Forex Major Currencies Outlook (May 22, 2014)

Policymakers mentioned that they are not very concerned about accommodative monetary policy stoking inflationary pressures at the moment, as the CPI remains below the Fed’s 2% inflation target. However, they did start looking into gradual exit strategies involving short-term interest rates. The main takeaway from the minutes of the meeting is that the Fed is starting to consider how to slowly tighten monetary policy without shocking the markets. US existing home sales, initial jobless claims, and flash manufacturing PMI are due today.

EUR

The euro lost ground to the dollar again when the euro zone current account balance turned out weaker than expected at a surplus of 18.8 billion EUR instead of the estimated 24.2 billion EUR. German and French PMIs are up for release today and this might dictate whether the euro is in for a deeper selloff or not. Small downticks are expected for the manufacturing and services sectors of both economies, which would reflect a slower expansion in these industries.

GBP

The pound continued its ascent to the dollar when UK retail sales data showed stronger than expected results. A 1.3% increase was seen, higher than the projected 0.4% uptick, while the previous month’s reading enjoyed an upgrade. UK’s revised GDP figure is up for release today and an upward revision from the previously reported 0.8% reading might lead to more gains for the pound.

CHF

The franc chalked up small losses in the latest trading sessions as the lack of data from Switzerland weighed on the currency. There are still no reports due from Switzerland today, which suggests further consolidation or weakness for the franc.

JPY

The yen gave back its recent gains when risk appetite returned to the markets. The BOJ made no changes to monetary policy as expected but provided an upbeat outlook for capital expenditures. Earlier today, the freshly released Japanese manufacturing PMI showed an increase from 49.4 to 49.9, just a notch away from indicating industry expansion. No other reports are due from Japan today.

Commodity Currencies (AUD, NZD, CAD)

The comdolls recovered off their declines in recent trading when risk sentiment improved. Data from Australia actually showed weakness in the consumer sector while New Zealand’s credit card spending report reflected a slowdown. For today, Canadian retail sales data are due and might come in weak thanks to the recent drop in hiring.  

By Kate Curtis from Trader's Way