Summary:

• German and Italian inflation figures could provide more clarity with regard to the price outlook for the ECB
• US dollar traders await their first data (PCE) this week, there is an avalanche of prints further out
• Federal Reserve meeting is placed on top of the most important events for the week 

The US dollar just had the best week in months and traders wonder if that could be a return to a “strong dollar” environment. A lot could be clarified in the first week of May. First of all we have the FOMC meeting and even if that doesn’t change much we will have important data every day! European inflation data will be also in the spotlight after the last ECB meeting. Before we move to a tally for the rest of the week let’s focus on Monday:

• 10:00 am BST/ 1:00 pm BST – Italian/ German inflation: The shared currency lost some ground last week mainly because of a revival in the US dollar. Although inflation prints coming from Italy and Germany are rarely to be a long-lived price mover they are going to deliver fresh input to the ECB ahead of its next meeting in June. The preliminary data from Italy should show 0.7% yoy whilst price growth in Germany is forecast to stay at 1.5% yoy (HICP). As usual before the official data for the whole country some partial readings from German regions will be released. 
• 1:30 pm BST/ 2:45 pm BST – US PCE/ Chicago PMI: US price growth is likely to have accelerated last month as some negative base effects subsided. This data may show headline PCE inflation at 2% while the core gauge could speed up to 1.9% from 1.6%. If so, it could encourage the Federal Reserve to deliver a bit more hawkish stance on Wednesday, and this is especially true when we take account of higher expected price growth during the upcoming months. Otherwise, Chicago PMI is slated to show 57.9 in April being a harbinger ahead of tomorrow’s manufacturing ISM.

What to watch for the remainder of this week?

FOMC meeting (Wednesday, 7:00pm GMT): This was supposed to be a boring meeting – the Fed accustomed us that any changes are taking place at the meetings followed by post-meeting conference (last month of each quarter). But could the Fed, seeing strong economic data in conjunction with dangerously rising oil prices, act preemptively now? Chances for a hike this week look slim – markets see just 5% probability of higher interest rates. However, the FOMC can augment the statement and increase expectations of future interest rate increases. Affected markets: EURUSD, US500.

US data: PCE inflation, ISMs, payrolls (Monday to Friday): Even if the Fed stays put we got avalanche of the data, pretty much each day this week! We start from PCE inflation (Monday) that is bound to rise sharply in March and then tick up in following months and this will be followed by the ISM manufacturing (Tuesday), ADP labour market report (Wednesday), ISM services (Thursday) and last but not least the NFP report (Friday) with a special focus on wages. This will be a big test for the US currency. Affected markets: USDJPY, GOLD.

EMU flash inflation (Thursday): The ECB cautioned markets that it saw softening in the data, including inflation that remains well below the target. Therefore, the Bank will not react to higher oil prices – at least for now. Flash CPI data for April will show if more expensive fuel begins to bite into inflation numbers. The EMU release is on Thursday but watch out for a similar release from Germany on Monday as it will set expectations. Affected markets: EURUSD, DE30.

The EURUSD broke below its short-term support line last week, and therefore one may expect USD bulls to struggle to come back above it in the nearest future. Source: xStation5