FX Week Ahead – Top 5 events: Chinese, German and US inflation rates; Banxico pricing decision; Retail sales in the United States

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Preview of the upcoming FX week:

  • The second week of May sees a global focus in the first semester and a North American focus in the second semester.
  • US economic data expected in the second half of the week does not seem to change the hearts and minds of traders after the disappointing US employment report in April.
  • Overall, recent changes in positioning of retailers suggest that the US dollar has a mixed bias.

For the whole week ahead, please visit the DailyFX Economic Calendar.

05/11 TUESDAY | 01:30 GMT | CNY inflation rate (APR)

When it comes to inflation numbers, anywhere, it is widely expected that a significant base effect would be felt in the data series in the coming months. China is not excluded from this expectation. Accordingly, tThe People’s Bank of China could thus examine any spikes in inflation which, in an otherwise normal environment, would suggest that a reduction in monetary support could be considered. Due to + 1% from + 0.4% (y / y), reading Chinese inflation in April might not influence yuan rates, one way or the other.

Read more: Chinese Yuan Technical Analysis: EUR / CNH, USD / CNH Rate Outlook

05/12 WEDNESDAY | 06:00 GMT | German inflation rate EUR (APR)

Germany is the largest economy in Europe, making the European Central Bank a little more sensitive to changes in German economic data than most other countries. And with the headline German inflation rate expected at + 2% vs. + 1.7% (y / y) for April, ECB policymakers may notice that the sacred base effect is kicking in.

If so, a further acceleration in headline inflation rates in Germany (and the eurozone) is expected over the next few months, which might otherwise give ECB policymakers a little more hesitation as to whether reducing interest rates, even at the margins.

IG CUSTOMER FEELING INDEX: EUR / USD RATE FORECAST (MAY 10, 2021) (CHART 1)

EUR / USD: Retail trader data shows 32.06% of traders are long traders with the ratio of short to long traders of 2.12 to 1. The number of long traders is 24.01% more higher than yesterday and 18.41% lower than last week, while the number of net-short traders is 8.87% higher than yesterday and 14.61% higher than last week.

We generally take a vexing view of crowd sentiment, and the fact that traders are net-short suggests that EUR / USD prices may continue to rise.

The positioning is less net-short than yesterday but more net-short than last week. The combination of current sentiment and recent changes gives us another mixed EUR / USD trading bias.

05/12 WEDNESDAY | 12:30 GMT | Inflation rate USD (APR)

According to a Bloomberg News survey, further Upside down pressure on prices is anticipated with the headline inflation rate due to +3.6% of +2.6% (y / y) in March, while core inflation is due to +2.3% of +1.6%. Widely anticipated by Federal Reserve policymakers, accelerating price pressuresstill can’t do a lot to move the needle for the FOMC following the April report on the non-farm payroll in the United States. There remains the case that there will be a base effect could keep global inflation up + 2% over the next few months.

IG CUSTOMER FEELING INDEX: USD / JPY RATE FORECAST (MAY 10, 2021) (CHART 2)

FX Week Ahead - Top 5 events: Chinese, German and US inflation rates;  Banxico pricing decision;  Retail sales in the United States

USD / JPY: Retail traders data shows 47.12% of traders are net long with a short / long ratio of 1.12 to 1. The number of net long traders is 2.54% higher than yesterday and 4.47% lower than last week, while the number of net-short traders is 21.61% higher than yesterday and 11.93% higher than last week.

We generally take a vexing view of crowd sentiment, and the fact that traders are net-short suggests that USD / JPY prices may continue to rise.

Traders are even shorter than yesterday and last week, and the combination of current sentiment and recent changes gives us a bullish USD / JPY contrarian trading bias.

05/13 THURSDAY | 6:00 p.m. GMT | MXN Banxico Pricing Decision

At the end of 2020, MExican President Andres Manual Lopez Obrador has appointed Galia Borja Gomez, treasurer of the Mexican Ministry of Finance, to join Banxico as vice governor, putting the historically hawkish central bank on a more accommodating political trajectory. True to its new form, Banxico has seen its main rate drop to 4% in recent months.

But now that inflationary pressures are rising beyond the target range of + 2-4% (April reading was north of + 6% (y / y)), Banxico could be prevented from showing an accommodative bias now. . The Mexican peso could see its appeal increase its post-tariff decision this week.

FRIDAY 05/14 | 12:30 GMT | Retail sales in USD (APR)

Consumption is the most important part of the US economy, generating around 70% of the overall GDP figure. Perhaps the best monthly snapshot we have of consumer trends in the United States could be the “Retail Sales Advance” report.

According to a Bloomberg News survey, a sharp decline in activity is expected after the surge thanks to Biden stimulus checks. Just like in February, the month after the push thanks to Trump’s stimulus checks, American consumers appear to have cut spending in April.

US retail sales are expected to increased by only +0.2% (m / m) gain of +9.8% (m / m) in March. Given the context of the following US dollar the April report on the non-farm payroll in the United States, a disappointing US retail sales report in April may further undermine the greenback.

Atlanta Fed growth estimate GDPNow 2Q’21 (May 7, 2021) (graph 3)

FX Week Ahead - Top 5 events: Chinese, German and US inflation rates;  Banxico pricing decision;  Retail sales in the United States

Based on the data received so far, approximately 2Q’21, the Atlanta Fed GDPNow forecast sees growth at +11% annualized. But the estimate has fallen in recent weeks, from a peak of + 13.6% on May 4. The Blue Chip estimate was more tame, projecting annualized growth closer to a rate of 9%. The Atlanta Fed’s next GDPNow forecast for 2Q21 will be released on Friday, May 14.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

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