FX Majors Weekly Outlook (24-28 April) | Forexlive

UPCOMING
EVENTS:

Tuesday: US
CB Consumer Confidence.

Wednesday:
Australia CPI.

Thursday: US
Jobless Claims, US GDP.

Friday: BoJ
Policy Decision, US PCE, US ECI.

Tuesday: The
Conference Board Consumer Confidence report is expected to tick down a little
to 104.0 vs. 104.2 prior. In my opinion the most important reading here will be
the present situation index and the outlook on the labour market. The present
situation index can
be a leading indicator for the labour market. It worsened a bit last month
and it will be interesting to see how it fared after another month of data
following the banking woes in mid-March.

Wednesday: The RBA’s
favourite measure of inflation, the Trimmed Mean CPI Y/Y, is expected at 6.7%
vs. 6.9% prior. Inflation is still high, and the labour market looks fine, so
it will be interesting to see how it’s going to play out for the RBA given that
they paused the tightening cycle at 3.60%.

Thursday: The US GDP for Q1 is expected at 2.0% Q/Q vs.
2.6% prior. This is a lagging indicator, and I don’t think the market will
focus too much on it.

The US
Jobless Claims, as it’s been the case for the past few weeks, will be one of
the most important data points this week. Initial Claims are expected at 250K
vs. 245K prior, and Continuing Claims are seen unchanged at 1865K.

Although
inflation is without a doubt still high, I think the market focus now is more
on the labour market. A higher unemployment rate with positive real Fed Funds
Rate should be enough to bring inflation back to target, but of course this
will revolve around the Fed’s resoluteness of keeping interest rates high despite
an eventual rise in the unemployment rate.

Friday: The BoJ is
expected to keep its monetary policy unchanged with rates at -0.10% and QQE
with YCC to flexibly target 10yr JGB yields at 0% within a +/- 50 bps tolerance
range. Although the JPY is expected to weaken in case the BoJ keeps with its
policy, I expect the currency to appreciate anyways as the global recession
nears.

The US Core
PCE Y/Y, which is the Fed’ preferred measure of inflation, is expected to tick
down to 4.5% vs. 4.6% prior and the M/M reading is seen unchanged at 0.3%. The
Fed will deliver another 25 bps hike next week and finally bring the FFR above
the inflation rate, which is the ultimate restrictive level. The next battle
for them should be keeping rates at a high level despite a falling inflation
rate and increasing unemployment rate until there’s clear evidence of inflation
returning back to target.

The
Employment Cost Index is something the Fed is focused on due to fears of a wage
price spiral that hasn’t materialised, although the Atlanta Fed’s Wage Growth
Tracker ticked up recently. The ECI is expected at 1.1% Q/Q vs. 1.0% prior.

This article
was written by Giuseppe Dellamotta.