Forex Major Currencies Outlook (May 4 – May 8)

USD 

Q1 GDP data release caused stir in the markets. First the publication was delayed, then it printed positive 4.8% annually and later on it was changed to -4.8% annually. Estimates were for a drop of -4% annually. Personal consumption, the chief motor of US economy, was the main drag falling -7.6%. Net exports were the biggest contributor with 1.3pp. Since Q2 GDP is expected to come even lower we may say that US has entered into a recession defined as two consecutive quarters of falling GDP. Fed Chairman Powell confirmed this fears stating that Q2 GDP may plunge as deep as -30%. The Fed has left the interest rate unchanged but it has pledged to do whatever is necessary to support the economy. They called the government to expand their fiscal stimulus. Rates will stay near zero until employment and inflation move towards their targets. 

Initial jobless claims for the week ending April 18 came in at 3839k pushing the number very close to 30 million people. Continuing claims rose to almost 18 million people. Personal spending plunged to -7.5% m/m due to constrictions on movement preventing people from consuming in restaurant, bars, shopping malls, movie theatres, etc. Headline PCE came in at 1.3% y/y while core was at 1.7% y/y. Significant drop in headline number is contributed to plunging oil prices. 

This week we will get trade balance, PMI and employment data. NFP for April is, according to some estimates, expected to drop by 20 million while the unemployment rate may rise to double digits at 15.5% while White House expects it to go to 19%. 

Important news for USD: 

Tuesday:

• Trade Balance
• ISM Non-Manufacturing PMI

Thursday:

• Initial Jobless Claims

Friday:

• Nonfarm Payrolls
• Unemployment Rate
• Average Hourly Earnings

EUR

Unsurprisingly, sentiment data from EU plunged into deep negative territory in April with services sentiment falling to -35 from -2.2 the previous month. Preliminary headline CPI slipped to 0.4% y/y which is the lowest reading since September of 2016 while core held better and came in at 0.9% y/y vs 1% y/y the previous month. Significant drop in headline inflation was due to the sharp drop in oil prices. Preliminary Q1 GDP came in at -3.8% q/q and -3.3% y/y. Spain and France were hit the hardest with both countries showing drops bigger than 5% while Italy came in at -4.7% q/q. French president Macron stated that movement restrictions will be lifted on May 11 but it is only the first step and it will not immediately lead back to normal life.

ECB has left the rate unchanged as expected. They have decided to also leave PEPP unchanged at €750bn. New lending program has been introduced confirming their commitment to do whatever is necessary. Bleak projections about the output for 2020 have been presented. Q2 GDP may fall -15% while total 2020 GDP may be -12%.

This week we will have final PMI and consumption data.

Important news for EUR:

Monday:

• Markit Manufacturing PMI (EU, Germany, France)

Wednesday:

• Markit Services PMI (EU, Germany, France)
• Markit Composite PMI (EU, Germany, France)
• Retail Sales

GBP

UK Government is not planning to ease social distancing measures before May 7. They stated that five tests need to be met in order for measures to ease: 1) Making sure that NHS can cope with the number of cases, 2) A “sustained and consistent” fall in daily death rate, 3) The rate of infection slowing to “manageable level”, 4) Ensuring supply of tests and PPE (Personal Protective Equipment) can meet future demand and 5) Being confident that any adjustments will not risk a second peak.

This week we will have final PMI data as well as BOE rate decision. No change in the rate is expected, however there is room for additional easing to support the economy.

Important news for GBP:

Tuesday:

• Markit Services PMI
• Markit Composite PMI

Thursday:

• BOE Interest Rate Decision

AUD

Headline CPI number for Q1 from Australia came in at 0.3% q/q and 2.2% y/y. Core CPI came in at 1.8% y/y, still below the RBA’s range of 2-3% and projections for Q2 are abysmal. Due to the stoppage caused by the virus outbreak we could see numbers moving into opposite direction, perhaps even going into deflation.

Official Chinese PMI data for April show manufacturing at 50.8, non-manufacturing at 53.2 and composite up to 53.4. Services were hit especially hard during the lockdowns so it is very encouraging sign to see them rise firmly above the 50 level. Caixin manufacturing PMI came in weaker than official at 49.4. Caixin manufacturing PMI measures smaller enterprises while official number concentrates on larger enterprises. Export orders have significantly plunged due to the lack of demand. Some reports indicate that almost 91% of all firms in China are operational as of late April, however only 4% work with full capacity.

This week we will have consumption and trade data from Australia coupled with RBA rate decision along with trade and Caixin PMI data from China.

Important news for AUD:

Tuesday:

• RBA Interest Rate Decision
• RBA Rate Statement

Wednesday:

• Retail Sales

Thursday:

• Trade Balance
• Trade Balance (China)
• Caixin Services PMI (China)
• Caixin Composite PMI (China)

NZD

RBNZ Governor Orr stated that he is open minded about direct monetization of government debt. This is unprecedented for a central bank in high-income countries as they usually buy debt from the market and not directly from the government. Adding to that the RBNZ is not ruling out negative interest rates and NZD was sent down.

Trade balance in March came in at NZD672m, increase of surplus from the previous month, but not as much as expected. Exports rose and reached a new high on the back of kiwifruit, dairy and meat exports. Higher prices of dairy and meat contributed as well. Imports have also risen indicating strong domestic demand. Business confidence continued to deteriorate, although at a slower pace coming in at -66.6 vs -63.5 the previous month.

This week we will have bi-monthly GDT auction and employment data for Q1.

Important news for NZD:

Tuesday:

• GDT Price Index

Wednesday:

• Employment Change
• Unemployment Rate

CAD

GDP for the month of February was published and it showed increase of 0.1% m/m which pushed GDP to 2.2% y/y. Canada was struggling with growth even before the outbreak. Stoppages will have a devastating effect on economy and wipe out the sluggish growth.

This week we will have trade and employment data. Employment change is expected to show a drop of 1.5 million people while the unemployment rate should climb to 8.5%

Important news for CAD:

Tuesday:

• Trade Balance

Friday:

• Employment Change
• Unemployment Rate

JPY

BOJ has kept the policy rate at -0.1% and made further easing of monetary policy as expected. They have pledged to buy unlimited amounts of Japanese Government Bonds. Additionally, they will double the amount of purchases of corporate bonds and commercial papers. They will also expand their loan program aimed to fight the coronavirus and will expand the type of assets they accept as collateral for the loan program. BOJ has lowered its forecasts for growth and inflation for 2020 as the downturn caused by the coronavirus outbreak triggers a harsh reassessment of the economy. Governor Kuroda stated that primary goal of asset purchases is to stabilise markets and added that further easing is possible. Further steps will be taken if need arises.

The unemployment rate ticked up to 2.5% in March, a new 1-year high. Preliminary industrial production data came in better than expected at -3.7% m/m and -5.2% y/y while drop in retail sales matched the expectations of -4.5% m/m and -4.6% y/y. Inflation in the Tokyo area dropped to 0.2% y/y while ex-fresh food measure fell into deflation with -0.1% y/y. Final manufacturing PMI came in at 41.9 vs 43.7 as preliminary reported putting the reading at lowest level since 2009. Japan plans to extend the state of emergency for a month. Final decision will be made on May 6. Previously it was set to expire on May 6.

This week we will have earnings, spending and final PMI data.

Important news for JPY:

Friday:

• Household Spending
• Labour Cash Earnings
• Markit Services PMI
• Markit Composite PMI

CHF

SNB total sight deposits for the week ending 24 April rose to CHF 650.7 bn vs CHF 637.2 bn prior. This is a significant increase in deposits as SNB signals their determination to defend EURCHF 1.05 level and push the pair higher. Retail sales in March plunged -5.6% y/y vs 0.3% y/y the previous month. Impact of lockdown restrictions shows a sharp drop in consumption across the economy.

This week we will have inflation and employment data.

Important news for CHF:

Tuesday:

• CPI

Friday:

• Unemployment Rate

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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 MT4.VAR. and MT4.ECN. accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}