Forex Weekly Outlook June 3-7 – ECB and NFP promise an explosive week, and there’s always Trump

Markets digested the mixed results of the EU elections before moving back to focusing on the trade spat. What’s next? The first week of June is packed with top-tier events, with the ECB decision and the Non-Farm Payrolls report standing out.   Here the highlights for the next week.

The trade spat between the US and China continued in full force, weighing on sentiment. It has gone beyond tariffs — which China has raised over the weekend as planned — and has moved onto Chinese threats about exporting rare earth and the US curbing the activity of additional firms. Moreover, Trump announced new tariffs on Mexico as a punishment for allowing migrants to flow through the border. Markets are observing his twitter feed very closely. The EU elections provided mixed results. While Italy and France delivered victories for populist parties, some of the votes moving out of mainstream parties went to the Liberals and Greens — pro-European parties. In the UK, Nigel Farage’s Brexit party won but a trio of pro-Remain parties got a similar share of the vote, complicating matters for the UK.

1. Chinese Caixin Manufacturing PMI: Monday, 1:45. China is the world’s second-largest economy and Caixin’s independent measure provides an updated insight on the economy, how it is coping with US pressure. It has an impact beyond China’s borders and tends to shape the broader market sentiment. The indicator stood at 50.2 points in April and the figure for May will likely fall below 50 that separates expansion from contraction.
2. US ISM Manufacturing PMI: Monday, 14:00. The forward-looking indicator may show a decline from the mediocre 52.8 point score seen in April. May’s number will be influenced by the escalation in trade tensions that began early in the month. On the other hand, the sector is The number also serves as the first hint toward Friday’s NFP. A score of 53 is expected.
3. Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia is finally set to change interest rates – for the first time since 2016. RBA Governor Phillip Lowe and his colleagues hinted that they would cut interest rates rather soon if inflation does not pick up. Moreover, the intensifying trade war between the US and China catches Australia in the middle. Adding the housing slump, and the Canberra-based institution has all the reasons to slash rates from 1.50% to 1.25%. Markets will likely focus on what’s next. Does Lowe plan to take rates even lower later on this year? Or will it take its time before making another move? The answer to this question may hold the key to the reaction in AUD/USD. Other countries will also be watching. Australia has not suffered a recession since the early 1990s and if the RBA goes dovish, others may follow.
4. Euro-zone inflation: Tuesday, 9:00. Inflation picked up in the euro-zone in April with 1.7% on the headline and 1.2% on core CPI. However, the bump may be solely related to the so-called “Easter effect” – the late timing of the Easter holiday. Core inflation has probably declined in May, paving the way to a more dovish ECB decision later in the week. Headline inflation is projected to drop from 1.7% to 1.4% and core inflation from 1.3% to 1%.
5. Australian GDP: Wednesday, 1:30. The Land Down Under has suffered a substantial drop in growth in the fourth quarter of 2018 — only 0.2%. Economists foresee an expansion rate of 0.4% in the first quarter of the year. The RBA may have the data during its rate decision. If their comments on growth are damp, it may be lower. If they are optimistic, it may be higher.
6. US ADP Non-Farm Payrolls: Wednesday, 12:15. The private sector report from Automated Data Processing, the largest payrolls provider in the US, serves as a hint towards the Non-Farm Payrolls. After an impressive increase of 275K in April, a more modest gain of 185K is on the cards for May. The figures are not always fully correlated, but last month’s number was very close — it could certainly shape expectations.
7. US ISM Non-Manufacturing PMI: Wednesday, 14:00. The services sector is the largest in the US, and the publication is yet another hint towards the NFP. After scoring 55.5 in April, a very similar number is on the cards for May: 55.6 points. However, the flare-up of the US-Chinese trade war did not escape businesses’ minds. A drop to closer to 50 — indicating a slowdown — cannot be ruled out.
8. ECB decision: Thursday, the decision at 11:45, press conference by President Mario Draghi at 12:30. The European Central Bank is set to publish the details of its new funding scheme for banks called TLTRO. They have recently hinted that it is on its way after Draghi had announced it early in the year. A broad program may weigh on the euro while a narrow one may boost it. However, the impact may be limited as new growth and inflation forecasts may steal the show. While growth in the first quarter was upbeat in comparison to the previous two, nobody thinks that Europe is out of the woods. The ECB may downgrade its forecasts. Moreover, the intensifying trade wars between the US and China are also of concern to the ECB, which has already warned about their impact. Draghi and his peers may up the ante. And when will it raise interest rates? The ECB has pledged to keep rates low at least until the end of the year after Draghi’s successor takes over. The governing council of the Frankfurt-based institution may decide to push back on the date once again. Markets are expecting some kind of dovishness, but the magnitude is unknown. All in all, watch the TLTRO, the forecasts, and the forecast for interest rates.
9. US Non-Farm Payrolls: Friday, 12:30. The monthly US jobs report does not trigger the same volatility it used to have, but this time may be different, as it serves a critical input to the all-important Fed decision later this month. The Fed may hint of a rate cut, but if the job market remains strong, they may not do so. After a whopping increase of 263K positions in April, a return to normal — 180K — is on the cards. Wages are no less important. Monthly salary growth caries expectations for 0.3.% against 0.2% last time, while the yearly number is forecast to remain unchanged at 3.2%.
10. Canadian jobs: Friday, 12:30. If the US had an excellent April in its labor market, in Canada it was superb. The number of employed leaped by 106.5K, comparable to some 800K in the US. The jobless rate stood at 5.7%, a surprise as well. A more moderate increase is likely 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

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