We expect the dollar to remain gently offered next week, when May inflation numbers in the US may come in at 4.8% and further dampen the USD real rate. Central bankers will take centre stage in the rest of G10: the ECB will struggle to sound any more dovish amid rising tapering speculation, while the BoC should keep it quiet while preparing to taper again in July

USD: As hot as it gets?

Dollar Index

Week Ahead Bias: Mildly Bearish

Range this week: 89.50-90.50

1 month target: 89.00

Friday’s slightly softer-than-expected US May employment numbers stand to set the tone for the weeks ahead. This provides the excuse for the Fed to say that substantial progress towards its goals has not been achieved and to defer the tapering debate a little longer. All will be revealed at the June 16th FOMC meeting.

Assuming dollar bears can pass through Super Thursday of US CPI and the ECB policy decision unscathed, the dollar could stay gently offered into the major event risk of the month which is the FOMC decision. The week ahead also sees a G7 summit in Cornwall, Chinese trade data and what could be another 50bp front-loaded hike from the Central Bank of Russia on Friday. On balance we are sticking with our call for the dollar to stay gently offered this summer.

EUR: Super Thursday


Week ahead Bias: Mildly Bullish

Range Next week: 1.2100-1.2310

1 Month Target: 1.2300

The highlight for the EUR this week will be Thursday’s ECB meeting. Our team sees the main objective of the day being to avoid taper talk. Rates markets have backed away from the idea that the ECB will slow down PEPP purchases – potentially meaning there is little downside for the EUR from this meeting. Yes, the ECB will not want to do anything to encourage a stronger EUR, yet it seems hard for them to adopt any more of a dovish position than they have already.

JPY: Snap elections in Japan?


Week Ahead Bias: Mildly Bearish

Range Next Week: 108.60-110.20

1 Month Target: 108.00

Softer-than-expected US employment gains and the 5bp decline in US Treasury yields took some steam out of the $/JPY rally Friday. It is hard to see US yields going an awful lot lower from here, suggesting that it is dangerous to chase $/JPY down through 109.00. If $/JPY is to move lower, it will require a different catalyst.

One such catalyst could be a re-rating of Japanese growth prospects as Japan belatedly ramps up its vaccination campaign. That does seem to be the case over the last month. There has also been a report that PM Suga could call a snap election this autumn – once the Tokyo Olympics and Para-Olympics have concluded. Such a call could be accompanied by an extra budget and prompt a re-rating of Japanese equities and the JPY – which is not out of question in a world where investors are chasing the next growth story. Also this week look out for a Biden-Suga bilateral at the G7 and Japan’s April Balance of Payments data.

GBP: More upside to GBPUSD


Week Ahead Bias: Mildly Bullish

Range Next week: 1.4010-1.4380

1 Month Target: 1.4400

With the uninspiring May US employment figures giving the Fed an excuse to be patient, the subsequent soft USD dynamics (driven by the deeply negative front real rates – likely to be further underscored by the next week’s US May CPI) should keep upside pressure on GBP/USD. We don’t think concerns weather the full restriction easing is delivered by the 21 June deadline should weigh too much on GBP. Even if the date is postponed the impact on the economic activity should be limited (as any postponement should be just a matter of weeks in our view). This suggests that GBP/USD should keep pushing to the 1.4300 level next week.

AUD: Countdown to July RBA meeting has started


Week Ahead Bias: Mildly Bullish

Range Next week: 0.7700-0.7820

1 Month Target: 0.7800

A stabilisation in iron ore prices after a tumultuous month of May is limiting AUD downside, in a week where the Reserve Bank of Australia didn’t deliver any surprise at its policy meeting. 1Q GDP, however, came in stronger than expected, at 1.1% YoY (consensus was for 0.6%) and kept fuelling the narrative that lower restrictions in Australia successfully limited the economic damage from the pandemic.

CAD: BoC to keep it quiet while gearing up for more tapering in July


Week Ahead Bias: Mildly Bearish

Range Next week: 1.2000-1.2140

1 Month Target: 1.2000

Canada’s employment dropped for a second straight month in May, as virus containment measures clearly put an obstacle to the recovery in the domestic economy. However, vaccination rates remain very high in Canada, and the government’s decision to delay second doses may prove to be a very successful strategy ahead of the summer. This may allow some investors to partly overlook bad data given the vaccine-fuelled optimism for the economic outlook.
Next week’s Bank of Canada meeting will not – in our view – shake the markets as the Bank should reiterate its recent policy rhetoric while gearing up for another round of QE tapering in July

CHF: Sluggish


Week Ahead: Mildly Bullish

Range Next Week: 1.0930-1.1030

1 Month Target: 1.1100

There has been little change in the surprisingly sluggish performance of EUR/CHF. Support is now clearly defined at 1.0920/30 and given that it is not clear what is depressing EUR/CHF right now, we can’t rule out a temporary break lower.
The week ahead sees May Swiss CPI. This expected to jump to 0.6% YoY from 0.3%. Don’t expect the Swiss National Bank to get too excited by it, however. We expect the SNB to be one of the last central banks to raise rates over the next few years – and the risk is it never gets a chance to raise rates before the next recession comes along.