Weekly Market Outlook: Quiet Week ahead with US Data in focus

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After a round of central banks decisions and major economic releases in the past couple of weeks, a quiet week is ahead with the absence of big market events. This may result in calm market movements and sideways trends are widely expected. The greenback will be waiting for inflation and retail sales numbers during the week, which may offer some boost to resist selling pressures. 

US Inflation and Retail Sales

USD traders will be waiting for the consumer price index on Wednesday and it is expected to jump on an annual basis from 2.6% to 3.6% in April. The increase in the core CPI is anticipated to rise from 1.6% to 2.6%. While monthly inflation may ease to 0.2% from 0.6% recorded in March, and core rate to stabilize at 0.3% for the second consecutive month. The coming data are expected to signal a hawkish stance from the FED in the coming months, as easing policies will no longer fit the growing economic activity. 

The Federal Reserve has kept the Fed funds rate range unchanged between 0-0.25% and maintained monthly QE asset purchases kept at $120bn in its April policy meeting. The federal committee did acknowledge the firm economic activity and improving labor market. The committee also noted that inflation has risen largely reflecting transitory factors. So, if price pressures don’t ease in the coming few months, then a policy response from the FED will be on the table. 

Monthly retail sales soared by nearly 10% back in March. However, the stimulus boost is already expected to have faded in April and retail sales are projected to grow only by 0.2% on a monthly basis. For the second straight month, industrial production is set to rise. If the data came broadly as expected or even stronger, treasury yields might receive a boost after lowering over the past 10 days. This could also boost the dollar index and pave way for fresh gains. However, if the upcoming numbers haven’t provided reasons to be optimistic, it’s fair enough to expect a mild reaction. 

Pandemic Fears Continue

Despite rising hopes about covid-19 vaccinations, economic recovery and improving outlook, market participants still act cautiously as the pandemic situation worsens rapidly in many areas around the world which holds back risk appetite among investors. Still, stimulus measurements and vaccines will likely keep boosting sentiment levels. The stock market has shown relatively small gains despite better-than-expected earnings, while the bond market stood still as FED took tapering off the table for the foreseeable future. 

Can ECB minutes provide policy clues? 

Euro to remain subdued awaiting ECB minutes scheduled on Friday. The ECB kept its monetary policy unchanged for the April meeting as traders looked for clues on when its massive monetary stimulus might start to be wound down.

“Preserving favourable financing conditions over the pandemic period remains essential to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability.” European Central Bank President Christine Lagarde said at the press conference. 

Market News

However, more hawkish members of the ECB have expressed views that the ECB may be able to unwind its coronavirus stimulus program, PEPP, later this year. That will be highly dependent on how the virus situation and vaccination programs play out. The minutes are not expected to show more clues on the bank’s policies, which could have no significant effect on euro price action. 

Scottish Election Results 

The pound will be looking forward to the Scottish election over the weekend. Early results show Boris Johnson’s Conservative party gaining local council seats in England, but the Scottish National Party still dominates the Scottish Parliament so far. If the SNP wins the majority, holding Scottish independence referendum might be back on the agenda. Hence, we can see bearish pressures on the Pound if the Scottish National Party and other pro-independence parties dominate the Parliament.  

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