The dollar has ended the second week in a row in the negative territory. It seems that market participants are seriously concerned about rising inflation and the fact that the Fed may not be able to manage it. At the same time, the planned 0.50% increase in the Fed’s interest rate at meetings in June and July has already been priced in for the most part, according to the Fed Chairman Jerome Powell. Judging by the minutes of the May meeting, which were published last Wednesday, the Fed leaders agreed by a majority vote to raise the interest rate at the next 2 meetings by 0.50% each time, and then, possibly, take a break. However, “several participants” at the May meeting also suggested that price pressure “probably isn’t building up anymore.”
Some economists fear that recession risks are rising in the US economy, while important macro data released last week came out with weaker indicators. And yet, economists expect the dollar to rise again, and one of the reasons for this is the Fed’s monetary policy, which is the tightest among other major world central banks.
Next week, market participants will pay attention to the publication of important macro statistics from Germany, the Eurozone, China, Switzerland, the US, Canada, Australia, as well as the results of the meeting of the Central Bank of Canada.
It is also worth noting that next Thursday and Friday are Spring Bank Holidays in the UK. The country’s banks are closed, which will affect the volume of trading in the financial markets, especially during the European trading session.
*during the coming week, new events may be added to the calendar and / or some scheduled events may be canceled
Monday, May 30
The United States celebrates the Memorial Day. Banks of the country are closed, which will affect the volume of trading. They will be reduced during the American trading session.
12:00 EUR Germany Harmonized Index of Consumer Prices (HICP) (preliminary release)
This index is published by the EU Statistics Office and is calculated on the basis of a statistical method agreed between all EU countries. It is an indicator for assessing inflation and is used by the Governing Council of the ECB to assess the level of price stability. A positive result strengthens the EUR, a negative result weakens it.
Previous indicator values: +7.8% in April, +7.6% in March, +5.5% in February, +5.1% in January, +5.7% in December, +6.0% in November, +4.6% in October, +4.1% in September, +3.4% in August, +3.1% in July, +2.1% in June, +2.4% in May, +2.1% in April, +2.0% in March, +1.6% in January and February, -0.7% in December and negative values in the second half of 2020 (in annual terms). If the May data turns out to be better than the previous values, the euro may strengthen in the short term. The growth of the indicator is a positive factor for the euro. The data points to mounting inflationary pressures in Germany. Data worse than the previous value will have a negative impact on the euro. Forecast: +8.0% in May (according to preliminary estimates).
Tuesday, May 31
01:00 CNY China Manufacturing PMI from the China Logistics and Purchasing Federation (CFLP)
This is an important indicator of the state of the Chinese economy as a whole. A result above 50 is seen as positive and strengthens the CNY, one below 50 as negative for the yuan. Previous values: 47.4 in April, 50.2 in February, 50.1 in January.
The relative growth of the index and the value of 50 should have a positive effect on the CNY. The data above the value of 50 indicate an increase in activity, which has a positive effect on the quotes of the national currency. Otherwise, and if the value of the indicator is below 50, the yuan will be under pressure and is likely to decline. Forecast for May: 49.6.
01:00 CNY China Services PMI from the China Logistics and Purchasing Federation (CFLP)
This indicator assesses the state of the services sector in the Chinese economy. A result above 50 is considered positive and strengthens the yuan. Previous values: 41.9 in April, 51.6 in February, 51.1 in January.
Despite the relative decline, the indicator is still above 50, which is likely to have a positive impact on the yuan quotes. Otherwise, and if the value of the indicator is below 50 yuan, it will be under pressure and is likely to decline.
Forecast for May: 50.7.
07:00 CHF Switzerland GDP for the 1st quarter of 2022
GDP is considered an indicator of the general state of a country’s economy and assesses the rate of its growth or decline. The gross domestic product statement expresses in monetary terms the total value of all final goods and services produced by Switzerland in a given period of time. An upward trend in GDP is considered positive for the national currency (franc), while a low result is considered negative (or bearish).
In the previous 4th quarter of 2021, GDP grew by +0.3% (+3.7% in annual terms) after growth in the 3rd quarter of 2021 by +1.7% (+4.1% in annual terms), by +1.8% (+7.7% year-on-year) in Q2 2021. It seems that the situation with the GDP and the economy of Switzerland is recovering after their fall in the first half of 2020, although this decline cannot be compared with the fall in GDP in Germany, the Eurozone and the USA, however, at a very uneven pace. In the 1st quarter of 2022, Switzerland’s GDP is forecast to grow by +0.4% (+4.4% in annual terms). The data point to continued recovery of the Swiss economy, albeit still at a slow pace, which is a positive factor for the franc.
If the data turns out to be weaker than the forecast, the franc may decline in the short term. However, one should not expect a strong fall of the franc, since it is in active demand as a defensive asset. Better-than-expected data may strengthen the franc in the short term.
09:00 EUR Consumer Price Index. Core CPI (preliminary release)
Consumer Price Index (CPI) is published by Eurostat and measures the change in prices of a selected basket of goods and services over a given period. The index is a key indicator for assessing inflation and changing consumer preferences. A positive result strengthens the EUR, a negative result weakens it.
Forecast for May 2022: +7.7% (annualized) against +7.4% in April and March, +5.9% in February, +5.1% in January, +5.0% in December . If the data turns out to be worse than the forecast, the euro may sharply decline in the short term. Data better than the forecast and / or the previous value may strengthen the euro in the short term. The target level of consumer inflation of the ECB is slightly below 2.0%, and the data indicate an acceleration of inflation in the Eurozone.
Core Consumer Price Index (Core CPI) determines the change in prices of a selected basket of goods and services over a given period and is a key indicator for assessing inflation and changing consumer preferences. Food and energy are excluded from this indicator for a more accurate estimate. A high result strengthens the EUR, while a low result weakens it. In December 2021, Core CPI increased by +2.6% (in annual terms), in January – by +2.3%, in February – by +2.7%, in March – by +2.9%, in April – by +3.5%. If the data for May 2022 turns out to be worse than the previous value or forecast, this may negatively affect the euro. If the data turns out to be better than the forecast or the previous value, the euro is likely to react with an increase in quotations. Core inflation in the Eurozone is accelerating, which is positive (under normal economic conditions) for the euro. Forecast for May: +3.5%.
12:30 CAD Canada GDP. Canada annual GDP
Canada’s GDP report is published by Statistics Canada. A strong report will strengthen the CAD. A weak GDP report will have a negative impact on the CAD. The previous report pointed to Canada’s GDP growth (in February) at +1.1%.
Canada’s quarterly GDP report reflects the total volume of all goods and services produced by Canada for the quarter (in annual terms), and is considered an indicator of the overall health of the Canadian economy. In the previous 4th quarter of 2021, GDP grew by +6.7% (after +5.4% growth in the 3rd quarter, a decrease of -1.1% in the 2nd quarter, an increase of +5.6 % in Q1 2021). If the data for the 1st quarter of 2022 turns out to be stronger than the previous value and / or forecast, the CAD will strengthen. Forecast for Q1 2022: +5.7%.
Wednesday, June 1
01:30 AUD Australia GDP (1st quarter)
The Australian Bureau of Statistics releases the report on the country’s GDP, which is the main indicator of the state of the Australian economy, for the 1st quarter of 2022. A strong report will strengthen the AUD. A weak GDP report will have a negative impact on the AUD. Forecast: +0.6% (+1.6% YoY) vs. +3.4% (+4.2% YoY) in Q4, -1.9% in Q3, +0.7% in Q2, +1.8% in Q1 2021. The growth of the indicator is a positive factor for the AUD, the decline is negative. If the data turns out to be worse than the forecast, the AUD may decrease.
06:00 EUR Retail sales in Germany
Retail sales is the main indicator of consumer spending in Germany showing the change in retail sales. A high result strengthens the euro, and vice versa, a low result weakens it. Previous values: -0.1% (-2.7% yoy) in March, +0.3% (+7.0% yoy) in February, +2.0% (+10.3% yoy) in January, -5.5% (0% yoy) in December, +0.8% (+0.5% yoy) in November, +0.5% (-2.9 % YoY) in October, -1.9% (-0.6% YoY) in September 2021.
The data indicate the instability of the recovery of this sector of the German economy, including due to coronavirus lockdowns. Data better than the forecast and / or the previous value is likely to have a positive impact on the euro, but only in the short term. April forecast: 0% (+4.0% yoy)
14:00 USD US Manufacturing PMI (from ISM)
The US Manufacturing PMI published by the Institute for Supply Management (ISM) is an important indicator of the state of the US economy as a whole. A result above 50 is considered positive and strengthens the USD, one below 50 is considered negative for the US dollar. Forecast: 54.5 in May (against 55.4 in April, 57.1 in March, 58.6 in February, 57.6 in January). The index is above the 50 level and has a relatively high value, which is likely to support the dollar. Data above the value of 50 indicates an acceleration of activity, which has a positive effect on the quotes of the national currency. If the indicator falls below the forecast and, especially, below the value of 50, the dollar may sharply weaken in the short term.
14:00 CAD Bank of Canada’s interest rate decision. Bank of Canada’s accompanying statement
The Bank of Canada will decide on the interest rate. In March 2020, the bank cut the rate 3 times, bringing it to the level of 0.25% to mitigate the economic damage from the novel coronavirus pandemic.
In an accompanying statement, Canada’s central bank said the “decision is aimed at supporting the financial system, which plays a central role in lending to the economy, as well as laying the foundation that will allow the economy to return to normal.” The central bank’s press release also said that the spread of the coronavirus and the sharp drop in global oil prices are collectively putting severe pressure on Canadians and the Canadian economy.
In fact, quantitative easing and a significant reduction in the interest rate should contribute to the weakening of the national currency.
The negative effects of the coronavirus on the Canadian economy and the country’s labor market, as well as the weakness of the housing market, still put pressure on the Bank of Canada to maintain an easy monetary policy. Nevertheless, following the results of the meetings held in March and April, the Bank of Canada decided to raise the interest rate (up to 1.0%) and spoke in favor of its further increase. The Bank of Canada now expects GDP and Consumer Price Index (CPI) growth in the 1st half of this year to be stronger than previously expected. Bank officials also acknowledged that the uncertainty caused by Russia’s special military operation in Ukraine could dampen economic growth and fuel inflation.
It is possible that at the meeting on Wednesday the Bank of Canada will raise the interest rate again (by 0.25% or 0.50%).
The tough tone of the Bank of Canada’s accompanying statement regarding rising inflation and prospects for further tightening of monetary policy will cause the strengthening of the Canadian dollar. If the Bank of Canada signals the need for loose monetary policy, the Canadian currency will decline.
Thursday, June 2
Spring Bank Holiday in the UK. It is celebrated annually on the last Monday in May. In 2022, this holiday was postponed by the country’s authorities to the beginning of June, due to the fact that this year the UK celebrates the 70th anniversary of the reign of Elizabeth II. This time it will last 2 days. As a result, the UK and Commonwealth banks will be closed and trading volumes will be reduced.
01:30 AUD Balance of Trade
The indicator (balance of trade) evaluates the ratio between exports and imports. The growth of exports from Australia leads to an increase in the trade surplus, which has a positive impact on the AUD. Previous values AU$9.314 billion (March), AU$7.457 billion (February), AU$12.891 billion (January), AU$8.356 billion (December), AU$9.423 billion (November), AU$11.220 billion dollars (for October), 12.243 billion Australian dollars (for September), 15.077 billion Australian dollars (for August). A decrease in the trade surplus may have a negative impact on the Australian dollar. Conversely, a growing trade surplus is positive for the AUD.
08:00 OPEC meeting
Following the meeting in May, the members of the OPEC + coalition decided to increase oil production in June by 432,000 barrels per day. By September, members of OPEC + plan to fully eliminate production restrictions. Probably, at this June meeting, such a decision will be confirmed, and oil market participants will closely follow its results.
12:15 USD ADP National Employment Report
Usually, the ADP report on employment in the private sector has a strong impact on the market and dollar quotes. An increase in the value of this indicator has a positive effect on the dollar. It is expected that the growth in the number of employees in the US private sector in May was +280,000 (against an increase of 247,000 in April, 455,000 in March, 475,000 in February, 509,000 in January, 807,000 in December, 534,000 in November, 571,000 in October, 568,000 in September, 374,000 in August, 330,000 in July, 692,000 in June, 978,000 in May, 742,000 in April, 517,000 in March, 117,000 in February, 174,000 in January 2021 of the year). The relative growth of the indicator may have a positive impact on the dollar quotes, and the relative decline of the indicator is negative. The market reaction may be negative, and the dollar may decline if the data also turns out to be worse than the forecast.
Millions of Americans have previously been laid off due to the coronavirus pandemic and related quarantine measures. Most of the layoffs were concentrated in the tourism and retail sectors. Other important sectors of the economy also suffered. The ADP previously reported that the most significant drop in employment was recently noted in the construction sector and the financial services sector.
Although the ADP report does not have a direct correlation with the US Department of Labor official data on the labor market, which will be published on Friday, the ADP report is often its harbinger, having a noticeable impact on the market.
Friday, June 3
09:00 EUR Retail sales in the Eurozone
Retail sales is the main indicator of consumer spending showing the change in retail sales. A high result strengthens the euro, and vice versa, a low result weakens it. Forecast for April: +0.3% (+5.4% YoY) against -0.4% (+0.8% YoY) in March, +0.3% (+5.0% YoY) in annual terms) in February, +0.2% (+7.8% in annual terms) in January. The data suggests that, despite rising indices, retail sales have not yet reached pre-coronavirus levels after a sharp drop in March-April 2020, when tight quarantine measures were in place in Europe. However, better-than-expected data is likely to have a positive impact on the euro.
12:30 USD Average hourly wages. Non-farm payrolls. Unemployment rate
The most important indicators of the state of the labor market in the US for May. Forecast: +0.4% (against +0.3% in April, +0.4% in March, 0% in February, +0.7% in January 2022, +0.6% in December, +0 .3% in November, +0.4% in October, +0.6% in September and August 2021) / +0.310 million (against +0.428 million in April, +0.431 million, +0.678 million in February, +0.467 million in January 2022, +0.199 million in December, +0.210 million in November, +0.531 million in October, +0.194 million in September, +0.235 million in August 2021) / 3.6% (against 3.6% in April and March, 3.8% in February, 4.0% in January 2022, 3.9% in December, 4.2% in November, 4.6% in October, 4.8% in September, 5, 2% in August 2021), respectively.
In general, the figures can be described as encouraging. The data shows continued improvement in the US labor market after its precipitous fall in the first half of 2020. Before the coronavirus, the US labor market remained strong, indicating the stability of the US economy and supporting the dollar quotes.
Predicting the market reaction to the publication of indicators is often difficult, because many indicators for previous periods are subject to revision. Now it will be even more difficult to do this, because the economic situation in the US and many other major economies remains controversial due to the coronavirus. In any case, when the data from the US labor market is published, a surge in volatility is expected in trading not only in USD, but throughout the financial market. Cautious investors might prefer to stay out of the market during this period of time.
14:00 USD US Services PMI (from ISM)
This indicator assesses the state of the services sector in the US economy. These services sectors (unlike the manufacturing sector) have virtually no impact on the country’s GDP.
A result above 50 is seen as positive for the USD. Forecast for May: 56.0 (after 57.1 in April, 58.3 in March, 56.5 in February, 59.9 in January, 62.0 in December), which is likely to have a generally positive impact on the USD . However, the relative decline of the index, and especially below the value of 50, may negatively affect the dollar in the short term.