After the May meeting and the April NFPs, Fed speakers and April inflation are coming soon.

Fundamental forecast for the US dollar: neutral

– After the May Fed meeting and the April US employment report, the probabilities of a 25 basis point rate cut by the Federal Reserve in 2019 were brought down to exactly 50%, by futures contract on federal funds.

– A series of Fed policymakers will visit the conference circuit this week, while the only "high" data release is the US April inflation report, scheduled for Friday;

– The IG customer sentiment indexshows that retail traders remain primarily net-short the US dollar.

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Review of the US Dollar Rate Week

What appeared to be a good end of April for the US dollar (via the DXY index) faded in early May. The US dollar lost ground against all major currencies except two, last week, posting modest gains against the Australian and New Zealand dollars (AUDUSD -0.34%, NZDUSD -0.23%).

Otherwise, with signs of a potential positive Brexit advance coming late in the week, the British pound was leading the gain against the greenback (GBPUSD 1.99%). The weakness of the US dollar after the April report on jobs in the United States also filtered to prevent a major failure of gold prices for the time being.

In the aftermath of the Fed meeting in 2019, rate reduction ratings fall

At the press conference that followed May meeting of the Fed Wednesday, Fed Chairman Jerome Powell said low inflation was "transitory" and not "persistent."." Market participants have widely interpreted this as a sign that the probability of a reduction of 25 basis points this year is lower than previous forecasts. Their peak after the Fed's March meeting, market rates expected a 58% chance of a 25 basis point rate cut in September; now, the chances of a September cup are only 26%. To this end, the Fed funds only take into account the chances of a cut of the currency in 2019.

Fed speech to watch

Now that the Fed's May meeting is in the rearview, the blackout period for Fed decision-makers is over and many will be heading to the conference circuit over the coming week. Monday, May 6 Philadelphia cream fed President Patrick Harker will deliver a speech on the US economic outlook. Tuesday, May 7 Dallas fed President Robert Kaplan will speak at a panel in Beijing, China. On Wednesday, May 8, Fed Governor Lael Brainard will deliver the opening address at the Summit "Fed listens" eclear out.

The second half of the week is also loaded in Fed speakers. On Thursday, May 9, Fed Chairman Powell will deliver the opening speech at a Fed Community Development Conference. Chicago Fed President Charles Evans Governor Brainard will speak at the same event later today, Friday, May 10th. Also on Friday, the president of the New York Fed John Williams give a speech at a breakfast in New York.

US inflation data for April is expected Friday; Inflation expectations stabilized

The US Consumer Price Index from April to Friday must show ano other rebound in price pressures, not a lot of surprise considering the rise in oil prices since the beginning of 2019. According to Bloomberg News, the CPI is announced in the coming months. 2.1% of 1.9%, and core CPI is due in 2.1% of 2% (y / y). Global, readings are due just at The medium-term objective of the Federal Reserve of + 2% – supporting Fed Chairman Powell's assessment at the Fed's May meeting that the low inflation seen earlier this year was "transitory".

But with the moderate rebound in oil prices in recent weeks, inflationary gains should be limited. Crude oil prices declined -1.8% between April 5 and May 3, from 63.08 to 61.94. For their part, medium-term inflation expectations in the United States, measured by 5-year inflation rate futures, are down -0.3 points from 2.260% to 2.257% last month.

Update on the talks on the trade war between the two countries

US President Donald Trump concluded the week by declaring that negotiations on the trade war between the two countries were going "very well," noting that "we are approaching a monumental and historic agreement." While a renewed optimism that investors have certainly appreciated to hear, the US president also said in the same breath: "If that does not happen, we will be fine too. Maybe even better. "

Mick Mulvaney, Interim Chief of Staff of the White House, said Tuesday, April 30, that China-China negotiations on the trade war would be resolved. "one way or another in the next two weeks. "

Traders may want to keep an eye on USDCNH prices as a litmus test in the near future: China used devaluation as a tool to counter the effects of tariffs, the strength of the Chinese yuan (weakness of the USDCNH) can be interpreted as a sign that trade negotiations are approaching a positive resolution; The weakness of the Chinese yuan (strength USDCNH) can be interpreted as a sign that trade negotiations are approaching a negative resolution.

The forward positioning of the US dollar remains clear

Finally, with respect to positioning, according to the TCRC TOC for the week ended April 30, speculators increases their net positions in US dollars at 29K contracts, from 28.8K netlong contracts held in the previous week. The long net position in US dollars has fluctuated only slightly since the beginning of the year: traders held 32.4 thousand net long contracts on January 1; and positioning remains below its peak of 2018 set during the week ended November 13th at 40.5K net long-term contracts.

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— Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, write to him at [email protected]

Follow him in the DailyFX real-time news feeds and Twitter to @CVecchioFX