FX Markets to Focus on RBA & FOMC, Eurozone GDP & CPI, US NFPs
- The RBA meets on Tuesday while the FOMC meets on Wednesday, although the latter will be markedly more hawkish than the former.
- Wednesday and Thursday will see the release of the Q1'18 Eurozone GDP and preliminary April CPI reports, respectively.
- The April US Nonfarm Payrolls report is due on Friday, and the US unemployment rate is expected to fall to a new cycle low at 4.0%.
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05/01 Tuesday | 04:30 GMT | AUD Reserve Bank of Australia Rate Decision
The Reserve Bank of Australia meets a few days before its quarterly Statement on Monetary Policy is released on Friday, and is expected to keep its main overnight rate on hold at 1.50%. The timing of the meeting doesn’t exactly coincide with the new growth and inflation forecasts being released, but the RBA is likely to clue market participants’ in on its broader view of the economy. With household debt at all-time highs and financial market conditions start to tighten, the RBA seems content on staying pat for the foreseeable future: there is only a 0.5% chance of a rate hike at Tuesday’s meeting, and a 31.2% chance of a hike by December 2018.
05/02 Wednesday | 09:00 GMT | EUR Eurozone Gross Domestic Product (1Q A)
The first look at Q1’18 Eurozone GDP should see growth rates decline slightly from the end of 2017, with the quarterly rate down to +0.6% from +0.8% and the yearly rate down to +2.5% from +2.7 – wholly consistent with the decline in PMI readings seen since their peaks in December and January. Like in the UK, there has been some speculation about inclement weather hitting growth at the tail end of Q1’18, but a lack of a significant rebound in April PMI figures when weather wasn’t a problem at the start of Q2’18 suggests there may actually be an underlying slowdown in growth. Combined with the retrenchment expected in the April CPI figures later in the week, the aftermath – a weaker Euro – of the ECB’s decision to keep rates at or below zero percent for an extended period of time after its QE program ends will likely go unchallenged by market participants.
05/02 Wednesday | 18:00 GMT | USD Federal Reserve Rate Decision
The Federal Reserve meets this week for a meeting that will produce a hold in the main interest rate in the 1.50-1.75% range. Being that this meeting does not occur during a month when a new Summary of Economic Projections will be released, the expectation for any change in policy is very low: Fed funds are pricing in a 6% chance of a hike. But the meeting should be a runway for another rate liftoff in June, when markets are pricing in a 91% chance of a 25-bps rate hike. Given the recent rise in inflation, the policy statement is expected to tilt to the hawkish side, helping keep intact the US Dollar’s recent rise.
05/03 Thursday | 09:00 GMT | EUR Eurozone Consumer Price Index (APR P)
The preliminary April Eurozone Core CPI is due in at +0.9% from +1.0% (y/y), another sign that the relatively strong Euro (still up over +8% on a trade-weighted basis over the past 12-months) is proving to be a headwind for achieving policy goals. The headline CPI figure is due in at +1.3% unch (y/y), well-below the ECB’s medium-term target of +2%. In the aftermath of the European Central Bank rate decision, rates markets are pricing in a 10% chance of a rate move this year given the outlook for inflation.
05/04 Friday | 12:30 GMT | USD Change in Nonfarm Payrolls & Unemployment Rate (APR)
The prime issue for the US Dollar when it comes to the April US Nonfarm Payrolls report is whether or not the US labor market will see a rebound in jobs growth following a disappointing March report. A potential reason for the pullback in the headline NFP figure last month may be due to the reporting period in which the data was collected, which coincided with inclement weather across the major population centers on the Atlantic Seaboard of the United States. Market participants are expecting that March was a one-off decline, with a sharp rebound in jobs growth expected. Heading into this Friday’s data release, current expectations for the data are calling for the unemployment rate to drop to 4.0% from 4.1%, and the headline jobs figure to come in at +190K.
According to the Atlanta Fed Jobs Growth Calculator, the economy only needs +107K jobs growth per month over the next 12-months in order to sustain said unemployment rate at its current 4.1% level.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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