Forex Weekly Outlook – May 3-7

The first week of the month is always very busy: rate decisions in Australia and Europe and employment figures in Canada, New Zealand and the US – Non-Farm Payrolls – the king of forex. Add British elections as a special event, and you have a very exciting week. Let’s see the major events that expect us and their projected outcome and impact.

The US dollar index reached new highs, especially on worries from Europe. This week, the big flow of American indicators, with the best kept for last, is expected to continue the trend of dollar strength. I recommend reading my notes for Non-Farm Payrolls trading – this event is the most volatile release and should be handled with care. OK, let’s start:

1. American ISM Manufacturing PMI: Published on Monday at 14:00 GMT. The US manufacturing sector has shown very good signs of recovery. In the past 8 months, the result has been above 50, indicating economic expansion. After surprising last month and reaching 59.6, further gains aren’t expected this time. This will rock the markets.
2. Australian rate decision: Published on Tuesday at 4:30 GMT. The recent Australian indicators, such as employment and housing indicate that the economy is advancing more slowly. With CPI at 0.9% in Q1, Glenn Stevens doesn’t need to hike the rates soon – he’ll probably raise the Cash Rate to 4.50% a  sixth rate hike. Note that a surprise could still occur – last month saw such a surprise. The wording of the RBA Rate Statement will move the Aussie on future expectations.
3. American Pending Home Sales: Published on Tuesday at 14:00 GMT. Existing and new home sales rose significantly more than expected recently. Also the last release of pending home sales, 8.2% rise proved that the housing sector is on the move. A smaller rise is predicted this time – 3.3%.
4. American ADP Non-Farm Employment Change: Published on Wednesday at 12:15 GMT. Jobs in the private sector proved to be loosely correlated with the government’s NFP. Last month, ADP reported a loss of 23K jobs in the private sector, while the NFP sowed a gain of 123K jobs in this sector and 162K altogether. Still, this release always rocks the markets. A rise of 29K is predicted now.
5. American ISM Non-Manufacturing PMI: Published on Wednesday at 14:00 GMT. Completing Monday’s release, the services sector is also advancing, although it’s slower than the manufacturing sector. Here, a score above 50 was seen for only three straight months. After jumping from 53 to 55.4 last month, only a small advance to 56.2 is predicted this time.
6. New Zealand employment data: Published on Wednesday at 22:45 GMT. Employment figures are important everywhere, and even more important when they are released only once a quarter. A drop of 0.1% was seen last month, within expectations, but the unemployment rate leaped to 7.3%, far worse than expected. A significant drop in unemployment is necessary for a rate hike in New Zealand, but the unemployment rate isn’t expected to move.
7. European rate decision: Published on Thursday at 11:45 GMT. Jean-Claude Trichet will leave the European Minimum Bid Rate at 1%. Despite seeing inflation picking up, European employment is still problematic and the debt problems make it a very bad timing for such a move. The markets will mostly shake on Trichet’s words in the press conference due 45 minutes after the release. Any comment about the debt issues will rock the beaten Euro.
8. American Unemployment Claims: Published on Thursday at 12:30 GMT. The last sign before the Non-Farm Payrolls is a significant one – highly correlated. We’ve seen an alarming rise in this weekly release in the middle of April, and then we’ve seen it improving. Another improvement, from 448K to 442K will raise the expectations for Friday.
9. Ben Bernanke talks: Begins speaking on Thursday at 13:30 GMT. Following the mellow rate decision and the expected growth rate, will Bernanke lower the expectations from the economy? This speech, in a conference in Chicago, comes less than a day before the Non-Farm Payrolls and could shake the markets.
10. British elections: Thursday. Results due at 21:00 GMT. General elections will be held in Britain throughout the day. Gordon Brown’s ruling Labour party, James Cameron’s Tories and Nick Clegg’s Liberal Democrats are quite close to each other. A decisive result in the exit polls will help the Pound.  The exit polls might not be decisive enough, so the uncertainty might continue until the official results are due. A hung parliament is feared.
11. Canadian employment data: Published on Friday at 11:00 GMT. After many excellent months, Canada’s latest employment change rose by “only” 18K last month, below expectations. The unemployment rate remained at 8.2%, also a small disappointment. This time, both numbers are predicted to make small advances, helping the loonie in the battle for parity.
12. Non-Farm Payrolls: Published on Friday at 12:30 GMT. The king of forex was finally positive last month – a rise of 162K jobs boosted the dollar and created hopes for a sustainable recovery. The unemployment rate remained at 9.7%. Another drop in the unemployment rate and more job gains are expected this time.

That’s it for the major events this week.

Further reading:

• For the Euro, read the  EUR USD Forecast.
• For the British Pound, look into the  GBP/USD forecast.
• For the Australian dollar, read the  AUD/USD forecast.
• For USD/CAD, check out the  Canadian dollar forecast.
• For the kiwi, here’s the  NZD/USD forecast.

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