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FX Markets Look to EZ PMIs, UK CPI, FOMC Minutes

FX Markets Look to EZ PMIs, UK CPI, FOMC Minutes

2018-05-21 21:45:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- After zero 'high' rated events last week, the UK represents more than half of all top billed releases and speeches on the calendar: CPI is on Wednesday and GDP is on Friday.

- The US Dollar rally may stall with the May FOMC minutes and April US Durable Goods Orders due out between Wednesday and Friday.

- The Euro, desperate for a lifeline, may not get one with the preliminary May PMI readings due out on Wednesday.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

05/23 Wednesday | 08:00 GMT | EUR Eurozone PMI Composite (MAY P)

The only significant data due out in the week ahead for the Euro out are the initial May PMI readings. The mix of individual country releases at the start of the week will culminate in stagnant readings in the cumulative Eurozone PMIs due out on Wednesday (no change or declines are anticipated). Notably, the composite reading is due in at 55.1 unchanged. Although there has been some speculation that inclement weather over the winter months led to the drop in PMIs, that April and May have gone by without inclement weather and the PMI readings have yet to rebound speaks to the underlying slowdown in growth (marginal or otherwise).

Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD

05/23 Wednesday | 08:30 GMT | GBP Consumer Price Index (APR)

According to Bloomberg News, consensus forecasts are calling to see inflation having increased by +0.5% from +0.1% (m/m) and at +2.5% unch (y/y). Likewise, Core CPI is expected to have increased to +2.2% from +2.3% (y/y). Rates of inflation have been tamed quicker than policymakers were expecting, and commensurate with a slowdown in growth in Q1’18, it appears that the Bank of England is now in wait-and-see mode regarding more information before signaling for its next rate move. A surprise upside reading is necessary if the British Pound is to stage any sort of serious recovery; simply ‘meeting’ expectations won’t dissuade traders from their streak of selling the Sterling.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

05/23 Wednesday | 18:00 GMT | USD May FOMC Meeting Minutes

The Federal Reserve’s May policy meeting was a placeholder for the US Dollar in more ways than one. Just one meeting removed from the March rate hike, policymakers were unlikely to do anything. Instead, as was anticipated, the May FOMC meeting was seen as a runway for an eventual June rate hike – when there is a new set of Summary of Economic Projections and a press conference for Fed Chair Jerome Powell – and the minutes should duly suggest that more tightening is on the horizon. The key for the US Dollar will be whether or not policymakers feel any more certain about four cumulative rate hikes for 2018; currently, rate markets are pricing in just over a 55% chance of hikes at meetings in June, September, and December altogether.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

05/25 Friday | 08:30 GMT | GBP Gross Domestic Product (1Q P)

The second look at Q1’18 UK GDP is expected to show the UK economy grew by +1.2% annualized, the same rate reported at the initial release. This should keep UK growth at its weakest level since 2012. In effect, there is a state of mini-stagflation going on right now: save the labor market (which is doing quite well, thus the UK is not in a state of ‘true’ stagflation), inflation continues to run near +3% and headline GDP is below +2%. It seems doubtful that the release will be a catalyst for fresh Sterling gains unless a significant beat is in order.

Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD

05/25 Friday | 12:30 GMT | USD Durable Goods Orders (APR P)

Durable Goods Orders are an important barometer for US consumption, which constitutes roughly 70% of GDP. Typically, consumers hold off on buying durable goods during poor economy conditions; thus, improved orders suggest confidence among American consumers with respect to their future financial security. The preliminary January April is expected to show a drop of -1.4% over the prior month after the +2.6% increase in March. The data won’t likely help US growth expectations for Q2’18, which (per the Atlanta Fed GDPNow forecast) are at a lofty +4.1% annualized.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

Read more: Euro Forecast: EUR/USD Decline May Not Be Finished

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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com.

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX.

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