The Forex Week Ahead

The Forex Week Ahead: Jul 11th – Jul 15th

Sun: CNY – CPI
Tue: EUR – German CPI
Wed: CNY – Trade Balance, EUR – EZ Industrial Production, CAD – BOC Rate Decision, USD – Fed Beige Book
Thu: AUD – Unemployment Rate, GBP – BOE Rate Decision,
Fri: EUR – ECB Survey of Professional Forecasters, CNY – Industrial Production, Retail Sales, GDP, EUR – EZ CPI, USD – Retail Sales, CPI, Industrial Production, Manufacturing Production, UoM Confidence

Overview

• USD June FOMC Meeting Minutes passed as expected revealing little in the way of new information and merely highlighting the Fed’s concerns regarding the likely impact Brexit would have on both the US and global economies. Friday saw a mixed jobs report with a bumper reading on the headline NFP print (287k vs 166k expected) and a rise in average hourly earnings which rose to 2.6% from 2.5% previous whilst the Unemployment rate actually ticked up to 4.9% from 4.8% previous.

• EUR Amidst a fairly light data week EUR weakened across the board as concerns for the EZ banking sector continue to weight. On the data front German industrial production fell 1.3% MoM in May, well below the forecast of a 0.1% gain while the deterioration was mostly driven by a decline in the production of capital goods. The sector is poised to weigh on GDP growth in 2Q after output soared in 1Q. Production may be returning to rates of growth seen over the past few years. The slowdown in Germany and Spain, suggests the figure for the euro area is likely to weaken. EZ CPI on Thursday is the headline domestic data focus this week.

• GBP Sterling extended losses to a 31-year low after Bank of England chief Mark Carney’s speech. He pledged to shore up financial stability as he warned that the risks attached to Brexit had started to crystallize. The governor had also pledged to make sure banks have access to all the liquidity they need, and signalled rate cuts could be in the offing this summer. Under his leadership, the Financial Policy Committee lowered the so-called counter cyclical buffer for UK banks to zero from 0.5% of risk-weighted assets, a move it said would raise the capacity for lending to companies and households by as much as £105bln. Traders now turn to the BOE’s July meeting this week with consensus looking for a 25bps cut.

• JPY Demand for safe haven assets gave the yen a broad lift. However, the pair managed to hold above the 24 June low of 99.08. Kenji Nakanishi, an election candidate for Abe’s ruling Liberal Democratic Party (LDP), suggested he sees no need for the BOJ to top up stimulus in the near-term. The Bank of Japan cut its assessment for two of Japan’s nine regions and suggested the market turmoil triggered by the Brexit vote could hurt consumer sentiment, signalling concerns over a strong yen and weak spending could derail the economic economy.

• AUD The Australian Dollar shrugged off news that Standard & Poor’s had cut its outlook on the country’s top-notch AAA credit rating to negative from stable. Australian bonds barely budged as 10-year yields of 1.88 percent make the debt highly attractive compared to the negative yields of some of its peers which supported the Australian dollar. The RBA voted to keep rates on hold, noting that effects on the global economy from the UK referendum remained to be seen, though did signal potential further easing. Unemployment rate data will be key focus this week.

• CAD The Canadian Dollar weakened against a broadly stronger USD, with uncertainty about the resiliency of global economic growth. The Canadian dollar is expected to weaken further over Canada posted its second-largest trade deficit on record in May, a large negative surprise, as widespread export weakness cancelled out higher shipments from the battered energy sector.the coming months as uncertainties boosts the US dollar and with oil prices set to remain weak. BOC meet on Wednesday and whilst markets are not expecting a cut, traders will be keen to hear the latest from the bank in the wake of Brexit.