Weekly Outlook: May 16 - 20; U.S., UK and EU CPIs in Focus

The week ahead the economic calendar looks pretty busy with inflation and employment reports from numerous countries scheduled for release. Moreover, Federal Reserve, Reserve Bank of Australia and Bank of Japan will publish the minutes of their last policy meetings.

[B]Monday [/B]is Whit day in Europe, thus, liquidity will be thin across the Europe. On the second half of the trading session, in U.S., the NAHB Housing Market Index for May is expected to show a small improvement to 59 from 58 before. The Bank of Canada will release its quarterly review for the Canadian economy and the central banking. Overnight, the Reserve Bank of Australia will publish the minutes of the last policy meeting when the policymakers cut the benchmark interest rate decision by 25bp to 1.75% after being unchanged for almost a year.

On [B]Tuesday [/B]morning, all the attentions will be on sterling as the final UK inflation rate for April will be released. Compared to the year before, consuming prices are forecasted to have increased by 0.5% as in March, while compared to the month before the analysts forecasted an increase of 0.3% from 0.4% before.

Other important economic indicators coming out are the producer price index input and output and the retail price index for April. In Eurozone, the Trade Balance for March will be released. Going to U.S., the final inflation rate for April will be published. The year-over-year indicator is predicted to rose to 1% from 0.9% before and month-over-month to jump to 0.4% from 0.1% before.

The U.S. manufacturing and industrial production of April, as well as the capacity utilization, are coming out. Overnight, Japanese economic growth for the first quarter is predicted to show an expansion of 0.1% qoq against a contraction of 0.3% before.

On [B]Wednesday[/B], the UK employment report will be published. No changes are expected to the ILO unemployment rate for the three months to March. The average earnings including bonus for March are forecasted to have risen 1.7% from 1.8% the month before. The unemployed people in UK are expected to have increased by 4.0K in April less than last month’s increase of 6.7K.

In Euro zone, the inflation rate for April will be released and the analysts forecasted that Euro zone as whole will remain in deflation for the second month in a row following a flat month in March.

In U.S., the highlight of the day is the FOMC minutes of the last policy meeting. During the night, Australia’s employment report will be published and the unemployment rate is forecasted to rise up to 5.8% in April from 5.7% before while the employment change is expected to show that economy added than half number of jobs in April than in March.

On [B]Thursday[/B], in UK, the retail sales for April are expected to show an increase of 0.5% compared to the month before that declined by 1.3%.

The European Central Bank will release its monetary policy meeting accounts while in U.S. the weekly jobless claims and the CB leading indicator will be released. During the afternoon, Fed’s William Dudley will give a speech and later in the day, the Bank of Japan will publish its monetary policy meeting minutes.

Finally, on [B]Friday[/B], the Eurozone’s current account will be released during the morning. Thereafter, attention turns to Canada where they will release the retail sales for March and the inflation rate for April. In U.S., the existing home sales change for April are expected.

[B]EUR/USD More Room to the Downside[/B]
The EUR/USD pair fell for a second consecutive week, dipping below the key support level at 1.1300 before settling above it in the early European session. Ahead of some significant data, including the FOMC minutes on Wednesday and the CPI for Eurozone we could see some greater volatility coming back to this pair following two quiet weeks.

The pair traded lower following the failed attempt above 1.1615 which has turned the bias to negative. The technical outlook favors the downside as in the daily chart, the technical indicators have turned sharply lower within the bearish territory. In the 4-hour chart, technical readings also favor a downward continuation, with the price extending below the 50-SMA, for the first time since mid-April, and pointing to a continued decline down to 1.1215. In addition, the 50-SMA, as well as the 200-SMA are now acting as a dynamic resistances around 1.1360 and 1.1400. Therefore, for now, we remain bearish targeting 1.1215. From there, a possible rebound should be accompanied with the break of the oscillators above their trend lines to confirm an upward trend and the end of the correction phase. Without that confirmation, we remain strong sellers.

[B]GBP/USD To Meet its Rising Trendline[/B]
Earlier in the month, the GBP/USD pair broke above a major resistance area on the 1.4500 region and extended up to a fresh yearly high of 1.4770, but the British pound was unable to sustain it gains, and the U.S. dollar came back to snap two consecutive negative weeks.

The coming week will be busy throughout but with the focus looking towards UK’s inflation figures, employments data and Retail Sales. Besides that, tomorrow sees the UK PPI and Wednesday the CB Leading Indicator and U.S. FOMC minutes. All up, enough to make it an active week! Technically, the data in the previous week has seen the dollar take out several support levels in heading down below the significant level at 1.4400. The daily chart suggests that further downside momentum is possible, and below 1.4300 – 1.4320 would head towards 1.4200, which should be strong support, being both the ascending trend line, which started back in mid-February and 23.6% of 1.58/1.39. The Stochastic remained in mid-levels while the RSI rebounded from its 30 level, thus, I would not rule out some consolidation or an upward wave above 1.4400 before the bears prevail again.