FED, ECB, BOJ Rate Decisions Ahead, CPI and PPI Inflation, FOMC, Labor Market Data Releases

PREVIOUS WEEK’S EVENTS (Week 05 – 09 June 2023)

Announcements:  

U.S. Economy

The U.S. Institute for Supply Management (ISM) services PMI fell to a more-than-expected 50.3. Tight credit conditions, pandemic savings and the U.S. banking crisis are finally hitting the services sector.

This figure is just over 50 and it shows weakness rather than improvement, raising fears and risks of a recession. There have been 500 basis points worth of interest rate increases from the Fed since March 2022. This figure is good news for the U.S. central bank since they finally see lower desirable figures, with the services sector finally cooling down.

New U.S. claims for unemployment benefits jumped surprisingly high. The actual figure showed 261K more claims versus the lower and expected 236K. The U.S. dollar had lost ground since expectations shifted as we are currently waiting for the Fed to actually pause hikes. 

The market is still strong and exhibits remarkable resilience. NFP data showed a high positive change in employment while the unemployment rate increased slightly. Claims remained well below the estimates and considering such numbers, it will be interesting to see what the Fed is actually going to decide on rates. We might have a possible surprise just like the RBA and BOC cases. 

 

Australia Economy

The release of Australia’s quarterly Gross Domestic Product (GDP) was lower than expected. GDP rose by 0.2% in the first quarter, easing from 0.5% in the previous quarter. Annual growth at 2.3%, also missing forecasts for 2.4% expansion.

The Reserve Bank of Australia (RBA) has been engaged in a battle with inflation, while simultaneously trying to avoid bringing the economy down into a sharp recession.

 

Canada Economy

Canada labour data showed 17,3K fewer jobs in May while the unemployment rate rose by 0.2%, reaching 5.2%. It is the first increase since August which signals employment softness following the Central Bank’s rate hikes.

The Bank of Canada struggles to bring down inflation which remained more than double its 2% target in April. On Thursday, Bank of Canada Deputy Governor Paul Beaudry highlighted that a tight labour market and sticky core inflation contributed greatly to the decision for a rate hike.

The Canadian labour market in May showed softness, but the figures may not be yet significant enough for the Bank of Canada. Some economists support that the labour force survey needs to be enhanced with additional information to support the view that the Bank of Canada will not hike again.

 

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Interest Rates

 

Australia 

The Reserve Bank of Australia (RBA) eventually raised interest rates on June 6th and stated that further tightening is possible. The AUD surged. The RBA Governor Lowe said the latest rate increase will “provide greater confidence that inflation will return to target within a reasonable timeframe.”

However, as the RBA takes rates higher, the economy is slowing down and might create more issues. These are basically similar concerns for other economies experiencing rising rates.

 

Canada

The Bank of Canada surprisingly increased rates and caused the CAD to appreciate greatly at that time and further turmoil in the market for USD and U.S. Stocks.

We have seen a lot of surprises lately. Another surprise took place just recently on the 6th of June with the RBA increasing the Cash rate to 4.10% against the expected unchanged 3.85%. Central Banks will not hesitate to act aggressively against stubborn inflation and expectations for future rate hikes are formed.

The Bank of Canada (BOC) raised the concern that inflation would stack higher than the target and that monetary policy so far was not sufficient to return inflation sustainably to the 2% target level. Another 25 basis points increase is expected in July though. The BOC will assess economic indicators and inflation and take appropriate decisions in the future.

 

Sources: https://www.reuters.com/markets/australia-q1-gdp-growth-hits-weakest-pace-1-12-years-consumers-struggle-2023-06-07/

https://www.cnbc.com/2023/06/07/australias-economy-expands-2point3percent-in-the-first-quarter.html

https://www.reuters.com/markets/rates-bonds/bank-canada-hikes-rates-475-highest-22-years-2023-06-07

https://www.reuters.com/markets/rates-bonds/australia-central-bank-raises-rates-11-yr-high-warns-more-hikes-likely-2023-06-06/

https://www.reuters.com/markets/us/us-services-sector-slows-may-prices-paid-gauge-falls-three-year-low-ism-survey-2023-06-05/

https://www.reuters.com/markets/us/us-weekly-jobless-claims-increase-more-than-expected-2023-06-08/

https://www.reuters.com/markets/canada-reports-surprise-may-jobs-loss-unemployment-rate-rises-52-2023-06-09/

 

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Currency Markets Impact – Past Releases (05 – 09 June 2023)

Switzerland’s CPI monthly change was released on June 5th. There was no significant impact on CHF pairs. The change was at 0.3% as expected.

PMI data for the Services sector was released during the trading day.

Services PMIs in general remain above 50, in the expansion area but they are weakened. Lower PMI data for the Eurozone but not so low. The U.S. services sector softened.

The release of the ISM Services PMI figure for the U.S. showed a services sector activity expansion in May. However, it also shows signs of no improvement. The USD had depreciated greatly at the time of the release as USD pairs experienced an intraday shock.

On a quarter-on-quarter basis, Australia’s GDP grew by 0.2%, compared to the 0.3% expected. A very low-level intraday shock on AUD pairs followed after the report release.

A surprise rate increase of the RBA was announced on June 6th. The Cash Rate was set to 4.10%, more than the expected 3.85%, causing AUD to appreciate greatly with this shock. AUDUSD jumped more than 50 pips at that time.  

The Bank of Canada (BOC) hiked its overnight rate by 25bps, to 4.75%, on the 7th of June. That was a surprise increase causing the CAD to appreciate greatly at that time bringing the USDCAD down to nearly 60 pips before retracing. 

The USD, after the BOC rate announcement, showed great appreciation. The DXY moved with a steady pace upwards. This USD effect had an impact on the market for Gold and U.S. Stocks.

On the 8th, the U.S. Unemployment Claims figure was released, 261K, an increase of 28K from the previous week’s revised level. The previous week’s level was revised up by 1K from 232K to 233K. At the time, an intraday shock took place but with no high degree. Later on, the market reacted with a steady U.S. dollar depreciation until the end of the trading day.

Canada’s Ivey PMI fell to a three-month low in May, to 53.5 in May from 56.8 in April, posting its lowest level since February. No major impact on the CAD pairs.

Vital Labor Market data for Canada’s economy were released on the 9th of June. The employment change was surprisingly a negative figure, -17.3K, way much lower than the forecast, while the unemployment rate increased by 0.20%. This surprise caused an intraday shock with CAD depreciating at the time of the release. The impact was not so great, USDCAD jumped nearly 30 pips.

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Summary Total Moves – Winners vs Losers (Week 05 – 09 June 2023)

XAGUSD (Silver) reached the top last week with 2.91% price change. 

The month finds AUD pairs (AUDJPY and AUDUSD) on top so far leading with 3.79% gains. 

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FOREX MARKETS MONITOR

EURUSD

EURUSD was moving around the mean with high volatility. On the 8th of June, the pair moved rapidly upwards since the unemployment claims figures for the U.S. were reported more than expected and the market reacted with USD depreciation. This was one of the recent and weak labour market data that surprised the market participants that were used to seeing hot data for Labour. The Fed will take this into account and would probably enhance their decision to not hike this month. Volatility continues to be high for the pair and this week we expect high deviations from the mean. The FOMC report and Fed funds rate release take place on Wednesday this week.

DXY (US Dollar Index)

The DXY index moved sideways with high volatility. It is a “mirror” of the EURUSD chart confirming that the USD is the main driver here. We see the drop on the 8th of June from the USD depreciation against other major currencies caused by the labour data releases that day. A retracement followed back to the mean on Friday  9th June.

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NEXT WEEK’S EVENTS (12 – 16 June 2023)

Rate decisions ahead this week again. The Fed will announce the Fed rate on the 14th of June. The ECB will announce the Main Refinancing rate on the 15th of June. The Bank of Japan will announce the BOJ Policy rate on the 16th of June. 

Labor Market data will be reported this week for Australia and the U.K.

The US Inflation data will be reported ahead of the FOMC. This is the release of the CPI data while the PPI data will be reported on the 14th, also before the rate decision takes place.

Currency Markets Impact:

The result of the NAB Business Confidence survey will be released at 4:30 on the 13th of June. The impact on the AUD pairs is not expected to be high.

The U.K. Claimant Count Change figure will be released at 9:00 and is expected to be reported lower. This is actually the unemployment claims change, an indication of the employment situation and is important for the BOE which wants to see figures of a weakening Labour market. Their fight to bring down inflation finally sees some progress since the latest data showed that the inflation rate fell below 10%. In any case, the GBP pairs will probably experience an intraday shock. The unemployment rate will be released as well and it is expected that it will be reported higher. 

The CPI figures for the U.S. will be released at 15:30. Analysts expect that inflation will be reported lower. The USD will be affected greatly by the figure release. An intraday shock is also expected.

The U.K’s GDP figure will be announced at 9:00 on the 14th of June. It is expected that there will be growth. A 20% change against the previous negative change -0.3%. The shock on the GBP pairs is not expected to be so great.

The U.S. PPI figures, a measure of inflation, will also be released on the 14th of June ahead of the FOMC and Fed Rate decision. The impact will probably not be so great on the USD pairs since the market usually expects the Fed Rate release in order to react. The Fed will decide later on rates at 21:00. A huge shock is expected especially if the Fed eventually surprises with a hike. 

New Zealand’s  GDP figure will be unannounced early on June 15th.  The impact will be not very high, affecting the NZD pairs probably slightly. 

The labour market data for Australia will take place at 4:30. At that time an intraday shock for the AUD pairs will probably take place. 

The ECB is going to decide on rates at 15:15 and it made clear that there will be a hike of the MFR to the 4% level. A shock would probably take place affecting the EUR pairs.

At 15:30 the U.S. Sales and Unemployment claims data are about to be released. The USD will be definitely affected and USD pairs will experience a shock. There are different kinds of data to consider at the time of the release and depending on the actual figures the shock will cause either a high deviation from the mean and steady movement in one way or just ups and downs. 

On the 16th of June, the Bank of Japan will decide on rates. It is expected to leave rates unchanged, thus remaining negative. Depending on the decision, keeping rates low switches even more the preferences for other high-yield currencies thus causing further depreciation for JPY.   

The U.S. Prelim UoM Consumer Sentiment Survey results will be released at 17:00. The figure is expected to be higher but I am not expecting a significant effect on the USD pairs from this one.

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COMMODITIES MARKETS MONITOR

U.S. Crude Oil 

The price of Crude was steady the last few days, with sideways movement around the 30-period MA. On the 8th of June, after the U.S. Unemployment claims figures were released, the price dropped rapidly finding resistance at 69 USD/b before retracing significantly. The claims were higher than the forecast, shifting the expectations towards a pause in hikes. This weak data caused turmoil and USD depreciated while actually crude dropped. On the 9th of June, its price experienced lower volatility and a drop overall settling at 70.4 UD/b.

Gold (XAUUSD)

On the 7th of June, after 17:00, the USD appreciated greatly causing Gold’s price to crash and test the 1938 USD/oz support. Later on, it retraced fully back to the 61.8 Fibo level and even jumped further upwards when the USD depreciated greatly on the 8th of June after the high unemployment claims figures released that day. It remained on a sideways path until the end of the week, even though on Friday it experienced a low-level intraday shock possibly affected by the CAD news at 15:30.

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EQUITY MARKETS MONITOR

NAS100 (NDX)

Price Movement

On the 7th of June, the index crashed after 17:00, near a 300 USD drop. This was after the BOC rate figure release at that time and the USD appreciation that followed immediately after. NAS100 dropped further following the next day, 8th June, and found significant support at nearly 12245 USD. It later retraced during the day back to the mean. With the release of the high U.S. Unemployment claim figures, the index moved rapidly upwards. On the 9th of June, after the NYSE opening, the stock market experienced an upward shock in general. The index jumped and tested once more the resistance of 14672 USD before retracing back to the intraday mean.

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