Week Ahead in FX Inflation Data and FOMC Minutes

After Lucky Friday 13 the USD to Cool With Dovish FOMC Minutes and Low Inflation

Friday the 13 is usually considered an unlucky day but the USD rally was given a boost by the retail sales data coming in above expectations. Core retail sales (minus auto) was 0.8 percent in April and the headline retail sales number expected at a loss of 0.3 percent came in at a gain of 1.3 percent. The American consumer appears to be coming back with purchases marking yearly highs. The University of Michigan consumer sentiment survey came in at 95.8 a 12 month high. The previous gap between sentiment and spending is shrinking to the benefit of the greenback.

Inflation data will guide the forex market on the week of May 16 to 20. The United Kingdom will release its inflation report on Tuesday, May 17 at 4:30 am EDT. The United States will release on the same day at 8:30 am EDT. Canada will publish its consumer price index on Friday, May 20 at 8:30 am EDT. Inflation data in the U.S. is the most widely anticipated as it could provide insight into the path of future rate hikes.

The minutes of the Federal Open Market Committee (FOMC) meeting in April will be published on Wednesday, May 18 at 2:00 pm EDT. In their meeting on April 27 the Fed released a statement that downgraded some overseas risks, but admitted to a slowdown in the U.S. economy. The strong U.S. employment and retail sales data is showing the first quarter slowdown could be temporary. Putting the June FOMC back on the table is still premature but positive inflation growth would make the case for a summer U.S. interest rate hike more compelling.

The EUR/USD fell 0.734 percent after the dollar got a boost from a surprise core retail sales number. The pair is trading at 1.1322 which is close to the low of the session. The U.S. consumer came back roaring after being absent in the first quarter. Given the high contribution to the growth of the economy it was positive for the USD that both the retail sales data and the consumer confidence both came in above expectations.

The USD advanced across the board as other major currencies retreated after the usually downbeat indicator gave hope that the U.S. slowdown is not as dire and could ramp up resulting in a rate hike later this year. The USD/CAD advanced 0.853 percent in the last 24 hours. The loonie depreciated with a lower price of oil and the resurgence of the American dollar as there were no Canadian data releases.

The price of oil has been caught between oversupply concerns as Organization of the Petroleum Exporting Countries (OPEC) continues to pump at record levels and the production disruptions in Canada, Libya and Nigeria. Non-OPEC production, most notably in North America has declined on par with falling prices but the OPEC production continues to reach record high as the sanctions against Iran have been lifted and the oil producing nation wants to make up for lost time and recapture lost marketshare.

The price of crude is stable around $45 a barrel after the oil output freeze chatter took it out an accelerating tailspin even as oversupply concerns remains. The higher prices climb the more attractive it will be for producers who have been hit by lower prices to restart operations, exacerbating the glut of crude as demand remains slow. The release of the U.S. oil inventories on Wednesday, May 18 at 10:30 will guide the price of oil. The surprise fall in U.S. inventories reported this week boosted the price of crude and a following report by the U.S. Energy Information Administration (EIA) mentioned they expect the price of Brent to hover around $76 per barrel next year.

FOMC Minutes to Show Fed Members Divided

The April FOMC was a mixed affair. On one hand the Fed did remove some language around risks abroad, but on the other hand it admitted to weakness in U.S. economic growth. Since the April Fed meeting had no press conference the market was only guided by the statement which had very minor changes. The minutes from the April 27 meeting will fill in the blanks on how divided are Fed members about monetary policy. The unanimous vote in December seems the result of lobbying from Chair Janet Yellen rather than the result of individual assessments by the FOMC members. The minutes will be analyzed for clues about a possible June rate hike, however small the possibility.The FedWatch Tool by the CME points to a 7.5 percent probability of a rate hike in June, rising to almost 20 percent in July and 34 percent in September.

Forex Market events to watch this week:

Monday, May 16
9:30 pm AUD Monetary Policy Meeting Minutes
11:00pm NZD Inflation Expectations q/q
Tuesday, May 17
4:30am GBP CPI y/y
8:30am CAD Manufacturing Sales m/m
8:30am USD Building Permits
8:30am USD CPI m/m
8:30am USD Core CPI m/m
6:45pm NZD PPI Input q/q
Wednesday, May 18
4:30am GBP Average Earnings Index 3m/y
GBP Claimant Count Change
10:30am USD Crude Oil Inventories
2:00 pm USD FOMC Meeting Minutes
9:30pm AUD Employment Change
Thursday, May 19
4:30am GBP Retail Sales m/m
8:30am USD Philly Fed Manufacturing Index
8:30am USD Unemployment Claims
Friday, May 20
8:30 am CAD Core CPI m/m
8:30 am CAD Core Retail Sales m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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