Busy calendar: Central Banks, US NFP and Le Pen facing Macron in runoff election

The week ahead could be one to shake the foundations of the FXspace and set the tone for the rest of this year.

The market has entered a phase of consolidation post the first round French election result ahead of this week's FOMC, nonfarm payrolls, US core PCE inflation and the final round of the presidential elections for France where Le Pen faces Macron in a runoff election on May 7th.

Ultimately, the outcome of the elections will cement the foundations for the EU, for the meanwhile that is, on a Macron win and is essential for stability in markets. The current polls are around 61% to 39% in favour of Macron. Meanwhile, the euro remains around the 1.09 handle at the start of the week having been as high as 1.0950 after the bullish post-round-one-election result when the euro rallied from the 1.0680 territories to the 1.0900 handle. In respect to EUR/USD, price action will firstly be determined by the outcome of the Fed and non-farm payrolls along with EU GDP Q1 and EU unemployment as the stand out events for this week.

Nonfarm payrolls 'should' be the highlight event

The highlight is likely to stay with the US labour market given that the Central banks that are meeting, the RBA and Fed, are expected to remain on hold and markets might take the French elections as a given. Analysts at Nomura offered their thoughts for this week's main event as follows:

"Employment report (Friday): We expect nonfarm payrolls to have increased by 185k in April and private payrolls to have increased by 180k, implying a 5k gain in government jobs. Recent data on employment point to a return to trend in job creation following a downside surprise in March, which was likely due to temporary factors. Including March’s lower-than-expected reading, nonfarm payroll employment has an average increase of 178k over the first three months of 2017.

Moreover, labor market indicators from the Philly Fed and Empire State surveys improved further in April, indicating steady hiring activity in the manufacturing sector. In this regard, we expect an increase of 15k for manufacturing employment. Additionally, initial jobless claims and continuing claims remain subdued and currently hover near the lowest levels in the past three decades. From the household survey, we expect the unemployment rate to remain unchanged at 4.5% as increases in household employment will likely revert to trend after two months of outsized gains. Favorable labor market conditions over the past three months may also motivate discouraged workers to re-enter the labor force in search of employment. Regarding average hourly earnings, we expect a healthy 0.3% m-o-m (2.69% y-o-y) increase, a slight uptick from March’s 0.2% m-o-m (2.67% y-o-y) increase."

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