USD weakness on a week highlighted by the Fed and BoJ

Weekly FX Wrap: USD weakness started post FOMC, but weak US GDP sees the selling pick up – NFP’s next week key. UK resilience to be tested as the BoE meet, QIR and minutes included. Oil focus for CAD; RBA to test AUD gains.

A busy week this week headlined by the FOMC on Wednesday and the BoJ Friday morning. Both meeting’s resulted in limited produce, with the latter hyped by the prospect of PM Abe’s fiscal stimulus package being supplemented by fresh monetary easing. The market looked to have prepared itself for disappointment to some degree, as JPY selling was tame ahead of the eventual announcement, with USD/JPY struggling above 105.00 after last week’s spike through 107.00. From the USD perspective, we got even less, with the Fed offering a balanced view – labour/spending healthy vs persistently low inflation – to suggest the next move is still very much data dependant. In this respect, Friday’s US Q2 GDP read was key, and coming at a poor 1.2% vs 2.6% expected, we saw the USD hit hard, and USD/JPY in particular slammed back into the mid 102.00’s again – where we based out post BoJ.

Elsewhere EUR/USD had rallied hard from the mid 1.0900’s post FOMC, but post data Friday saw gains extended through the mid 1.1100’s to suggest a serious test on resistance ahead of 1.1200. EU Q2 GDP edged higher in the yearly rate to add fuel to the move, though more so in the marginal uptick on monthly CPI. Looking into next week, we have another US jobs report to look to at the back end, and could (or not) underline some of the commentary from the Fed this week.

Oil prices may start to stabilise if the USD sell off does continue, which will be of welcome relief to the CAD, having pushed up through some notable highs to print 1.3250. Still comfortably above 1.3000, Canadian growth for May was a dampener, though clearly impacted by the Alberta wildfires earlier in the year. Canadian payrolls also out next Friday, but Oil will continue to be a major focus with WTI hovering above $40.0.

A big week ahead for GBP, which has been showing some resilience in the face of some early signs that the Brexit vote will prove damaging for the economy. CBI business indices clearly showing concern, with reported sales also weak, but the market will be bear in mind BoE Weale’s dovish comments at the start of the week going into the MPC meeting on Wednesday as rate cut expectations have been revived. The QIR and minutes are also due to be released this time around, so we expect a rollercoaster ride for Cable and EUR/GBP.

Easing is also on the agenda at the RBA meeting on Thursday, but after the core inflation read beat expectations this week, it is more of a 50/50 call after being close to 80% priced in at one stage. AUD/USD is back in the high .7500’s in the meantime, accompanied by NZD/USD eyeing .7200 again.