Week Ahead Dollar Softer Despite Strong US Jobs Report

US retail sales and inflation next up for the USD

The US dollar did not have a strong finish for the week despite employment rising by more than expected with a 211,000 jobs gain in April. The unemployment rate fell to 4.4 percent (the lowest since 2007) but wage growth remains tepid with a 0.3 percent monthly gain. Economists are confident that the reduction in the labor market slack will ultimately result in higher wages. The lack of inflationary pressures in the jobs report will not be enough to derail the June interest rate hike by the Fed.

The US Bureau of Labor Statistics will release the consumer price index (CPI) on Friday, May 12 at 8:30 am EDT. The inflation gauge is expected to expand by 0.2 percent after last month’s contraction. The metric preferred by U.S. Federal Reserve officials is the core CPI with a 0.2 percent gain forecast excludes food and energy products. US retail sales will be published by the Census Bureau and big gains are anticipated as warmer weather is expected to have boosted consumption. Last month core retail sales was flat, while the headline figure contracted by 0.2 percent. In April there is a 0.5 percent gain for core and 0.6 percent for retail sales forecasted.

The central banks of New Zealand and England will issue rate statements next week. The Reserve Bank of New Zealand (RBNZ) will deliver its rate statement on Wednesday, May 10 at 5:00 pm EDT and the Bank of England (BoE) will kick off its super Thursday on May 11 at 7:00 am. The two central banks are expected to hold but the market will look to their press conferences to more insights on their monetary policy plans. Italy will host the upcoming G7 Finance Ministers and Central Bank Govenors meeting in Bari from May 11 to 13. While Syria was the main talking point during the meeting between foreign ministers the Finance summit will likely touch on trade with the Brexit process is under way and concerns rising about NAFTA renegotiation between the US and Canada.

The EUR/USD gained 0.777 percent during the week. The single currency is trading at 1.0987 after a period that was high on political risk with the French presidential elections entering their final stretch. The televised debate between the two candidates was an entertaining affair but failed to change the odds by much. Emmanuel Macron is still favoured to win with a 62 percent of the vote going his way according to the polls. The lessons from the Brexit and Donald Trump results are still fresh in the minds of investors. Trust in pollsters is still low, regardless of the good results in the Dutch election.

Oil managed to advance 1.081 percent on Friday, but is still down 6.299 percent on a weekly basis. The West Texas Intermediate is trading at $45.83 after starting eh week near $50. The lack of demand for crude and distillates has created a glut of supply despite the efforts of the Organization of the Petroleum Exporting Countries (OPEC). The organization has worked toward reaching a new agreement to extend the production cut deal that stabilized prices, but with US producers increasing activity it is questionable that even that could boost prices as the all important demand remains weak.

Gold continues to slide downward on Friday. The yellow metal is down 0.105 percent on the final day of the trading week. It is trading at $1,227.84. The precious metal lost 3.09 in the last five days as political risk was downgraded after the French presidential debate solidified the lead of Emmanuel Macron ahead of Sunday’s vote. The appetite for safety has been reduced putting pressure on gold.

Market events to watch this week:

Monday, May 8
9:30pm AUD Retail Sales m/m
Tuesday, May 9
5:30am AUD Annual Budget Release
Wednesday, May 10
10:30am USD Crude Oil Inventories
5:00pm NZD Official Cash Rate
5:00pm NZD RBNZ Rate Statement
6:00pm NZD RBNZ Press Conference
9:10pm NZD RBNZ Gov Wheeler Speaks
Thursday, May 11
4:30am GBP Manufacturing Production m/m
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Monetary Policy Summary
7:00am GBP Official Bank Rate
8:30am USD PPI m/m
8:30am USD Unemployment Claims
Friday, May 12
All day G7 Meetings
8:30am USD CPI m/m
8:30am USD Core Retail Sales m/m
8:30am USD Retail Sales m/m
10:00am USD Prelim UoM Consumer Sentiment
Saturday, May 13
All day G7 Meetings

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

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza