Forex Weekly Outlook May 28-June 1 – Early NFP meets a jittery market

The US Dollar had a good week, rising against most currencies. An update on GDP and a short build-up to the Non-Farm Payrolls stand out as the page turns into June. Here are the highlights for the upcoming week.

The main narrative changed from the dollar riding on higher yields to the dollar riding higher on a risk-off sentiment. However, the notable change was that the greenback did lose out to the ultimate safe-haven currency, the Japanese yen. Worries about the Trump-Kim Summit and trade relations between China and the US weighed on markets. Weak PMI data weighed on the euro while the pound suffered from slower inflation.

1. US CB Consumer Confidence: Tuesday, 14:00. The Conference Board’s measure of consumer sentiment remained at high ground back in April, with a score of 128.7. After the University of Michigan’s survey for May remained stable, the CB figure is also likely to hold onto current levels. A score of 128.2 is on the cards.
2. ADP Non-Farm Payrolls: Wednesday, 12:15. ADP is America’s largest payrolls provider and its survey serves as an indicator towards the official Non-Farm Payrolls report on Friday, even though the correlation is not always strong. ADP reported a gain of 204K positions in April. A gain of 186K is on the cards, slightly lower.
3. US GDP (second release): Wednesday, 12:30. According to the preliminary report for the US economy for Q1, the economy slowed to an annualized pace of 2.3%. A slowdown in the first quarter is quite common and the US growth rate is above that seen in the euro-zone or in the UK. The second release is projected to confirm the 2.3% annualized growth rate.
4. Canadian rate decision: Wednesday, 14:00. The Bank of Canada left its interest rate unchanged in the April decision. While they left the hawkish bias, the tone was cautious. Since then, several figures came out below expectations. The BOC is therefore expected to leave the Overnight Rate unchanged at 1.25% and refrain from hinting that a hike is coming in the July meeting.
5. Euro-zone inflation: Thursday, 9:00. As with other figures, also inflation decelerated in the euro area, with 1.2% on the headline and 0.7% on the core. The early Easter holiday probably contributed to the dip, so a slight pickup may be seen in this preliminary estimate for May. If prices remain low, the ECB could take its time with ending the QE program and raising rates. A pick up in inflation is forecast: 1.6% on the headline and 1% on the core in a month that is not affected by Easter.
6. Canadian GDP: Thursday, 12:30. Canada is special in publishing Gross Domestic Product figures on a monthly basis. This publication is for the month of March, the last one for the first quarter, thus making it more important. The economy grew by 0.4% in February and probably slowed down in March. The annualized figure is also of interest. A monthly growth rate of 0.2% is expected.
7. US Core PCE Price Index: Thursday, 12:30. This inflation figure is the one targeted by the Federal Reserve. After many months in the doldrums, the annual price rise reached 1.9% in March, almost at the Fed’s target of 2%. As the Core CPI remained unchanged at 2.1% y/y, the same 1.9% figure is on the cards for the Core PCE in April. Nevertheless, surprises can happen in this sensitive number. Month over month, a small rise of 0.1% is expected.
8. US Non-Farm Payrolls: Friday, 12:30. The “king of forex indicators” was a disappointment in the report for April: it showed that the labor market gained 164K jobs, lower than expected. Moreover, average hourly earnings, or wage growth, which remains important, increased by only 0.1% MoM and 2.6%, both below expectations. The unemployment rate dropped to 3.9%, a very low level, but it is important to remember that the participation rate remains well below pre-crisis levels. The focus in the May report will remain on wages. The report for May is projected to show a gain of 190K positions in May and an unemployment rate of 3.9%, repeating the level for April. Wages are forecast to rise by 0.3% m/m and to pick up y/y.
9. ISM Manufacturing PMI: Friday, 14:00. This forward-looking survey fell short of expectations in April with 57.3 points, yet this still reflects robust growth. The Prices Paid component continued rising, reaching a level of 79.3. This implies higher inflation expectations. This time, the early publication of the NFP means that the report will not shape expectations for the jobs report. However, the ISM Manufacturing PMI still has the last word of the week and could have a significant impact on the USD. The headline is predicted to rise to 58.2 points while the Prices Paid component to slide to 77.6.

*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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