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Contact us:

phone: +1 849 9370815

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Forex Major Currencies Outlook (July 24 – July 28)

Fed, ECB and BOJ meetings, with first two delivering a 25bp rate hike, preliminary July PMI data from the Eurozone, the UK and Japan coupled with inflation data from Australia will drive the markets in this massive week ahead of us.

USD

Headline June retail sales came in at 0.2% m/m vs 0.5% m/m as expected. Markets have pushed USD down but then other data came out which strengthen USD. There was a positive revision to previous month’s reading which rose 0.5% m/m. Ex autos component beat expectations and came in at 0.2% m/m while previous month’s reading was revised up to 0.3% m/m. The highlight of the report was control group, used in GDP calculation and it rose 0.6% m/m with May reading being revised up to 0.3% m/m. The biggest drop was seen in gasoline stations -22.7% y/y while nonstore retailers and food services & drinking places rose by 9.4% y/y and 8.4% y/y respectively. The report shows that consumer is still holding strong and that economy is rising at a good pace.

The yield on a 10y Treasury started the week and year at around 3.85%, fell to 3.73% and finished the week at around the 4.02% level. The yield on 2y Treasury reached the high of around 4.78% and then tumbled post CPI. Spread between 2y and 10y Treasuries started the week at -94bp then widened to -99bp. The 2y10y is has now been inverted for over a year. FedWatchTool sees the probability of a 25bp hike next week at almost a 100%.

This week we will have Fed meeting, preliminary Q2 GDP reading as well as Fed’s preferred inflation metric, PCE. A 25bp rate hike is fully priced in so markets will be paying close attention to Powell’s remarks for any hints regarding path of future rates.

Important news for USD:

Wednesday:​

  • Fed Interest Rate Decision​

Thursday:​

  • GDP​

Friday:​

  • PCE​

EUR

Final headline CPI for the month of June was unchanged at 5.5% y/y. However, core reading was revised up to 5.5% y/y from 5.4% y/y as preliminary reported and up from 5.3% y/y in May. With core CPI heading in the wrong direction hawkish camp in ECB gains more credibility. July 25bp rate hike was telegraphed at the June meeting, but this core reading nudges September meeting closer toward yet another 25bp rate hike.

ECB’s biggest hawks, Dutch Klaas Knot and German Joachim Nagel, stated that next week’s rate hike is a certainty, but were far less certain about September rate hike. They have suggested that September decision will be influenced by the incoming data. Markets are seeing rates at 4% by the year-end with a 80% probability.

This week we will have preliminary July PMI data and ECB meeting. Another 25bp rate hike was telegraphed at June meeting so markets will focus on any hints regarding rates at September meeting.

Important news for EUR:

Monday:​

  • S&P Global Manufacturing PMI (EU, Germany, France)​

  • S&P Global Services PMI (EU, Germany, France)​

  • S&P Global Composite PMI (EU, Germany, France)​

Thursday:​

  • ECB Interest Rate Decision​

GBP

The UK finally had some positive news on inflation. Headline inflation in June rose by 7.9% y/y vs 8.2% y/y as expected and down from 8.7% y/y in May. Core inflation also surprised to the downside and printed 6.9% y/y vs 7.1% y/y as expected and down from 7.1% y/y the previous month. Fuel prices showed biggest declines. (22.7%). There are signs that food inflation has past its peak as it rose 17.3% y/y vs 18.3% y/y in May. Markets will need to do some repricing as lower inflation readings may invalidate August 50bp rate hike and will surely lead to lower pricing for terminal rate.

Retail sales have printed 0.7% m/m in June vs 0.2% m/m as expected. Ex-autos printed 0.8% m/m vs 0.2% m/m as expected. Both huge beats little tainted by the fact that previous month’s readings were revised down. The report shows that both food and non-food stores contributed to growth with 0.7% m/m and 0.1% m/m respectively while non-store retailers increased by 0.2% m/m and fuel sales fell 0.3% m/m. Reports have started to emerge that UK Prime Minister Rishi Sunak plans to hold General Election in November of 2024. That would make US and UK elections being held at the same time.

This week we will have preliminary July PMI data,

Important news for GBP:

Monday:​

  • S&P Global Manufacturing PMI​

  • S&P Global Services PMI​

  • S&P Global Composite PMI​

AUD

Minutes from the July RBA meeting showed that members presented strong cases for both a 25bp rate hike and a pause. In the end, the board opted to keep the rates unchanged but agreed that some further tightening may be required and agreed to keep August meeting as a live one. Current stance of monetary policy was described as “clearly restrictive” and will become more restrictive. Wage growth is seen rising 4% y/y in Q3 while economy slowed considerably with growth of around 0.2% q/q for Q2.

June employment report from Australia was another strong one. Employment change showed that the economy added 32.6k jobs vs 15k as expected. This number of jobs added comes after 75.9k jobs were added in May. The unemployment rate again ticked down to the very low level of 3.5% vs 3.6% as was expected. Admittedly, participation rate also ticked down to 66.8% but it is still much higher than pre-pandemic. All of the jobs added were full-time jobs (39.3k) adding the flare to a strong report. The labor market is as tight as it gets and is not showing any signs of slowing down.

China Q2 GDP was mixed. It printed 0.8% q/q vs 0.5% q/q as expected but 6.3% y/y vs 7.3% y/y as expected. High y/y figure is due to base effects. Housing and exports, which comprise roughly 40% of the entire economy, were notable drags. Weaker than expected yearly reading led analysts from big banks to cut its assessment of GDP for 2023 to range from 5%-5.5% from 5.5% to 6.3% as previously seen. Some stimulus measures are needed just to achieve a 5% GDP target for 2023. Activity indicators were also mixed with industrial production rising 4.4% y/y vs 2.7% y/y as expected while retail sales rose 3.1% y/y vs 3.2% y/y as expected. PBOC has decided to leave both 1-year and 5-year LPRs unchanged at 3.55% and 4.2% respectively.

This week we will have Q2 inflation data. They are expected to come down but details of the report will influence whether RBA opts for a hike or a pause.

Important news for AUD:

Wednesday:​

  • CPI​

NZD

Q2 CPI came in at 1.1% q/q, down from 1.2% q/q in Q1 but it fell less than expected (1% q/q). Yearly figure was at 6%, down from 6.7% in the previous quarter, but it also fell less than expected (5.9%). RBNZ core inflation measure, sectoral factor model, was unchanged for the third straight quarter at 5.8% y/y. NZD was pushed higher by the inflation prints and markets are still weighing whether this reading will impact RBNZ. As a reminder, they are expected to be on hold with 5.5% Official Cash Rate seen through September of 2024. One of the factors that can push RBNZ to return to rate hikes is that domestic inflation came stronger than expected, although falling from Q1 levels.

CAD

June CPI data fell by more than expected and came in at 2.8% y/y vs 3.4% y/y in May. Base effects contributed to the declines as gasoline prices plunged 21.6% y/y. Grocery prices and mortgage costs saw biggest increases in price with latter rising astonishing 30.1% y/y. Core measures saw median slip to 3.9% y/y, trim slip to 3.7% y/y and common slip to 5.1% y/y. BOC may take a pause in rate hike process and enjoy the lower inflation.

JPY

BOJ Governor Ueda stated that there is some distance to sustainably achieving 2% inflation target. He emphasized that unless BOJ assumptions on the need to sustainably achieve 2% inflation target change there will be no changes to monetary policy. JPY has weakened after his remarks as they hint to no change for YCC at the July meeting. National inflation data for the month of June saw headline and ex fresh food categories both tick up to 3.3% y/y while ex fresh food, energy component ticked down to 4.2% y/y. This makes it the first decline since January of 2022.

This week we will have BOJ meeting. Incoming reports are suggesting that there will be no change to YCC. This could lead to prolonged JPY weakness.

Important news for JPY:

Friday:​

  • BOJ Interest Rate Decision​

CHF

SNB total sight deposits for the week ending July 14 came in at CHF494.7bn vs CHF486.6bn the previous week. A rare move up in sight deposits and it remains yet to be seen if this is just a pull back or beginning of a new upward trend.

You can follow all economic events on the Economic Calendar page on our Website. MT server time is set to GMT+3 and if you need assistance converting MT server time to your local time you can use some of the online time converters such as WorldTimeBuddy.
Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.