Week Ahead in FX (May 16 – 20): Eyes on Consumer Data

Consumer data will be under the spotlight this week as the U.K. and Australia print labor market data while the U.K. and Canada release CPI readings.

But before that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!

And now for the potential market movers this week:

Major Economic Events:

U.K.’s labor market data (May 17, 6:00 am GMT) – The U.K.’s job market ran hot in February, with the jobless rate falling to its lowest rate since 2019 while wage growth pressures supported monetary tightening from the BOE.

GBP faded most of its positive reaction, but the tight numbers made it easy for U.S. session traders to pick up the optimism until the end of the day.

Markets see the unemployment rate steadying at 3.8% and average earnings ticking higher from 5.4% to 5.6% in March.

U.K.’s CPI report (May 18, 6:00 am GMT) – Annual inflation jumped from 6.2% to 7.0% in March, the highest rate since March 1992. Higher fuel costs led the price increases though higher furniture and household services also contributed to the rising prices.

April’s CPI could reach as high as 9.1% this week, which would mark the fastest increase since 1991. Faster-than-expected consumer price increases could push the Bank of England (BOE) to delay the “peak” of its tightening cycle amidst concerns of a growth slowdown.

Australia’s employment data (May 18, 1:30 am GMT) – Australia added a net of 17,900 jobs, which brought employment to a fresh record high of 13.39M in March.

The headline figure still missed expectations of a 40,000 increase, however, which is probably why AUD’s intraday gains were capped at pre-report levels until the end of the day.

This week, traders see a net addition of 22,000 jobs in April and the unemployment rate dropping to a fresh record low of 3.9% ahead of Australia’s Parliamentary elections.

U.K.’s retail sales (May 20, 6:00 am GMT) – Retail activity dropped by 1.4% in March as consumers spent less due to rising prices. The report also missed forecasts of a 0.3% dip and followed a 0.5% decline in February.

Analysts expect retail sales to fall by a smaller degree (-0.2%) with the core figure also easing up from -1.1% to -0.3%.

Forex Setup of the Week: GBP/CHF

GBP/CHF has been locked inside a shallow ascending channel for almost a month and it looks like GBP bulls and bears aren’t planning on breakouts anytime soon.

GBP bears have a chance to make some pips as GBP/CHF just got rejected at the 1.2300 psychological handle. Not only that, but the pair popped up a Shooting Star candlestick on the 1-hour time frame!

This week’s CPI and retail sales reports may make or break the resistance play.

If the numbers point to higher prices stalling consumer activity some more, then the BOE will likely end its tightening cycle sooner than later.

GBP/CHF could drop back down to the 1.2250 zone near the 100 and 200 SMAs and the mid-channel levels.

However, if risk appetite picks up or if the U.K.’s reports suggest more room for the BOE to raise its interest rates, then GBP/CHF may bust above its short-term range.