FX Majors Weekly Outlook (24-28 April)

UPCOMING EVENTS:

Tuesday: US CB Consumer Confidence.

Wednesday: Australia CPI.

Thursday: US Jobless Claims, US GDP GDP Gross Domestic Product (GDP) is the monetary value of all the goods and services produced within a country's borders in a specific period of time, typically a year. It is used to measure the economic activity and growth of a country. Periods shorter than a year are often presented in an annualized or year-over-year format.There are three ways to calculate GDP:The expenditure approach: GDP is calculated by adding up all the spending on goods and services within a country. This includes consumer s Gross Domestic Product (GDP) is the monetary value of all the goods and services produced within a country's borders in a specific period of time, typically a year. It is used to measure the economic activity and growth of a country. Periods shorter than a year are often presented in an annualized or year-over-year format.There are three ways to calculate GDP:The expenditure approach: GDP is calculated by adding up all the spending on goods and services within a country. This includes consumer s Read this Term.

Friday: BoJ Policy Decision, US PCE, US ECI.

Tuesday: The Conference Board Consumer Confidence report is expected to tick down a little to 104.0 vs. 104.2 prior. In my opinion the most important reading here will be the present situation index and the outlook on the labour market. The present situation index can be a leading indicator for the labour market. It worsened a bit last month and it will be interesting to see how it fared after another month of data following the banking woes in mid-March.

Wednesday: The RBA’s favourite measure of inflation, the Trimmed Mean CPI Y/Y, is expected at 6.7% vs. 6.9% prior. Inflation is still high, and the labour market looks fine, so it will be interesting to see how it’s going to play out for the RBA given that they paused the tightening cycle at 3.60%.

Thursday: The US GDP for Q1 is expected at 2.0% Q/Q vs. 2.6% prior. This is a lagging indicator, and I don’t think the market will focus too much on it.

The US Jobless Claims, as it’s been the case for the past few weeks, will be one of the most important data points this week. Initial Claims are expected at 250K vs. 245K prior, and Continuing Claims are seen unchanged at 1865K.

Although inflation is without a doubt still high, I think the market focus now is more on the labour market. A higher unemployment rate with positive real Fed Funds Rate should be enough to bring inflation back to target, but of course this will revolve around the Fed’s resoluteness of keeping interest rates high despite an eventual rise in the unemployment rate.

Friday: The BoJ is expected to keep its monetary policy unchanged with rates at -0.10% and QQE with YCC to flexibly target 10yr JGB yields at 0% within a +/- 50 bps tolerance range. Although the JPY is expected to weaken in case the BoJ keeps with its policy, I expect the currency to appreciate anyways as the global recession nears.

The US Core PCE Y/Y, which is the Fed’ preferred measure of inflation, is expected to tick down to 4.5% vs. 4.6% prior and the M/M reading is seen unchanged at 0.3%. The Fed will deliver another 25 bps hike next week and finally bring the FFR above the inflation rate, which is the ultimate restrictive level. The next battle for them should be keeping rates at a high level despite a falling inflation rate and increasing unemployment rate until there’s clear evidence of inflation returning back to target.

The Employment Cost Index is something the Fed is focused on due to fears of a wage price spiral that hasn’t materialised, although the Atlanta Fed’s Wage Growth Tracker ticked up recently. The ECI is expected at 1.1% Q/Q vs. 1.0% prior.

This article was written by Giuseppe Dellamotta.