Forex Weekly Outlook: Eurozone CPI, FOMC minutes eyed

US inflation jumped in April and this week’s CPI data from the eurozone and Canada is also expected to show an increase in inflation.

In the UK, GDP for Q1 slipped by 1.5%, close to the estimate of -1.6%. However, the March GDP report was positive, with a healthy gain of 2.1%, above the consensus of 1.5%. Manufacturing Production rose 2.1% in March, an 8-month high and above the forecast of 1.0%.

German inflation came in at 0.7%, confirming the initial estimate.

Last week’s major story was the surge in US inflation in April, which was much stronger than anticipated. Headline CPI (YoY) climbed 4.2%, up from 2.6% beforehand. PPI also climbed sharply, with a gain of 6.2%, up from 4.2% beforehand. Despite the sharp jump in inflation, the Federal Reserve reiterated that there are no plans to taper the massive stimulus program.

US Retail Sales for March (MoM) disappointed. The headline reading slowed to 0.0%, down from 9.8% in the previous release and shy of the estimate of 1.0%. Core Retail Sales contracted by 0.8%, down sharply from 8.4% and shy of the forecast of 0.5%.

1. Eurozone GDP: Tuesday, 9:00. The eurozone economy contracted by 0.6% in Q4, its third decline in four quarters. Another decline of 0.6% is expected in the first quarter.
2. Eurozone inflation Report: Wednesday, 9:00. We are seeing increasing inflationary pressures in the eurozone, which could force the ECB to reevaluate its ultra-accommodative monetary policy. Eurozone headline CPI has been rising and is expected to reach 1.6%, up from 1.3%. However, core CPI is forecast to tick lower to 0.8%, down from 0.9%.
3. Canada CPI Report: Wednesday, 12:30. Headline CPI (YoY) is expected to rise to 4.3% in April, up from 3.2%.  BoC Core CPI, the central bank’s preferred gauge, is projected to rise to 1.3%, slightly lower than the March read of 1.4%.
4. FOMC Meeting Minutes: Wednesday, 18:30. The Fed has insisted that no changes are afoot with regard to policy, despite the surge in inflation. Investors will be closely monitoring the minutes to see if this script is reiterated. Any hint of a tightening in policy could send the US dollar higher.
5. Canada ADP Employment Report: Thursday, 12:30. The March ADP report indicated that the economy created 634 thousand new jobs, an outstanding number.  Will we see another sharp gain in April?
6. Bank of Canada Financial System Review: Thursday, 15:00. The Bank of Canada publishes its overview of the financial system twice a year. Apart from data about the bank’s situation, the publication also includes economic data.
7. US Manufacturing PMI: Friday, 13:45. Manufacturing remains well into expansionary territory and the March PMI improved to 60.5 (revised lower from 60.5). Another strong release is expected in April, with a forecast of 60.4 points.

US dollar forecast: Preview for the main foreign exchange events that will rock currencies ► focusing on major events and especially on publications in the USA, moving the US dollar (greenback). Here are some general data. Scroll down for the latest US dollar outlook

USD and forex general characteristics

The United States Dollar is the reserve currency of the world, partly due to its use in settling oil prices and other commodities. Foreign exchange pairs are divided into majors, minors, and crosses. Both majors and minors include the USD.

US economic indicators and political developments influence currencies more than anywhere else in the world. The decisions and statements by Federal Reserve officials make the biggest waves. The US economy is by far the largest in the world. US politics and policy also have an outsized impact on currencies.

The outlook consists of mostly US economic events but also key market-moving figures from other major economies. The euro-zone, the UK, and Japan stand out.

Recent USD Moves

The greenback suffered a bad start to the year: poor growth and scandals hurt the US dollar. Hopes for fiscal stimulus faded with the repeated failures to repeal Obamacare. Despite two rate hikes in the first half, the dollar struggled. Other economies outperformed America.

The second half already looks a lot different: economic growth reached 3% annualized and the Fed seems to stick to its plan to hike rates three times. In addition, Trump’s tax plan inspires markets, despite hurdles to pass it before Christmas.

Headwinds come from political scandals. Low inflation also weighs on the dollar. If the “mystery” persists and wages do not accelerate, Janet Yellen and co. could refrain from further tightening. The new Fed Chair Jerome Powell will take office in February 2018, and he may not stick to the current plan of raising rates three times.