Forex Major Currencies Outlook (June 17 – June 21)

This brought a risk on effect in the markets, making gold and USDCAD gap on the opening.

Headline CPI for the month of May came in at 1.8% y/y vs 1.9% y/y as expected. Core CPI dipped down to 2% y/y vs 2.1% y/y as expected. Core CPI has been at or above 2% for 15 months now. Average hourly and weakly earnings both came higher than previous month coming in at 1.3% and 1% respectively. Although CPI is not FEDs preferred inflation measure, a drop in inflation, especially core one, may add more fuel to the fire of rate cuts. Markets are already pricing almost 80% probability of rate cut in July.

Advanced retail sales for the month of May came in at 0.5% m/m vs 0.6% m/m as expected with prior reading being revised to 0.3%. Control group came in at 0.5% m/m vs 0.4% m/m as expected with prior reading being revised to 0.4%. Revisions give additional boost to the reading, especially satisfying is the beating on control group reading since it is a component of GDP. This will lead to increase in estimates for Q2 GDP. Industrial production came in at 0.4% m/m vs 0.2/% m/m as expected to add more strength to the USD and US economy. Latest data may prevent FED from going too dovish at the meeting next week.

This week we will have housing data and preliminary PMI numbers for the month of June. The main event of the week will be FED’s interest rate decision. FOMC may leave the rate unchanged but signal future rate cuts via changes in the dot plot projections.

Important news for USD:

Tuesday:

• Housing Starts
• Building Permits

Wednesday:

• FED Interest Rate Decision
• FOMC Press Conference

Friday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI
• Existing Home Sales

EUR

Inflation expectation continue to fall. The Euruzone 5 year inflation swap forward, which is the key gauge of long-term inflation expectations in the Eurozone, has fallen to new record low of 1.16% thus breaking the 2016 low. Industrial production in Eurozone for the month of April came in at -0.5% m/m as expected on the backs of a notable drop in German industrial production.

This week we will have wage data, ZEW economic sentiment, final inflation data for the month of may and preliminary consumer confidence as well as PMI data for the month of June.

Important news for EUR:

Monday:

• Wage Costs

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)
• CPI
• Trade Balance

Thursday:

• Consumer Confidence

Friday:

• Markit Manufacturing PMI
• Markit Services PMI
• Markit Composite PMI

GBP

GDP data for the month of April came in at -0.4% m/m vs -0.1% m/m as expected. Worst month on month reading since March of 2016. Manufacturing production came in at -3.9% m/m vs -1.4% m/m as expected and industrial production came in at -2.7% m/m vs -1% m/m as expected. Huge drops in data. Effects of Brexit stockpiling start to show dragging down growth. ONS notes that the weak April reading can also be attributed to the "dramatic fall" in UK car production, which fell 24% m/m, due to planned shutdowns linked to Brexit uncertainty. Trade balance deficit narrowed coming in at -£12.1 bn vs -13bn as expected. Digging into the numbers we get some ugly data. Exports fell -8.4% m/m while imports fell -12.7% m/m adding more worries to the state of UK economy.

Average weekly earnings came in at 3.1% 3m/y vs 3% 3m/y as expected. The unemployment rate stayed at the historic lows of 3.8%. The employment change came in at 32k vs 4k as expected and claimant count came in at 23.2k. Overall a solid report with unemployment holding low and wages rising plus it gave some nice news from UK economy after abysmal GDP and production data.

Boris Johnson reiterated that he is not aiming for no-deal Brexit and that UK must leave EU on October 31. He expects that it will be done on the better negotiated Brexit deal. The first ballot of the conservative leadership race shows Boris Johnson firmly in the lead with 114 votes followed by Jeremy Hunt in distant second with 43 votes and Michael Gove in third place with 37 votes. Andrea Leadsom, Mark Harper and Esther McVey did not gather enough votes (17) and they are out of the race.

This week we will have inflation and consumption data as well as interest rate decision by BOE. No changes are expected due to the Brexit uncertainties. On the political docket we will have the continuation of the race for PM with minimum votes required for going into the next round raised to 33.

Important news for GBP:

Wednesday:

• CPI

Thursday:

• Retail Sales
• BOE Interest Rate Decision
• BOE MPC Meeting Minutes

AUD

Chinese trade balance for the month of May came in at $41.65bn vs $23.2bn as expected. Trade surplus almost doubled. Exports have risen 1.1% y/y vs -3.8% y/y as expected while the imports have fallen -8.5% y/y vs -3.3% y/y as expected. Domestic demand has eased down but exports are still rising despite the trade war. Inflation came in at 2.7% y/y as expected. Food inflation was the main pusher of overall inflation coming in at 7.17% y/y due to the outbreak of African swine flu, thus increasing pork prices. Non food component came in at 1.6% y/y. Industrial production came in at 5% y/y vs 5.4% y/y as expected. Lowest reading since February of 2002. Retail Sales were up 8.6% y/y vs 8.1% y/y as expected. Consumption is holding very strong. A drop in fixed asset investments along with a drop in industrial production may lead to further easing by the authorities to prop up the economy. National stats bureau came out and stated that month-to-month economic data fluctuations are normal thus implicitly saying that there is no need for concern.

Employment change for the month of May came in at 42.3k vs 16k as expected. Another big beat on the headline number. The unemployment rate stayed at 5.2% but it was projected for it to drop to 5.1% however participation rate has risen to 66% from previous and expected 65.8%. Full time employment change came in only at 2.4k so this will offset otherwise strong number, since majority of employment change was part time. Underemployment rate ticked up to 8.5% which is worrisome.

This week we will have minutes from the latest RBA meeting and speech from governor Lowe.

Important news for AUD:

Tuesday:

• RBA Meeting Minutes

Thursday:

• RBA Governor Lowe Speech

NZD

Electronic card retail sales came in mixed, it came -0.5% m/m vs 0.5% m/m as expected and 3.2% y/y vs 1.6% y/y as expected. Electronic card retail sales are big component of core retail sales so according to the monthly reading we may have a drop in core data. Manufacturing PMI for the month of May showed a huge drop coming in at 50.2 vs 53 the previous month. Lowest level since 2012 with production sub index coming in at 46.4 way below expansion territory.

This week we will have services PMI, hopefully they will not be as bad as manufacturing PMI, GDT price index and Q1 GDP data. Potential weakness in GDP could signal more rate cuts from RBNZ.

Important news for NZD:

Monday:

• Services PMI

Tuesday:

• GDT Price Index

Thursday:

• GDP

CAD

Building permits came in at 14.7% vs 1.8% as expected. A huge beat but it was caused due to new regulations in British Columbia so the builders were seeking permits ahead of the new regulations. Building permits actually were down for the month in other provinces. New home prices came in at 0% for the third month.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

The final GDP data for Q1 of 2019 came in at 0.6% q/q vs 0.5% q/q preliminary. Business capex came in at 0.3% y/y and it is up from the preliminary reading, however personal consumption came in at -0.1% q/q and GDP deflator, a measure of inflation, dropped down to 0.1% y/y. Consumption and inflation remain the biggest problem for BOJ. There are calls for more easing from BOJ at their September meeting. Core machinery orders rose 5.2% m/m and 2.5% y/y for the first positive y/y reading in 2019. Looks like capital spending begun Q2 on a strong note. The final industrial production data for April came in at 0.6% m/m and -1.1% y/y as expected. Improvement on the month, down for the year.

This week we will have trade balance, manufacturing PMI and national inflation data. The main event will be BOJ rate decision. No change is expected but pressures are mounting and more easing could be on the table. Press conference will be important as markets will look for any signs of more easing to come.

Important news for JPY:

Wednesday:

• Trade Balance
• Exports
• Imports

Thursday:

• BOJ Interest Rate Decision
• BOJ Monetary Policy Statement
• BOJ Press Conference

Friday:

• CPI
• Nikkei Manufacturing PMI

CHF

SNB has left sight deposit interest rate unchanged at -0.75% as widely expected. They reiterated their view that Franc is highly valued and that they will intervene in FX market if necessary. They also added that there is still room for more expansionary policy. Swiss government raised 2019 GDP projection to 1.2% from 1.1% previously while SNB keeps its projection of 2019 GDP at 1.5%.

This week we will have data on trade balance.

Important news for CHF:

Thursday:

• Trade Balance
• Exports
• Imports

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets.
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