The dollar fell last week, but major US stock indices rose, despite the continued high demand for defensive assets, such as gold, yen, and government bonds.
Thus, the yield on US 10-year government bonds fell last week by 2.8% or 0.059% in absolute terms to 2.072%. There is a somewhat contradictory picture. Stock indices are growing, despite investors' concerns about the state of the global and American economies. The growth of US stock indexes can, perhaps, be explained by the growing likelihood of a reduction in the Fed's interest rate.
A report released Friday by the US Department of Labor pointed out that the situation on the labor market in May was less positive than expected. Although the unemployment rate remained unchanged during the reporting period, reaching 3.6%, which is near the 50-year minimum, the number of non-farm jobs increased by 75,000 in May, with a forecast of +180,000.
Foreign trade remains the most important factor of uncertainty. In May, the United States raised to 25% duty on goods from China totaling $ 200 billion, and Beijing plans to raise tariffs on US imports worth $ 60 billion in response. Last week, US President Donald Trump threatened Mexico with imposing duties on imports of goods from this country, unless Mexican authorities take action against illegal immigration to the United States.
Last week, the Fed signaled that they were closely watching the risks of a slowdown in the economy. The deterioration of the economic outlook makes it possible to lower the interest rates of the Fed, which reduces the attractiveness of the dollar, but stimulates the purchase of high-yield, but at the same time high-risk assets on the stock market.
After the publication on Friday of a report from the US labor market, the dollar continued to fall, and the dollar index completed the past week with a decrease of 1.1% to 96.50.
Euro also rose against the dollar. At the ECB meeting last Thursday, its monetary policy remained unchanged, although the head of the central bank, Mario Draghi, who spoke at a press conference later, said directly that the bank was “ready to act and use all the tools at its disposal”, meaning a reduction in the rate and other measures.
Next week, the focus of traders will be the publication of data on consumer inflation in China, the USA, Germany, as well as data from the Australian labor market and the decision of the Swiss National Bank on the interest rate.
As always, the publication of a number of important macroeconomic data is expected during the new trading week and number important news will be published.
*) specified time – GMT
Sunday June 09
23:50 JPY Japan's GDP for the 1st quarter of 2019 (final release)
GDP is considered an indicator of the general state of a country's economy and assesses its rate of growth or recession. The report on gross domestic product, published by the Cabinet of Ministers of Japan, expresses in monetary terms the total value of all final goods and services produced by Japan for a certain period of time. The growing trend of GDP is considered a positive factor for the national currency (yen), and a low result is negative (or bearish).
Forecast: GDP growth in Japan in Q1 was 0.4% (against the first estimate of + 0.5% and the forecast of 0%). In annual terms, GDP growth is expected to be + 1.8%. In the previous 4 quarter of 2018, GDP growth was + 0.5% and + 1.9%, respectively. Thus, the data indicate a slowdown in the Japanese economy, and this is a negative factor for the yen and the Japanese stock market.
If the data turns out to be even weaker, then the yen could decline significantly in the short run. Data better than the forecast will strengthen the yen.
Monday June 10
Publication of important statistics is not expected.
Nevertheless, it is worth paying attention to the publication (at 02:00) of data on the Chinese foreign trade balance. China's economy is the second largest in the world, so the publication of important macroeconomic indicators from China can have a strong impact on the entire financial market.
Tuesday June 11
08:30 GBP Report on the average salary of the British over the past 3 months. Unemployment rate
The National Statistics Office of the United Kingdom (ONS) publishes a monthly report on average earnings, including the period for the last 3 months, including premiums and no premiums.
This report is a key short-term indicator of the dynamics of changes in the level of wages of employees in the UK. Earnings growth is a positive factor for GBP, and a low value of the indicator is negative. Forecast: the June report suggests that the average salary, including bonuses, increased over the last 3 months (February-April) by 3.4% (against + 3.2% in the previous period); without premiums - by 3.3% (against + 3.3% in the previous period). This is positive data. If they coincide with the forecast or turn out to be better than it, the pound will probably strengthen in the foreign exchange market.
Also, at this time published data on unemployment in the UK. For 3 months from February to April, unemployment was expected to be at the level of 3.9%, against 3.8% in the previous period. Since 2012, the unemployment rate in the UK has steadily decreased. This is a positive factor for the pound.
If data from the UK labor market turns out to be worse than the forecast and the previous value, then the pound will be under pressure.
Wednesday June 12
01:30 CNY Consumer Price Index
The National Bureau of Statistics of China will present data reflecting the dynamics of consumer prices in China in May. A rise in consumer prices could trigger an acceleration in the rate of inflation, which may force Bank of China to take measures aimed at tightening fiscal policy. Increased consumer inflation may cause the yuan to rise in price; low result will put pressure on the yuan.
In the previous month (April), the consumer inflation index came out with a value of + 0.1%, and in annual terms amounted to + 2.5%.
The deterioration of macroeconomic indicators, including a decline in consumer inflation, may adversely affect the positions of the yuan, as well as commodity currencies such as Canadian, Australian, New Zealand dollars. To a greater extent, this refers to the Australian dollar, since China is Australia's largest trade and economic partner.
The growth of the consumer inflation index will positively affect the yuan, as well as commodity currencies, primarily the Australian dollar.
The growth of the consumer inflation index is expected to be 0% in May (+ 2.7% in annual terms).
08:15 EUR Speech by ECB President Mario Draghi
The market reacts strongly to the speeches of Mario Draghi, which follow immediately after the ECB meeting on monetary policy.
Other performances by Mario Draghi cause less market reaction. However, if Mario Draghi makes unexpected statements about the last meeting of the ECB and the bank’s monetary policy, this will again cause a surge in euro volatility.
Speaking at a press conference after the ECB meeting last week, Mario Draghi said that the central bank "is ready to act and use all the tools at its disposal" to support the European economy.
12:30 USD Basic Consumer Price Index (excluding food and energy)
The core consumer price index (Core Consumer Price Index, Core CPI) determines the change in prices of a selected basket of goods and services for a given period and is a key indicator for assessing inflation and changing consumer preferences. Food and energy are excluded from this indicator for a more accurate estimate. A high result strengthens the US dollar, and a low one weakens it. In the previous month (in April), the value of the indicator was + 0.1% (+ 2.1% in annual terms).
Forecast for May: + 0.2% and + 2.1% (annualized). The data suggest low inflation pressure. However, the relative growth of the rate is a positive factor for the dollar. If the data for May are weaker, then the dollar is likely to respond with a decrease.
Thursday June 13
01:30 AUD The level of employment. Unemployment rate. The proportion of labor in the total population
The employment rate reflects the monthly change in the number of employed Australian citizens. The growth of the indicator has a positive impact on consumer spending, which stimulates economic growth.
A high value is a positive factor for AUD, and a low value is negative. Forecast: in May, the number of employed Australian citizens increased by 17,500 people (against +28,400 in April, +25,700 in March, +4,600 in February, +39,100 in January).
Also, at the same time, the Australian Bureau of Statistics will publish a report on unemployment - an indicator that measures the ratio of the unemployed population to the total number of able-bodied citizens. The growth of the value indicates a weak labor market, which leads to a weakening of the national economy, the decline - is a positive factor for AUD. Forecast: unemployment in Australia in May was 5.1% against 5.2% in April, 5% in March, 4.9% in February and 5% in January and December.
Also, among the data provided by the Bureau of Statistics of Australia, indicator of the share of labor in the total population will be published. This is the percentage of the total number of working-age population considered to be labor (either employed or are in search of work). Forecast for May: 65.8% against about the same level in previous months (65.8% in May, 65.7% in March, 65.6% in February, 65.7% in January).
In general, the indicators can be called positive due to the decrease in the unemployment rate. If the values of the indicators are worse than the forecast, then the Australian dollar may be significantly reduced in the short-term. Data better than forecast will strengthen AUD.
06:00 EUR Harmonized Consumer Price Index (HICP) in Germany (final issue)
This index is published by the EU Statistical Office and is calculated on the basis of a statistical methodology agreed upon between all EU countries. It serves as an indicator for estimating inflation and is used by the Governing Council of the ECB to assess the level of price stability. A positive result strengthens the EUR, a negative one - weakens.
In February, the HICP index (in annual terms) grew by + 1.7%, in March - by + 1.4%, in April - by 2.1%. Forecast for May: + 1.3%, as well as in the previous estimate. The decline is a negative factor for the euro. If the data for May is better than the forecast or the previous value, the euro will strengthen.
07:30 CHF NBS interest rate decision. Monetary Policy Statement of the National Bank of Switzerland
The current deposit rate is in negative territory and is -0.75%. At the previous meeting in March, rates remained unchanged. The Swiss central bank has consistently advocated a soft monetary policy in the country, and traditionally considers the exchange rate of the national currency to be “overvalued”. Recently, the franc has largely lost the status of a safe haven currency, and the threat of intervention certainly hinders the franc from excessive growth.
Traders will carefully study the NBS statement in order to catch signals regarding the future plans of the NBS monetary policy. Harsh rhetoric of the statements will help strengthen the franc. A soft tone and a tendency to continue the extra soft monetary policy of the NBS will negatively affect the franc.
High volatility is expected in the foreign exchange market and, above all, in franc trading, especially if the management of the NBS makes unexpected statements.
08:00 CHF NBS Press Conference
After the publication of the decision on the rate, the press conference of the National Bank of Switzerland will begin. During the press conference and speeches of the Chairman of the National Bank Thomas Jordan, the volatility of the CHF trade increases, and traders are waiting for signals regarding further plans of the monetary policy.
Jordan’s harsh rhetoric will strengthen the franc. The soft tone of the speech and the tendency to continue the extra soft monetary policy of the NBS will negatively affect the franc. Expected high volatility in the foreign exchange market and, above all, in trading in the franc.
Friday June 14
12:30 USD Retail sales (excluding car sales). Retail control group
This report (Core Retail Sales Ex Autos) reflects the total sales of retailers of all sizes and types, with the exception of car dealerships. The change in retail sales is a major indicator of consumer spending. The report is leading, and in the future data can be greatly revised. High results strengthen the US dollar, low - weaken. The forecast for May is + 0.3% (against + 0.1% in April). The relative growth rate may have a short-term positive impact on the dollar.
Retail sales is the main indicator of consumer spending in the United States, showing changes in retail sales. The Retail Control Group indicator measures volume across the entire retail industry and is used to calculate price indices for most products. A high result strengthens the US dollar, and vice versa, a weak report weakens the dollar. A slight increase in value is unlikely to accelerate the growth of the dollar. Data worse than the forecast will adversely affect the dollar in the short term.
14:00 USD University of Michigan Consumer Confidence (preliminary release)
This indicator reflects the confidence of American consumers in the economic development of the country. High level indicates growth, while low - indicates stagnation.
The previous indicator value is 100.0. The growth of the rate will strengthen the USD, and a decrease in value will weaken the dollar. It is expected that this indicator will be released in June with a value of 98.1, which may adversely affect the dollar if the forecast is confirmed due to the relative decline.
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