A worst than expected consumer price inflation (CPI) number moved markets and saw a surge of strength carry the US Dollar higher last week. However, a better-than-expected retail sales number weakened the strength into the weekend. An improvement in consumer inflation expectations through the University of Michigan’s consumer confidence survey did little to revive the USD.
Markets evaluated in a less dovish path for the Fed, if the higher inflation numbers will continue into the coming months, dismissing Chair Jerome Powell’s “transitory” outlook on prices. Those assumptions were softened into the weekend, but the move highlights the impact price pressures can have on financial markets.
The coming Federal Open Market Committee (FOMC) minutes may give markets further insight into the inner plans of the Fed. Last week’s CPI followed the Committee meeting, but any fresh clues as to how the Fed would react to various inflationary outcomes in the near term may influence the US Dollar.
It is a busy week ahead on the economic calendar with the most important:
- Canada’s Housing Starts: Monday, 12:15. Housing Starts jumped to 335 thousand in March, up from 246 thousand. The April release is expected to slow.
- Canada’s Foreign Securities Purchases: Wednesday, 12:30. Foreign investments in Canadian securities jumped to C$8.52 billion in March, a 3-month high. We now await the April data.
- UK’s 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%.
- US FOMC Meeting Minutes: Wednesday
- Australia’s Employment Change and Unemployment Rate: Thursday.
- Canada’s 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?
- BoC 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 banks’ situation, the publication also includes economic data.
- Australia and UK’s Retail Sales: Friday, 12:30. Retail Sales (MoM) sparkled in February, as the headline and core readings each produced gains of 4.8%. The March consensus stands at 3.7% for the headline read and 4.0% for core retail sales. Consumer spending is closely watched by investors and significant deviation from expectations could certainly move the Canadian currency.
- UK’s and EU’s Manufacturing and Services PMI: Friday, for UK, the EU in total and Germany and France.
Major Currencies Performance and Signals
EUR/USD
The euro felt last week to show signs of fatigue of the upside, and we saw the fear of inflation cause the Fed to change its tune and perhaps tighten up monetary policy. With this, if we can break above the top of this candlestick then it is likely we will go looking towards the 1.23 handle. We believe that short-term pullbacks continue to be buying opportunities in this market.
FORECAST: BUY
Resistance: 1.2150, 1.2200, 1.2250
Support: 1.2100, 1.2050, 1.2000
GBP/USD
It is a busy week ahead on the economic calendar for the UK. Employment and inflation figures are due out on Tuesday and Wednesday. We expect the GBPUSD pair to range this week.
FORECAST: NEUTRAL
Resistance: 1.4100, 1.4150, 1.4200
Support: 1.4050, 1.4000, 1.3950
AUD/USD
Key numbers involve consumer sentiment and wage growth figures mid-week. Both sets of numbers will be of influence. The attention will then shift to April employment figures on Thursday. Expect plenty of Aussie Dollar sensitivity to the numbers on Thursday. On the monetary policy front, the RBA Meeting Minutes on Tuesday will also provide the AUDUSD with direction.
FORECAST: BUY
Resistance: 0.7800, 0.7850, 0.7900,
Support: 0.7750, 0.7700, 0.7650
USD/JPY
The US dollar has pushed against the Japanese yen yet again, and as a result it looks like we are trying to break to the upside, perhaps aiming for the ¥111 level. That is an area that continues to offer a target, as we had pulled back significantly from there. However, if we were to turn around and break down below the ¥108 level, then the market could fall apart and go looking towards the ¥105 level.
FORECAST: SELL
Resistance: 109.50, 110.00, 110.50
Support: 109.00, 108.50, 108.00
USD/CAD
The Canadian dollar has not posted a losing week since March, as the US dollar has been unable to sustain much positive momentum. With commodity prices at high levels and global economic conditions improving, the commodity-based Canadian dollar could continue to rally. We expected the bearish trend on USDCAD.
FORECAST: SELL
Resistance: 1.2150, 1.2200, 1.2250
Support: 1.2100, 1.2050, 1.2000
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