US CPI and Retail Sales Data to Drive Currency Market Volatility This Week
Market Analysis for Week Number 19 2024
Tuesday, May 07, 2024 (Week 19): The currency market is poised for potential volatility as traders await crucial economic data releases from the United States, United Kingdom, and Japan, while also keeping a close eye on ongoing geopolitical tensions. The most significant events in the coming days include the US Consumer Price Index (CPI) and Retail Sales figures, slated for release on Wednesday, May 15th, which could provide direction for the US dollar and its major currency pairs. Additionally, the UK's GDP and trade balance data, due on Friday, May 10th, may offer support to the GBP/USD pair if the figures surpass expectations.
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EUR/USD: Downward Pressure Expected as ECB Maintains Cautious Stance
The EUR/USD pair is anticipated to face downward pressure over the coming five weeks, as the forecast of a gradual decline in interest rates in the Euro Area may exert downward pressure on the euro's value in the long run. The European Central Bank's cautious stance, maintaining the benchmark interest rate at a record-high level of 4.5% for the fifth consecutive month, acknowledges that domestic price pressures remain elevated despite easing inflation and wage growth. Traders should closely monitor the US CPI and Retail Sales data on May 15th, as these releases could introduce volatility and provide potential entry points for short positions in the pair.
GBP/USD: Upward Pressure Possible on Weaker US Jobs Report and UK Data
The GBP/USD pair may experience upward pressure over the coming five weeks, as the weaker-than-expected US jobs report has prompted traders to revise their expectations for the timing of the Federal Reserve's first rate cut. This shift in market expectations has put upward pressure on the pound, narrowing the interest rate differential between the US and the UK. However, the pair's upside potential may be limited by the Bank of England's cautious stance and ongoing geopolitical risks. Traders should closely watch the UK GDP and trade balance data on May 10th, as well as the UK interest rate decision on May 9th, as positive surprises could provide support to the pound, while unexpected hawkish or dovish sentiment could impact the pair.
USD/JPY: Downward Pressure Likely as Intervention Risks Remain and US Rate Cut Expectations Grow
The USD/JPY pair is expected to face downward pressure over the coming five weeks, as the recent suspected Japanese government intervention to support the yen and growing expectations of potential rate cuts by the US Federal Reserve could provide relief to the frail yen in the short term. Traders should monitor the US CPI and Retail Sales data on May 15th and the Japanese GDP data on May 16th, as these events could introduce volatility and provide opportunities for short positions in the pair. However, traders should also be aware of the risks posed by ongoing geopolitical tensions, which could lead to increased demand for safe-haven currencies like the Japanese yen.
USD/CAD: Downward Pressure Anticipated as US Labour Data Reinforces Rate Cut Views and BoC Outlook Turns Dovish
The USD/CAD pair is expected to face downward pressure over the coming five weeks, as the weaker-than-expected US labour data has reinforced the view that the Federal Reserve will implement its first rate cut in September, while recent data in Canada has also been pointing to an earlier rate cut by the Bank of Canada. Traders should closely monitor the US CPI and Retail Sales data on May 15th and the Canadian employment data on May 10th, as these events could provide opportunities for short positions in the pair. However, traders should remain vigilant of ongoing geopolitical risks that could lead to increased volatility in the currency pair.
In conclusion, the currency market is bracing for a week filled with crucial economic data releases and ongoing geopolitical tensions that could significantly impact major currency pairs. Traders should remain attentive to the upcoming events and be prepared to adjust their strategies based on the actual data and any shifts in market sentiment.
Gavin Pearson
Retail trader since 2008
Specialises in forex
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