Week Ahead: US Data Key Following Unexpected NFP & UK Fighting Over New PM

Major releases

Monday

  • UK GDP
  • Chinese Trade Balance

Tuesday

  • UK Jobs Report

Wednesday

  • China CPI
  • US CPI

Thursday

  • AUS Unemployment
  • SNB Rate Decision
  • EUR Industrial Production
  • US Initial Jobless Claims

Friday

  • China Retail Sales
  • China Industrial Production
  • US Retail Sales
  • US Michigan Consumer Sentiment Index

 

After Poor NFP US Data Takes on More Important Role

The most important data releases for the U.S. Dollar in the coming week is Inflation (CPI) and retail sales. Core CPI is expected to show a 0.2% uptick in May and a 2.1% rise compared to a year ago when it is released on Wednesday, June 12.

Core CPI is seen as a more accurate gauge of inflation in the domestic economy than broad CPI since it cuts out the more volatile oil and food components which can be attributed to seasonal and global factors.

A higher-than-expected result could push the Dollar higher since it could be evidencing of continued growth - and vice versa for a lower result. The greater risk is that lower-than-expected inflation increases pressure on the Federal Reserve (Fed) to cut interest rates.

This would be detrimental to the Dollar since lower interest rates tend to weaken currencies because they make the country less attractive as a destination for foreign investors to park their capital.

Retail sales is expected to show a 0.6% rise in May compared to the month before when it is released on Friday, June 14. Core retail sales, meanwhile, is forecast to rise by 0.4%.

Retail sales is an important indicator of consumer demand, and since consumers are the biggest contributors to the U.S. economy, it's a key gauge of economic health and growth. If it rises higher-than-expected, it will probably support the Dollar, and vice versa if it declines.

 

UK Politicians Fighting Over Next PM

Yet again politics will dominate proceedings as Friday saw Theresa May official step down as leader of the Conservative Party while members vote for a new leader. Mrs May will continue as Prime Minister until her successor is named. Who that will be is still very much up in the air, with the next few weeks set to be critical for the candidates. Former Foreign Secretary Boris Johnson remains the favorite for the job.

The next step in the conservative leadership contest will unfold on Monday, June 10, when candidates must declare at least eight nominations from fellow Conservative MPs to stay in the race. This will probably result in many of the weaker candidates being knocked out.

After that, all candidates will need the votes of 17 Conservative MPs to stay in the first round ballot and at least 33 – or 10% of Tory MPs – to stay in the second round of voting.

At the moment, the leading contenders are Johnson, Gove, and Hunt, but if that changes - which is unlikely - and if one of the big names gets knocked out, it could impact on Sterling negatively.

Johnson appears to be in favour of endorsing a ‘leave at all costs’ Brexit on October 31. Michael Gove has a softer stance, aiming for a Canada-style free trade agreement and a possible further delay if necessary, which has infuriated the right of the party.

The main data release is April GDP which is forecast to show a -0.1% fall compared to the previous month and a 1.7% rise compared to a year ago, when it is released on Monday. Any unexpected fall in GDP will probably weaken the Pound. Unemployment data is expected to show the unemployment rate remains at 3.8% in April, when it is released on Tuesday, June 11.

The channel in GBPJPY shows the upside in Sterling since the start of June, despite the uncertainty over the new leader. Upside is capped at the channel highs and a continued move higher could hit resistance at 138.74.

Europe Looks To More From Draghi

The Euro has been strengthening of late with gains against the U.S. Dollar suggesting the single-currency is entering a broader uptrend.

Potentially important are speeches from ECB president Mario Draghi and De Guindos, although given the proximity to last week's ECB meeting, neither are likely to err much from the official stance, so their comments will probably not impact on the currency. The speeches are due on Wednesday.

The Euro rallied in the wake of the ECB meeting as markets appear to have been expecting the ECB to strike a decidedly more subdued tone, and perhaps even expecting the ECB to lay the groundwork for yet further cuts to the interest rate. It could be that Draghi expands on the stance communicated last week.

We will also be keeping an eye on the meeting of Eurogroup finance ministers in Brussels on Thursday, June 13.

The double bottom area signifies a hold of a long term level at 1.1108, the subsequent move higher now shows a breakout at the upside of the channel.

 

The information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. Readers should seek their own advice. Reproduction or redistribution of this information is not permitted.

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Week Ahead: US Data Key Following Unexpected NFP & UK Fighting Over New PM

We take a look at the critical US data points following the NFP shocker, the UK fighting over the next PM and what will Draghi do next?