Forex Market Outlook For The Week May 18 – 22, 2020

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Stock markets around the world strengthened a little bit last week as most nations continued with their Covid-19 lockdown exit plan. Tensions between China and the US remained on focus. News related to the topic was confusing and President Donald Trump remained non-committal. In the forex market, the Australian Dollar made some strong gains, but it stayed below the high levels hit in the prior week. Dollar witnessed some amount of selling on negative talk related to interest rates in 2021. European majors also remained generally weak. Having said that here is an outlook on some of the key announcements scheduled for the upcoming week:

#1: United States Fed Chair Jerome Powell Testifies (05/19/2020 Tuesday 14:00 GMT)

forex market outlookJerome Powell, Federal Reserve Chair, and Steven Mnuchin, Treasury Secretary, are scheduled to testify Coronavirus aid, relief, and the Economic Security Act via satellite before the Senate Banking, Housing, and Urban Affairs Committee in Washington DC. There are two parts to the testimony. In the first part, they read out a prepared statement. This is followed by a question-answer session. As the questions are not revealed beforehand, they often lead to unscripted answers and cause heavy market volatility.

#2: United Kingdom BoE Governor Andrew Bailey Speaks (05/20/2020 Wednesday 13:30 GMT)

Andrew Bailey, Governor of the Bank of England, and three members of the Monetary Policy Committee are scheduled to testify before the Treasury Select Committee in London on the economic impact of COVID-19. Markets often turn volatile during such events as traders make an attempt to understand the direction of the interest rates in the near future.

#3: Australia RBA Governor Philip Lowe Speaks (05/21/2020 Thursday 02:30 GMT)

Philip Lowe, Governor of the Reserve Bank of Australia, is scheduled to participate in a panel discussion in Sydney at the Financial Services Institute of Australasia. The audience expected to ask questions.

#4: United Kingdom Flash Services PMI (05/21/20220 Thursday 08:30 GMT)

In the United Kingdom, the Services PMI reported by IHS Markit/CIPS was revised upward to the 13.4 level in April from the preliminary reading of 12.3. However, the reading still pointed to the steepest services sector contraction ever since the survey was started in July 1996. The contraction in the sector was attributed to lockdown in view of the COVID-19 pandemic. New work and backlogs, and employment fell at record rates. New business from overseas slumped because of business closures and international travel restrictions. These resulted in the stoppages of new projects signed up with clients in Europe, the US, and the Middle East. Average cost burdens dropped for the very first time ever since 1996 for several reasons including lower payroll costs, office overheads, and fuel prices. Business sentiment improved slightly from the record low level hit in March. However, service providers opined that business operations are not likely to become normal in the near future.

Forecast for May 2020: 20.0

#5: United States Flash Manufacturing PMI (05/21/2020 Thursday 13:45 GMT)

In the United States, the Manufacturing PMI reported by IHS Markit was revised downward to the 36.1 level in April from the preliminary reading of 36.9. The index had come in at the 48.5 level in March. The reading for April was the lowest ever since early 2009 because of the record decline rates in output, exports, and new orders due to the lockdown measures implemented for containing the COVID-19 outbreak. Employment fell the most ever since March 2009 amid the availability of greater spare capacity. Work backlog decreased the most in as many as 11 years. Input costs declined amid reduced demand for inputs. A steep fall in fuel prices also impacted input prices. Output charges declined the most ever since the series was started in May 2007.

Forecast for May 2020: 37.5

#6: United States Fed Chair Jerome Powell Speaks (05/21/2020 Thursday 18:30 GMT)

Jerome Powell, Federal Reserve Chair, is scheduled to deliver opening remarks via satellite at the event “Fed Listens” on COVID-19. Markets often turn volatile during his speeches as traders make an attempt to understand the direction of interest rates in the near future.

#7: United Kingdom Retail Sales (05/22/2020 Friday 06:00 GMT)

In the United Kingdom, retail sales plunged by 5.1 percent on a month-over-month basis in March, the biggest fall on record as several stores stopped trading activities from March 23, following the implementation of lockdown to contain the spreading of coronavirus. The reading for the month came in much worse than analysts’ expectations for a 4.0 percent decline. Sales in clothing stores plummeted, but food stores and non-store retailers recorded growth. Sales at food stores grew 10.4 percent and recorded the strongest ever gain on record. On a year-on-year basis, retail sales fell 5.8 percent, the biggest fall to date. For the first quarter of this year, retail sales declined by 1.6 percent when compared with the prior three months due to a strong reduction in sales at non-food stores and fuel stations.

Forecast for April 2020: -16.0 percent

#8: France Flash Services PMI (05/22/2020 Friday 07:15 GMT)

In France, the Services PMI reported by IHS Markit was revised downward to the 10.2 level in April from the preliminary reading of 10.4. In the previous month, the index stood at the 27.4 level. The reading for the month pointed to the sharpest contraction in the services sector on record amid lockdown for a full-month for preventing the spread of the coronavirus. New orders plunged to an all-time low, following a drop in export sales at the fastest rate ever since the start of the series. The rate of loss of jobs hastened to the highest level on record. Input prices dropped at the steepest rate ever since this survey was started due to very heavy discounts from suppliers. Output charges fell at the fastest rate ever since June 2009. Sentiment deteriorated to a new low level because of expectations for a global economic downturn for a longer period of time.

Forecast for May 2020: 28.8

#9: Germany Flash Manufacturing PMI (05/22/2020 Friday 07:30 GMT)

In Germany, the Manufacturing PMI reported by IHS Markit/BME was revised slightly upward to the 34.5 level in April from the preliminary reading of 34.4. However, the reading still pointed to a sharp contraction in manufacturing activity ever since March of 2009 because of the COVID-19 pandemic and the action taken globally to contain the spreading of the coronavirus. This led to a steep decline in new orders and output. Further, a fall in demand and not-so-encouraging outlook for the next year led to deep cuts in factory job numbers. Employment dropped to the lowest level in as many as 11 years in spite of the widespread hiring for the short-time work scheme. Manufacturers’ output expectations for the coming year came in close to the record low levels recorded in March. Most firms (62%) expressed pessimism citing concerns as regards long-lasting effects on demand and supply because of the virus outbreak.

Forecast for May 2020: 39.0

#10: Germany Flash Services PMI (05/22/2020Friday 07:30 GMT)

In Germany, the Services PMI reported by IHS Markit was revised slightly upward to the 16.2 level in April from the initial estimate of 15.9. The index stood at the 31.7 level in March. However, the reading for the month pointed to the highest ever contraction in the services sector because of the lockdown measures implemented due to the coronavirus outbreak. The decline in activity was driven by the closure of businesses, short-time working, and a huge decline in the receipt of new work orders. Hotels and restaurants and other services, including education, cultural services, and recreation were the hardest-hit areas. New orders and hiring of workers fell at a record rate and prices charged dropped amid intensifying competition for new work. Lower charges were registered for the first time in a decade. In general, service providers remained pessimistic as regards the outlook for activity in the next year because of growing concerns related to the unpredictable nature of the Covid-19 pandemic.

Forecast for May 2020: 26.2

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