lead to a “technical recession”. Governor Mark Carney said in a press conference after the bank’s rate decision that he remains dovish about economic outlook due to a slowdown in GDP growth and the upcoming Brexit referendum. Carney voiced his concern that a vote to leave the EU could change the outlook for output and inflation, prompting a change in monetary policy.
10. US inflation data: Thursday, 12:30. April’s inflation CPI increased at the fastest pace in more than three years, due to higher cost of gas and rent. The consumer price index edged up 0.4% in April, the biggest rise since February 2013. However, overall inflation remained subdued despite this rise. Hence the Fed is in no hurry to raise rates again despite steady growth and strong labor market. Many economists predict inflation will move closer to the Fed’s target by year end. Headline inflation is expected to rise by  0.3% and core inflation by 0.2%.
11. US Philly Fed Manufacturing Index: Thursday, 12:30. The Philadelphia area barometer of manufacturing activity remained in negative territory in May, dropping to minus 1.8 following minus 1.6 posted in the prior month.  Analysts expected the index to reach a positive 3.0 points. This was the eighth negative reading in the past nine months. Indicating more respondents reported a decline in business activity. The new-orders index fell to negative 1.9 from a flat reading in April, while thee shipments index rose 10 points to negative 0.5. A score of 1.1 is on the cards.
12. US Unemployment Claims: Thursday, 12:30.  The number of weekly jobless claims, in the U.S., declined by 4,000 to a seasonally adjusted 264,000 last week beating the 269,000 forecast. The number of claims remained low for the 66^th week, the longest streak since 1973. The four-week moving average for new claims fell by 7,500 to 269,500. Continuing jobless claims increased by 77,000 to a seasonally adjusted 2.095 million. Claims are expected to stand at 267K this time.
13. US Building Permits: Friday, 12:30. The number of building permits edged up 3.6% in April reaching 1.12 million-unit rate, broadly in line with market forecast. The reading followed 1.09 million units in the previous month. Housing starts also increased more than anticipated with a 6.6% rise to 1.17 million units in April, compared to1.10 million unit rate reported in March. The healthy state of US employment market boosted growth in the housing sector. 1.15 is on the cards for building permits and also for housing starts.
14. Mario Draghi speaks: Friday, 15:00. ECB President Mario Draghi will speak in Munich.  At the Brussels Economic Draghi admitted that bank balance sheets are not yet fully repaired. He reiterated that governments must take part in boosting growth in the eurozone economy since the task cannot be done solely by the ECB. Therefore fiscal policies should comply with the monetary policy and not against it. Furthermore, doubts over the future of the euro will only spur doubts and weakness detaining growth.

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

*All times are GMT.

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