Forex Weekly Outlook May 12-16

We certainly had an exciting week in currency markets with interesting moves across the board. Will the momentum continue? US Federal Budget Balance, retail sales, inflation and employment data, Philly Fed Manufacturing Index and Prelim UoM Consumer Sentiment are the main events on Forex calendar. Here is an outlook on the highlights of this week.

The US dollar began the week with a huge crash, triggering multi year highs in GBP and NZD. AUD/USD also enjoyed better prospects, Yellen managed to keep markets asleep, and then came Draghi. The ECB did not touch the interest rates and Draghi read out only known mantras in the written statement and EUR/USD got closer to 1.40. But then came the bomb: a move in June is something “the ECB is comfortable with”. More data is needed to confirm this, but the euro didn’t wait and plunged. Late in the week, GBP/USD erased its losses on disappointing data, the loonie reversed its gains on a poor jobs number and EUR/USD went into free-fall mode.

Updates:

1. US Federal Budget Balance: Monday, 18:00. US budget debt narrowed more than expected in in March, reaching $36.9 billion, following $193.5 billion posted in February. Analysts expected a more modest decline to $76.5 billion. The overall trend is positive with a rise in receipts led by 11% fiscal year-to-date increase in corporate taxes and a 7 percent increase in individual taxes and the spending side is coming down including a 6% decline in defense spending.  US Budget Balance is expected to reach a surplus of $112.6 billion.
2. German ZEW Economic Sentiment: Tuesday, 9:00. German investor confidence continued to slide in April reaching 43.2 after posting 46.6 in March. Despite the strong recovery in the first quarter, the six month outlook survey revealed growing concerns about the Russia-Ukraine crisis and its possible effects on manufacturers and exporters in Germany. German investor confidence is expected to continue its downward trend towards 41.3.
3. US retail sales: Tuesday, 12:30. U.S. retail sales surged to a 1-1/2 –year high of 1.1% in March indicating strong recovery in the US economy after a sluggish winter. The increase was evident in all sectors and followed a 0.7% gain in February. Meanwhile Core sales, excluding automobiles edged up 0.7%, the biggest rise in a year. These impressive figures raised new hopes for a boost in growth this year. U.S. retail sales are expected to climb 0.5%, while core sales are expected to increase 0.6%.
4. UK employment data: Wednesday, 8:30. The number people claiming jobless benefits in March declined by 30,400 reaching to 1.14 million after a 37,000 drop in the previous month, indicating an ongoing improvement in Britain’s labor market. The unemployment rate also improved to 6.9% from 7.2% in February. Average earnings in the three months to February increased by 1.7% compared with a year earlier. Chancellor of the Exchequer, George Osborne, hailed the “strong jobs numbers” as further evidence that the coalition government’s economic plan is working. The number of jobless aid seekers are expected to decline further by 31,200 pushing the unemployment rate down to 6.8%.
5. Mark Carney speaks: Wednesday, 9:30. Mark Carney, the Governor of the Bank of England will speak in a press conference, together with other MPC members, about the Inflation Report, in London. Carney stated in March that the Bank’s 2% inflation target became ‘dangerous distraction’ for the UK’s policymakers veiling the true progress made in the UK’s economy. Market volatility is expected. His speech comes on the background of increased talk of a boom in the UK.
6. US PPI: Wednesday, 12:30. U.S. producer prices edged up 0.5% in March, posting their largest increase in nine months, amid a rise in the cost of food and trade services. The increase was well above market consensus following a 0.1% fall in February. The unexpected rise may be explained by weather related factors, but the wholesale inflation is expected to settle down in April. U.S. producer prices are expected to climb 0.2% this time.
7. BOJ governor Kuroda speaks: Thursday, 4:25. BOJ Governor Haruhiko Kuroda will speak in Tokyo. Market volatility may occur is there is heightened uncertainty regarding the next move of the Bank: will he announce further monetary stimulus?
8. US inflation data: Thursday, 12:30. U.S. consumer prices increased slightly more than expected in March, rising 0.2% after a 0.1% climb in the previous month, suggesting inflation is back. In the 12 months through March, consumer prices rose 1.5% after increasing 1.1% over the 12 months through February. Meanwhile, core CPI, excluding volatile energy and food components, also edged up 0.2% in March after rising 0.1% in the prior month. The central bank is expected to end the QE bond purchases later this year. Domestic demand and the labor markets are improving but a rate hike is not expected before the second half of 2015. U.S. consumer prices are expected to increase by 0.3%, while core CPI is predicted to climb 0.2%.
9. US Unemployment Claims: Thursday, 12:30. The number of new claims for unemployment aid filed last week fell 26,000 to 319,000, indicating the setback seen in the Easter holiday was temporary and the US job market is regaining its strength. Despite the drop in the number of applications. The four-week average increased by 4,500, to a seasonally adjusted 324,750 due to temporary layoffs around the Easter holiday but it is far better than the 343,000 average for 2013. Jobless claims is expected to rise to 321,000.
10. US Philly Fed Manufacturing Index: Thursday, 14:00. Factory activity in the U.S. mid-Atlantic region increased in April to 16.6 from 9.0 in March beating market forecast of a 9.6 reading. New orders edged up to 14.8, the highest level since October, from 5.7. The employment component improved to 6.9 from 1.7, but business conditions for the next six months fell to 26.6 from 35.4. Overall, the survey shows positive growth prospects for the US economy in the coming months. Factory activity in the Philadelphia area is anticipated to decline to13.9.
11. Fed Chair Yellen speaks: Thursday, 23:00. Federal Reserve Chair Janet Yellen will speak in Washington DC at the National Small Business Week. Yellen may talk about her latest testimony at the US congress. Market volatility is expected, even though she hasn’t said anything new recently.
12. US Building Permits: Friday, 12:30. US building permits fell by 2.4% in March reaching an annualized rate of 990,000.The reading suggests the pace of starts will increase further in the coming months. Single-family starts increased 0.2% compared to the previous year. Economists expect an acceleration in housing construction based on stronger household construction later this year and in 2015. US building permits are expected expand to an annualized rate of 1.01 million.
13. US UoM Consumer Sentiment: Friday, 13:55. Consumer confidence strengthened in April to the highest level since July, rising to 82.6 compared to 80 in March. Improvement in the US labor market contributed to this rise. The reading was better than the 81.2 projected by analysts. Increased employment opportunities and better wages will continue to lift consumer spending as well as consumer sentiment. Consumer confidence is expected to improve further to 84.7.

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