Last Week’s Recap
EUR/USD sold off last week as the FOMC Meeting Minutes and strength in U.S. core inflation made a case for Fed tightening with both economies reporting mixed economic numbers. The week began with the pair declining after making its weekly high of 1.1446 on Monday after comments from the Chicago Fed’s Charles Evans, in which he said that, “you could imagine a case being made for a rate increase in June”. Adding that, “I think we are going to go meeting-by-meeting to make that decision”. The rate extended its losses on Tuesday after German ZEW Economic Sentiment printed at 41.9, significantly lower than the reading of 48.8 that was expected, also pressuring the rate on Tuesday were U.S. Building Permits, which increased +1.14M versus +1.06M expected, while Housing Starts also increased +1.14M compared to an expected +1.02M. On Wednesday, the pair continued declining after the FOMC Statement noted that, “Members agreed to retain the indication that the Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”
The pair then consolidated at a higher level on Thursday after the ECB’s Draghi said that, “The economic outlook for the euro area is brighter today than it has been for seven long years. Monetary policy is working its way through the economy. Growth is picking up. And inflation expectations have recovered from their trough. This is by no means the end of our challenges, and a cyclical recovery alone does not solve all of Europe’s problems.” Also on Thursday, EZ Flash Manufacturing PMI printed at 52.3 versus an expectation of 51.8, while French Manufacturing PMI printed at 49.3 compared to an expected print of 48.6, but German Flash Manufacturing PMI came out at 51.6 versus 52.0 expected. U.S. numbers had Existing Home Sales dropped to an annualized 5.04M versus 5.23M expected, and the Philly Fed Manufacturing Index declined to 6.7 versus an expected reading of 8.1. The rate went on to make its weekly low of 1.1001 on Friday after U.S. Core CPI increased +0.3% m/m versus +0.2% anticipated while CPI increased +0.1% as widely anticipated. EZ numbers had German Ifo Business Climate, which printed at 108.5, in line with expectations.
After the market close, Fed Chair, Janet Yellen gave a speech in Providence, Rhode Island, in which she stated that, “if the economy continues to improve as I expect, I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target and begin the process of normalizing monetary policy. To support taking this step, however, I will need to see continued improvement in labor market conditions, and I will need to be reasonably confident that inflation will move back to 2 percent over the medium term.” EUR/USD closed at 1.1014, showing an overall weekly decline of -3.9%.
USD/JPY rallied last week as asset flows favoured the Greenback over the Yen and with mixed economic numbers out of both countries. The rate began the week making its weekly low of 119.32 on Monday after Japanese Core Machinery Orders increased +2.9% m/m versus an expectation of +1.7%. The pair continued gaining on Tuesday after better than expected U.S. Building Permits and Housing Starts. On Wednesday, the rate extended its rally after the FOMC Meeting Minutes came out slightly hawkish on interest rates. The pair then declined on Thursday after lower than expected U.S. Existing Home Sales and manufacturing data. The rate then made its weekly high of 121.56 on Friday after the BOJ’s Monetary Policy Statement reiterated the central bank’s existing monetary policy and after U.S. Core CPI came out better than expected. USD/JPY went on to close at 121.54, with a gain of +1.8% from its previous weekly close.
GBP/USD sold off sharply last week as the BOE’s MPC Meeting Minutes showed a unanimous decision on both interest rates and stimulus measures and with mixed economic numbers out of both countries. The week began with Cable declining after making its weekly high of 1.5744 on Monday after comments from the Fed’s Charles Fisher. The rate continued sharply lower on Tuesday, making its weekly low of 1.5445 after UK CPI declined -0.1% y/y versus an expected flat reading. Also, UK PPI Input increased +0.4% m/m compared to an expected +0.8%, while RPI increased +0.9% y/y as widely anticipated. Cable then consolidated at a slightly higher level on Wednesday after the BOE’s MPC Meeting Minutes for its meeting on May 7-8 showed unanimous decisions to keep the Official Bank Rate at 0.50% and the Asset Purchase Facility at 375B.The minutes noted that, “In the absence of further falls in energy prices or sharp movements in the exchange rate, inflation rates close to zero would be unlikely to endure for very long.
As the impact of past movements in energy prices and the exchange rate faded from the twelve-month calculation, CPI inflation was likely to rise notably towards the end of the year.” Thursday saw the pair gain sharply after UK Retail Sales increased +1.2% m/m, significantly higher than the +0.4% that was expected. Cable then fell sharply on Friday after a better than expected U.S. Core CPI number and despite UK Public Sector Net Borrowing printing at 6.0B versus 7.8B expected. GBP/USD closed at 1.5491, with a loss of -1.5% for the week.
AUD/USD declined last week as the RBA’s Monetary Policy Meeting Minutes indicated members were open to additional interest rate cuts and the FOMC Meeting Minutes and a strong U.S. Core CPI numbers supported the Greenback. The week began with the rate selling off after making its weekly high of 0.8051 on Monday after comments from FOMC member Evans. The pair continued declining on Tuesday after the RBA’s Monetary Policy Meeting Minutes showed that members had originally planned to cut rates in June but decided to cut one month early.
The minutes noted that, “The appreciation of the US dollar since mid 2014 had continued its modest reversal over the past month, resulting in a depreciation of the US dollar against most currencies. Reflecting that, together with recent domestic data, the Australian dollar had appreciated by 3 per cent against the US dollar and by 2½ per cent on a trade-weighted basis over the past month. Nevertheless, compared with its level in mid 2014, the Australian dollar remained around 17 per cent lower against the US dollar and around 10 per cent lower on a trade-weighted basis.” On Wednesday, the rate extended its losses despite Australian Westpac Consumer Sentiment, which increased +6.4% compared to a previous reading of -3.2%. The pair then consolidated at a slightly higher level on Thursday after lower than expected U.S. economic data and Australian MI Inflation Expectations, which printed at +3.6% versus a previous +3.4% reading. The rate then resumed its selloff on Friday, making its weekly low of 0.7809 after a better than expected U.S. Core CPI number, bringing AUD/USD to close at 0.7828, with an overall weekly loss of -2.7%.
USD/CAD gained ground last week as asset flows favoured the Greenback over the Loonie and with mixed economic numbers out of both countries. The rate began the week making its weekly low of 1.2011 on Monday after comments from FOMC member Evans. The pair continued higher on Tuesday after better than expected U.S. housing data and comments by BOC Governor Poloz, who said that, “We’ve been on a voyage of rebuilding since the Great Recession, but the trip has been longer and more complicated than previous recoveries because of all the cross-currents acting on the economy.
Not only are the headwinds of the global financial crisis still blowing, but now we’re also dealing with lower prices for oil and other key commodities, which previously were a key growth engine for us.” The rate then declined a fraction on Wednesday after Canadian Wholesale Sales increased +0.8% m/m, in line with expectations. The pair consolidated at a slightly lower level on Thursday after mostly lower than expected U.S. manufacturing and housing numbers. The rate then made its weekly high of 1.2321 on Friday after Canadian Core CPI increased +0.1% m/m as widely anticipated, while CPI declined -0.1% m/m compared to an expected increase of +0.1%. Also out were Canadian Core Retail Sales, which increased +0.5% m/m versus expectation of +0.7%, while Retail Sales increased +0.7% m/m compared to +0.5% anticipated. USD/CAD closed the week at 1.2281, with an overall gain of +2.2% from its previous weekly close.
NZD/USD declined last week as both countries reported mixed economic numbers. The week began with the pair making its weekly high of 0.7456 on Monday after New Zealand reported PPI Input had declined -1.1% q/q compared to an expected -0.6%. The rate continued heading south on Tuesday after New Zealand Inflation Expectations increased to +1.9% q/q from a previous reading of +1.8%, also out on Tuesday was the New Zealand GDT Price Index, which declined -2.2% versus a previous reading of -3.5%. The rate extended its losses on Wednesday, making its weekly low of 0.7280 after the FOMC Meeting Minutes supported the Greenback. On Thursday, the pair gained after the New Zealand Annual Budget Release noted that, “The outlook for the economy remains positive, with growth of 2.8 per cent on average over the next four years, which means more jobs, higher incomes and opportunities for families to get ahead. By mid-2019, the number of people in work is expected to rise by another 150,000, and average wages are expected to rise by $7,000 to $63,000 a year. The unemployment rate is expected to fall below 5 per cent in 2016.” The rate then declined on Friday after a better than expected U.S. Core CPI number. NZD/USD went on to close at 0.7298, with an overall loss of -2.2% for the week.
This Week’s Outlook
USD: The U.S. economic calendar is quite active this coming week, featuring Preliminary GDP data on Friday. Monday is a Bank Holiday and features a speech by FOMC Member Fischer, and Tuesday’s key events include Core Durable Goods Orders ( 0.5%), Durable Goods Orders (-0.4%), CB Consumer Confidence (95.3), New Home Sales (501K) and another speech by FOMC Member Fischer. Wednesday then offers a speech by FOMC Member Lacker and the start of the G7 Meetings that will run through Friday, while Thursday features a speech by FOMC Member Williams, Weekly Initial Jobless Claims (272K), Pending Home Sales (0.8%), and Crude Oil Inventories (last -2.7M). Friday’s important data then concludes the week with Preliminary GDP (-0.9%), Chicago PMI (53.10, and the Revised University of Michigan Consumer Sentiment survey (90.0).
AUD: The Australian economic calendar is rather quiet this coming week, only featuring a speech by RBA Deputy Governor Lowe and Construction Work Done on (-1.4%) on Wednesday, and Private Capital Expenditure (-2.3%) on Thursday. Also, G7 Meetings will take place from Wednesday through Friday. Resistance for AUD/USD is seen at 0.7839/0.7937, 0.8024/29 and 0.8074, with support noted at 0.7785 and 0.7625/0.7737 and 0.7552/59.
NZD: The New Zealand economic calendar is quiet this coming week, only featuring the Trade Balance (105M) on Monday, Building Consents (last 11.0%) on Thursday and ANZ Business Confidence (last 30.2) on Friday, in addition to the G7 Meetings being held from Wednesday to Friday. The chart for NZD/USD shows resistance at 0.7420/30, 0.7389 and 0.7326. On the downside, technical support is expected at 0.7273/80 and 0.7186.
GBP: The UK economic calendar is unusually quiet this coming week, only featuring the Second Estimate GDP (0.4%) and Preliminary Business Investment (1.1%) on Thursday, as well as the G7 Meetings from Wednesday to Friday. Also, Monday is a Bank Holiday in the UK. Resistance to the topside for GBP/USD shows at 1.5491/1.5551, 1.5699 and 1.5785/1.5814, while support for the pair is expected at 1.5222/68, 1.5315/51 and 1.5446.
EUR: The Eurozone economic calendar is also quite peaceful this coming week, featuring the GfK German Consumer Climate survey (10.0) on Wednesday; and then German Retail Sales (last -2.3%), Spanish Flash CPI (-0.5%), the EZ M3 Money Supply (4.9%) and EZ Private Loans (0.4%) on Friday. The G7 Meetings will also run from Wednesday through Friday, and Monday is a German and French Bank Holiday. Resistance for EUR/USD is seen at 1.1388/91, 1.1269/89 and 1.1035/1.1133, with support showing at 1.0899, 1.0712 and 1.0659/65.
JPY: The Japanese economic calendar is fairly quiet this coming week, only featuring the Trade Balance (-0.21T) on Monday; the BOJ’s Monetary Policy Meeting Minutes on Wednesday; Retail Sales (5.9%) on Thursday; and then Household Spending (3.1%) and Tokyo Core CPI (0.2%) on Friday. In addition, the G7 Meetings will take place from Wednesday to Friday. Resistance for USD/JPY currently shows up at and 121.84/122.18, 124.14 and 125.67/126.17, with support indicated at 119.05/37, 119.62 and 120.14/121.27.
CAD: The Canadian economic calendar is moderately active this coming week, featuring the BOC Overnight Rate Decision on Wednesday. Monday and Tuesday are quiet, so Wednesday starts the week’s highlights off with the BOC Rate Statement and the BOC Overnight Rate Decision (unchanged at 0.75%). Thursday’s key events then include the Current Account (-13.9B) and RMPI (-0.9%), and Governing Council Member Schembri will speak on Saturday. In addition the G7 Meetings will run from Wednesday to Friday. Resistance for USD/CAD is seen at 1.2304/21, 1.2361/87 and 1.2406/09, while support shows at 1.2203 and 1.2102/62 and 1.2045/1.2087.
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