Forex Weekly Outlook – May 29 – Jun. 2 2017

The US dollar managed to recover in the last full week of  May. As the page turns into June, we have a buildup to the Non-Farm Payrolls, consumer confidence, and the Fed’s favorite  inflation figure. Here are the highlights for the upcoming week.

A relatively quiet week on the political front in the US allowed the greenback to correct. The meeting minutes from the Fed left the door open to a June hike but did not provide a smoking gun. The upgrade in US GDP to 1.2% in Q1 was welcome news for the greenback. A comment by Merkel about  a weak euro temporarily lifted the common currency. The UK suffered a deadly terror attack, but the influence on Sterling was minimal. China ´s credit rating downgrade has yet to play out.  The Bank of Canada sounded optimistic and this contributed to a strong loonie, alongside the OPEC decision to extend the production cuts.

1. US Core PCE Price Index: Tuesday, 12:30. This is the Fed’s favorite measure of inflation. Back in March, the figure dropped from 1.8% to 1.6% y/y, showing a deceleration in inflation, causing some worries. Another sign of weakness may deter the Fed from raising rates in mid-June and an acceleration towards the elusive 2% target could provide a shot in the arm for the dollar. A monthly rise of 0.1% is expected. Note that other figures such as personal spending and personal income are also published at the same time.
2. CB Consumer Confidence: Tuesday, 14:00. According to the Conference Board, consumers were somewhat less confident in April, with the index sliding to 120.3. Nevertheless,  this is still close to the pre-crisis highs. A small drop to 120.1 is on the cards.
3. Euro-zone inflation figures: Wednesday, 9:00. Core inflation jumped to 1.2% y/y in April, the highest since 2013. The rise in prices which are not oil is part of the drivers of the euro to higher ground. Was this just an Easter effect? This time, core inflation is predicted to drop to 1%. Headline CPI stood at 1.9% back in  April and a slowdown to 1.5% is projected for May.
4. Canadian GDP: Wednesday, 12:30. The Canadian economy remained flat in February, but all in all, growth has picked up in Q1 2017. This was duly noted by the BOC. We now get the monthly figure for March which carries expectations for 0.3%.
5. Chinese  Caixin Manufacturing PMI: Thursday, 1:45. This independent measure of the  manufacturing sector in the world’s second-largest economy is watched by Aussie traders and also by the rest of the world. In April,  the PMI slipped to 50.3 points, barely above the 50-point threshold separating expansion and contraction. A  score of 50.2 is expected now.
6. US ADP Non-Farm Payrolls: Thursday, 12:15. Automated Data Processing  provides a “warm up” of sorts for the official jobs report on Friday with its estimate for private sector jobs. Back in April, the ADP NFP showed a gain of 177K jobs  and now a similar gain of 181K is forecast.
7. US jobless claims: Thursday, 12:30. This weekly barometer of the job market is looking good for a long time. In this specific publication, it serves as yet another small hit towards the Non-Farm Payrolls. After standing at 234K, a tick up to 239K is expected.
8. US  ISM Manufacturing PMI;  Thursday, 14:00. The purchasing managers’ index from ISM is only available for the manufacturing sector ahead of the Non-Farm Payrolls. Given the absence of the services sector report, the manufacturing one becomes more important. The figure dropped to 54.8 in April, below expectations but still reflecting good growth. A similar score of 54.7 is on the cards.
9. Crude Oil inventories: Thursday, 15:00. Oil  has been the center of attention recently with significant volatility around the OPEC meeting. Given the inverse correlation with the US dollar, the price of the black gold has an impact beyond the Canadian dollar. Inventories dropped by 4.4 million barrels last week.
10. US Non-Farm Payrolls: Friday, 12:30. This is the last report before the  important Fed decision in June and could make the difference between raising the rates and staying put.  The report for April was mixed. It showed a very healthy gain of 211K jobs. This robust growth in jobs also shows there is still a lot of slack in the market, undermining the validity of the extremely low unemployment rate of 4.4%. The participation rate slipped to 62.9%, still far below pre-crisis levels. The data is best sanitized via the average hourly earnings numbers. Year over year, Americans saw a minute raise of only 2.5%. So, while gains in jobs are always welcome, there is still a long way to go.  Markets will be watching wages very closely. Expectations stand at 186K, an unemployment rate of 4.4% once again and a rise of 0.2% in hourly wages after 0.3% last month.

*All times are GMT

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