Forex Weekly Outlook – June 12-16 2017

The US dollar advanced against its major peers amid the testimony from Comey. The focus now shifts to the highly anticipated Fed decision. We also have three additional rate decisions as well as other figures. Here are the highlights for the upcoming week.

Former FBI Director James Comey provided a harsh testimony against President Donald Trump, but fell short of stating it was an obstruction of justice. While the story will continue weighing on Trump’s growth agenda, an impeachment seems far off at the moment. In the euro-zone, the ECB made some hawkish changes to its statement, but lowered inflation forecasts. The end result was a weaker euro. In the UK, Theresa May’s Conservative Party lost its majority in parliament. While she is expected to continue as PM, her hand is weaker in the Brexit negotiations and so is the pound. In the background, oil prices slipped and Chinese data beat expectations for a change.

Updates:

  1. US PPI: Tuesday, 12:30. Producer prices feed into consumer prices, which are eyed by the Fed. Headline PPI advanced by 0.5% back in April and a slowdown to 0.1% is on the cards now. Core PPI rose by 0.4% and is expected to decelerate to 0.2% in May.
  2. UK jobs report  Wednesday, 8:30. While the unemployment rate is at a low of 4.6%, wages are stuck at 2.4%, which is currently below the level of inflation. This means that standards of living are falling. Wages are predicted to remain unchanged at 2.4%.
  3. US CPI: Wednesday, 12:30. This inflation report comes on Fed day and may have a last-minute influence. Back in April, headline CPI advanced by 0.2% and core CPI disappointed with +0.1% month over month. The slowdown to 1.9% in core CPI was quite worrying. For the month of May, the headline number is expected to rise by 0.3% and Core CPI by 0.2%.
  4. US retail sales: Wednesday, 12:30. Together with the inflation report, we also get another top-tier indicator: consumption is at the heart of the US economy. Retail sales advanced by 0.4% in April and 0.1% is expected now. Core sales carry expectations for 0.2% after 0.3% beforehand. Will markets react to the data? The reaction could be muted due to the Fed.
  5. US Fed decision: Wednesday, 18:00, press conference at 18:30. This is one of the Fed’s more important meetings. In addition to the regular statement, the central bank also publishes updated forecasts for growth, employment and inflation. More importantly, they release the dot-plot for interest rates, their own expectations for where interest rates will be in the future. The Fed is expected to raise the interest rate for the fourth time in the cycle and the third time within the past six months. The probable hike comes despite weaker data seen lately: wages are stuck at 1.9%, the Fed’s favorite inflation measure fell to 1.5% and growth was very slow in Q1. The team led by Yellen is optimistic about growth in Q2 and also the second half of the year. However, given the general slowdown, the Fed could make it a “dovish hike”: raising rates now but hinting about a slower pace of rate rises in the future. They can send the message via the dot-plot, the statement, and the tone of Fed Chair Janet Yellen’s press conference. Assuming they indeed raise rates, the reaction depends on future moves by the Fed. In case they surprise us by responding to the data and do not hike, the dollar will crash. The full reaction to the Fed will be felt through the week.
  6. NZ GDP: Wednesday, 22:45. New Zealand publishes its GDP growth numbers only once, making it more significant for the kiwi dollar. After a relatively slow growth rate of 0.4% in Q4 2016, expectations stand at 0.7% for Q1 2017.
  7. Australian jobs report: Thursday, 1:30. April was an excellent month for the job market in Australia: 37.4K jobs were added. The forecast for May stands at a more modest 10.3K. The unemployment rate is predicted to remain at 5.7%.
  8. Swiss rate decision: Thursday, 7:30. The Swiss National Bank makes its rate decision only once per quarter. Since removing the peg back in January 2015, aka “SNBomb”, the SNB maintains a negative deposit rate of -0.75% and they also intervene in currency markets to weaken the franc. No change is expected now, despite a weaker exchange rate.
  9. UK rate decision: Thursday, 11:00. Will the Bank of England respond in any way to the election results? The team led by Mark Carney is projected to leave the interest rate unchanged at 0.25% and the total volume of its bond-buying program at 435 billion pounds. Alongside the decision, the Bank publishes the meeting minutes from the event. In the previous decisions, there was one member, Forbes, who voted for a rate hike given the rising inflation. She will probably dissent once again. A unanimous vote is expected around the bond-buying scheme.
  10. Japanese rate decision:  Friday early morning, no specific hour. The Bank of Japan last made a big decision in September, when it decided to target the 10-year yields and aim for 0%. There has been some talk about beginning to talk about an end to the extremely accommodative monetary policy. Will we see some hawkishness from the BOJ now? They could take the first baby steps, but continue buying bonds and expanding their balance sheets for quite some time.
  11. US housing data: Friday, 12:30. The housing sector is usually correlated with the wider economy. Building permits are expected to rise from an annualised level of 1.23 million to 1.25 million. Housing starts disappointed in April with a fall to 1.17 million and a small increase is likely for May.
  12. US consumer sentiment:  Friday, 14:00. The University of Michigan releases its preliminary version of its consumer sentiment report for June. In May, the score stood at 97.1 in the final version. A score of 97.2 is on the cards now. In theory, more confident consumers buy more, but the correlation with actual retail sales is not always there.

*All times are GMT

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