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Weekly Market Outlook: US CPI data, Fed minutes, and BoC decision to watch 

Weekly Market Outlook – The beginning of this week is expected to be calm as Easter Monday will be observed by most of the economies on our radar. However, as the week progresses, the schedule is likely to become busier, with significant events such as the release of the US CPI figures for March, the publication of minutes from the latest FOMC gathering, and the upcoming BoC decision. The US data could provide further insight into whether the Fed should raise interest rates in May, adding another piece to the puzzle. On the other hand, the BoC decision could potentially reveal if it will be the first major central bank to reduce interest rates. 


What to watch on the Economic Calendar this week        

Monday, Apr 10: 

  • JPY: Consumer Confidence 
  • AUD: Business Confidence 
  • CNY: CPI y/y 
  • CNY: PPI y/y 

Tuesday, Apr 11: 

  • EUR: Retail Sales m/m 
  • USD: NFIB Small Business Index 
  • JPY: Bank Lending y/y 
  • JPY: PPI y/y 

Wednesday, Apr 12: 

  • USD: Core CPI 
  • CAD: BOC Monetary Policy Report 
  • CAD: BOC Rate Statement 
  • CAD: Overnight Rate 
  • USD: Crude Oil Inventories 
  • CAD: BOC Press Conference 
  • USD: 10-y Bond Auction 
  • USD: FOMC Meeting Minutes 
  • AUD: Unemployment Rate 

Thursday, Apr 13: 

  • EUR: German Final CPI m/m 
  • GBP: GDP m/m 
  • GBP: Manufacturing Production m/m 
  • EUR: Industrial Production m/m 
  • USD: Core PPI m/m 
  • USD: Unemployment Claims 
  • GBP: CB Leading Index m/m 
  • USD: 30-y Bond Auction 
  • NZD: BusinessNZ Manufacturing Index 

Friday, Apr 14: 

  • EUR: German WPI m/m 
  • CHF: PPI m/m 
  • EUR: French Final CPI m/m 
  • CAD: Manufacturing Sales m/m 
  • USD: Core Retail Sales m/m 
  • USD: Prelim UoM Consumer Sentiment 
  • USD: Business Inventories m/m 

Having access to the Economic Calendar gives you a better understanding of upcoming forex market movements, since it highlights all upcoming events, announcements, and data releases. 


USD: Fed policymakers will be watching the CPI closely 

This week will see a considerable amount of economic data, with particular attention given to two events: the release of March CPI data on Wednesday at 8:30 ET, and retail and food services sales at the same time on Friday. Fed policymakers are likely to scrutinize the CPI data, as it will play a critical role in determining the inflation outlook. Analysts will be looking for signs of more visible changes in rates, which could affect consumer prices.  

Weekly Market Outlook

While the February all-items CPI was down four tenths of a percent to 6.0 percent year-over-year, the annual pace of core CPI slipped only a tenth to 5.5 percent. The CPI for services, excluding rent, also dropped by three tenths of a percent to 6.9 percent, its lowest since July 2022. Any improvements in non-housing services inflation could further reinforce expectations of a pause in the current cycle of rate hikes. 

The March retail sales numbers will also be closely watched due to various factors that could affect the results. For example, while unit sales of motor vehicles were slightly weaker, the dollar value may not have changed much if prices weren’t heavily discounted. Sales at service stations are expected to be up due to higher gasoline prices, and the timing of Passover and Easter observances could bring some sales forward into March. However, the smaller average size of tax refunds compared to last year could potentially reduce consumer spending. 

The release of the minutes of the March 21-22 FOMC meeting on Wednesday at 14:00 ET will provide some insight into the Fed’s thinking. However, the timing means that later developments, including disruptions in the banking sector and tentative improvements in inflation, will not be fully accounted for. The March employment report could also affect monetary policy decisions, with the possibility of another rate hike at the May 2-3 meeting to ensure that policy is effective. 

Dollar index has consistently declined since it peaked on March 8th at 105.90. Its value dropped to around 101.40 last week, marking a decrease for four consecutive weeks and five of the last six. During the only week it rose (ending on March 10), its increase was less than 0.1%. Therefore, it is expected to rebound as it is overdue for positive movement. The momentum indicators are starting to show signs of improvement. If the index surpasses 102.50, its next target will be in the range of 103.00-25. 

CAD: BoC to hold interest rate as inflation cools 

The Bank of Canada is expected to keep its key interest rate unchanged this week despite signs that the economy is doing well. As part of its quarterly monetary policy report, the central bank is expected to announce its upcoming interest rate decision on Wednesday and present updated economic growth and inflation forecasts. Despite faster economic growth than expected, BMO’s chief economist, Douglas Porter, believes the Bank of Canada will keep its key interest rate at 4.5 percent due to lower inflation than expected.  

Considering all factors, Porter suggests that the central bank will opt to leave interest rates unchanged for now. 

Weekly Market Outlook

In March, the Canadian economy continued to hire, with 35,000 jobs added, bringing the total number of jobs gained in the past six months to nearly 350,000. The unemployment rate has also remained steady at five per cent for four consecutive months, which is just above the all-time low of 4.9 per cent reached in the summer. Despite the Bank of Canada’s preference for a weaker economy, lower inflation is good news, as month-over-month inflation data suggest that inflation is tracking closer to the Bank of Canada’s target of two per cent.  

Inflation is expected to fall significantly in 2023, with most economists forecasting it to drop to around three per cent by mid-year, given the rapid rise in prices that mainly occurred in the first half of 2022. 

Recent surveys conducted by the Bank of Canada suggest that consumers and businesses are preparing for a slowdown. Consumers plan to save money by reducing travel and restaurant outings, while businesses expect sales to decline. Although labour shortages are still a major concern for businesses, the survey found that both the labour market and wage growth are showing signs of easing. 

The US dollar stopped a six-day downward trend on Tuesday, and it is expected to continue its upward trend in the coming days. Following the US employment report, it rose to CAD1.3530 and the momentum indicators are indicating a positive trend. If it crosses the CAD1.3550-60 mark, it could result in further gains towards CAD1.3600-20. 

EURO: Focus on Retail Sales and Industrial Production 

The upcoming release of February’s retail sales and industrial output figures is not expected to significantly impact the market. Retail sales appear to have softened after a modest increase of 0.3% in January, while industrial output could exceed expectations, following stronger results from Germany (2.0%) and France (1.2%). These reports support the belief that the market is overly negative about Q1 activity, as recent data points to expansion, despite a Bloomberg survey forecasting a 0.1% quarter-over-quarter contraction in the eurozone. Consequently, the swaps market predicts a further 50 bp of rate hikes by Q3’s end. 

Weekly Market Outlook
The euro rebounded from a low of slightly below $1.0790 on Monday, approaching $1.0975 before stalling. This represents its highest level since the Q1 peak in February of around $1.1035. Although the rally since March 15th (~$1.0515) has been strong, the momentum indicators are starting to turn lower, and the initial target is approximately $1.08, where the 20-day moving average and (38.2%) retracement of the advance from mid-March can be found. A convincing break of $1.07 would weaken the technical outlook. 

GBP: UK GDP figures for February on display 

Despite economists being the most pessimistic about the UK economy among G10 countries, it has shown surprising resilience. In March, the composite PMI rose to its best level since last June, after spending six months below the 50 boom/bust level. Additionally, January’s monthly GDP exceeded expectations, surprising on the upside.  

The UK is set to release its February GDP figures and details on April 13, following a contraction of 0.1% in February 2022 and stagnation for the following two months.  

The market is predicting a 70% chance of another Bank of England hike when it meets on May 11, causing sterling to rise to $1.2525 last week. Although it drifted lower in the second half of the week, it closed higher for the fourth consecutive week. Despite momentum indicators being stretched and rolled over, the $1.2300-30 area may offer initial support, followed by $1.2250-70. 

AUD: Australians wait for the Jobs Report 

Last week, the Reserve Bank of Australia chose not to increase interest rates, and the market believes this decision is final, although the central bank may have some flexibility.  

Weekly Market Outlook

The upcoming week’s most significant report will be job data on April 13th. With full-time job growth averaging 43k per month last year, and it is expected to decrease this year. The RBA predicts a decline in inflation from 6.6% in 2022 to 4.8% at the end of 2023, after peaking at 8.4% in December 2022 and standing at 6.8% in February.  

Last week, the Australian dollar dropped below $0.6800, meeting the (38.2%) retracement objective of its decline since reaching a high of $0.7160 on February 2nd, its best level since last June. In thin pre-weekend activity after the US employment report, it recorded a new low for the week near $0.6640. We believe there is a downside risk and expect a test of the four-month lows set in March ($0.6565). If the $0.6550 level is convincingly broken, the $0.6400 area may be targeted initially. 

JPY: Bank shares continue to rise in Japan 

The manufacturing sector in Japan appears to be struggling according to both the Tankan survey and the PMI. However, there are positive signs of improvement in the service sector and capital expenditure. The correlation between changes in the exchange rate and the 2-year US yield has remained steady over the past few months, while the correlation with the US 10-year yield has increased to its highest point of the year.  

This week’s data releases include machine tool orders and bank lending figures. Japanese bank shares have been recovering after a sharp decline in March. Japan’s February current account report is due to be released, which has historically shown improvement from January. Japan’s trade balance posted a record deficit in January, but the market is anticipating policy adjustments from the new leadership of BOJ led by Ueda.  

At the beginning of the previous week, the US dollar reached its highest point, almost JPY133.80, which represents a 50% recovery from its drop since the high of March 8, which was around JPY138. Despite a slight decline to approximately JPY130.65 midweek, it seems that the positive correction is not yet complete. If there is a further increase above the high of last week, it could indicate an attempt to test the upper limit of the recent range, which is roughly JPY134.75 to JPY135.00. 

CNY: Chinese CPI and PPI data are due Tuesday 

China’s Q1 23 lending reached a record of CNY13.8 trillion (~$2 trillion), exceeding Q1 22 by 15%, indicating banking and debt challenges despite the country’s immunity to the banking stress experienced by the US and Europe. China’s inflation was temporary, with CPI peaking at 2.8% last September and falling to 1.0% in February, while food prices are the main driver of inflation, with a year-over-year gain of 1.2% expected in March.  

Weekly Market Outlook

Producer price deflation is expected to deepen in March, with a -2.4% year-over-year decline, warning of a squeeze on income for an important part of the economy. Chinese exports have fallen for a sixth consecutive month, declining by almost 7.5% year-over-year in March, despite a recovery in foreign demand after the Covid shock and supply chain disruption in March 2021 and another 14% increase in March 2022. The weakness in the manufacturing PMI suggests the softness of exports continued, with a $40 bln March surplus expected, broadly in line with the March 2022 surplus of almost $44.4 bln. 

Last week, the Chinese yuan remained flat while the dollar was confined to a narrow trading range (~CNY6.8660-CNY6.8945). The dollar has fallen for six consecutive weeks against the euro and five of the past six weeks against the Japanese yen. However, it has fallen in four of the past six weeks against the yuan. Rolling 30-day correlations between the yuan, euro, and yen changes remain notable at 0.63 and 0.54, respectively, indicating that the PBOC is allowing the yuan to mostly shadow the broad dollar movement. 

Benefit from currency fluctuations by taking Long & Short positions!

In forex trading, going long and going short are two ways of profiting from changes in the exchange rate between two currencies. Here are some of the benefits of taking Long Position and Short Position in forex:

Benefits of going long:
  1. Potential for unlimited profit: When you go long, your profit potential is theoretically unlimited, as the exchange rate can rise indefinitely.
  2. Lower risk: Going long can be less risky than going short, as currencies generally tend to appreciate in value over time.
  3. Simplicity: Going long is a simple concept to understand and execute, making it a good option for novice traders.
Benefits of going short:
  1. Profit potential in a falling market: When you go short, you can profit from a falling market, as the exchange rate between two currencies can decrease indefinitely.
  2. Hedging: Going short can be used as a hedge strategy to offset losses in other trades, especially when the market is experiencing a downward trend.
  3. Diversification: Going short provides diversification benefits to a trader’s portfolio by allowing them to profit from both upward and downward price movements.

Ultimately, the decision to go long or short depends on a trader’s individual risk tolerance, investment objectives, and market outlook.


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