Forex Weekly Outlook June 15-19 – GDPs Head South as Major Economies Flounder

Global economic conditions remain severe, as the Covid-19 pandemic continues to weigh heavily on the major economies, which are reporting declines in economic growth. With no end in sight to the virus, the economic misery is expected to continue for some time yet.

In the UK, April GDP was in free-fall, with a huge drop of 20.4 percent. This followed a drop of 5.8% beforehand. There wasn’t much relief from Eurozone GDP for Q1 came in at -3.6%, revised from -3.8 percent. In Japan, GDP for the first quarter contracted by 2.2%. This was a second straight contraction, which means that the economy is officially in recession. Still, the decline was smaller than the initial read of -3.4 percent, which helped the yen gain ground last week.

In the U.S., consumer inflation posted a third consecutive decline, as the weak U.S. economy is not generating any inflation. Both the headline and core figures came in at -0.1%. The Fed made no change to the benchmark rate and indicated that it has no plans to alter rates from their ultra-low levels prior to 2022. Producer Price Inflation numbers were a mix. The headline read gained 0.4%, while the core figure fell by 0.1 percent. Unemployment claims continue to ease, falling to 1.54 million last week, down from 1.87 million beforehand.

  1. German Inflation: Tuesday, 6:00. Inflation in the eurozone’s largest economy declined by 0.1%, indicative of weak economic conditions. The final read is expected to confirm this figure. 
  2. Eurozone Inflation: Wednesday, 9:00. Eurozone inflation slipped to 0.1% in May, down from 0.3% a month earlier. This figure is projected to be confirmed in the final reading. The core figure was unchanged at 0.9% in the initial reading for May and the final read will likely confirm this reading.
  3. US Retail Sales: Tuesday, 12:30. Retail sales is a key gauge of consumer spending. April was disastrous, with a loss of 16.4 percent. Core retail sales, which excludes the most volatile items, was even worse, dropping 17.2 percent. Better news is forecast for May, with estimates of 7.4% for the headline read and 5.5 for core retail sales.
  4. BoJ Rate Decision: Tuesday, Tentative. The Bank of Japan is expected to maintain its main policy tools at this week’s meetings. There is a strong likelihood that policymakers will increase its loan support for businesses. 
  5. Fed Chair Powell Testifies: Tuesday and Wednesday at 12:30. Powell will appear before House and Senate committees to present testify on Fed’s Monetary Policy Report. Traders will scrutinize Powell’s testimony, which will outline the Fed’s view of economic conditions in the United States. Powell’s comments on the latest upbeat employment report will also be of interest.
  6. Canadian Inflation: Wednesday, 12:30. Inflation has headed south, with back-to-back declines. In April, CPI fell by 0.7%, within expectations. A strong rebound is expected in May, with an estimate of 0.8 percent. Core CPI, which excludes the most volatile items, fell 0.4% in April, after three consecutive declines.
  7. Canadian ADP Non-Farm Employment: Thursday, 12:30. The economy created 289 thousand jobs in May, defying the analysts, who had projected a loss of 500 thousand jobs. Will ADP nonfarm payrolls also rebound with a strong release?
  8. US Unemployment Claims: Thursday, 12:30.  Jobless claims have been steadily falling, from a high of 6.6 million in April to 1.5 million last week. Still, these figures are extraordinarily high, as much of the U.S. economy remains shut down. Will the downward trend in claims continue this week?
  9. UK Jobs Report: Tuesday, 6:00. Unemployment claims soared to a staggering 856.5 thousand in April, up from 12.1 thousand beforehand. Wage growth headed lower for a second successive month in March. The indicator slipped to 2.4%, down from 2.8% beforehand. Analysts are braced for wage growth to fall to 1.4 percent. The unemployment rate, which has been hovering around 4%, is projected to climb to 4.7 percent.
  10. UK Inflation Report: Wednesday, 6:00. Consumer inflation fell to 0.8% in April, down sharply from 1.5% a month earlier. The May estimate stands at 0.5 percent. Core CPI dipped from 1.6% to 1.4% in April, and the downturn is expected to continue, with an estimate of 1.3 percent.
  11. BoE Decision: Thursday,11:00. The bank lowered interest rates to 0.10% in March and has maintained these ultra-low rates in order to support the sputtering economy. No change is expected at this week’s meeting. The tone of the policy summary could affect the movement of the pound.

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