European FX Outlook: Easter expected to boost UK retail sales only little

What you need to know before markets open

• The UK inflation decelerated above expectations in March with Sterling falling sharply in knee-jerk reaction with fundamentals still justifying the Bank of England May rate hike. For detail read my analysis here.
• Inflation in the Eurozone also decelerated, but with the core inflation higher than expected, the story is completely different.
• The Bank of Canada delivered a dovish statement in terms of rate outlook, but still left the back door open for possible rate hike adjustment higher this year, sacrificing CAD’s immediate value to the US Dollar. Read my brief summary of the key point here.
• The UK retail sales are set to fall in March as the combination of higher prices and the extremely adverse weather is not enough to safe Eastern sales. For detail read my preview here.
• The semi-annual meeting of the IMF and the World Bank begins in Washington DC with top central bank officials and other economic celebrities scheduled to speak at the event.
• The US President Trump and Japanese Prime Minister Abe agreed to further bilateral trade talks while China's FX regulator indicated that US-China trade friction can be controlled are supporting this regional risk-on move.

Thursday’s market moving events

• Australian employment rose 4.9K only, missing the expectations of a 20.4K increase in March
• The Eurozone current account surplus is seen reaching €32.3 billion in February, down from €37.6 billion in January
• The UK retail sales are seen falling 0.5% over the month in March while increasing 2.0% y/y at the same time.
• The US Federal Reserve Governor Lael Brainard is scheduled to speak at the 2018 Global Finance Forum in Washington at 12:00 GMT.
• The US initial jobless claims are expected to reach 230K in the week ending April 13.
• Philadelphia Fed manufacturing survey is expected to decelerate to 20.1 in April.
• Canada’s ADP employment report is due.
• Federal Reserve Vice Chairman for Supervision Governor Randal Quarles to provide semi-annual testimony before the Senate Banking Committee at 13:30 GMT.
• The Bank of England Deputy Governor Jon Cunliffe is scheduled to speak at the Global Finance Forum, in Washington at 16:30 GMT.

Major market movers

• Sterling fell massively across the board on Wednesday after the UK inflation rose less than expected, diminishing the chances of the Bank of England hiking rates in May.
• CAD fell across the board after the Bank of Canada deliver a dovish monetary policy statement, but still leaving its back-door open for possible future adjustments. 
• AUD slumped lower but recovered swiftly against the USD after Australian employment miss.
• The UK retail sales are expected to fall on monthly basis confirming general weakness in Q1 2018.  For details read my Preview here.

Wednesday’s macro summary

• The UK inflation decelerated to 2.5% y/y in March while core inflation rose 2.3% y/y, both readings coming out below market expectations.
• The Eurozone inflation also decelerated to 1.3%% y/y in March while core inflation remained at 1.0% y/y.
• The Bank of England Financial Policy Committee member Martin Taylor said Brexit is obviously a major source of tail risk. He also said that it is concerning that the UK current account deficit increasingly being financed by short-term foreign inflows rather than asset sales by residents. Taylor said he is bothered by European Commission’s financial regulation as European commission approach to financial regulation as it seems “imperfect, and, if they are subject to maximum harmonization, even dangerously imperfect.”
• The Bank of Canada held rates steady at 1.25% while delivering a bit dovish statement.
• The New York Federal Reserve Bank President William Dudley support gradual interest rate normalization with the neutral rate at around 3% now.