Next Week News

1- In the 3 weeks leading up to the last FOMC meeting, the Dollar went parabolic, appreciating almost 5% versus the majors. Dollar strength was especially noticeable for EUR/$. It is well understood that the FOMC does not target the Dollar, merely taking the greenback as an input into its forecasts. But the parabolic rise in the USD into the meeting is certain to have been noticed, not least since the last vestige of forward guidance (the "patient" phrase) was scheduled to be dropped.

2- Going into the March 18 meeting - there was some risk that Dollar strength could run out of control. Perhaps as a result, the meeting took a dovish turn, with the dots and economic forecasts taking a sizeable shift down.

3- There is now a feeling that the Dollar story is over, because any further appreciation will just cause the Fed to shift in an even more dovish direction, delaying 'lift-off' further and further. GS' Jan Hatzius and team expect activity to bounce back sharply this quarter rising from a likely pace of 1.2% quarter-over-quarter in Q1 to 3.5% in Q2. We think this rebound will break the infinite loop the market currently expects and means that, however reluctantly, the Fed will likely do 'lift-off' later this year.

4- We think this means that the Dollar still has lots of room to strengthen, not least with market pricing for front-end interest rates as low as it currently is. We continue to forecast a 20% rise against the majors over the next three years.

5- Where does all this leave us going into tomorrow? The sharp pick-up in Fed speakers who have flagged the Dollar recently leaves little doubt in our minds that the Fed will do as little as possible to encourage Dollar bulls. We expect a purely "factual" statement, with our US economics team flagging small twists to the opening paragraph acknowledging the recent slow-down in payrolls and perhaps a firming in inflation.

6- This means that we see data, not the Fed, as the next key catalyst for the Dollar to resume its march higher, as it becomes clear that weak Q1 activity was once again an aberration. Surprises tomorrow could come in the form of language describing recent data weakness as "temporary", which would be seen as hawkish by the market. Language ruling out June for 'lift-off' would be seen as a dovish surprise.

GS targets EUR/USD at 1.00 in 6-months and USD/JPY at 125 over the same end of period


the source

The EUR/USD had a stellar month in April closing in the 1.12 level after the ECB kicked off its stimulus program and data started printing a bit better than in previous months. Greece continued being a thorn in everyone’s side. The euro is expected to trade flat or a bit weaker in April as US data should start to print a bit stronger. In Spain and Italy, the export-led recovery has boosted industrial production and is starting to spill over into the broader economy, while deflationary tailwinds and rising consumer confidence in France have coincided with higher household spending.

Efforts by France and Italy to push through much needed structural reforms, as well as the Greek government’s decision to reshuffle its negotiating team to broker an extension to its current bailout program also bode well for stronger consumer and business confidence and longer-term growth. Headline deflationary pressures in the euro zone have also eased from -0.6% y/y in January to the most recent release of 0% in April, underpinned by rising energy and food prices. This, combined with monetary stimulus, is forecast to gradually drive the headline print up to a year-end rate of 0.6% y/y in 2015 and 1.3% in 2016. The ECB intends to fully implement its roughly €1.1 trillion QE program and has no plans to alter its policy stance unless the higher inflation trend is firmly anchored. With euro zone inflation forecast to be in line with the ECB’s target of close to, but below, 2% by 2017, we believe that QE will run its full course through September 2016.

Soft economic data for Q1, still-low inflation prints, and overall USD strength were cited by the FOMC at its March meeting as the overall rationale for delaying interest rate hikes into the later part of 2015 and moderating the extent of hikes to be delivered. An April FOMC statement that pointed to a number of economic positives but failed to mention constructive stirrings on the inflation front didn’t change our view that the FOMC is likely to engage in so-called ‘liftoff’ at its September meeting. A hawkish interim surprise would require extraordinarily strong data between now and the June or July FOMC meetings – not our base case.

the source

Fitch maintained the sovereign ratings of Greece, the Netherlands and Latvia and Standard & Poor's affirmed the ratings of Italy and Georgia. Elsewhere, Moody's affirmed Poland's ratings.

More...

2015-05-27 15:00 GMT (or 17:00 MQ MT5 time) | [CAD - Overnight Rate]

• past data is 0.75%
• forecast data is 0.75%
• actual data is 0.75% according to the latest press release

if actual > forecast (or previous data) = good for currency (for CAD in our case)
[CAD - Overnight Rate] = Interest rate at which major financial institutions borrow and lend overnight funds between themselves. Short term interest rates are the paramount factor in currency valuation - traders look at most other indicators merely to predict how rates will change in the future.

==========

Bank of Canada maintains overnight rate target at 3/4 per cent

"The Bank of Canada today announced that it is maintaining its target for the overnight rate at 3/4 per cent. The Bank Rate is correspondingly 1 per cent and the deposit rate is 1/2 per cent.

Inflation in Canada continues to track the path outlined in the Bank’s April Monetary Policy Report (MPR). Total CPI inflation is near the bottom of the Bank's 1 to 3 per cent inflation control range, largely due to the transitory effects of sharply lower energy prices. Core inflation remains above 2 per cent, boosted by the pass-through effects of past depreciation of the Canadian dollar, as well as certain sector-specific factors. Seeing through the various temporary factors, the Bank estimates that the underlying trend of inflation is 1.6 to 1.8 per cent, consistent with persistent slack in the economy.

The outlook for the Canadian economy also remains largely in line with the April MPR. While a weak first quarter in the United States has raised questions about that economy’s underlying strength, the Bank expects a return to solid growth in the second quarter. This will help advance the rotation of demand in Canada toward more exports and business investment. Recent indicators suggest consumption in Canada is holding up relatively well, given the impact of lower oil prices on gross domestic income."

==========

USDCAD M5: 44 pips range price movement by USDCAD - Overnight Rate news event:

2015-06-01 13:30 GMT (or 15:30 MQ MT5 time) | [USD - Core PCE Price Index]

• past data is 0.1%
• forecast data is 0.2%
• actual data is 0.1% according to the latest press release

if actual > forecast (or previous data) = good for currency (for USD in our case)
[USD - Core PCE Price Index] = Change in the price of goods and services purchased by consumers, excluding food and energy.

==========

"Personal income increased $59.4 billion, or 0.4 percent, and disposable personal income (DPI) increased $48.8 billion, or 0.4 percent, in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $2.6 billion, or less than 0.1 percent. In March, personal income increased $4.0 billion, or less than 0.1 percent, DPI increased $0.5 billion, or less than 0.1 percent, and PCE increased $65.6 billion, or 0.5 percent, based on revised estimates.

Real DPI increased 0.3 percent in April, in contrast to a decrease of 0.2 percent in March. Real PCE decreased less than 0.1 percent, in contrast to an increase of 0.4 percent."

==========

XAUUSD: 407 pips price movement by USD - Core PCE Price Index news event :

Further stabilization of oil prices is likely to help lower inflation in Russia, allowing the central bank to reduce rates at a faster pace, the World Bank said Monday as it raised the economic outlook for the country.

More...

The protracted negotiations between Greece and its creditors seemingly shifted into top gear this week as the cash-strapped country teeters on the verge of a default with a loan repayment to the International Monetary Fund due at the end of the week.

More...

The Organisation for Economic Co-operation and Development on Wednesday lowered the global growth forecast for this year and next, citing the unexpected weakness in the first quarter.

More...

The World Bank downgraded its global growth outlook, as developing countries face tough transition with high borrowing costs and lower commodity prices in 2015. The organization also urged the Federal Reserve to hold off raising rates until the next year, citing the risks it may pose to emerging markets.

"Developing countries were an engine of global growth following the financial crisis, but now they face a more difficult economic environment," said World Bank Group President Jim Yong Kim.

Japan's economic growth is seen at 1.1 percent compared to the 1.2 percent estimated previously. The Japanese economy is expected to grow 1.7 percent in 2016 and 1.2 percent in 2017.

In China, the carefully managed slowdown continues, with growth likely to moderate to a still robust 7.1 percent this year, the lender noted. In 2016 and 2017, growth is forecast to be 7 percent and 6.9 percent, respectively.

In India, which is an oil-importer, reforms have buoyed confidence and falling oil prices have reduced vulnerabilities, paving the way for the economy to grow by a robust 7.5 percent rate in 2015. The growth is expected to pick up further to 7.9 percent in 2016 and to 8 percent in 2017.

More...

Failure to reach an agreement with creditors can put Greece on the 'painful' path of an exit from the euro and spark an uncontrollable crisis, Greece's central bank warned. "The conclusion of a new agreement with our partners is of the utmost importance to fend off the immediate risks to the economy, reduce uncertainty and ensure a sustainable growth outlook for Greece," the Bank of Greece said.

More...