Forex Today: A busy week ahead, and it's not all about central banks

Next week, the focus will be on central banks as the Fed, ECB, and BoJ announce their monetary policy decisions. However, that's not all. Inflation figures from the US, Australia, and Europe will also be closely watched, along with global PMIs and US Q2 growth data.

Here is what you need to know for next week: 

The week will kick off on Monday with the July preliminary PMIs. Generally, the manufacturing sector is expected to remain in contraction territory, while the services sector is expected to expand at a slower pace. These numbers will offer the first glimpse of global economic activity during the current month.

After a relatively quiet Tuesday in terms of economic data, during Wednesday's Asian session, Australia will release the Consumer Price Index (CPI) for June and the second quarter. This is a key measure ahead of the Reserve Bank of Australia (RBA) meeting on August 1st.

Later on Wednesday, the Federal Reserve (Fed) will announce its monetary policy decision. A 25 basis point rate hike is priced in, and the focus will be on the statement and Chair Powell's press conference. This event will trigger sharp moves across financial markets, even if it delivers as expected: a rate hike with the continuity of a hawkish bias.

As the markets continue to digest the FOMC decision, on Thursday, the European Central Bank (ECB) will announce its decision. Also, a 25 basis point rate hike is priced in, and President Lagarde is expected to signal that more rate hikes are likely. How strong the message regarding more tightening will be critical. The next ECB meeting is in September, and it may be too far away to have a clear perspective on what may happen there. However, the expectations will be relevant and should weigh on the EUR/USD.

Also on Thursday, the first reading of US growth performance during the second quarter is due, which is expected to expand at an annual rate of 1.6%, below the 2% of Q1. The report includes the Core Personal Consumption Expenditure for the second quarter. At the same time, the weekly Jobless Claims report and Durable Goods Orders for June are due. Considering the ECB meeting and the bulk of economic data from the US, Thursday is set to be another volatile day.

On Friday, more economic data is due from Australia with the Producer Price Index (Q2) and June Retail Sales. The key event during the Asian session will be the Bank of Japan (BoJ) decision. However, not much is expected from the central bank. A report from Reuters mentioned that despite accelerating inflation in Japan, the central bank is leaning towards leaving the yield curve control strategy unchanged.

The preliminary July inflation CPI from European countries will start to come out on Friday with Spain and Germany, with a slowdown expected on annual rates. That day, also US inflation data is due in the US with the Employment Cost Index for Q2 and the Core Personal Consumption Expenditure Price Index for June (however, no surprise will be expected considering that it is included in the GDP report due the day before). Canada will report monthly GDP growth (May).

During the week, more companies, including Microsoft, Alphabet, Meta Platforms, and Amazon, will report earnings which could weigh on market sentiment. 

Currency performance 

The US Dollar was among the top performers during the week, after the sharp decline of the previous week, supported by US economic data. The DXY rebounded from under 100.00, retaking 101.00. However, the outlook remains negative, and the positive results could be seen as a corrective movement. The next decisive leg will likely start following the FOMC meeting.

The Pound underperformed during the week following a bigger-than-expected drop in UK inflation. However, inflation remains elevated, and more rate hikes from the Bank of England (BoE) are expected. GBP/USD suffered the worst weekly result since January, retracting from one-year highs above 1.3100 to 1.2850. EUR/GBP posted the biggest weekly gains since January, but it was unable to break above the 20-week Simple Moving Average (SMA) and the 0.8700 area. The cross finished around 0.8650, and risks appear tilted to the upside, but the Euro needs to break and hold above 0.8700.

EUR/USD gave up half of last week's gains after retracting from one-year highs at 1.1275 toward 1.1100. The trend remains bullish, and the decline is seen as a correction.

USD/JPY rebounded at the 20-week SMA, rising back above 140.00 and erasing most of the previous week's losses. The Japanese Yen dropped sharply on Friday after reports suggesting the Bank of Japan won't signal a change in July.

The loonie underperformed among commodity currencies, even after the decline in inflation in Canada. USD/CAD ended flat, hovering around 1.3200/20.

Upbeat employment data from Australia boosted the AUD/NZD, which rose from 1.0730 to 1.0900. However, the stronger US dollar pushed the AUD/USD back to the 0.6720 area from near 0.6900. It is slightly above the 20-day SMA.

The Turkish Lira was the worst performer during the week, not helped by the 250 basis point rate hike from the Central Bank of the Republic of Turkey, which was below expectations. USD/TRY posted a record weekly close slightly below 7.00. The Colombian peso and the South African rand were the biggest gainers.

 

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