forex weekly events (02 - 06 may.)
Last week the U.S. monthly employment report showed a lower than expected job gain of 160,000 in April, while the unemployment rate held steady at 5%. However despite the lukewarm figure, wages rose during the month representing a 2.5% annualized gain. Analysts reduced their expectations for another rate hike estimating only a 50-50 chance that the Fed would hike rates even once this year. The main job growth occurred in the services sector of which the majority was part-time positions. US economy will work through this soft patch?
The April jobs report was a disappointment.
The US economy added 160,000 jobs in April, the fewest since October 2015 and well below expectations for job gains of 200,000.
And while any and all disappointments relative to the headline number get those who are bearish on the US economy all excited, this is really the kind of jobs report we've been waiting to see.
As the US economy pulls closer to full employment, economists have long argued that the pace of payrolls gains will simply have to slow down.
In a speech last year, San Francisco Fed president John Williams said that once the US economy is "operating at full strength," only 60,000 to 100,000 new jobs are likely to be created each month.
And here we are.
Williams also anticipated Friday's chorus from the bears, adding: "Commentators may call this [job growth] disappointing, and it was when we were climbing out of the hole the recession left. But in a healthy economy, it's what strong, steady growth looks like."
After Friday's report, Neil Dutta at Renaissance Macro called this the best jobs report since January, writing: "Employment reports should be taken holistically. That means combining the growth in jobs, the length of the workweek, and hourly earnings. In this regard, the April jobs number was the strongest since January. The economy is at full employment. At full employment, the growth in payrolls slow and wages rise. We saw both in April."
In April, hourly earnings rose 0.3% over those of March and 2.5% compared with those of April 2015.
Of course, also hitting our inbox shortly after the jobs report were calls for another round of quantitative easing from the Federal Reserve before its benchmark interest rate — currently pegged between 0.25% and 0.50% — hits 1%.
And according to data from Bloomberg, there are no Fed meetings with as much as a 50% chance of an interest-rate hike out to February 2017. So the markets are taking Friday's report as another sign the Fed isn't going anywhere.
And maybe it isn't. But a disappointing headline out of Friday's jobs report is not an indictment of the US economy.
Because if the US economy continues to grow slowly but surely and the labor market remains intact, Friday's report of modest job gains and solid wage growth is something we should all get used to.
EUR/USD Forecast: bulls bend but don't break
Holding above 1.1400, the EUR/USD pair rallied up to 1.1615, its highest since August 2015 last Wednesday, but ends the week in the red. Poor US Q1 GDP readings fueled the early rally, although there was no clear catalyst for the following decline, which started as a correction and some profit taking ahead of the US employment report.
Finally out, the April US Nonfarm Payroll showed that the economy created less jobs than expected, and that salaries barely advanced. Overall, the report was mixed, yet the greenback continued gaining, particularly against its European rivals. Why? because the weak side of the report was not enough to deny the possibility of a rate hike in June.
Despite growth stalled in the US mid 2015 and slowed by the end of the year, situation that extended into the first quarter, there's an unexplainable sentiment that the FED will rose rates anyway at least two time this year, the first one in June and the second one in December, with September elections preventing the FED from acting that month.
The US Central Bank has largely repeated that rate hikes are data dependent, and if we rely on the latest macroeconomic indicators, the FED should remain on hold for longer. But market's hopes are strong, and investors are not willing to push the greenback so much lower.
The upcoming week will be fulfilled with macroeconomic data, and probably Chinese one will be the most relevant, as it will give some clues about worldwide health. If China picks up, the rest of the world will likely follow, and therefore the pressure over US economy will become to ease.
Anyway, The EUR/USD pair is not yet ready to give up, according to technical readings, as in the daily chart, the technical indicators have bounced from their mid-lines after correcting overbought readings, while the price remains well above its moving averages, with the 20 SMA around 1.1350 an 100 SMA 200 pips lower. In the weekly chart, the pair tested the 100 SMA before retreating, whilst the technical indicators have lost upward potential but remain well into positive territory, all of which maintains the risk towards the upside.
To confirm further advances, however, the price needs to settle above 1.1460 and then run through 1.1530 to be able to retest the highs above 1.1600 and extend up to 1.1713, August 2015 daily high. A decline through 1.1350 can see the pair sliding towards 1.1280, while further decline below this last can see the pair ending the week in the 1.1160/1.1200 region.
Graeme Wheeler’s speech, US Crude Oil Inventories, rate decision, Mark Carney’s speech, US Unemployment Claims, Retail sales, Producer Prices and consumer sentiment. These are the main events on Forex calendar. Here is an outlook on the market movers for this week.
Graeme Wheeler speaks: Tuesday, 22:05. RBNZ Governor Graeme Wheeler will speak in Wellington. Wheeler may elaborate on the economic factors which prompted the last cash rate decision towards the end of April. Investors are confused as to the RBNZ’s policy. The strong New Zealand dollar opposes the boost in the housing market and the bank’s struggle with low inflation continues. Analysts find it hard to interpret Wheeler’s decisions as the recent rate cut in March.
US Crude Oil Inventories: Wednesday, 15:30. U.S. crude inventories climbed to fresh record highs last week rising by 2.8 million barrels. The reading was considerably higher than the 0.6 million barrels forecasted by analysts. The increase pushed oil markets lower. Brent crude declined more than 5 since Friday’s high due to rising output from the Organization of the Petroleum Exporting Countries, signs of economic slowdown in the United States and Asia, and a stronger dollar. Some investors believe this trend will continue in 2016 while others expect improvement.
UK Rate decision: Thursday, 12:00. The Bank of England decided to keep rates unchanged at its April meeting aiming to reach the 2% inflation target and maintain growth and employment. The MPC members voted unanimously to hold Bank rate at 0.5%, leaving asset purchase at £375 billion. Policymakers noted the risks in low energy and food prices, expecting it to fade over the next year. Despite the rise in core inflation it remained subdued along with weak global inflation and restrained domestic cost growth. The MPC members forecast the Bank rate will rise to ensure inflation returns to the target in a sustainable fashion. However, the EU referendum effects may spoil forecasts.
Mark Carney speaks: Thursday, 12:45. The Bank of England governor Mark Carney will speak in London about the Inflation. Carney warned that in case Britain decides to leave the European Union, it may hurt economic growth and pose a significant risk to the economy. The current slowdown is closely connected to issues around the referendum. Meanwhile, campaigners for Brexit claimed that output would be higher, the City of London would thrive, unemployment would fall and the trade deficit would narrow in the event of a no vote in the in/out referendum.
US Unemployment Claims: Thursday, 13:30. The number of Americans filing initial claims for unemployment benefits increased more than expected last week, as claims registered the biggest gain in more than a year. Furthermore, the energy sectors increased the number of layoffs due to low oil prices. The number of claims has increased by 17,000 to a seasonally adjusted 274,000. Analysts believe the rise is technical. The four-week moving average of claims increased 2,000 to 258,000 last week. The number of claims is expected to reach 277,000 this week.
German GDP data: Friday, 7:00. German economy continued to grow at a steady but modest pace of 0.3% in the final quarter of 2015. The economic expansion was mainly due to strong domestic consumption. The reading was in line with market forecast. Exports declined from the third quarter affected by the weak demand from China, Russia and other large developing economies. Meanwhile, domestic consumption maintained German economy’s growth at the end of last year. Economic growth is expected to reach 0.6% in the first quarter of 2016.
US retail sales: Friday, 13:30. U.S. retail sales unexpectedly declined in March, down 0.3% following a 0.1% drop in February. Economists expected the index to rise 0.1%. However despite the soft start to the year, analysts believe that if the current job gains continue, they will boost consumer spending in the long run. Meanwhile core sales excluding automobiles increased 0.2% while anticipated to climb 0.4%. Retail sales is forecasted to decline 0.3%, while core sales are expected to gain 0.6%.
US PPI: Friday, 13:30. US producer prices were weaker than expected in March declining 0.1% while expected to gain 0.3%. Lacks of inflationary pressures together with weak pricing power were behind this fall.
Meanwhile core prices were unchanged compared to the expected 0.1% increase. On an annual basis, prices declined 0.1% with a core 0.9% increase. The Fed is quite confident about the pace of growth in the US employment market but is concerned over weakening inflation expectations which is a key barrier to further rate increases. Producer prices are expected to rise 0.3% this time.
US Prelim UoM Consumer Sentiment: Friday, 15:00. Consumer confidence declined for the fourth straight month in April registered 89.7 from 91 posted in March amid growing concerns about weaker economic growth. Analysts expected a positive reading of 91.9. These soft figures raise concerns over the resilience of consumers in the coming months. Economists fear the slowdown may affect wage gains and slowing economic growth would reduce the pace of job creation. Consumer confidence is estimated to rise to 89.9 this time.
That’s it for the major events this week. Stay tuned for coverage on specific currencies
*All times are GMT.