European FX Outlook: The Eurozone inflation is expected to remain off the ECB target

What you need to know before markets open

• The Federal Reserve held rates unchanged as widely expected while pointing out that rising inflation towards the target warrants gradual monetary policy normalization making a June rate hike a sure shot.
• The UK construction PMI rebounded modestly in April after falling into the territory indicating economic contraction in March.
• The first quarter Eurozone GDP decelerated from previous growth rate rising 0.4% over the quarter with the unemployment rate remaining steady at 8.5% in March.
• The US private employment report from ADP saw the number of news jobs rising broadly in line with expectations by 204K in April, setting the stage for strong reading also in government’s non-farm payroll report on Friday this week.

Thursday’s market moving events

• Australian trade balance reached a surplus of A$1.53 billion in March.
• The UK services PMI are expected to accelerate to 53.5 in April, up from 51.7 slumps in March. For detail read my preview here.
• The Eurozone preliminary CPI is expected to remain unchanged at 1.3% y/y in April while core inflation is set to pick up to 1.2% y/y.
• ECB’s board member Peter Praet delivers a keynote speech at the OECD Chief Economist Talks in Paris at 13:00 GMT.
• ECB vice-president Vitor Constancio is scheduled to deliver a keynote speech at Joint ECB/EC Conference “Fostering banking union and capital markets union – a top-down or bottom-up approach?” organized by the ECB in Frankfurt at 12:00 GMT.
• ECB’s board member Benoît Cœuré is scheduled to speak at the ECB conference panel.
• The US trade balance is expected to reach a deficit of $50.0 billion in March.
• The US initial jobless claims are seen reaching 225K in the week ending April 27.
• Canada's trade balance is expected to reach a deficit of C$2.24 billion in March.
• The US ISM non-manufacturing PMI is expected to decelerate to 58.1 in April.
• The Swiss National Bank Governor Thomas Jordan is scheduled to deliver a speech titled "This is Why the Vollgeld Initiative Harms Switzerland" at the Swiss Institute for Banking and Finance, in Zurich at 16:00 GMT.

Major market movers

• The US Dollar rose to new highs against major counterparts with the FOMC statement supporting the view of June rate hike.
• Watch GBP for reaction to UK services PMI. Read detail of how to trade GBP/USD with UK services PMI here. 
• Although unlikely to deliver upside surprises the Eurozone CPI headlines the day in relation to EUR. 

Wednesday’s macro summary

• Caixin manufacturing PMI ticked up to 51.1 in April.
• German manufacturing PMI dipped to 58.1 in April sliding off multi-year peak in every single month of this year so far.
• The Eurozone manufacturing PMI inched a bit higher to 56.2 compared with flash estimate of 56.0 in April.
• The UK construction PMI rebounded strongly to 52.5 in April after unexpectedly falling to 47.0 in March. 
• The Eurozone GDP rose 0.4% Q/Q in line with expectations while rising 2.5% y/y in Q1 2018.
• The Eurozone unemployment remained steady at 8.5% in March.
• The ADP private employment report saw 204K new jobs added in the US economy in April coming out broadly in line with expectations.
• German Bundesbank President Jens Weidmann is scheduled to deliver a speech titled "Central bank communication as a Monetary Policy Instrument" at the Center for European Economic Research, in Mannheim at 15:00 GMT.
• The FOMC decided to keep the target range for the federal funds rate unchanged at 1.50%-1.75% while indicating that the inflation moved closer to the 2% target warranting the policy normalization.