Forex Weekly Outlook Mar 31-Apr 4

The US dollar gained against the euro and the yen, but lost ground against the other currencies. the ECB rate decision, Janet Yellen’s speech, important employment data culminating in the all-important Non-Farm Payrolls and the rate decision in the Eurozone are the highlights of this week. Here is an outlook on the main events awaiting us this week.

Final US GDP growth for the final quarter of 2013 was slightly revised to the upside, reaching 2.6%. In the meantime, weekly jobless claims surprised with a  10,000 drop to 311,000, beating forecast for a 326,000 reading, indicating the US job market continues to improve.  Will this trend continue? In the euro-zone, dovish comments by the ECB pushed the euro down, while UK retail sales gave a boost to the pound. NZD/USD reached the highest levels since 2011 and also the Aussie and the loonie enjoyed significant gains.  Let’s start:

1. Eurozone inflation data: Monday, 9:00. Inflation in the Eurozone eventually increased by only 0.7%.  The initial reading was 0.8%,  better than the 0.7% increase predicted by analysts, but this changed in the final read. The core CPI figure, excluding energy, food, alcohol & tobacco, edged up 1% in February, following 0.8% posted in the previous month. Markets had expected the pace of price acceleration to remain steady for the month. Eurozone inflation is expected to reach 0.6%. The low expectations are due to the weak German inflation numbers.
2. Canadian GDP: Monday, 12:30. Gross domestic product in December fell more than expected, dropping 0.5% after a 0.2% gain in the previous month. Analysts expected a smaller decline of 0.2%. This was the biggest monthly decline since March 2009. Weakness was visible across the board however; Bank of Canada Governor Stephen Poloz said this could be a temporary relapse due to weather related factors. Nonetheless real gross domestic product grew by 2.0% in 2013 compared to 2012. Gross domestic product is expected to expand 0.4%.
3. Janet Yellen speaks: Monday, 13:55. Federal Reserve Chair Janet Yellen is scheduled to speak in Chicago. Yellen may explain the Fed’s latest decision to continue tapering, cutting another $10bn from its economic stimulus.  The Federal Reserve Chair may also elaborate on the rate hike intentions for 2015. Volatility is expected.
4. Australian rate decision: Thursday, 3:30. Australia’s central bank maintained its cash rate at a record low of 2.5% in March, in line with market consensus. The weakening of the Australian dollar will help boost growth. The RBA kept an accommodative monetary policy with credit growth rising gradually. Domestic demand showed signs of improvement and the labor market is expected to grow in the coming months. Rates are expected to remain unchanged.
5. US ISM Manufacturing PMI: Tuesday, 14:00. Manufacturing activity expanded more rapidly than expected in February, emerging from the harsh winter weather rising to 53.2 from 51.3 in January. The manufacturing expansion could have been stronger, if it had not been for a shortage of parts. However, orders have improved, ensuring larger growth in the coming months. Another improvement to 54.2 is anticipated now.
6. US ADP Non-Farm Employment Change: Wednesday, 12:15. U.S. private sector added 139,000 jobs in February, lower than market forecast of 159,000 gain. The weak result was blamed on difficult winter conditions. Economists believe employment will pick-up in spring. The ADP figures give an early estimate for the government’s much more comprehensive labor market report on Friday, which includes both public and private sector employment. U.S. private sector is expected to gain 192,000 jobs.
7. Eurozone rate decision: Thursday, 11:45, press conference at 13:30.  Assuming that both CPI and Core CPI do not fall below 0.5% in the flash reading for March, the ECB is likely to refrain from new stimulus in March. Draghi showed us that the bar is high for more stimulus in the previous meeting. In addition, recent data from France shows that the fragile recovery is widening and this could also hold back policymakers. A lack of action in policy does not meet a lack of market action: Draghi may certainly raise the so far subtle rhetoric regarding the exchange rate. The high value of the euro weighs on exports and pushes inflation lower due to cheaper imports. It seems like 1.40 is the “line in the sand” and it will not come as a surprise if Draghi plays down the euro. However, verbal intervention is usually short lived, and action will probably be needed later on in the year.
   
8. US Trade Balance: Thursday, 12:30. The U.S. trade deficit changed slightly in January, reaching a $39.1 billion gap from December’s revised shortfall of $39.0 billion. The release was in line with market consensus. Exports rose 0.6% to $192.5 billion and imports edged up 0.6% to $231.6 billion in January. Domestic demand weakened mildly, increasing businesses’ inventories which will in turn constrain import growth in the first quarter. US Trade Balance is expected to reach 0.2 billion.
9. US Unemployment Claims: Thursday, 12:30. The number of Americans filing initial claims for jobless benefits declined last week by 10,000 to a seasonally adjusted 311,000, indicating the US job market is continuing its recovery process. Analysts expected claims to rise to 326,000. The four-week moving average fell to 317,750 last week, the lowest level since last September. US jobless claims are expected to rise to 319,000.
10. US ISM Non-Manufacturing PMI: Thursday, 14:00. US service sector activity fell to 51.6  in February from in 54.0 January mainly due to contraction in the survey’s employment section. The Non-Manufacturing Business Activity Index dropped to 54.6% from 56.3 posted in January. The New Orders Index climbed to 51.3, from 50.9 registered in January. The Employment Index fell to 47.5 from 56.4 indicating in employment for the first time after 25 consecutive months of growth. A rise to 53.5  is anticipated this time.
11. Canadian employment data: Friday, 12:30. Canadian job market lost 7,000 jobs in February after gaining 29,400 in the previous month; however, the unemployment rate remained unchanged at 7%. This unexpected decline was contrary to analysts’ expectations of a 16,900 job growth. The public sector shed nearly 51,000 jobs, offset by gains of 35,000 and 8,000 in the private sector. However, the majority of the jobs lost were part time, while full-time positions increased, which is a good sign for the Canadian employment market. Canadian job market is expected to gain 23,500 jobs, and unemployment rate is expected to remain at 7%.
12. US Non-Farm Payrolls and Unemployment rate: Friday, 12:30. The US economy added more jobs than expected in February adding 175,000 positions, while economists expected a job gain of 151,000. However, the unemployment rate increased slightly to 6.7% from 6.6% in January. The labor force participation rate was unchanged at 63%. The job addition in February came after weeks of slowdown due to unusually tough weather conditions, indicating the US job market returns to recovery. US job market is expected to add 196,000 jobs, and unemployment rate is expected to decline to 6.6%.

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

*All times are GMT.

Further reading:

• For EUR/USD, check out the  Euro to Dollar forecast.
• For the Japanese yen, read the  USD/JPY forecast.
• For GBP/USD  (cable), look into the  British Pound forecast.
• For the Australian dollar (Aussie), check out the  AUD to USD forecast.
• For USD/CAD (loonie), check out the  Canadian dollar
• For the kiwi, see the  NZDUSD forecast.