Weekly Outlook: May 09 - 13; BoE Policy Meeting in Focus

The soft NFP reading couldn’t prevent the U.S. dollar from rising on other positive data. In U.S., Retail Sales for April and numerous speeches by Fed members will be closely watched. The Bank of England policy meeting on Thursday will hog the limelight while the press conference that will follow by BoE President Mark Carney will be scrutinised for further clues on second quarter economic growth, as last week’s data foreshadow a weak quarter ahead. In Eurozone, the final GDP growth for Q1 will be eyed by investors.

[B]U.S. Dollar ended the week higher despite seven-month low NFP reading[/B]
Last week the U.S. job report disappointed the market, the economy added 160k jobs in April, a seven month low. The market was expecting a lower than last month but more optimistic number of 200k. The Average Hourly Earnings jumped by 0.3% from 0.2% in March confirming Fed policymaker’s statement that U.S. economy approached full employment. The unemployment rate remained stable at 5%. It’s worth to mention that Fed plans for two rate hikes in 2016 were not benefited from the soft NFP reading. The weak NFP figure couldn’t prevent the dollar from recording slight gains against the majors and closing the week higher against all of the G10 currencies.

This week is looking a little quieter for the dollar, especially compared to the one just gone, however, there are various significant economic indicators that will affect the currency. The Monthly Budget Statement and the Retail Sales both for April are the most important and most market-affecting news coming out from the U.S. economy this week on Wednesday and Friday respectively. The Retail Sales are expected to have increased by 0.5% mom following three downbeat months of contraction and zero change (Jan -0.4%, Feb 0%, Mar -0.4%). Other news that will be eyed by USD traders is the March’s Wholesales Inventories that are forecasted to have decreased by 0.1% versus a decline of 0.5% in February and will be released on Tuesday. On Friday, out of the Retail Sales, the Producer Price Index and the preliminary Michigan Consumer Sentiment Index for April, as well as the Business Inventories for March will be released.

[B]Euro area GDP will be closely watched[/B]
The euro ended the week with gains against all the major currencies with only exception the U.S. dollar that was marginally lower. However, the week just past was quiet in terms of economic releases in comparison with this week that significant figures will be out.

This week is a GDP week for the Euro area as the final first quarter’s GDP is scheduled for release on Friday. The GDP growth is forecasted to have risen by 0.6% qoq the first quarter following 0.3% the Q4 2015. Compared to the year before, the economic growth is expected to have remained unchanged for the fourth consecutive quarter at 1.6%. The industrial production for March will be released for Germany on Tuesday and for Euro area as a whole on Wednesday. Other economic indicators that will be eyed from Germany are the GDP growth for Q1 and the inflation rate for April.

[B]BoE Policy Meeting will hog the limelight[/B]
Last week’s economic calendar for UK was pretty quiet with limited but disappointing news. The Manufacturing activity declined for the first time in three years according to the Markit PMI Survey. The figure came out at 49.2 for April, below 50.0 that indicates falling output, adding to fears over the economy’s strength. The soft Construction PMI for April didn’t calm the worries but endorsed them as it declined to 52.0 from 54.2 expected before and versus 54.0 the market expectations. Finally, the Services sector performance released on Thursday recorded the lowest growth since February 2013 in April, leading to the conclusion that second quarter UK economic growth will probably be thin.

The week ahead is important for the pound with a policy meeting scheduled and other significant economic indicators. We start the week with the Halifax House Prices indicators for April and on Tuesday, the Trade Balance is coming out. On Wednesday, the Industrial and Manufacturing production are expected to show an improvement according to the market predictions. The final Industrial Production is forecasted to have advanced by 0.4% mom in March from a decline of -0.3% before while the final Manufacturing Production to have advanced by 0.3% following a drop of -1.1% before. The NIESR GDP Estimate for the three months to April will be closely watched a day ahead of the BoE policy meeting.

On Thursday, at 11:00 GMT time, the Monetary Policy Committee will vote on the interest rates. No changes are expected to the voting pattern of the last policy meeting 9 – 0 to keep the benchmark interest rate on hold at the record low of 0.5%. After the announcement of the decision BoE minutes and the press conference from BoE President Mark Carney will be scrutinized as the worries over the UK economic strength intensified from last week’s weak figures announced. Meanwhile, the BoE Quarterly Inflation Report will be published.

The[B] kiwi was seen sharply lower[/B] the last days, heavily influenced by Chinese weak trade and inflation data, the falling oil prices and yesterday, the Panama papers that claimed wealthy Latin Americans are using secretive, tax-free trusts in New Zealand to help channel money around the world and the country’s Prime Minister John Key said there will now be a review of disclosure rules foreign trusts and denied that the country is a tax haven.

[B]NZD/USD - Technical Outlook[/B]
The NZD/USD dropped more than 4% month to date, recording five negative daily sessions over the last six days, crossed below the 50-SMA and the medium term ascending trendline and is now testing the 100-SMA on the daily chart. Going to the lower timeframe, the NZD/USD fell below the 200-SMA that provided significant support to the pair. The price is now headed towards 0.6710 where I would expect a retracement take place and the pair to test the significant level at 0.6760 before it continues its drop towards 0.6680. On the daily chart, the MACD oscillator just entered the negative territory while on the 4-hour chart both the MACD and the RSI oscillators are falling, endorsing our bearish scenario.