FX Majors Weekly Outlook (1-5 May) | Forexlive

UPCOMING
EVENTS:

• Monday:
  European Labour Day Holiday, US ISM Manufacturing PMI.
• Tuesday: RBA
  Policy Decision, EZ CPI, US Job Openings.
• Wednesday:
  US ISM Services PMI, FOMC Policy Decision.
• Thursday:
  ECB Policy Decision, US Jobless Claims.
• Friday: US
  NFP.

Monday: The US ISM
Manufacturing PMI is expected to tick to 46.7 vs. 46.3 prior. Last month it
surprised to the downside probably because of the mid-March banking woes and it
will be interesting to see if it contracted further or it will confirm the
pickup seen in the S&P Global PMIs.

Tuesday: The RBA is
expected to keep rates unchanged although it should keep its hawkish message
that they may hike rates if inflation doesn’t come down as expected. The recent
Trimmed Mean CPI Y/Y, which is the RBA’s favourite inflation measure, missed
expectations and should keep the central bank on hold.

Inflation in
the Eurozone remains very high, and the ECB left the door open for a 50 bps hike
if the data goes against their expectations. The CPI Y/Y is expected at 7.0%
vs. 6.9% prior and the M/M reading at 0.9% vs. 0.9% prior. The Core CPI Y/Y is
seen unchanged at 5.7%, while the M/M measure is expected at 1.1% vs. 1.3%
prior. Still really ugly numbers across the board. Higher than expected data
should seal a 50 bps hike while lower than expected will see a 25 bps move.

Last time US
Job Openings missed expectations and caused some big moves across the board in
the markets. This is due to a major focus on the employment data rather than
inflation at this point. The Fed will bring the FFR to 5.00-5.25% this week and
finally have a real positive interest rate across the whole curve. This should
be enough to bring inflation back to target, but they will also need a higher
unemployment rate. If the labour market remains tight, they will need a higher
rate to loosen the labour market. The recent Atlanta Fed Wage Growth Tracker
and ECI reports showed renewed wage inflation, which isn’t good news for the
Fed. Anyway, the data is expected at 9.683M vs. 9.931 prior.

Wednesday: The US ISM
Services PMI, as its Manufacturing counterpart, missed big expectations the
last month and the market may want to see if it was just a blip due to the
banking woes or activity is indeed tanking. The expectation is for an increase
to 51.8 vs. 51.2 prior. The S&P Global PMIs, if one wants to use those as
proxy, surprised to the upside.

The Fed is
expected to hike by 25 bps and bring the FFR to 5.00-5.25%. After this hike the
market expects the Fed to pause. This is justified by the fact that the Fed
will finally have a positive real FFR, which is the ultimate restrictive level,
and it may be enough to bring inflation back to the 2% target. It’s hard to
envisage such a scenario with a tight labour market though as a slow
disinflation might still change people’s expectations about future inflation
and make it hard for a return to the 2% yearly rate. Recently, consumer
inflation expectations in the University of Michigan Survey rose, which is
another bad news for the Fed. Powell once signalled that they look at those
numbers. Some expect the Fed to signal a pause already at this meeting, but I
think they’ll keep their data dependent message and probably state that they
are “much closer to the end of the tightening cycle”.

Thursday: The ECB is
expected to hike by 25 bps at the moment, but in my opinion it’s the inflation
numbers on Tuesday that will decide between the 25 and the 50 bps move. The ECB
surprised with a bigger than expected hike the last time citing persistently
high inflation.

The US
Jobless Claims keep being an important report due to the market’s focus on the
labour market. Consensus sees Initial Claims at 240K vs. 230K prior and
Continuing Claims at 1878K vs 1858K prior. Last week Jobless Claims beat
expectations after several weeks of misses.

Friday: The NFP is
expected at 180K jobs added vs. 236K prior. The unemployment rate is expected
to tick up to 3.6% vs. 3.5% prior. The average hourly earnings are expected to
remain unchanged at 4.2% for the Y/Y figure and 0.3% for the M/M one. Recent
labour market data has been mixed but skewed to the downside which might point
to the first miss after several months of beats. The rates market will
certainly love a miss across the board with yields expected to fall and the US
dollar with them especially against the JPY and the CHF. A strong report should
see a reverse reaction, especially if the average hourly earnings tick up.

This article
was written by Giuseppe Dellamotta.