Forex Major Currencies Outlook (June 14 – June 18)

USD 

Headline CPI in May came in at 5% y/y vs 4.7%y/y as expected and up from 4.2% y/y in April. Core reading came in at 3.8% y/y vs 3.5% y/y and up from 3% y/y the previous month. The main contributor to the rise in inflation are surging prices of used cars. Airfares also showed significant increase in prices as people start travelling again. Wages data showed a drop in average weekly earnings due to the lower paying workers returning into the workforce. 

World Bank has come up with new projections on global growth and they see 2021 GDP now at 5.6%, up from 4.1% in January. Projections for 2022 are at 4.3% and 3.1% for 2023. US is expected to grow at 6.8% vs 5.5% in January while China is seen at 8.5% vs 7.9% in January. The bank’s long-term inflation expectations show continuation of low and stable inflation. 

This week we will have consumption data and FOMC meeting. No changes in rate and policy are expected, however tone and assessment of inflation data will be scrutinized. Will it be characterised as “transitory” and business will continue as usual for or will hints of QE taper be presented? New forecasts for growth, inflation and the dot plot will be published. 

Important news for USD: 

Tuesday:

• Retail Sales

Wednesday:

• FOMC Interest Rate Decision 

EUR 

ZEW survey for June showed that German investors are satisfied with current situation, as the reading printed -9.1 vs -28 as expected. This is a huge improvement from -41 print in May. However, expectation category came in at 79.8 vs 86 as expected indicating waning optimism regarding future, due to supply chain disruptions. Eurozone expectations also missed coming in at 81 vs 84 as expected. Final Q1 GDP reading was positively revised and now it prints -0.3% q/q and -1.3% y/y. 

ECB has left key rates unchanged as widely expected. PEPP will continue until at least the end of March 2022 and it will run at a significantly higher pace. ECB President Christine Lagarde stated that it is too early to talk about an exit from asset purchase programme. The proverbial can has been kicked down the road toward July meeting or perhaps even September meeting. New ECB projections see 2021 GDP at 4.6% vs 4% previously and 4.7% vs 4.1% previously for 2022. Inflation numbers are also seen higher, 1.9% y/y for 2021 and 1.5% y/y for 2022. Bundesbank also came out with their projections and now see 2021 GDP at 3.7% vs 3.0% previously with 2022 GDP at 5.2% vs 4.5% previously. Inflation data show 2021 HICP at 2.6% vs 1.8% previously and 2022 HICP at 1.8% vs 1.3% previously. 

GBP 

UK is in still fighting with covid. New strain, the so-called Indian, since it was first discovered in India, is considered to have 40% more transmission power than the other already fast-spreading variants. BOE chief economist Haldane gave the pound a farewell gift. He stated that economy is going strong, price pressures are showing and that BOE may have to consider lowering stimulus. He will be leaving his post after the June meeting. GDP in April came in at 2.3% m/m showing strong start to Q2. Chancellor of Exchequer Sunak proposed that financial services be exempt from recently announced new tax regime that sees minimum tax rate for corporations at 15%. 

GBPUSD has risen to 1.4188 on the back of his comments while GBPJPY continues it rise moving closer to levels not seen since February of 2018. Concerns regarding postponement of “Freedom Day” from June 21 to mid-July combined with increased tensions with the EU due to Northern Ireland border dragged GBPUSD below the 1.41 level, only to go above it after the US inflation data. 

This week we will have employment, inflation and consumption data. 

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Friday:

• Retail Sales

AUD

Trade balance for China in May came in at $45.53bn, up from $42.85bn in April. Exports rose 27.9% y/y. Expectations were for a bigger rise in exports, but a slowdown in all exports containing semi-conductor chips was the cause of the miss. Imports came in at 51.1% y/y due to the large increase in commodity prices. CPI for the same month came in at 1.3% y/y vs 1.6% y/y as expected due to a drop in pork prices. Non-food prices rose by 0.9%. On the other hand, PPI came in at 9% y/y vs 8.5% y/y and up from 6.8% y/y in April. PPI has risen every month in 2021 and this is the highest reading in 13 years. Growing divergence between CPI and PPI growth leads to shrinking of profits for producers which raises two questions: First, when will increases in input prices be transferred from producers to consumers thus leading to rise in CPI? Second, why hasn’t it been done already? One possible answer is that consumer power in China is weak, leading to a low demand for products which will be weakened by the potential rise in prices.

This week we will have employment data from Australia as well as consumption and production data from China.

Important news for AUD:

Wednesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales, a good proxy for overall retail sales in the country, continued to rise for the third straight month coming in at 1.7% m/m and 18.1% y/y.

This week we will have Q1 GDP data.

Important news for NZD:

Thursday:

• GDP

CAD

BOC has left policy rate and pace of QE unchanged as widely expected. The Canadian economy has been advancing in line with the assessment presented in April. New wave of virus has been hurting the economy at the start of Q2, however it is expected that recovery will pick up during summer months. The rise in commodity prices, most notably in oil, has led to CAD strength. Q1 GDP was weaker than BOC expected but “underlying details indicate rising confidence and resilient demand". They assessed that CPI will most likely remain around 3% during summer months, it will drop as we move toward the end of the year and as base effects are removed from calculation. Slack in the economy is still seen, therefore accommodative monetary policy is needed. The meeting was a non-event and we turn now to July 17 meeting which should provide more excitement.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

Final Q1 GDP reading was revised up to -1% q/q from -1.3% q/q as preliminary reported. Private consumption was a bit weaker coming in at -1.5% while business investment improved to -1.2%. Labour wages continued to improve and in April doubled expectations coming in at 1.6% y/y vs 0.8% y/y as expected.

This week we will have BOJ meeting. No changes in rate and monetary policy are expected.

Important news for JPY:

Friday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending June 4 came in at CHF710.8bn vs CHF710.5bn the previous week. Employment picture continues to improve as seasonally adjusted unemployment rate in May came in at 3%, down from 3.2% in April. Inflation was impacted by base effects but with headline reading printing 0.6% y/y and core just 0.2% y/y SNB will just glance over it and continue with current monetary policy.

This week we will have SNB meeting. No changes in rate and monetary policy are expected.

Important news for CHF:

Thursday:

• SNB Interest Rate Decision

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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. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}