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Central Bankers & Inflation Readings To Zoom Market Volatility

Although speculations governing no rate-hike in June damaged the US Dollar during early trading days of last week, five week low Jobless Claims, followed by better than forecast UoM Consumer Sentiment, helped greenback index (I.USDX) to gain positive weekly closing. In addition to upbeat data-points, polls showing a lead of Brexit supporters ahead of June 23 EU referendum provided counter-strength to the greenback against EUR & GBP. However, commodity currencies, namely AUD, CAD and NZD remained strong with Crude's northward trajectory while the JPY managed to strengthen against majority of its counterparts, except the USD, as rising global uncertainty forced market players towards safe-havens, which also propelled the Gold prices for second consecutive week.

Unlike last week's thin economic calendar, the present week, which started with Chinese Industrial Production, is full of important releases that could propel the Forex market volatility. Amongst them, monetary policy meetings of FOMC, BoJ, SNB and BoE, coupled with Inflation releases from US, UK, Europe and Canada, are likely to take the front seat for seeking attention. Moreover, job details from the UK and Australia, New-Zealand GDP and Manufacturing and housing numbers from the US could offer busy trading schedule to market participants. Let's describe each of them in detail.

FOMC & CPI Would Grab Market's Eye

While disappointing labor market reports smashed early month speculations that the US Federal Reserve is close to announce another rate-hike in its monetary policy meeting in June, public speeches by some of the leading FOMC members, including Fed Chair, Janet Yellen, also pared chances of any policy moves during Wednesday's FOMC. However, the meeting is followed by the Fed Chair's press conference and a quarterly economic projection report which would gain market attention to look for signs relating the central bank's future moves. Additionally, the headline CPI release on Thursday would also indicate whether the US, after witnessing weaker job numbers, has any good news from Inflation front to expect rate-hikes in 2016.

Wednesday's FOMC, which is mostly expected to hold Fed-rate unchanged with no monetary policy action, becomes a crucial event not only because there is a shift in concerns over the rate-hike but also due to nearness of EU referendum, which the Fed Chair told causes significant risk to global markets. Hence, the market would closely examine the Fed Chair's speech, following the meeting outcome, to look for any clues relating policy alteration during post-referendum period. Further, quarterly economic forecast, which downgraded the 2016 inflation and growth prediction in March, would also be closely examined as the recent pessimism at the labor market might force the central banker to cut its job consensus.

Moving on to another important US detail of the week, Inflation readings, the aforementioned chart indicates that the CPI (YoY) rallied to three month's high during its May announcement; however, the Core CPI registered second monthly weakness. During its scheduled release on Thursday, the CPI (MoM) is expected to soften a bit to 0.3% from 0.4% prior while the Core CPI is likely remaining intact at 0.2%.

While the FOMC is almost certain not to gift a rate-hike, a dovish speech by the Fed Chair, coupled with additional cuts in economic forecasts and weaker Inflation numbers could drag the US Dollar further towards south. Though, a surprise hint for another rate lift-off after the EU referendum might favor the greenback in extending its recent up-moves.

In addition to above stated front-line details/events, Tuesday's Retail Sales, Wednesday's PPI & Empire State Manufacturing Index, Thursday's Philly Fed Manufacturing Index and the Friday's Housing numbers are some other data-points that are worth observing for USD traders.

Looking at the consensus, the Manufacturing numbers, namely Empire State Manufacturing Index and Philly Fed Manufacturing Index, are likely to surpass their prior readings as the Empire State Manufacturing Index bears the forecast to mark -3.4 against -9.0 previous and the Philadelphia gauge is expected to reverse its prior -1.8 losses with +1.1 mark. Alternatively, the Retail Sales growth may weaken with 0.4% mark compared to 1.3% previous and the Core Retail Sales is also forecasted to print 0.4% growth against 0.8% prior. Further, the PPI is again expected to print five-months high of 0.3% versus 0.2% prior while the Building Permits could show 1.15M number against 1.12M previous and the Housing Starts are likely to dip to 1.15M comparing to 1.17M prior. Even if the Retail Sales and Housing numbers favor USD bears, upbeat Manufacturing and PPI readings could help the greenback extend its latest advance.

Thin EU Calendar And Strong UK List To Confront Brexit Moves

Even as the Final reading of May month EU CPI is the only European number to help EUR traders, UK CPI, Job details, Retail Sales and BoE, coupled with slew of poll outcomes predicting next Thursday's EU referendum result, would fuel the EUR and GBP moves.

The EU Final CPI, scheduled for Thursday, is likely to confirm its initial forecast of -0.1% and could continue forcing the regional central bank (ECB) towards further monetary easing unless any surprise positive reading please markets.

On the UK front, Tuesday's CPI can mark an improvement of 0.4% versus 0.3% prior while the Retail Sales growth number, up for Thursday, is likely slowed down to +0.3% from +1.3% registered in previous month. Moreover, Wednesday's job market details are also likely to provide weaker signals as Average Earnings are expected to print 1.7% from 2.0% prior and the Claimant Count Change may rise to -0.1K from -2.4K while the Unemployment-Rate can remain stagnant at 5.1%. Additionally, the Bank of England (BOE) is scheduled to hold its monetary policy meeting on Thursday which is likely to come out as a non-event as the central banker isn't expected to alter its present monetary policy.

As there seems no upbeat economics, either from Europe or from UK, to lift respective currencies, strength of "Brexit" favoring poll outcomes ahead of June 23 referendum, coupled with BoE's worried note on the next week's result, might further damage the EUR and the GBP.

Australian Job Details & New-Zealand GDP To Portray AUD & NZD Trades Respectively

Following the RBNZ's inaction, together with the upward revision to its Inflation forecasts, the NZD traders might be more interested in looking for Wednesday's Quarterly reading of New-Zealand GDP number. As the figure is expected to disappoint Kiwi traders with 0.5% growth against 0.9% prior, extension of recent profit-bookings in commodity basket could trim latest gains of the New-Zealand Dollar (NZD).

Alike RBNZ, the RBA also didn't alter its monetary policy, as expected, and refrained from signaling any further monetary actions; however, Thursday's Australian Job details, could provide additional strength to the Australian Dollar (AUD) due to the forecast favoring 14.9K Employment Change against 10.8K prior while the Unemployment-rate is likely remaining unchanged at 5.7%. Should the labor market numbers keep portraying upbeat numbers, chances of additional rate-cuts from the RBA gets a damage which in-turn can help AUD further stretch its on-going up-move.

BoJ, SNB And Canadian CPI Are Also On The Watch-list

Other than the previously mentioned headlines, monetary policy meetings by the Bank of Japan (BOJ) and the Swiss National Bank (SNB), scheduled for release on Thursday, together with monthly reading of Canadian CPI, up for Friday release, could add important facts on this week's watch-list.

Amongst them, the BoJ's monetary policy decision is likely to take the lead. The facts that rising JPY have been hurting Japan's export-oriented economy has been a big tension for the Japanese central bank (BOJ), which repeatedly told not to step-back from any drastic steps, if needed. However, nearness to EU referendum and a recent improvement in Japan's economics might restrict policymakers from altering BoJ's present monetary policy. With least chances favoring any monetary stimulus from the BoJ, the central banker's rate-statement and speech from the BoJ Governor will be closely scrutinized. Given the BoJ repeats its readiness to alter monetary policy or go a step ahead in satisfying the market expectations by signaling further monetary easing in July, the JPY might reverse some of its gains. However, global uncertainty ahead of the EU referendum could continue limiting excessive declines of the JPY.

The Swiss National Bank (SNB) is also likely to follow the BoJ as fewest forecasts favor any policy action from the Switzerland's central bank; though, a dovish remark by the SNB Chairman in bi-annual press conference could deter some of the latest gains of the Swiss Franc (CHF).

Further, the Canadian CPI and Core CPI are likely to reflect the recent improvements in Crude prices as the CPI is expected to growth with 0.5% number against 0.3% prior while the Core CPI bears the forecast of 0.3% mark versus 0.2% previous reading. Should there be a continuous improvement in Crude prices, due to geo-political tensions in Nigeria and a weaker USD, a welcome print from the inflation stats could further strengthen the Canadian Dollar (CAD).

Follow me on twitter to discuss latest markets events @Fx_Anil.

Tuesday, 14 Jun, 2016 / 1:58

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