Forex Major Currencies Outlook (June 24 – June 28)

USD

FOMC voted to leave rates unchanged at 2.25% to 2.5%. The rate vote was not unanimous, St. Louis FED president Bullard, the biggest dove, voted for the rate cut while only one member, presumably George, president of Kansas City FED, expects a rate hike in 2019. The FOMC statement changed the wording on future policy changes. The change was from “patient” to ‘closely monitor the implications of incoming information”. The phrase “act as appropriate sustain the expansion” was also added to the statement. For the first time, Dot Plot signals interest rate cut with 8 out of 17 members seeing rate cut this year and 7 of those favour two rate cuts. The biggest change to projections was made regarding PCE inflation. Core PCE has been downgraded to 1.8% this year from 2% and to 1.9% next year from 2%. Chairman Powell stated at the press conference that “The case for somewhat more accommodative policy has strengthened” adding that they want to see more deteriorating data and want to react to genuine trends, not one or two data points or swings in sentiment. After the statement was released and press conference was held FED funds futures showed a 100% probability of a rate cut at the July meeting.

This week we will have housing data, consumer confidence data, final reading of Q1 GDP and PCE inflation. FED has downgraded their projections for inflation so data on personal spending and income will be closely monitored. G20 Summit starts on Friday with long awaited Trump – Xi meeting. Investors will be hoping for some warming in the relationship between two states.

Important news for USD:

Tuesday:

• New Home Sales
• Consumer Confidence Index

Wednesday:

• Durable Goods Orders

Thursday:

• GDP
• Pending Home Sales

Friday:

• PCE
• G20 Summit

EUR

The ECB President Mario Draghi has said that cutting interest rates remains part of the bank's repertoire and added that negative rates have proven to be a very important tool. He added that if the outlook does not improve additional stimulus will be needed and not only in the form of rate cuts. Is there a possibility of re-entering the QE program? Markets are now pricing in additional 10bp rate cut in September of 2019 moving it closer from December of 2019. The ECB Vice President Luis de Guindos supports rate cuts if the inflation outlook does not improve.

German ZEW survey of current situation came in at 7.8 vs 6.1 as expected, but expectation component has plummeted to -21.1 vs -5.6 as expected and -2.1 the previous month. Expectation for Eurozone have also sunk coming in at -20.2 vs -1.6 the previous month. Trade balance for the Eurozone in the month of April came in at 15.3bn EUR vs 17bn EUR as expected. Exports were down 2.4% while imports were down 0.8%. Advanced consumer confidence continues to drop in the month of June with preliminary reading coming in at -7.2 vs -6.5 as expected. Preliminary June PMI data came in stronger than previous month. Manufacturing PMI came in at 47.8 vs 47.7 the previous month on the back of strong French reading with German reading also showing an improvement coming in at 45.4. Services PMI came in at 53.4 vs 52.9 the previous month and composite PMI came in at 52.1 vs 51.8 the previous month.

This week we will have data on business climate from EU and Germany and preliminary inflation data for the month of June.

Important news for EUR:

Monday:

• Ifo Business Climate (Germany)

Thursday:

• Business Climate Indicator
• Economic Sentiment Indicator

Friday:

• CPI

GBP

Inflation for the month of May came in at 0.3% m/m and 2% y/y as expected. A slight drop in the headline inflation from 2.1% y/y while core CPI came in better than expected, thus falling less from the previous month than expected, at 1.7% y/y. Retail sales came in at -0.5% m/m as expected but 2.3% y/y vs 2.7% y/y as expected. A bit softer reading on the yearly basis is concerning. ONS notes that the slightly softer figures here can be attributed to a drop in clothing sales. Fall in retail sales will negatively impact GDP growth in Q2.

BOE has left the bank rate unchanged at 0.75% with. The decision was made unanimously with all 9 members voting for no change. BOE has cut the Q2 GDP forecast to 0 from 0.2% q/q previously. Inflation will likely fall below 2% later this year but inflation expectations remain well-anchored. There are increasing signs that wage growth rates might level off. Downside risks have increased since May as global trade tensions intensify. Although it was acknowledged that “ongoing tightening of monetary policy at gradual and limited pace is needed” hawkish bias of BOE is being slowly deflated.

The final result of the voting for Tory leadership are: Boris Johnson 160 votes and Jeremy Hunt 77 votes. Almost 160 000 Tory party members will now cast their votes via post for one of the two candidates. New leader and PM will be announced on July 22.

This week we will have final Q1 GDP data and data on business investment.

Important news for GBP:

Friday:

• GDP
• Business Investment

AUD

Latest RBA meeting minutes show that monetary policy board agreed that “more likely than not” further easing of monetary policy would be appropriate. The role of labour market has been characterized as “particularly important” for the future decisions regarding easing. The lower rates would push down value of AUD thus reducing household debt repayments. The board is aware that lower rates will hurt savers, but they would also stimulate the overall economy.

This week we will have speech from governor Lowe and PMI data from China.

Important news for AUD:

Monday:

• RBA Governor Lowe Speech

Sunday:

• Manufacturing PMI (China)
• Non-manufacturing PMI (China)

NZD

After last week’s huge drop in manufacturing PMI services PMI for the month of May improved and came in at 53.6 vs 52 the previous month. All sub-indices were over 50 with inventory making the highest jump from 48.5 to 56.8 this month. GDT price index came in at -3.8% making it a third consecutive negative auction. Q1 GDP came in at 0.6% m/m as expected and 2.5% y/y vs 2.3% y/y as expected. RBNZ was the first one to cut the rates and this data point will ease the need for further cuts. They can afford to be patient and decide based on more incoming data.

This week we will have trade balance data and RBNZ interest rate decision. After good GDP data it is expected that rates stay on hold.

Important news for NZD:

Tuesday:

• Trade Balance
• Exports
• Imports

Wednesday:

• RBNZ Interest Rate Decision
• RBNZ Rate Statement

CAD

Manufacturing sales for the month of April missed by a big margin. They came in at -0.6% m/m vs 0.4% m/m as expected. The drop was due to lower car sales. New orders also dropped due to temporary assembly plant shutdowns. Retail sales for the month of May came in at 0.1% m/m vs 0.2% m/m as expected but prior month’s reading was revised higher to 1.3% m/m. Ex autos component came in at 0.1% m/m vs 0.4% m/m as expected but prior month’s reading was revised higher to 1.8% m/m. Small misses have been offset by revisions higher for previous month. Higher sales at gasoline stations, along with new cars, food and beverage stores contributed to the increase.

CPI for the month of May surprised to the upside and came in at 2.4% y/y vs 2.1 % y/y as expected. This is the highest reading in the last seven months. Prices increased in all 8 major components with food leading the way at 3.5%. Prices of fresh vegetables rose 16.7% y/y. Core CPI measures show that Median came in at 2.1% vs 1.9% as expected, Common came in at 1.8% vs 1.9% as expected and Trim came in at 2.3% vs 2.1% as expected. These numbers will be very well received by BOC, showing that their monetary policy is effectively stimulating economy. Counties worldwide are struggling with inflation while all major components in Canada showed an increase in prices.

This week we will have data on wholesale trade and GDP for the month of April as well as OPEC meeting that will impact the price of oil, closely related to the value of CAD.

Important news for CAD:

Tuesday:

• OPEC Meeting
• Wholesale Trade

Wednesday:

• OPEC Meeting

Friday:

• GDP

JPY

Trade balance for the month of May came in at -JPY967bn vs -JPY1200bn as expected. Exports were down -7.8% y/y vs -8.2% y/y as expected caused by drops in exports to China -9.7% y/y and Asia -12.1% y/y. Imports came in at -1.5% y/y vs 1% y/y as expected. Lowering of trade deficit was achieved due to falling imports which can’t be a good sign regarding domestic demand. Exports fell less than expected but trade wars and global slowdown weigh in heavily. Chips and auto parts were main culprits for decline in exports.

BOJ has left the short-term interest rate at -0.1% as widely expected. The forward guidance has been left unchanged and they confirmed that low rates will be kept at least through spring of 2020. Japan's economy is expanding moderately as a trend although exports and output are affected by overseas slowdown. Assessments are kept unchanged.

Inflation on national level for the month of May came in at 0.7% y/y as expected but down from 0.9% y/y the previous month. Excluding fresh food component came in better than expected at 0.8% y/y vs 0.7% y/y as expected but also down from the 0.9% y/y the previous month. Struggle with inflation continues in Japan, one month it is on the right track, the other it turns back down. We are still far away from the targeted 2% level. This will give BOJ more reasons to ease further. Preliminary manufacturing PMI for the month of June came in at 49.5 vs 49.8 the previous month. New orders component showed the biggest fall in three years. Disappointingly low sales led to largest accumulation of finished goods inventories for more than six and-a-half years.

This week we will have minutes from the latest BOJ meeting, consumption data, inflation data from Tokyo area, employment data and preliminary industrial production data for the month of May. BOJ summary of opinions will provide more information whether board members discussed about expanding the stimulus program.

Important news for JPY:

Tuesday:

• BOJ Monetary Policy Meeting Minutes

Thursday:

• Retail Sales

Friday:

• CPI
• Unemployment Rate
• Jobs to Applicants Ratio
• BOJ Summary Of Opinions
• Industrial Production

CHF

Trade balance data for the month of May came in at CHF3.41bn vs CHF2.29bn the previous month. Exports were down -1.2% m/m reflecting difficulties caused by global trade tensions. Domestic demand is holding stable with imports coming in at 0.7% m/m.

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