The BoC will likely keep quiet this week while preparing to taper again in July
USD: Markets will look past this week’s CPI data
Spot
DXY90.10
Week ahead bias
Mildly Bearish
Weekly range
89.50 – 90.50
1 month target
89.00
Friday’s soft US employment data will set the tone for the next few weeks ahead of the FOMC meeting. The softer than expected numbers will provide the excuse the Fed has been looking for to stay the course and maintain the “lower for longer” stance adopted earlier this year. All said, the tapering debate will likely be deferred for at least a few weeks.
This week we see May US CPI data where most expect headline and core readings to spike to 4.8% and 3.3% year on year respectively. Despite the expected spikes, markets will likely ignore the readings similar to what happened last month. A higher inflation rate and a dovish Fed will create a negative environment for the greenback in the short term.
Canada: This week’s BoC meeting likely to be uneventful
Spot
USD/CAD1.2090
Week ahead bias
Mildly Bearish
Weekly range
1.2000 – 1.2140
1 month target
1.2000
Canada’s employment dropped for a second straight month as virus-related restrictions put a damper on the domestic recovery story. That said, vaccination rates remain high and should allow investors to look past the bad data and focus on the vaccine-fueled optimism for the economic outlook.
This week’s BoC meeting will likely not affect the markets. Consensus suggests that the BoC will reiterate the recent policy rhetoric while gearing up for another round of tapering in July. The recent price increase in commodities and the expectation of another round of tapering in July will provide some strong support for the loonie with the USD/CAD likely to drop below the psychological 1.20 mark this summer.
EUR: Its all about the ECB this week
Spot
EUR/USD1.2170
Week ahead bias
Mildly Bullish
Weekly range
1.2100 -1.2310
1 month target
1.2300
This week the euro zone will be focused on Thursday’s ECB meeting. Most agree that the ECB will avoid any discussions on tapering – meaning there is very little downside for the EUR from this meeting. While the ECB will also try to avoid any chatter that may encourage a strong EUR, seems hard for them to adopt any more of a dovish position than they have already.
Data-wise this week will also see German ZEW and German industrial production for April. The continued opening up of the European economy – and another leg higher in European bond yields and demand for European equities – should keep EUR/USD supported this summer.
GBP: There continues to remain further upside for the GBP/USD
Spot
GBP/USD1.4180
Week ahead bias
Mildly Bullish
Weekly range
1.4010 – 1.4380
1 month target
1.4400
Last week’s US employment data miss will likely keep upside pressure on GBP/USD over the coming weeks. There have been concerns that the UK may not lift full restriction easing on the 21 June, but this should not weigh too much on the GBP as economic activity has already picked up and is likely to accelerate over the summer months. This suggests that GBP/USD should keep pushing to the 1.4300 level next week.
On the UK data front, the main focus will be on April UK GDP (Friday). The reopening of shops and outdoor hospitality is likely to reiterate the positive UK economic outlook and be supportive of GBP. The focus will also be on the April Industrial and Manufacturing production (also on Friday).
Currency Chart
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