Forex Market Outlook: ECB's Multiannual Financial Framework in Focus

The dollar started the week slightly higher in Europe, albeit in modest volumes depressed by public holidays in the UK and US, against a backdrop of simmering tension between the US and China. What else can traders expect? Today’s forex market outlook reveals. 

May 25 2020 | AxiTrader – With the US and the UK starting the week with a public holiday, it’s a quieter calendar docket for markets over the week ahead.
Attention remains on the coronavirus and associated healthcare concerns amid global reopening. Other highlights will include continued discussions on a European recovery fund, remarks from Fed Chair Powell and ECB President Lagarde, and President Trump's ongoing negativity to all things China.

Market Insights for the Upcoming Days

This coming Wednesday we’ll hear from European Commission President von der Leyen who’ll be presenting the revised Multiannual Financial Framework and recovery plan proposals to the European Parliament. This follows the Franco-German proposal announced on Monday by Chancellor Merkel and President Macron for a €500bn recovery fund for the EU. However, these are still early days, since a unanimous vote among the 27 member states is required.

Moving on to the data, the releases next week will mostly be of the second-tier variety. Most traders have already pivoted ahead to the US jobs report and the PMIs out the week after.

However, over the coming week, the weekly initial jobless claims from the US will remain in the spotlight. They provide a high-frequency indicator of how the economy is faring. We’ve now seen seven straight reductions in the weekly numbers, but at 2.438m for the week through May 16, this is still far more than anything seen before Covid-19, suggesting that we haven't yet seen the worst of the rises in unemployment.
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India in focus in Asia next week

Economists expect India's GDP growth to slow sharply to 0.5%yoy in January-March, from 4.7% in October-December. Auto sales growth plunged to -23.1% in March, from +12.2% in February, while exports fell 34.6% vs. +2.9% in the same period.

And there’s still no clear sign of peaking in daily new Covid-19 cases in India just yet, suggesting that economic activities are unlikely to return to normal anytime soon. Given the nationwide lockdown and extrapolating worldwide data, GDP growth is likely to plunge even further into reverse, at -13.5% in April-June. With the latest stimulus package falling short of expectations, the market was expecting the Reserve Bank of India to provide additional monetary easing, including a 50-60bp cut in the policy rate in June amid further unconventional policy measures yet to be announced. Indeed, this is a massive mess in need of drastic measures.

Speaking of drastic measures, The RBI brought forward its MPC decision and cut the policy rate by 40bp to 4.0%. And most economists maintain their view of a cumulative 100bp in easing by the end of Q3, including today's action.


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